Danel Investments Pty Limited v Nexstar Investments Pty Limited (No 2)
[2011] ACTSC 120
•28 July 2011
DANEL INVESTMENTS PTY LIMITED v NEXSTAR INVESTMENTS PTY LIMITED & ORS (NO 2) [2011] ACTSC 120 (28 July 2011)
LEASES – whether the assignee of a registered sublease of Torrens Title land in the A.C.T. pursuant to a Deed of Assignment had an equitable leasehold interest in the demised premises – whether, in the events which have happened, the assignee stood in the shoes of the sublessee named in the registered sublease – whether the proposed purchaser of a business conducted at leased premises engaged in misleading or deceptive conduct or unconscionable or harsh and oppressive conduct vis-à-vis the vendor of that business
Land Titles Act 1925 (ACT), s 77, s 78
Leases (Commercial and Retail) Act 2001 (ACT), s 22, s 81, s 115(2)
Fair Trading Act 1992 (ACT), s 12
Prostitution Act 1992 (ACT)
Trade Practices Act 1975 (Cth) s 52, s 51AC
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] 2 VR 505
Jones v Dunkel (1959) 101 CLR 298
Kintella Pty Ltd v Scotte t/as Scotte’s City Walk 1 Hour Photo [1999] ACTSC 100
Manchester, Sheffield & Lincolnshire Railway Company v Anderson [1898] 2 Ch 394
Milmo v Carreras [1946] KB 306
No. SC 256 of 2007
No. SC 470 of 2007
Judge: Foster J
Supreme Court of the ACT
Date: 28 July 2011
IN THE SUPREME COURT OF THE )
) No. SC 256 of 2007
AUSTRALIAN CAPITAL TERRITORY ) No. SC 470 of 2007
BETWEEN:DANEL INVESTMENTS PTY LIMITED (ACN 116 723 918)
Plaintiff
AND:NEXSTAR INVESTMENTS PTY LIMITED (ACN 121 568 545)
First Defendant
DAVID JAMES CAMPBELL
Second Defendant
FULVIO GOBEO
Third Defendant
BETWEEN:DANEL INVESTMENTS PTY LIMITED (ACN 116 723 918)
Plaintiff
AND:CHRISTOS VIZOVITIS AND GEORGIA VIZOVITIS
Defendants
ORDER
Judge: Foster J
Date: 28 July 2011
Place: Sydney (via video link to Canberra)
THE COURT ORDERS THAT:
Within seven (7) days of 28 July 2011, each of the parties submit his, her or its version of the orders which that party contends Foster J should make in conformity with these Reasons for Judgment supported by appropriate calculations and a written submission (if desired) of no more than two pages in length.
The plaintiff (Danel) is, and always has been, a corporation owned and controlled by Angelo Neluschi and Alyson Pevreal. Mr Neluschi and Ms Pevreal are husband and wife.
In late 2005, Mr Neluschi and Ms Pevreal were casting around for a suitable business in which to invest and which could be managed by Ms Pevreal with little input from Mr Neluschi, who was a commercial construction site manager and did not have the time or inclination to be involved full-time in a business venture of his own.
They saw an advertisement for the sale of a brothel and escort agency business in Fyshwick, ACT, which was at that time trading under the name “Tiffany’s” (the brothel business).
Danel was incorporated on 17 October 2005 for the specific purpose of acquiring the brothel business.
By Agreement for Sale of Business entered into on or about 18 November 2005, between Danel, as purchaser, and Jillian Norma Ponga, as vendor, Danel agreed to purchase the brothel business for $120,000. At that time, the brothel business was being conducted from premises located on the first floor of the building known as 72 Barrier Street, Fyshwick, ACT (the Barrier Street property). Those premises were described as Unit 6 (Unit 6). Unit 6 took up approximately half of the floor space on the first floor of that building. The other half was divided into five office suites known as Units 1–5. A landing separated Unit 6 from Units 1–5.
Ms Ponga occupied Unit 6 pursuant to a registered sublease dated 6 April 2004 (RN 1370131 registered on 7 May 2004) (the sublease) granted to her by the owners of the Barrier Street property as at April 2004, Eric Lee and Shirley Esme Lee. The sublease was for an initial term of five years commencing on 1 April 2004 and ending on 31 March 2009. Ms Ponga had an option to renew the sublease for a further period of five years.
At about the same time as Mr Neluschi and Ms Pevreal were looking to buy the brothel business, Mr and Mrs Lee sold the Barrier Street property to Christos Vizovitis and Georgia Vizovitis for $1,200,000. That sale was completed on 3 November 2005. Mr and Mrs Vizovitis are the defendants in proceeding No SC 470 of 2007, which is one of two sets of proceedings to be determined by these Reasons for Judgment.
The Agreement for Sale of Business provided that the purchase of the brothel business was conditional upon the sublease being transferred to Danel. It also provided for the transfer of the business name “Tiffany’s” and for the sale of all of the goods, chattels, plant and equipment located in Unit 6.
Completion of the sale of the brothel business took place on 28 November 2005. At that time, Danel did not perfect the transfer of the sublease (although a Deed of Assignment whereby the lessee’s interests in and rights under the sublease were assigned to Danel by Ms Ponga was ultimately executed) and failed to attend fully to the transfer of certain business names and the brothel licence attached to Unit 6.
By about May 2006, Mr Neluschi and Ms Pevreal had decided to sell the brothel business. They took steps to advertise the sale and secured an agreement in principle for the sale of that business to David James Campbell and Fulvio Gobeo, who are the second and third defendants respectively in proceeding No SC 256 of 2007, for the price of $80,000. Proceeding No SC 256 of 2007 is the other proceeding which these Reasons for Judgment determine. Messrs Campbell and Gobeo later sought to substitute Nexstar Investments Pty Limited (Nexstar), which is the first defendant in that proceeding, as the entity which would acquire the brothel business from Danel. Danel agreed to this substitution.
However, the sale to Nexstar was never consummated. Nexstar and its principals discovered that the sublease had remained in the name of Ms Ponga after the sale of the brothel business to Danel and that no Transfer of Sublease instrument recording the transfer of the sublease from Ms Ponga to Danel had ever been registered on the title to the Barrier Street property. They also discovered that Danel was not the registered proprietor of the business names associated with the brothel business although, under the Agreement for Sale of Business, it probably had the right to compel Ms Ponga to transfer those business names to it.
Nexstar and its principals took advantage of these circumstances. They negotiated a fresh lease of Unit 6 with the owners of the Barrier Street property, took a lease of the adjacent premises (Units 1–5), gained control of some of the business names associated with the brothel business and participated in a lockout of Danel from Unit 6.
Having taken possession of Units 1–5 in late November 2006 and having commenced building works there, Nexstar, with the approval of Mr and Mrs Vizovitis, knocked down the wall which separated Units 1–5 from Unit 6, took possession of Unit 6 and commenced to integrate physically Units 1–5 with Unit 6. Of necessity, these steps led to Danel being excluded from Unit 6. That exclusion took place some time between about 8 December 2006 and 23 December 2006.
Thereafter, the whole of the first floor of the Barrier Street property was refurbished. Nexstar then commenced to operate a brothel and escort agency business from the refurbished consolidated premises (being a combination of Units 1–5 and Unit 6) trading under the name “Tiffany’s”. Other business names were used in advertising for that business, some of which were associated with the brothel business formerly conducted at Unit 6 by Ms Ponga and subsequently by Danel.
On 13 April 2007, Danel commenced an action against Mr and Mrs Vizovitis in the Magistrates Court at Canberra (No CL 12 of 2007). On the same day, Danel commenced a proceeding in this Court against Nexstar, Mr Campbell and Fulvio Gobeo (No SC 256 of 2007).
In the Magistrates Court proceeding, Danel sued Mr and Mrs Vizovitis for breach of the covenant for quiet enjoyment and the covenant granting exclusive possession of Unit 6 contained in the sublease which it asserted had been assigned to it by Ms Ponga with the knowledge, consent and approval of Mr and Mrs Vizovitis. In that proceeding (which became No SC 470 of 2007), Danel also alleged that Mr and Mrs Vizovitis had breached s 22 of the Leases (Commercial and Retail) Act 2001 (ACT) (the Leases Act) by acting in an unconscionable, harsh and oppressive way towards Danel and had breached s 81 of that Act by materially inhibiting Danel’s access to Unit 6, by materially inhibiting the flow of customers to Unit 6 and by adversely affecting the trade carried on by Danel at Unit 6 without reasonable cause.
By order made on 27 July 2007, the Magistrates Court proceeding was transferred to this Court to be heard at the same time as proceeding No SC 256 of 2007. The Magistrates Court pleadings stand as the relevant pleadings in this Court. At the commencement of the hearing before me, I ordered that the evidence in proceeding No SC 256 of 2007 be evidence in proceeding No SC 470 of 2007, and vice versa. The two sets of proceedings were heard together.
In proceeding No SC 256 of 2007, Danel alleges that Nexstar made certain false representations concerning its intention to purchase the brothel business from Danel and wrongfully took possession of Unit 6 which representations and conduct amounted to misleading and deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1975 (Cth) (the TPA) and s 12 of the Fair Trading Act 1992 (ACT) (the FTA).
Danel also alleges that:
(a) By engaging in that conduct;
(b) By claiming an entitlement to possession of Unit 6; and
(c) By taking possession of Unit 6 and excluding Danel from Unit 6,
Nexstar engaged in unconscionable conduct. Danel claims that Mr Campbell and Fulvio Gobeo were knowingly concerned in and aided and abetted all of these alleged contraventions by Nexstar.
Danel also sues Nexstar for damages for passing off.
Danel pleads the following at par 30 of its Statement of Claim in proceeding No SC 256 of 2007:
In acting as alleged in paragraphs 15, 16, 17, 21, 22, 23 and 24 the first defendant, the second defendant and the third defendant have acted in contumelious disregard of the plaintiff’s legal rights and with a view to deceiving the plaintiff and obtaining the benefit of the plaintiff’s business without payment and by chicanery and sharp dealing.
Danel claims damages, aggravated damages, exemplary damages, interest and costs.
In each proceeding, Danel’s core claim for damages is quantified at $80,000 plus interest from 1 January 2007. $80,000 is said to be the value of the brothel business in December 2006. Danel claims that the conduct of the defendants in each case caused it to lose the entire brothel business and its sublease of Unit 6.
DANEL’S PLEADED CASES AND THE DEFENDANTS’ DEFENCES
Proceeding No SC 470 of 2007
After reciting the grant of the sublease to Ms Ponga and the sale of the Barrier Street property to Mr and Mrs Vizovitis, Danel alleged the following matters, all of which stand admitted by Mr and Mrs Vizovitis:
(a) On and from about 18 November 2005, Danel entered into possession of Unit 6 and attorned as tenant of Mr and Mrs Vizovitis, notwithstanding that no formal assignment of the sublease had, by then, been executed by Ms Ponga or by either of Mr or Mrs Vizovitis;
(b) On and from about 18 November 2005, Danel paid to Mr and Mrs Vizovitis the agreed rent for Unit 6 under the sublease and Mr and Mrs Vizovitis accepted those payments on that basis, thereafter conducting themselves in every way towards Danel as if it were the lessee of Unit 6;
(c) Subsequently, a formal Deed of Assignment of the sublease was entered into whereby the sublease was assigned by Ms Ponga to Danel with the consent of Mr and Mrs Vizovitis;
(d) Under the Deed of Assignment of the sublease, Mr and Mrs Vizovitis confirmed the existence of the option to renew the sublease contained in the sublease; and
(e) For so long as the sublease remained in force, Danel was entitled to exclusive possession of Unit 6 without interruption or disturbance from Mr and Mrs Vizovitis or other persons claiming through Mr and Mrs Vizovitis.
Danel then alleges that, in breach of the sublease, Mr and Mrs Vizovitis purported to enter into a sublease of Unit 6 in favour of Nexstar which purported to give exclusive possession of Unit 6 for a five year period commencing on 1 October 2006 with options to renew for two further periods of five years each. Mr and Mrs Vizovitis admit entering into such a sublease with Nexstar but deny that, by doing so, they breached the sublease. The reason for this denial is said to be that, by the time the sublease in favour of Nexstar was entered into by Mr and Mrs Vizovitis, the sublease had been terminated.
It is then asserted that Mr and Mrs Vizovitis allowed Nexstar to take possession of Unit 6 and to exclude Danel from Unit 6. Mr and Mrs Vizovitis admit these matters also but say that they were entitled to act as they did because Danel had abandoned Unit 6 with the consequence that the sublease was terminated pursuant to s 115(2) of the Leases Act.
Danel also alleges that Mr and Mrs Vizovitis allowed Nexstar to demolish a solid masonry wall between Units 1–5 and Unit 6 and to occupy Units 1–5 and Unit 6 as one contiguous area from which Nexstar thereafter conducted a brothel business under the name “Tiffany’s Palace”. Notwithstanding those matters, Mr and Mrs Vizovitis continued to accept rent for Unit 6 from Danel pursuant to the sublease. All of these matters are admitted by Mr and Mrs Vizovitis.
Danel alleges that it was denied exclusive possession of Unit 6 and that it has been denied the use and enjoyment of Unit 6 and its fixtures without interruption or disturbance. These matters too are admitted. However, Mr and Mrs Vizovitis contend that Danel lost these entitlements because it had abandoned Unit 6.
Mr and Mrs Vizovitis deny breaching s 22 and s 81 of the Leases Act. They nonetheless concede that they must repay to Danel the amount of rent paid by it after the date when Danel is said to have abandoned Unit 6.
In answer to the whole of Danel’s pleaded case, Mr and Mrs Vizovitis contend that Danel abandoned Unit 6 “… by leaving [the premises] vacant and ceasing to trade at the premises, without providing [Mr and Mrs Vizovitis] with written notice …” with the consequence that the sublease was terminated and Mr and Mrs Vizovitis were entitled to retake possession of the premises. In addition, Mr and Mrs Vizovitis contend that Danel has not suffered any loss as a consequence of their conduct because it had ceased to trade from Unit 6 at the time the conduct took place. They also seek to rely upon a contention that Danel had operated the brothel business at all material times without an appropriate licence under the Prostitution Act 1992 (ACT) and were therefore in breach of cll 32.1.2, 32.1.3 and 33.1 of the sublease. Finally, Mr and Mrs Vizovitis argue that, if they were guilty of the conduct described in s 81 of the Leases Act, they had a reasonable cause for engaging in that conduct. The particulars justifying that contention are set out in par 14 of the Defence filed on behalf of Mr and Mrs Vizovitis in the following terms:
Particulars
a.On 20 October 2006 the Applicant told the Respondents that contracts for sale of the business to Nexstar had been entered into. (CB539)
b.At no time prior to 2 January 2007 did the Applicant tell the Respondents that the sale to Nexstar had not completed and had fallen through. (CB829)
c.Until 20 October 2006 the Applicant had not taken the necessary steps to execute the Deed of Assignment of Lease dated 29 November 2005 from Ponga to itself (CB539)
The references in these particulars “CB …” are references to pages in the plaintiff’s Tender Bundle (Exhibits A1, A2 and A3).
Mr and Mrs Vizovitis admit that Danel was entitled to stand in the shoes of Ms Ponga insofar as her rights and entitlements under the sublease were concerned. They also concede that, if Danel did not abandon Unit 6 as alleged by them, their conduct in granting a fresh lease of Unit 6 to Nexstar and in facilitating Nexstar’s taking possession of Unit 6 to the exclusion of Danel were breaches of the sublease. Apart from a challenge to the damages claimed, the proposition that Unit 6 was abandoned by Danel is the only defence propounded by Mr and Mrs Vizovitis to Danel’s claim that they breached the sublease.
In addition, Mr and Mrs Vizovitis deny that they breached s 22 and s 81 of the Leases Act. They also argue that, if their conduct prima facie falls within the description of potentially contravening conduct given in s 81 of the Leases Act, they had reasonable cause for acting as they did.
In particulars provided by letter dated 29 June 2007 from the solicitors for Mr and Mrs Vizovitis to the solicitors for Danel, Mr and Mrs Vizovitis said, in answer to the question: “On what date did [Danel] abandon the premises?”, the following:
(a)The exact date is beyond the knowledge of [Mr and Mrs Vizovitis] save that [Mr and Mrs Vizovitis] can say that the premises were abandoned during the month of October or earlier.
In the same letter, no response of substance was given to the question: “Precisely upon what date did [Danel] cease trading from the premises?”.
Thus, according to the case pleaded and particularised by Mr and Mrs Vizovitis, Danel is alleged to have abandoned Unit 6 by no later than October 2006. It follows that Danel is also alleged to have ceased trading from Unit 6 by no later than October 2006.
Proceeding No SC 256 of 2007
In its current Statement of Claim, Danel alleges that, between about August 2006 and 6 September 2006, Mr Campbell and Fulvio Gobeo, initially on their own behalves, and subsequently on behalf of Nexstar, entered into and pursued negotiations with Danel for the purchase of the brothel business for a purchase price of $80,000.
Danel then alleges that:
(a) On a date after 4 September 2006:
(i) Either Mr Campbell or Fulvio Gobeo, or both, on behalf of Nexstar, approached Mr Christos Vizovitis directly and negotiated with him for the grant of two fresh subleases, one for Units 1–5 and one for Unit 6;
(ii) Either Mr Campbell or Fulvio Gobeo, or both, on behalf of Nexstar, represented to Mr Vizovitis that interests associated with them intended to purchase or already had purchased the brothel business and that, in those circumstances, Danel would not object to the issue of a fresh sublease for Unit 6 in favour of Nexstar and that the issue of such a fresh sublease was appropriate in all the circumstances; and
(iii) Ultimately, a fresh sublease for Unit 6 and a sublease for Units 1–5 was entered into between Mr and Mrs Vizovitis, as lessors, and Nexstar, as lessee;
(b) On 10 November 2006, Nexstar informed Danel that it had procured a fresh lease of Unit 6 and a lease of Units 1–5 from Mr and Mrs Vizovitis;
(c) On a date after 8 December 2006, Nexstar went into occupation of Units 1–5 and Unit 6 and effected certain changes to those premises which had the effect of restricting or impeding Danel’s access to Unit 6;
(d) On or about the same date upon which Nexstar took occupation of Units 1–5 and Unit 6, Nexstar caused a solid masonry wall which stood between Units 1–5 and Unit 6 to be demolished so as to create one contiguous area;
(e) Thereafter, Nexstar took possession of all the plant, equipment, fixtures and chattels in Unit 6 and converted same to its own use causing Danel loss and damage; and
(f) Thereafter, Nexstar conducted a brothel business from the consolidated premises utilising Danel’s plant, equipment and chattels as its own and:
… passed off or attempted to pass off that business as Danel’s business and has usurped the goodwill attached to the Tiffany’s Studio business and otherwise caused Danel loss and damage.
Danel contends that the conduct described at [38] above constituted misleading or deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 52 of the TPA and s 12 of the FTA and was unconscionable. It also argues that Mr Campbell and Fulvio Gobeo were accessories to these contraventions on the part of Nexstar.
Most of the allegations pleaded by Danel in its Statement of Claim are denied by Messrs Campbell and Fulvio Gobeo and Nexstar.
In further amplification of their Defences, Mr Campbell, Fulvio Gobeo and Nexstar assert that Danel was not in lawful occupation of Unit 6 and was unable to transfer or assign any lease of Unit 6 to Nexstar. In addition, the defendants contend that, on 13 December 2006, Mr and Mrs Vizovitis, or their lawyer, represented to them that Danel had never negotiated or obtained an assignment of the sublease and that, for that reason, Mr and Mrs Vizovitis were not opposed to granting a fresh lease in conjunction with a lease over Units 1–5. It is not clear to me what significance the defendants attach to these allegations.
Further, Nexstar claims a refund of the $8,000 deposit paid by it to Danel in respect of the proposed purchase of the brothel business.
Danel accepts that, if it is unsuccessful in the proceeding against Nexstar, it must refund that amount. It also accepts that, if it is successful in that proceeding, the Court should give credit for that amount in the calculation of Danel’s damages. Although it claimed an account of profits, in the alternative, in its Statement of Claim, Danel elected to press for damages in respect of all of its pleaded causes of action. Danel claimed $80,000, being the value of the brothel business, less the deposit of $8,000, plus interest and costs.
THE EVIDENCE
General Overview
Danel tendered as Exhibits A1, A2 and A3, three volumes of documents which, generally speaking, constitute the documentary record of the dealings amongst the various parties involved in this litigation. However, it is clear to me that Exhibits A1, A2 and A3 do not contain all of the relevant documents. Further, my understanding of the facts would have been assisted by evidence from one of more of the authors of the documents tendered in Exhibits A1, A2 and A3 for the purpose of explaining, clarifying and, in some cases, qualifying the contents of those documents.
The present litigation is noteworthy for the number of persons who might have given relevant evidence to the Court who were not called as witnesses. The only persons who gave evidence at the trial were Mr Neluschi, Ms Pevreal and Fulvio Gobeo. Those who might have been of assistance but who did not enter the witness box were:
David James Campbell The second defendant in proceeding No SC 256 of 2007 and one of the principal negotiators on behalf of the Nexstar interests for the purchase of the brothel business. Christos Vizovitis One of the owners of the Barrier Street property. Georgia Vizovitis The other owner of the Barrier Street property. Rod J Barnett The solicitor for Mr and Mrs Vizovitis at all relevant times. Charles Parisi The solicitor at Wood Marshall Williams who represented Danel at all material times. Mary Altavilla The employee of Lewenberg & Lewenberg who represented Nexstar, Mr Campbell and Fulvio Gobeo at all material times. Alex Lewenberg The partner at Lewenberg & Lewenberg with overall responsibility for the transaction on behalf of the Nexstar interests. Robert Reis A solicitor at Hill & Rummery who acted for Ms Ponga in the sale of business transaction between her and Danel in 2005 and subsequently. Daniel Neluschi Mr Neluschi’s son who went to the premises when Danel was locked out.
It is also possible that Ms Ponga and Sam Gobeo, Fulvio Gobeo’s son, might also have been able to give relevant evidence.
In order for the Court to evaluate properly the unconscionability and misleading and deceptive conduct cases brought by Danel, it is necessary to examine in some detail and with great care the dealings amongst the parties. Much of the primary evidence is constituted by the documentary record and is not and could not be disputed. It is in the area of the inferences to be drawn from that primary evidence where the parties are, to some extent, at issue. In the process of drawing such inferences, in particular, the failure of one or more of the persons to give evidence at the trial may be significant (as to which see Jones v Dunkel (1959) 101 CLR 298).
In the next section of these Reasons for Judgment, I propose to set out the facts and matters disclosed by the documentary record and, to the extent necessary, amplified by the oral evidence of the witnesses who were called to testify at the trial.
In the course of that exposition of the facts, it will be necessary from time to time to make findings in relation to contested matters. I will do so as necessary. In the case of one or two matters of contest, I propose to deal with them separately.
The Facts
The Original Acquisition of the Brothel Business by Danel Investments Pty Limited
Negotiations for the purchase of the brothel business by Danel commenced in early October 2005. At that time, the business was owned by Ms Ponga. The business traded under the name “Tiffany’s”. Ms Ponga used the trading name Jilma Enterprises. The business used three registered business names, namely “Gentlemen for Ladies”, “Tiffany’s Studio” and “Home Boyz”. As at October 2005, the date of expiry of the business name registration for each of those business names was:
Tiffany’s Studio 19 April 2008
Gentlemen for Ladies 21 April 2008
Home Boyz 28 May 2006
The brothel business operated from Unit 6. It had been operating from that location since at least 1996. Unit 6 is more fully described in the sublease as “Unit 6 on Subleasing Plan 106 being part of the building constructed on land known as Block 15, Section 21, Fyshwick Vol 1291 Folio 80”.
Ms Ponga occupied Unit 6 pursuant to the sublease.
The Barrier Street property comprises a two-storey warehouse style of building located at the corner of Isa and Barrier Streets, Fyshwick. At the ground floor level, approximately eight metres from the corner, there is an entrance to the building which leads to a set of stairs which provides internal access to the first floor. In 2005 and 2006, at the rear of the building, there was an external staircase which led to a doorway at the level of the first floor. This doorway provided access to Unit 6 from the rear of the building.
The first floor was divided into six office suites or units. Units 1–5 covered approximately half of the available space. They were small office areas linked by a passageway. Unit 6 comprised the other half of the first floor. It had an area of approximately 225 m2. Unit 6 was where the brothel business was conducted. Unit 6 was divided internally into several separate rooms. At the level of the first floor, access to Unit 6 was through a door on the landing located at the top of the internal staircase. Unit 6 was able to be locked and made secure from persons in the building by locking that door. There was also direct access to Unit 6 from the door at the rear which could also be locked. Thus, Unit 6 was an area on the first floor which was clearly identifiable as separate premises and which was able to be secured and locked off from unauthorised persons seeking to enter the premises.
As I noted at [6] above, the sublease was for an initial term of five years commencing on 1 April 2004. According to its terms, it was to expire on 31 March 2009. Rent was payable monthly in advance. The first payment was due on 1 April 2004. Subsequent payments were payable on the first day of each month, the first of which was due on 1 May 2004. The sublease provided for rent reviews on an annual basis. The sublease also contained an option for its renewal for a further five years commencing on 1 April 2009.
Clause 2 of the sublease provided:
2 Rights and Entitlements Granted to Tenant
2.1 Grant
Subject to reservations set out herein, the Lessor grants to the Tenant for the duration of this Lease
2.1.1.exclusive possession of the Leased Premises;
2.1.2.use and enjoyment of the Lessor’s Fixtures;
2.1.3.the free and uninterrupted passage of Utilities to the Leased Premises through Common Areas of the Building or the Building;
2.1.4.the entitlement to use those car spaces designated from time to time by the Lessor;
2.1.5.the use by the Tenant and its employees of those toilets and washrooms designated from time to time by the Lessor;
2.1.6.the entitlement to signs as set out in Clause 24.
Clause 45.1 provided that Ms Ponga could not transfer, assign or otherwise deal with the sublease. That prohibition was subject to the terms of cl 45.2 of the sublease which authorised an assignment of the sublease subject to compliance with the terms of that subclause. Principal amongst those terms was the need for the landlord’s consent.
Clause 46 provided that:
46. Lessor’s covenant for quiet enjoyment
The Lessor covenants with the Tenant that while the Tenant complies with the financial and other obligations under this Lease, and subject to the powers and entitlements conferred on the Lessor under this Lease, and subject to the Lessor having no duty to the Tenant to control the conduct of any third party in tort, contract or pursuant to any property interest, the Tenant may occupy and have the use and enjoyment of the Leased Premises for the term of this Lease without interruption or disturbance from the Lessor and other persons lawfully claiming through or under the Lessor.
Clause 48 of the sublease allowed the landlord to carry out work in the building provided that it did not alter or interfere with Unit 6.
Clause 60 of the sublease provided that the landlord might remove the tenant’s property after termination of the lease.
On 30 October 2005, Danel made a formal offer to purchase the brothel business from Ms Ponga for the amount of $120,000. That offer was accepted.
On 25 November 2005, Ms Ponga and Danel entered into an Agreement for Sale of Business pursuant to which the brothel business was sold to Danel. Mr Neluschi and Ms Pevreal guaranteed the obligations of Danel under that Agreement.
Clause 2 of that Agreement was in the following terms:
PURCHASE PRICE
2. The purchase price shall be apportioned as follows:-
(a)
Transfer of Sublease
$1.00
(b)
Transfer of Business Name
$1.00
(c)
Goodwill
$119,998.00
TOTAL PURCHASE PRICE
$120,000.00
Under the Agreement for Sale of Business, completion of that Agreement was to be effected on 18 November 2005 or on such other date as might be mutually agreed in writing between the parties to the Agreement. In fact, completion of the Agreement did not occur until 28 November 2005. On or about 18 November 2005, Danel took possession of Unit 6 and commenced operating the brothel business from that unit.
Clause 5 of the Agreement for Sale of Business was in the following terms:
SUBLEASE
5.(a) Completion of this Agreement is conditional upon the Sublessor consenting to a transfer of the Sublease from the Vendor to the Purchaser. The costs of effecting such transfer including the obtaining of the Sublessor’s consent and any Mortgagee’s consent shall be borne by the Purchaser. The Purchaser undertakes to furnish the Sublessor with such information as shall reasonably be required to satisfy the Sublessor that the Purchaser is a responsible and respectable assignee and the Purchaser further undertakes to sign, deliver and pay the costs of any Deed of Covenant required by the Sublessor. In addition the Purchaser and the Vendor shall supply all such information and sign all such documents and applications as may be necessary in order to effect the said transfer of the Sublease.
(b) If all such consents are not obtained by the date of completion either party hereto may rescind this Agreement and the deposit and all purchase moneys paid hereunder shall be refunded to the Purchaser without deduction except for $300.00 which shall be retained by or accounted to the Vendor towards its legal costs and neither party shall be liable to the other for any other costs or damages or have any claim against the other arising out of this Agreement.
(c)The Purchaser acknowledges he has inspected the said Sublease as varied and satisfied himself as to the terms and conditions thereof.
Under the Agreement, Ms Ponga agreed to transfer the business name “Tiffany’s” to Danel.
Clause 19 of that Agreement was in the following terms:
CONTINUING OBLIGATIONS
19.This Agreement shall as to any of its provisions remaining to be performed or capable of having effect following the completion of the transfer to the Purchaser of the Sublease, goodwill, business name, plant, fixtures, fittings, chattels and stock-in-trade hereby agreed to be sold remain in full force and effect notwithstanding such sale and completion.
There was attached to the Agreement for Sale of Business an inventory of furniture, electrical items and other items specified by reference to each of the separate rooms or areas within Unit 6. These rooms or areas specified in the inventory were the Reception Area, the Intro Room, Room One, Room Two, Room Three, Room Four, Room Five, Girls Room, Store Room, Toilet, Laundry and Kitchen.
By Contract for Sale of Land dated 13 September 2005, Mr and Mrs Lee agreed to sell the Barrier Street property to Christos Vizovitis and Georgia Vizovitis. The purchase price was $1.2 million. Settlement of that purchase took place on 3 November 2005. The sale from Mr and Mrs Lee to Mr and Mrs Vizovitis was expressly made subject to existing tenancies, all of which were specified in the Contract for Sale. In particular, the sublease was identified in Special Condition 4 of that Contract for Sale as one of the subleases to which the sale of the Barrier Street property was subject. As a matter of law, in any event, Mr and Mrs Vizovitis took their superior leasehold interest subject to the sublease.
By letter dated 4 November 2005, Hill & Rummery, barristers and solicitors (Hill & Rummery), who were acting for Ms Ponga in the sale of business transaction with Danel, requested the consent of Mr and Mrs Lee to the proposed assignment of the sublease from Ms Ponga to Danel. That letter was sent to Elrington Boardman Allport (Elrington), the solicitors for Mr and Mrs Lee. Elrington responded to the letter from Hill & Rummery by informing them that the property had been sold to Mr and Mrs Vizovitis and that the request which they had made of Mr and Mrs Lee should now be directed to the new owners care of their solicitors, Rod J Barnett and Associates of Fyshwick (Rod Barnett).
On 21 November 2005, Hill & Rummery wrote to Rod Barnett. They informed Mr Barnett that Ms Ponga was selling the brothel business. Enclosed with their letter was a copy of the letter which they had sent to Elrington dated 4 November 2005 in which they sought the owners’ consent to an assignment of the sublease to Danel. This letter put Rod Barnett and his clients, Mr and Mrs Vizovitis, on notice of the fact that the brothel business was being sold and that, as part of the sale, the sublease was to be assigned to the purchaser of that business. The consent of the owners to the transfer of the sublease was sought.
On 22 November 2005, Wood Marshall Williams (WMW), the solicitors for Danel, Mr Neluschi and Ms Pevreal, wrote to Rod Barnett in the following terms:
RE: DANEL INVESTMENTS PTY LIMITED – PURCHASE FROM PONGA
BUSINESS: TIFFANYS – BLOCK 14, SECTION 21 FYSHWICK
YOUR CLIENT LESSOR – VIZOVITISWe refer to the above and advise that we act generally for Danel Investments Pty Limited.
Our client has recently exchanged Contracts for the purchase of the business of Tiffanys which operates from the property at Block 14, Section 21 Fyshwick.
We understand that you act for the Lessor of the property.
We understand that you have already received a request from the Vendor (Jillian Ponga) for the assignment of Lease to our client pursuant to Clause 45.2 of the current registered Lease.
In the circumstances we would be pleased if you would advise us by return facsimile or otherwise as to your client’s requirements in relation to the consent in so far as it relates to our client the purchaser of the business being the prospective incoming Lessee.
If there are any queries in this regard or if you require any further information please do not hesitate to contact the writer.
This letter confirmed that the brothel business was being sold and provided details of the new owner of that business.
On 25 November 2005, Rod Barnett wrote to Hill & Rummery in the following terms:
Re: PONGA SALE TO DANEL INVESTMENTS PTY LIMITED
ASSIGNMENT OF LEASE – TIFFANY’S
Further to the writer’s recent telephone conversation with you on even date we enclose herewith for your attention Deed of Assignment, in triplicate, for execution by your client and Danel Investments Pty Limited.
Would you kindly arrange for the execution of all three copies and return them to this office so that our client might attend to the attestation of the document.
Our account, directed to your office in the first instance is attached for your attention.
Enclosed with the letter from Rod Barnett was a Tax Invoice dated 25 November 2005 rendered to Ms Ponga for the amount of $441.10. The narrative set out in that Tax Invoice was as follows:
TO OUR COSTS of and incidental to receiving your instructions with regard to the assignment of the abovementioned Lease, taking further particulars preparing Deed of Assignment, submitting same to you for signature and arranging for our clients to execute the same
It follows from a consideration of the letter from Rod Barnett to Hill & Rummery dated 25 November 2005 and the accompanying Tax Invoice that, by 25 November 2005, Rod Barnett had prepared a Deed of Assignment and submitted that Deed to Hill & Rummery in triplicate for execution by Ms Ponga and by Danel. Notwithstanding the terms of the narrative in Rod Barnett’s Tax Invoice, it would appear that, as at that date, Mr and Mrs Vizovitis had not signed the Deed of Assignment which Rod Barnett had prepared. Nonetheless, by 25 November 2005, they were clearly prepared to consent to the assignment of the sublease and to signify that consent by signing the Deed of Assignment prepared by Rod Barnett.
As I mentioned at [9] above, settlement of the sale of business from Ms Ponga to Danel took place in the morning of 28 November 2005.
It appears that the Deed of Assignment which had been prepared by Rod Barnett and forwarded to Hill & Rummery on 25 November 2005 had, by the time of settlement on 28 November 2005, been signed by Ms Ponga. The signed Deed of Assignment was handed to either Mr Neluschi or Ms Pevreal, one or both of whom attended at settlement on behalf of Danel.
After settlement had been concluded, but still on Monday, 28 November 2005, Rod Barnett sent the following email to Mr Reis, who was the solicitor at Hill & Rummery dealing with the matter:
The writer refers to his letter of the 25th instant enclosing Deed of Assignment which upon further examination required some amendment due to discrepancies in description.
In addition, the Covenantor’s clauses have been changed slightly so that they contain a vestage of something that is sensible.
Hence, we now enclose herewith by way of attachment hard copy of Assignment of Lease which should replace the earlier document forwarded under cover of our letter of the 25th instant.
Mr Reis responded almost immediately with an email which was in the following terms:
The settlement took place this morning. My client signed the deed and we gave it to the assignee to take back to his solicitors.
I expect my client will have no difficulty endorsing the changes. But it would be better for you to send those amendments to Charles Parisi. I have no problems advising my client to endorse the changes.
Charles Parisi was the solicitor at WMW dealing with the matter on behalf of the Danel interests.
I pause to observe that the evidence before me did not identify with precision the particular draft Deed of Assignment which was forwarded by Rod Barnett to Hill & Rummery on 25 November 2005 and which was apparently subsequently signed by Ms Ponga and handed to a representative of Danel at settlement nor did it identify with precision the proposed amended Deed of Assignment forwarded by Mr Barnett to Mr Reis at around 1.00 pm on 28 November 2005, after settlement of the sale of business from Ms Ponga to Danel had been effected.
The email from Rod Barnett to Mr Reis explained the necessity for the redraft of the Deed of Assignment as arising from “… discrepancies in description” and the need to make the covenantor’s clauses “… sensible …”.
There was tendered in evidence a Deed of Assignment bearing date 17 November 2005 between Ms Ponga, as assignor, Danel, as assignee, Mr and Mrs Vizovitis as lessors and Mr Neluschi and Ms Pevreal as covenantors. That document was tendered at pp 157–164 of Vol 1 of the plaintiff’s Tender Bundle (Exhibit A1).
The Deed of Assignment to which I have referred at [84] above is signed by Ms Pevreal, on behalf of Danel, Mr Neluschi, Ms Pevreal (on her own behalf), Ms Ponga and, importantly, Mr and Mrs Vizovitis. The signatures of Mr and Mrs Vizovitis are witnessed by Mr Barnett.
The Deed effects an assignment from Ms Ponga to Danel of the sublease, such assignment to take effect as and from 29 November 2005.
Clause 2 of that Deed of Assignment is in the following terms:
2. ASSIGNMENT
2.1 Assignment
The Assignor assigns to the Assignee all its right title and interest in the Lease for all the residue now unexpired of the term of the Lease which assignment will take place on the Assignment Date.
2.2 Further Assurance
The Assignor covenants with the Assignee to do all things and sign all documents necessary including the execution of an instrument of transfer of the Lease to perfect the assignment of the Lease to the Assignee.
Clause 4.3 of that Deed provides:
4.3 Registration of Transfer of Lease
The Assignee shall register any instrument of Transfer of the Lease executed by the Assignor pursuant to Clause 2.2 of this Deed.
Clause 6 of that Deed is in the following terms:
6.LESSORS’ CONVENANTS
6.1Consent to Assignment
The Lessors consent to the assignment of the Lease by the Assignor to the Assignee on the terms and conditions set out in this Deed.
6.2Grant of Option
Upon the execution of this Deed, the Lessors hereby covenant that they shall grant to the Assignee a further option of five years commencing the 1st of April 2009 to the 30th of June 2015 upon the same terms and conditions of the existing Lease save for the Base Rental as at the commencement of the Option Period which shall be reviewed to market.
6.3Release of Assignor
The Lessors now and forever releases the Assignor from and against all Claims which the Lessors might hereafter maintain against the Assignor in respect of or in any way arising from the Lease provided that this clause shall not apply to any breach of the covenants obligations and provisions of the Lease by the Assignor prior to the Assignment Date.
The evidence established that the copy of the Deed of Assignment to which I have referred at [84]–[89] above was produced from the possession, custody or control of Mr and Mrs Vizovitis.
It is necessary to consider the circumstances in which this Deed of Assignment came to be executed by all relevant parties. I shall do so later in these Reasons.
There appears to be no misdescription of any property or relationship in this Deed. Further, the assignment date (viz 29 November 2005) seems to sit comfortably with the known settlement date of 28 November 2005.
By letter dated 29 November 2005 sent to WMW, Rod Barnett said:
Re: DANEL INVESTMENTS PTY LIMITED – PURCHASE FROM PONGA
RE: ASSIGNMENT OF LEASE – “TIFFANY’S” – BLOCK 14, SECTION 21
DIVISION OF FYSHWICKOUR CLIENTS: C & G VIZOVITIS
Further to previous correspondence in connection with this matter, the writer did in fact forward to Robert Reis at Hill and Rummery a Deed of Assignment which, upon review, needs amendment. Accordingly, we now enclose herewith the Deed of Assignment which has certain amendments when one compares it with the original which we are given to understand is now in the hands of your client.
We would be grateful if you would kindly execute the enclosed copy, in triplicate and arrange for it to be returned to Robert Reis for re-endorsement by his client.
You will note from the changes that whilst they relate to the description of the Landlord as opposed to the Lessor and some minor amendments to the Covenants to be entered into by your clients, the latter version is by far the more appropriate.
We would be grateful if you would kindly co-operate to this extent and arrange for the return of the documentation through Mr Reis in due course.
Once again, the evidence before me did not identify with precision the document that was forwarded by Rod Barnett to WMW on 29 November 2005. It is very likely that it was a copy of the document which Rod Barnett had emailed to Hill & Rummery on 28 November 2005.
Rod Barnett’s letter proceeds upon the basis that the earlier version of the proposed Deed of Assignment was, by 29 November 2005, in the hands of Mr Neluschi or Ms Pevreal, as had been asserted by Mr Reis in his email to Rod Barnett of 28 November 2005.
Further, the position seemed to be that, by 29 November 2005, Rod Barnett, on behalf of Mr and Mrs Vizovitis, was seeking to amend the Deed of Assignment after it had been signed by Ms Ponga and possibly by Danel, Mr Neluschi and Ms Pevreal, although the latter circumstance was not clear from the evidence. It also appears to have been the case that, as at 29 November 2005, Mr and Mrs Vizovitis had not signed either version of the Deed of Assignment prepared by Rod Barnett.
There was tendered in evidence before me an undated form of Transfer of Sublease under the Land Titles Act 1925 (ACT) (the Land Titles Act). That instrument of transfer is signed by Ms Ponga and appears to constitute an attempt by Ms Ponga and Danel to perfect the assignment of the sublease. That document appears at pp 227–228 of Vol 1 of the plaintiff’s Tender Bundle (Exhibit A1). The document has not been executed by Danel nor were certain critical dates and other particulars completed in the appropriate places on the document. There was no direct evidence before me as to the circumstances in which this instrument came to be signed or in which it came into the possession of Danel. Nonetheless, the document was produced from the possession or custody of Danel. It is clearly a document which one would have expected to have been handed over at the settlement of the sale of the brothel business which took place on 28 November 2005 and I find that it was. I should observe at this point, however, that it appears that the Transfer of Sublease was never executed by Danel nor was it ever submitted to the Registrar-General’s Office of the ACT Government (the Registrar-General) for registration under the Land Titles Act and was, therefore, never registered. The effect of this state of affairs was that, at all material times, the Register maintained by the Registrar-General showed Ms Ponga as the sublessee under the sublease.
Subsequent Events
Mr and Mrs Vizovitis commenced to invoice Danel for rent in respect of Unit 6 as and from 1 December 2005. Danel diligently paid the rent for Unit 6 up to and including the rent payable on 1 February 2007 in respect of the month of February 2007. Danel continued to pay rent for some months after it was excluded from Unit 6. Mr and Mrs Vizovitis were aware that Danel was in occupation of Unit 6 and was the entity which paid the rent for Unit 6 as and from 1 December 2005.
Danel operated the brothel business continuously from 29 November 2005 until it was excluded from the premises in December 2006 in circumstances which I will describe later in these Reasons. There was an issue at the hearing between Danel and some of the defendant parties as to whether or not Danel had in fact continued to operate the business until December 2006. I find that it did. There was a significant body of evidence comprising wages records, suppliers’ invoices, banking records and taxation records which support that finding. In addition, both Mr Neluschi and Ms Pevreal gave evidence to the effect that the business had been operating continuously throughout 2006 right up until about the end of the first week of December 2006.
On 12 December 2005, Rod Barnett wrote a facsimile message to WMW in the following terms:
Re: DANEL INVESTMENTS PTY LIMITED – PURCHASE FROM PONGA
RE: ASSIGNMENT OF LEASE – “TIFFANY’S” – BLOCK 14, SECTION 21, DIVISION OF FYSHWICK
OUR CLIENTS: C & G VIZOVITIS
The writer refers to his letter of the 29th November in which he forwarded to you an amended Deed of Assignment for execution by your client, Danel Investments Pty Limited.
We would be grateful if you would kindly provide us with an update as to the status of this document. The writer presumes that the document is on its way to Mr Reis at Hill and Rummery. Please confirm.
On 7 February 2006, Rod Barnett sent an email to Hill & Rummery in the following terms:
As you know, I forwarded to Wood Marshall Williams, Lawyers for the attention of Mr Charles Parisi, the Deed of Assignment. I have not received this document back from either Mr Parisi or yourself. Would you kindly advise the current status of the Deed of Assignment in view of the fact that your client is primarily liable for the rental until the Assignment is executed by both parties and our client as Landlord.
Also, nothing seems to have been done in relation to payment of our costs which were submitted to your office on 20 November last. Perhaps, in the circumstances, you might follow this up and advise me as to the current status accordingly.
On 17 March 2006, Rod Barnett chased up Hill & Rummery for the amended Deed of Assignment. On that day, he wrote a letter in the following terms:
Re: DEED OF ASSIGNMENT PONGA TO DANEL
UNIT 6, 72 BARRIER STREET FYSHWICK
OUR CLIENT: C & G VIZOVITIS
The writer refers to his original letter of the 25th of November last in which he forwarded a Deed of Assignment which required some further amendment. On the 29th of November an amended Deed of Assignment was forwarded to Wood Marshall Williams, for the attention of Charles Parisi and the execution by Danel Investments Pty Ltd.
On the 12th of December 2005 a further reminder was sent to Mr Parisi and no response has been received from either your firm or Wood Marshall Williams in relation to the matter. On the 7th of February the writer wrote to you an email, reminding you that the Deed of Assignment still had not been returned nor had there been any payment of our costs.
We have conferred with our client and as far as he is concerned Mr Ponga remains liable under the terms of the Lease and will enforce any default which may be incurred by Danel Investments. Whilst he was prepared to release your client from any further liability our clients are only prepared to do so provided that both the Deed of Assignment and incorporated Deed of Guarantees are returned to our clients duly executed.
We bring this matter to your attention as your client is personally liable under the terms of the original lease and in the circumstances is thus exposed to any default on the part of the incoming assignee.
We await your early advice.
On 30 March 2006, Rod Barnett wrote a further letter to Hill & Rummery in the following terms:
Re:DEED OF ASSIGNMENT – PONGA TO DANEL INVESTMENTS PTY LTD
UNIT 6, 72 BARRIER STREET, FYSHWICK
OUR CLIENT: C & G VIZOVITIS
We refer to our letter of 17 March to which we do not appear to have received a reply. We would be grateful if you would kindly advise the current position concerning the Deed of Assignment for the reasons stated in our previous correspondence.
On 15 May 2006, the ACT Office of Fair Trading granted a Brothel and Escort Agency Licence (brothel licence) to Danel in respect of Unit 6. That registration bore Registration No 16500208. The particulars of the trading names under which the brothel and escort agency was to be conducted under that registration were “Tiffany’s Studio”, “Gentlemen for Ladies” and “Home Boyz”.
That registration appears to have been renewed for the period up to 8 November 2006 although there is some doubt about this. Some records of the ACT Office of Fair Trading suggest that the registration was effective only up to 30 September 2006.
On 15 June 2006, Hill & Rummery wrote to Rod Barnett in the following terms:
RE: PONGA SALE TO DANEL INVESTMENTS PTY LIMITED
ASSIGNMENT OF LEASE – TIFFANY’S STUDIO
We refer to previous correspondence.
Could you please return as a matter of urgency the Deed of Assignment in triplicate to our office.
We await your immediate response in relation to this matter.
Rod Barnett responded promptly to the letter from Hill & Rummery dated 15 June 2006. He said:
Re:DEED OF ASSIGNMENT – PONGA TO DANEL INVESTMENTS PTY LTD
UNIT 6, 72 BARRIER STREET, FYSHWICK
OUR CLIENT: C & G VIZOVITIS
We acknowledge receipt of your letter of the 19th instant which is somewhat perplexing. You have asked us to return, as a matter of urgency, the Deed of Assignment, in triplicate, to your office.
The Deed of Assignment was originally forwarded to you on 25 November last and a copy of our letter forwarding that document is attached for your general reference.
The writer surmises that it may have been your intention to direct this correspondence to Wood Marshall & Co for the attention of Mr Charles Parisi.
If, on the other hand, that presumption is wrong and you are missing the Deed of Assignment previously forwarded to you under cover of our letter of 25 November last, we can provide you with further copies of the Deed of Assignment and the entire process could start all over again.
Please advise by return the current position.
By mid 2006, Mr Neluschi and Ms Pevreal had decided to extricate themselves from the brothel business. The sale of the business was advertised in June 2006. Mr Neluschi said that he had several seriously interested prospective purchasers (10 or 11). But his evidence was the only evidence of this. No evidence from any of these prospective purchasers was called on behalf of Danel.
Mr Campbell was interested in the business and negotiations commenced with him in earnest around about 25 July 2006. At the commencement of her dealings with Mr Campbell, Ms Pevreal provided to him Mr Vizovitis’ name and telephone number.
On or about 11 August 2006, an agreement in principle was struck for the sale of the business by Danel to Mr Campbell and his associate, Fulvio Gobeo, for $80,000. That purchase price was struck after some gentle negotiation between the parties. The terms of that arrangement were recorded by Ms Pevreal in an email which she sent to Fulvio Gobeo on 11 August 2006. In that email she said:
Hi Fulvio,
These are the details which I have forwarded to my lawyer. My lawyer has confirmed that a contract will be sent to your post office box this afternoon. My lawyer has also confirmed that what you have referred to as a Declaration of Income is referred to as “warranties of Income” in New South Wales and that a Warranty of Income is not a legal requirement in a contract for sale of a business in either New South Wales or the ACT.
“The name of the purchaser for the contract is:
David Campbell and Sam Gobeo or Nominees
32 Broadhurst Street
Kilmore VicContract to be sent to:
P O Box 3
Coburg Vic
Purchase Price: $80,000
Fulvio has advised that exchange will take place as soon as contract is received. Settlement to take place 2 weeks after exchange.
With the contract they want details of our bank account to deposit 10% deposit into. This is:
Account Name: Danel Investments Pty Ltd
Bank: National
BSB: 082 201
A/c: 5923700725Will talk to you soon.
Regards
Alyson
It would appear that WMW sent a letter to Mr Campbell and Mr Sam Gobeo (who is Fulvio Gobeo’s son) on the same day. In that letter, the author (Mr Parisi of WMW) asked Mr Campbell and Mr Gobeo to inform WMW “… as to whether negotiations in relation to the Lease have now been finalised as we will incorporate a special condition in the Contract in that regard”. That statement followed a paragraph in the letter in which Mr Parisi said:
We understand that you are currently discussing with the Landlord the possibility of obtaining a Lease of the entire premises including the neighbouring premises.
It was, therefore, contemplated by Danel and by the Campbell interests at least from 11 August 2006 that Mr Campbell and/or Fulvio Gobeo would approach the owners (Mr and Mrs Vizovitis) and discuss the possibility of obtaining a lease over the remaining part of the first floor (Units 1–5). In the event that agreement was reached in respect of Units 1–5, it was expected that the Campbell interests might then take a lease over the whole of the first floor (Units 1–6). Of course, it was expected by Danel and the Campbell interests at that time that Unit 6 could only be part of such a fresh lease if the sale of the brothel business to the Campbell interests went ahead and was completed.
The reference to “the neighbouring premises” in that letter was clearly a reference to Units 1–5.
On 18 August 2006, WMW sent a letter to Mr Campbell and Mr Sam Gobeo. That letter was in the following terms:
RE:DANEL INVESTMENTS PTY LTD – SALE OF BUSINES
TIFFANYS IN ACT
We refer to the above and to previous correspondence and confirm that our client has now received the sum of $8,000.00 in their bank account as being the deposit for the purchase of the above business.
In order to formalise Contracts we now enclose for your attention the following:
1.Duly executed Contract by Danel Investments Pty Limited in relation to the sale of the business which includes an updated Inventory; and
2.Fresh counter copy of the updated Contract with the updated Inventory for your execution.
Accordingly we would be pleased if you would sign the fresh updated Contract on behalf of the Purchasers and return it to our office at your earliest time and convenience.
We will accept that the date for exchange of Contracts was the date that you paid the deposit namely 14th August, 2006.
Accordingly completion will occur within 2 weeks.
In the interim should you have any queries please do not hesitate to contact the writer.
On 29 August 2006, Lewenberg & Lewenberg (Lewenberg) sent its first letter to WMW. Lewenberg acted for Mr Campbell, Mr Fulvio Gobeo and Mr Sam Gobeo. The letter from Lewenberg dated 29 August 2006 was in the following terms:
RE:DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD
TIFFANY’S IN ACT
We wish to advise that we act on behalf of the above named Purchasers who have forwarded to our office draft copy of the Contract of Sale in this matter.
We are advised by our client that out client has paid to you deposit of 10% of the purchase price which sum you hold as stake holder pending settlement. Please confirm that the deposit money have been placed into an interest bearing account.
In relation to the stock in trade please provide a list of the remaining stock that will be left on the premises on the settlement date.
We note that the sale is subject to the business name being transferred to the Purchaser. We would be greatful if you would provide us with relevant form for transfer of business name in order that we may have the documents signed by our client in anticipation of settlement.
In relation to GST aspect we confirm that the agreement is the supply for going concern and accordingly no GST will be payable.
Please provide us urgently with copies of the following:-
1.Lease of the premises in order that we may arrange for Transfer of Lease to be prepared.
2.Copy of the License applicable to the premises in order that appropriate transfer may be prepared.
Please note that the settlement date of the Contract is to be subject to transfer of the license and also subject transfer of the existing lease to out client.
As soon as the above accordingly would be greatful if you would forward copies of the documentation via express post in order that we may proceed further with this matter.
Should you have any queries or require or require further clarification please do not hesitate to contact Mary Altavilla of this office.
WMW responded by letter dated 30 August 2006 in the following terms:
RE:DANEL INVESTMENTS PTY LTD – SALE TO CAMPBELL & GOBEO – BUSINESS OF TIFFANYS IN ACT
We refer to the above and to previous correspondence in particular your letter of 29th August, 2006 and accordingly advise as follows:
1.We confirm our client has received from your client the 10% deposit in relation to the purchase of the above business.
2.We understand that your client directly deposited the funds into our client’s account and we will make arrangements with our client to ensure that the funds are placed into an interest bearing deposit.
3.In the interim we would be pleased if you would provide us with details of your client’s tax file number.
4.In relation to the sale we confirm that it is a sale of going concern and GST will therefore not be applicable.
In the interim we advise that we will forward today to you by express post the following documentation:
(a)Copy of Deed of Assignment of Lease;
(b)Copy of current Lease of the premises;
(c)Copy of current Certificate of Registration of a brothel and escort agency under the Prostitution Act 1992.
(d)Sale of Business Agreement for your clients’ execution.
We understand that your client has already made contact with the Landlord (Chris Vizovitis) and has commenced discussions in relation to the transfer of lease.
In the interim should there be any queries please do not hesitate to contact the writer otherwise we would be pleased to receive duly executed Contract for the Sale of Business in due course.
Nexstar produced a document on discovery described as an undated handwritten file note. It appears to me to be in the handwriting of one of the lawyers working for Lewenberg who was dealing with the transaction, although it is not described in that way in the list of documents filed by Nexstar. It was probably written by Mary Altavilla who was, at that time, an employee of Lewenberg. The file note records the fact that the “lease” (referring to the sublease from Mr and Mrs Lee to Ms Ponga) was for a term commencing on 1 April 2004 and ending on 31 March 2009. The note records that the term of the lease had three years left to run. The note also records the fact that the sublease contained an option to renew for a further five years. The file note also records that the brothel and escort agency licence was in respect of Unit 6 only and makes mention of Unit 4. It follows that Nexstar, Mr Campbell and Fulvio Gobeo were all well aware by no later than the end of August 2006 of the existence of the sublease, of the identity of the parties to the sublease and of the essential terms of the sublease. They all also knew that Danel was in occupation of Unit 6, apparently pursuant to the sublease.
By letter dated 1 September 2006, Lewenberg wrote directly to Mr Vizovitis. In that letter, Lewenberg said:
RE: PREMISES AT 72 BARRIER STREET FYSHWICK ACT
OPERATING UNDER THE NAME OF “TIFFANY’S”
OUR CLIENT: DAVID CAMPBELL & FULVIO GOBEO PROPOSED PURCHASE FROM DANEL INVESTMENTS PTY LTD
We wish to advise that we act on behalf of the abovenamed who in the process of negotiating Contract of Sale for the purchase of the above business situate at the above premises.
Accordingly, we would be grateful if you would provide us with a copy of the Lease and details of any information that you may require in respect of the Purchasers in order that we may then arrange for Transfer of Lease to be prepared. The purchasers intend to nominate a company to purchase the business.
In the meantime we would also be grateful if you would advise us as to whether there are any amounts that you require to have adjusted prior to the settlement date.
At this juncture settlement is anticipated (subject to all transfers being effected) to be effected on the 1st of October 2006.
Should you have any queries or require or require further clarification please do not hesitate to contact Mr. Alex Lewenberg or Mrs. Mary Altavilla of this office.
By letter dated 4 September 2006, Lewenberg responded to the letter from WMW dated 30 August 2006. Their response was in the following terms:
RE:DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD
TIFFANY’S IN ACT
We thank you for your letter of 30th of August last enclosing documentation.
Please note that the Purchasers wish to nominate a company to purchase the business and accordingly, we would be grateful to have your advice as to whether the Purchasers in the Contract of Sale may be amended to read David Campbell and Fulvio Gubeo and/or nominee.
The Contract of Sale is also to be subject to Transfer of Brothel and Escort Agency Licence number 16500208.
We advise that our clients have made application for Transfer of the Licence, have completed all Police checks and are now awaiting response from the Federal Police to notify the Department of acceptance of our clients. As soon as we receive a response we will advise you immediately in order that the settlement of the sale may proceed.
We note that the Licence and Lease is in respect of Unit 6 on Subleasing Plan number 106. Please provide urgently a copy of the Plan in order that our clients may identify the property being leased. We are advised that the address provided to our client was number 4, 72 Barrier Street.
In the meantime we advise that we are preparing Transfer of the Lease and will then forward Contract of Sale together with Transfer of Lease for execution by the parties in anticipation of settlement shortly.
In the meantime we would be grateful if you would ascertain from the Landlord as to whether the existing terms of the current Lease, when preparing the Transfer of Lease, may be varied to provide for another further term of five years.
We await your urgent advice.
On the same day (4 September 2006), WMW wrote to Lewenberg in the following terms:
RE:DANEL INVESTMENTS PTY LTD – SALE TO CAMPBELL & GOBEO – BUSINESS OF TIFFANYS IN ACT
We refer to the above and to previous correspondence; please advise if you have forwarded the duly executed counterpart contract.
Once we receive your executed Contract we will attend to the formal exchange of Deeds.
Should you have any queries please do not hesitate to contact the writer.
By 4 September 2006, Mr Neluschi was pressuring Mr Campbell to settle. This pressure was being applied in circumstances where no exchange of the Agreement for Sale of Business had yet taken place. At around this time, Mr Campbell was discussing with “Renee” at Lewenberg the possibility of him and Fulvio Gobeo obtaining a lease for the adjacent vacant suite on the same level as Unit 6 (viz Units 1–5).
On 5 September 2006, Lewenberg wrote to Mr Vizovitis in the following terms:
RE:PREMISES AT 72 BARRIER STREET FYSHWICK ACT
OPERATING UNDER THE NAME OF “TIFFANY’S”
OUR CLIENT: DAVID CAMPBELL & FULVIO GOBEO PROPOSED PURCHASE FROM DANEL INVESTMENTS PTY LTD
Further to our letter of 1st September last we are advised by our client that there is another premises available in the same building for Lease.
We are instructed by our clients to request your advice as to whether you would be prepared to Lease to our clients the other premises for a period of 5 years with two further options of 5 years each, on the following terms and conditions:
1.6 months rent free period to enable our clients to complete fitout of the premises.
2.18 months at a rental of $200.00 per week.
3.Following the initial 18 month period, rent be increased to $400.00 per week.
We would also be grateful to have your advice as to whether the Lease which our clients will be taking transfer of on settlement of the purchase of Tiffany’s conducted at the above premises, the term be extended to provide for a further option of 5 years.
We await your urgent advice.
On 5 September 2006, Mary Altavilla spoke with Mr Parisi of WMW. The upshot of that conversation was that, when Lewenberg had completed their searches, they intended to send to him the Agreement for Sale of Business, Transfer of Lease and Transfer of Business Names.
The next day, 6 September 2006, Lewenberg sent a letter to WMW which was in the following terms:
RE:DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD
TIFFANY’S IN ACT
We refer to previous correspondence and advise that we will now amend the Contract of Sale to note the Purchaser as Nexstar Investments Pty Ltd ACN 121 568 454, of Level 1, 340 Little Lonsdale Street Melbourne.
In the meantime, please provide inventory as to the plant and equipment being sold with the business as this has not been provided for in the Contract of Sale.
The Contract of Sale will also be amended to note that the sale is subject to Transfer of Licence registration number 16500208 to our client.
Please also urgently advise as to whether there is a Mortgage in respect of the above premises. If there is a Mortgage, please provide Mortgagees Consent urgently. We are currently undertaking searches.
Kindly confirm the amendments.
We also enclose herewith draft Transfer of Lease for your perusal and approval.
As soon as we receive your advice in relation to the Contract of Sale the documents will be executed and forwarded to you express post in anticipation of exchange.
We await your urgent advice.
There was tendered in evidence a form of Transfer of Lease relating to Unit 6 to which the parties were Mr and Mrs Vizovitis, Danel and Nexstar. This document was produced from the possession, custody or control of Danel. This document is found at pp 61–67 of Vol 1 of the plaintiff’s Tender Bundle (Exhibit A1). As tendered in evidence, the document is executed by Mr Neluschi, on behalf of Danel, by Messrs Campbell and Fulvio Gobeo, on behalf of Nexstar, and by Mr Campbell and Fulvio Gobeo on their own behalves. The document in evidence has not been signed by either Mr or Mrs Vizovitis. The transfer relates to a transfer of Unit 6. It appears to be undated. It purports to effect a transfer of the sublease from Danel to Nexstar. The document is drawn upon the basis that Danel was the lessee under the sublease.
On 7 September 2006, Lewenberg wrote to WMW in the following terms:
RE:DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD
TIFFANY’S IN ACT
We refer to previous correspondence and are instructed by our client that the sale is subject to Transfer of Business names Tiffany’s Studio, Gentlemen for Ladies and Homeboyz.
We note that business names Gentlemen for Ladies and Tiffany’s Studio are registered in the name of Jillian Norma Ponga.
Accordingly, we enclose herewith particulars of business name duly completed and would be grateful if you would arrange for Jillian Norma Ponga to sign the forms in readiness for you to provide to us as settlement. The forms will then be signed by our clients and registered following settlement.
Please confirm that the particulars will be available for collection at settlement on the 1st of October 2006.
In the meantime we note that the Transfer of Lease document forwarded to this office has not been signed by the Landlord. Please ensure that the original Lease and Transfer of Lease are signed by all parties and available for collection on or before the 1st of October 2006.
Please ensure that the Deed of Assignment is also signed by Angelo Nerushchi on behalf of Danel Investments Pty Ltd on the first page of the execution page.
We await your urgent response.
On the same day, a second letter was sent by Lewenberg to WMW. This letter was in the following terms:
RE:DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD
TIFFANY’S IN ACT
Further to our recent correspondence and subsequent discussions we confirm that all documentation has been delivered to the ACT Office of Fair Trading and are informed by the Office of Fair Trading that they are presently awaiting results of the Federal Police Report to be forwarded to the department. In all other respects all application forms have been completed in readiness for the Transfer of the License.
In the meantime we enclose herewith the following:-
1.Contract of Sale duly signed by the Director and Secretary of the Purchaser Company. Please note the amendments made namely:
a) Name of Purchaser.
b) Completion of Clause 9.1.1 and 9.1.2.
c) Inclusion of Clause 40.
2.Amendment to Item 3 of the Schedule.
The above contract is forwarded to you subject and conditional upon inventory as requested in our previous correspondence being forwarded.
Kindly forward identical Contract of Sale signed by the Vendors together with copy of inventory to complete exchange.
3.Transfer of Lease in triplicate duly signed by the New Tenant and New Tenants Guarantors for execution by the Vendor and Landlord.
4.Notification of change in Ownership or Control of Brothel and Escort Agency is to be signed by your client as the old owner and returned to us together with exchange of Contracts.
We confirm that you will hold these documents in Trust pending completion of Searches.
When returning the Contract of Sale please also forward Transfer of Business name in respect of:-
a) Gentleman for Ladies.
b) Homeboys
c) Tiffany’s Studio.
We await your urgent response.
On the same day (7 September 2006), Lewenberg forwarded an application for a brothel licence to the ACT Office of Fair Trading. The applicant was Nexstar. In the covering letter sent to the Office of Fair Trading, Lewenberg said that Nexstar was in the process of negotiating completion of a purchase of the above business (referring to Tiffany’s at Unit 6).
On 7 September 2006, Lewenberg sent to Mr Vizovitis a further copy of their letters to him dated 1 September 2006 and 5 September 2006.
On 7 September 2006, Mr Vizovitis spoke with Ms Altavilla. Ms Altavilla made a file note of that conversation. The last two paragraphs of that file note recorded the following:
Chris advised that he had spoken to our clients, he had offered them the premises at number 4 and they advised that the rental was too much. Advisng Chris that proposals in our letters will set out what our clients required and if acceptable to him he would contact us.
He also advised that as far as he is aware the original Transfer of Lease has not been assigned but that was not his problem he won’t cancel that. He still wants the lease to run its term and once that lease expires if our clients lease the other premises, he will talk to them about a new lease. He consents to them taking over, he is happy with them and did not seem to require any further information.
On 8 September 2006, by letter sent by way of express post, Lewenberg applied to the Registrar-General on behalf of Nexstar to register the business name “Homeboyz”. That application to register that business name was signed by Mr Campbell and by Fulvio Gobeo.
Obviously, by that time, Lewenberg, Mr Campbell and Fulvio Gobeo had all realised that the registration of that business name had lapsed.
On or about 9 September 2006, Ms Pevreal sent a letter on the letterhead of Danel. The letter does not identify the person or organisation to whom it was sent.
Having regard to the contents of the letter, it is fairly obvious that it was sent to Mr Parisi of WMW. It was sent at a time when no exchange of the Agreement for Sale of Business between Danel and Nexstar had taken place and when difficulties were starting to emerge with that transaction. The letter was in the following terms:
As you know the actual lease hasn’t been assigned to us because we didn’t return it to the Landlord’s solicitor.
•Even though we had the landlord’s consent to the assignment initially, could he now refuse to assign the lease to us? If this was the case am I right in assuming that we have no business to sell if the landlord won’t grant a lease to the premises, which is acceptable to the purchasers?
•The Deed of Assignment has been signed by Jillian Ponga, from whom we purchased the business, but hasn’t been signed by the Landlord. Can he refuse to sign it?
•Wouldn’t this mean that the Lease still exists but is in Jillian Ponga’s name – but this wouldn’t null and void the lease’s existence will it?
I have forwarded the Lease Assignment to you by Express Post today. I have signed it but Angelo hasn’t. When you have it I will ask Angelo to call in and sign it in your offices.
•Another area of concern for me is if the purchaser pulls out and in the worst case scenario, we have to walk away from the business, I thought that not have an executed assignment of lease would limit any further liability regarding payment of rent under the term of the lease. If we sign the assignment and the purchaser pulls out, are we then liable for rent for the duration of the lease until somebody else takes over the premises (presumably free of charge as we wouldn’t be operating any business there)?
I will call you later today to discuss my concerns with you.
Regards
Alyson Pevreal
The letter extracted at [134] above contained various thoughts of Ms Pevreal in respect of which she sought advice from WMW. The questions which were asked were pertinent. However, I do not regard the note as setting out decisions to which Ms Pevreal and Mr Neluschi had already come. Obviously, by 9 September 2006, they were both very concerned that the transaction may not, in fact, go ahead.
On 12 September 2006, WMW wrote to Lewenberg. That letter was in the following terms:
RE:DANEL INVESTMENTS PTY LTD –SALE TO CAMPBELL & GOBEO – BUSINESS OF TIFANYS IN ACT
We refer to the above and to previous correspondence in particular your letter of 7th September, 2006.
We confirm that we have received from you your clients’ duly executed Contract for the Sale of Business.
We advise that we are holding the Contract in escrow subject to finalisation of the sale terms and conditions.
In this regard we advise that our client has instructed us that they will only agree to the sale of the business on the basis that completion shall be the earlier of 1st October, 2006 or upon the transfer of the Brothel and Escort Agency registration number 16500208.
Should this be in order then we would be pleased to receive your confirmation that we may make the necessary arrangements to exchange Contracts by altering the Special Condition.
In addition we advise that the Contract that was executed by your client has since been updated to include the Inventory.
We now enclose a copy of the Inventory and ask that you confirm that we may insert the Inventory into the executed Contract prior to exchange.
On 13 September 2006, Rod Barnett sent a facsimile transmission to Lewenberg. That facsimile transmission was in the following terms:
I therefore find that the sublease remained on foot at all relevant times and was not abandoned.
It follows that, after about 20 November 2006, Danel stood in the shoes of Ms Ponga under the sublease.
A lessee does not necessarily abandon leased premises just because he or she ceases to carry on at those premises the same business that might have been carried on there in the past, even for a long time. If the lessee ceases to carry on such business but leaves his or her belongings there or leaves there the fixtures, fittings, plant and equipment which had previously been used in the business, it is unlikely that the mere cessation of trade would be held to constitute abandonment (Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] 2 VR 505 at 516).
Furthermore, even if items are removed from the premises, that fact alone will not necessarily constitute abandonment. A clear indication that the lessee has walked away from the premises and from his or her obligations under the lease is required. Mr and Mrs Vizovitis have fallen well short of proving any such thing. There was, after all, no suggestion in the communications between WMW and Rod Barnett leading up to December 2006 that Danel was going to abandon the premises and its obligations under the sublease. Although Ms Pevreal may have toyed with the idea of doing so in early September 2006, I find that neither she nor Mr Neluschi ever actually decided to cause Danel to walk away from its obligations or from the premises.
Damages
At some time between about 8 December 2006 and 23 December 2006, workers retained by Nexstar went into the first floor area of the Barrier Street property and began to carry out building works there. They amalgamated Units 1–5 and Unit 6 and demolished the rooms and designated areas within Unit 6. In the course of carrying out that work, those workers destroyed or damaged the fixtures and fittings in Unit 6 and much of the furniture, plant and equipment kept there.
By 2 January 2007, it would have been impossible for Danel to re-occupy Unit 6 and conduct the brothel business from those premises without first undertaking a considerable amount of reconstruction and repair work. Any attempt to retake possession would have met stiff resistance from Nexstar and probably also from Mr and Mrs Vizovitis.
Had Danel attempted to conduct the brothel business from other premises, those other premises would have to have been found, secured and fitted out before the business could begin to operate. New equipment would have had to have been acquired. New marketing would have had to have been undertaken. The goodwill of “Tiffany’s” was probably very much associated with its location in the Barrier Street property.
Nexstar and its construction workers took possession of Units 1–5 and Unit 6 because Nexstar had been granted a sublease over Units 1–5 and Unit 6 by Mr and Mrs Vizovitis. Mr and Mrs Vizovitis’ conduct in granting those subleases was the principal enabling factor in Nexstar’s taking possession of those premises and treating them as their own. I find that Mr Vizovitis was well aware by December 2006 that Nexstar intended to take possession of Units 1–5 and Unit 6 and to carry out building works there with the express intention of physically amalgamating the two areas covered by Units 1–5 and Unit 6.
The conduct of Mr and Mrs Vizovitis in granting a sublease of Unit 6 to Nexstar and in approving and facilitating the taking of possession of Unit 6 by Nexstar constituted a breach of cll 2.1.1, 2.1.2, 2.1.6 and 46 of the sublease. Those breaches caused Danel to lose the entire brothel business. There was no real prospect that the business could be re-established at the Barrier Street property or elsewhere for some considerable time. To attempt to do so was problematic.
In Kintella Pty Ltd v Scotte t/as Scotte’s City Walk 1 Hour Photo [1999] ACTSC 100, the facts of which were somewhat different from those in the present case, Crispin J held that the measure of damages for breach of the covenants for quiet enjoyment and exclusive possession involved assessing the difference between the position in which the plaintiff would have been if the wrongful act had not occurred and the position in which the plaintiff has been placed as a result of the wrongful act. In that case, the plaintiff was in default under the lease and liable to be evicted. It had tried to sell its business for several months but had been unable to do so. All that it had was a chance that it might have sold the business had the lessor not breached the lease. Crispin J valued that chance at a much lower figure than the full value of the business.
In the present case, the critical wrongful act was knowingly permitting Nexstar and its employees and subcontractors to take possession of Unit 6, to demolish the wall between Unit 6 and Units 1–5 and to destroy the configuration of Unit 6 with the concomitant destruction of and damage to the fixtures, fittings, goods and chattels located within Unit 6. The granting of a sublease of Unit 6 to Nexstar was only a step along the way but was nonetheless a step which facilitated the physical acts perpetrated by Nexstar and its construction workers. It was the demolition activities which caused the total loss of Danel’s brothel business. Those activities were carried out with the knowledge and approval of Mr Vizovitis who facilitated them. This is not a case where some third party has entered the premises and caused damage in circumstances where the lessor had no involvement in that occurrence and was not aware of it until after the event.
Mr and Mrs Vizovitis are to be held responsible for the conduct of Nexstar.
Danel is entitled to receive the full value of its lost brothel business and its lost sublease as at December 2006.
Counsel for Danel submitted that I should assess the value of that business at $80,000 being the amount which a real purchaser (Nexstar) had agreed to pay in the second half of 2006. Counsel for the defendants submitted that the business was floundering and was close to failing completely.
It is clear that the breaches of contract (breaches of covenant) which I have found do not entitle Danel to recover the value of the lost sale to Nexstar. Those breaches did not cause that sale to go off. There were no doubt many reasons for that outcome. However, I do not need to investigate those reasons for present purposes.
Counsel for Danel puts a simple proposition: The conduct of Mr and Mrs Vizovitis caused Danel to lose its entire business and its sublease and the value of that business and sublease was $80,000 in December 2006 because that was the price struck in an arm’s length transaction only a few months before the loss occurred.
I think that this submission is correct and I propose to accept it.
The evidence established that three cheques were sent by Danel to Mr and Mrs Vizovitis after 1 January 2007 as payments due under the sublease. Two were for rent (ie the rent due on 1 January 2007 and the rent due on 1 February 2007) and one was for a cash bond payment of $5,314.20.
Section 22(1) of the Leases Act provides:
22 Prohibited conduct in dealings
(1) A party to a lease, or a party to negotiations for a proposed lease, must not, in dealings with another party to the lease or negotiations, engage in conduct that is unconscionable or harsh and oppressive.
In Kintella Pty Ltd at [31], Crispin J held that if the wrongful conduct is “illegal” in the sense that it constitutes a breach of contract, there is no room for s 22(1) to operate. His Honour held that the true area of operation of the section is where the conduct does not amount to a breach of contract or the commission of a tort but is nonetheless unconscionable or harsh and oppressive. I am content to follow the reasoning of Crispin J on this point. However, I think that it is both unconscionable and harsh and oppressive for Mr and Mrs Vizovitis to retain any payments made to them by Danel after 1 January 2007 given that Danel was excluded from Unit 6 and not permitted to enjoy the benefits accorded to it under the sublease.
Danel does not need to rely upon s 81 of the Leases Act in the present case. I, therefore, propose to put s 81 aside.
There will be a verdict and judgment in favour of Danel against Mr and Mrs Vizovitis for the total of the following amounts:
(a) $80,000 being the value of the lost brothel business and the lost sublease;
(b) The sum of all payments made by Danel to Mr and Mrs Vizovitis after 1 January 2007; and
(c) Pre-judgment interest on the total of the amounts referred to in (a) and (b) above at the rates provided in the Rules of Court for such interest, such interest to be calculated in respect of the period from 1 January 2007 up to the date when final orders are made.
Costs
Mr and Mrs Vizovitis must pay Danel’s costs of proceeding No SC 470 of 2007, including the costs of the hearing before me.
In his letter to Lewenberg dated 13 September 2006 (which is set out at [137] above), Rod Barnett asserted that Danel had no security of tenure in respect of Unit 6. That communication was the catalyst for the Nexstar interests to pursue more vigorously the grant of a new lease directly to Nexstar in respect of Unit 6.
Subsequently, Rod Barnett took steps to procure a surrender of the sublease at the very same time as co-operating with WMW to secure the signatures of all relevant parties on the long outstanding Deed of Assignment.
Both Rod Barnett and Mr and Mrs Vizovitis actively pursued the prospect of granting a sublease of Unit 6 to Nexstar when they were well aware of the existence of the sublease, the fact that Ms Ponga had agreed to assign the sublease to Danel, the fact that Danel was in occupation of Unit 6 and paying rent for that privilege and the fact that Danel was assiduously trying to consummate the sale of the brothel business to Nexstar believing that Mr and Mrs Vizovitis would co-operate in sorting out the difficulties which existed in respect of the Deed of Assignment between Ms Ponga and Danel. Rod Barnett’s conduct in not alerting Danel to what was really going on in the period from late September 2006 in the dealings between Mr and Mrs Vizovitis and Nexstar was, at the very least, sharp practice. The conduct of Rod Barnett and his clients in leading Nexstar to believe that Danel did not have security of tenure over Unit 6 was the principal reason that the present litigation was commenced and pursued.
In my view, the matters to which I have referred at [307]–[310] above justify an award of indemnity costs. I propose to order that Mr and Mrs Vizovitis pay Danel’s costs on an indemnity basis.
In order to ensure that the amount of the judgment which I direct to be entered accurately reflects these Reasons for Judgment, I will not fix the quantum of that judgment today but will invite the parties to submit their respective calculations of the amount of the judgment which each contends that I should order. Each party may support their respective calculations with a submission of no more than two pages. I will then determine the amount of the judgment on the papers.
The Case Against Nexstar, Mr Campbell and Fulvio Gobeo
Some General Observations
In this proceeding, Danel has not alleged that Nexstar or, alternatively, Messrs Campbell and Fulvio Gobeo, ever became bound under a legally binding contract to purchase the brothel business from Danel. No such allegation had been made in the proceeding at any time before the commencement of the hearing. On the second day of the hearing, an application to amend the Statement of Claim was made by Danel. One of the amendments sought was an amendment to include a claim for breach of contract. I refused leave to include such an amendment on the ground that it would be futile and, in any event, that it was sought to be made too late.
In addition, Danel has not sued any of the defendants in this proceeding for damages for trespass, for interference with Danel’s contractual relations with Mr and Mrs Vizovitis (constituted by the sublease and the Deed of Assignment) for breach of s 51AC of the TPA (or its ACT equivalent) or for any other tort.
The Misleading and Deceptive Conduct Case
The conduct relied upon as constituting misleading or deceptive conduct or conduct that was likely to mislead or deceive is pleaded in paragraphs 15, 16 and 17 of the Statement of Claim. The essence of the complaint is that Nexstar, through either or both Mr Campbell or Fulvio Gobeo, told Mr Vizovitis that “… they or some of them intended to purchase or had purchased the plaintiff’s business and that in the circumstances the plaintiff would not object to the issue of the sublease referred to in paragraph 15 above in favour of the first defendant [Nexstar] and that the issue of such a sublease was appropriate in all the circumstances”.
Danel was unable to commit itself to a particular time when the alleged representation pleaded in par 16 of the Statement of Claim was made nor was it able, with any degree of precision, to articulate the terms of the representations. Fulvio Gobeo denied misrepresenting the position to Mr Vizovitis concerning the proposed sale of business.
The documentary record discloses that, right from the start, both WMW and Danel were aware that Mr Campbell and/or Fulvio Gobeo were proposing to speak with Mr Vizovitis about the possibility of obtaining a lease of the entire premises including Units 1–5. The matter was specifically adverted to in the letter from WMW to Mr Campbell and Sam Gobeo dated 11 August 2006. Of course, at the commencement of the dealings between the Campbell interests and Danel, the context in which that approach to Mr Vizovitis was to be made was the sale of the business by Danel to the Campbell interests. In effect, the expectation of Danel was that, provided that the sale of business was completed, it was a matter for the Campbell interests as to whether they took a transfer of the sublease or entered into a fresh lease with Mr and Mrs Vizovitis. Nonetheless, Mr Neluschi, Ms Pevreal and Mr Parisi were all well aware that there would be contact between representatives of the Campbell interests and Mr and Mrs Vizovitis with a view to discussing the possibility of those interests taking a fresh lease over the entire premises.
In those circumstances, the circumstance that an approach was ultimately made by the Campbell interests to Mr and Mrs Vizovitis could hardly be said to be misleading or deceptive as it was entirely within the range of expectations which Mr Neluschi and Ms Pevreal had at the time.
The first approach to Mr Vizovitis appears to have been made on behalf of the Campbell interests by Lewenberg by way of their letter dated 5 September 2006. In that letter, Lewenberg raised the possibility of their clients taking a lease of Units 1–5 for a period of five years with two further options of five years each.
As Lewenberg’s enquiries progressed and searches were carried out, from about 7 or 8 September 2006, Lewenberg and the Campbell interests became aware that a number of matters which they would have expected to have been attended to following completion of the sale of the business from Ms Ponga to Danel had not, in fact, been attended to. The business name registration of the business name “Home Boyz” had lapsed. The brothel licence was fast approaching its expiry date and, most critical of all, Danel appeared to have neglected to perfect the assignment of the sublease from Ms Ponga to it.
On or about 13 September 2006, Lewenberg received the facsimile transmission from Rod Barnett which I have extracted at [137] above. This was Rod Barnett’s first correspondence with Lewenberg concerning this transaction. He took the opportunity to plant the idea into the thinking of the Campbell interests and that of their solicitors, Lewenberg, that Danel did not have security of tenure in respect of Unit 6. He wrongly asserted that Danel did not occupy Unit 6 under the terms of the sublease.
This was the first indication that Mr Campbell, Fulvio Gobeo or Lewenberg had received that Danel may not have the capacity to transfer secure tenure in respect of Unit 6 to the Campbell interests. It is likely that this assertion made by Rod Barnett, who, after all, was the solicitor for Mr and Mrs Vizovitis, the landlords, troubled the Campbell interests a good deal. It was Rod Barnett who planted the seed in the minds of the Campbell interests that the sale of business agreement could never be completed because Danel would inevitably be unable to guarantee tenure of Unit 6. This idea was reinforced from time to time thereafter (eg see Rod Barnett’s letter to Lewenberg dated 21 September 2006 which is set out at [139] above). Rod Barnett went even further in that letter suggesting that Danel was in occupation only as a “monthly tenant”. Rod Barnett informed Lewenberg that his clients were prepared to grant a fresh lease in respect of the entire first floor or two fresh leases, one in respect of Units 1–5 and one in respect of Unit 6.
Thereafter, the Campbell interests initially informed Rod Barnett that they would proceed with a fresh lease of Unit 6 but were not prepared to go ahead with Units 1–5 because the rent being sought by Mr and Mrs Vizovitis was too high. Ultimately, a decision was made by the Campbell interests to take a lease of Units 1–5 as well.
Rod Barnett and Lewenberg then set about finalising a fresh lease for Unit 6 and, once a decision was made by the Campbell interests to take a lease of Units 1–5, to finalise a lease of those units. The decision by the Campbell interests to proceed to take a lease of Units 1–5 was made on or about 13 October 2006.
Neither Mr Vizovitis nor Mrs Vizovitis gave evidence at the trial. Neither did Mr Barnett.
There is very little evidence, apart from the documentary record contained in Exhibits A1, A2 and A3, of the dealings between the Campbell interests and Mr Vizovitis, on behalf of himself and his wife, in the period from early September 2006 to about mid October 2006, by which time the plan to take two fresh leases was fairly much set in stone.
Fulvio Gobeo gave evidence at the trial and persistently asserted that the only reason that Nexstar, Mr Campbell and he behaved as they did was that they had been assured by Rod Barnett and by Mr Vizovitis that Danel did not have security of tenure. He also denied making the pleaded representations to Mr Vizovitis. In any event, Fulvio Gobeo had reached the stage by mid to late September 2006 of thinking that Danel would never be in a position to complete the sale of business transaction and that he and his associates were perfectly entitled to deal directly with Mr and Mrs Vizovitis.
The above chronology of events supports a conclusion that it was Rod Barnett who set the hares running down the path which culminated in the events of early to mid December 2006. It was he who, time and again, told Lewenberg that Danel did not have security of tenure. The evidence does not go so far as to explain whether Rod Barnett was acting as he did on the express instructions of Mr Vizovitis or whether he acted as he did in the interests of Mr and Mrs Vizovitis but without express instructions. In the end, it does not matter whether Rod Barnett was acting on express instructions, or not.
There was no evidence to suggest that the dealings between Rod Barnett and Mr Vizovitis, on the one hand, and the Campbell interests and Lewenberg, on the other hand, after about mid September 2006 whereby a lease of the whole of the first floor or, alternatively, two fresh leases, one of Unit 6 and one of Units 1–5, were under discussion, were predicated upon the proposition that Nexstar had a binding contract for the sale of the brothel business with Danel and either would settle that contract or, alternatively, had already settled that contract.
The pleaded case for misleading and deceptive conduct has not been made out on the evidence. More importantly, I think that the pleaded case is inconsistent with what was actually going on at the time. The Campbell interests were told, and no doubt believed, that Danel did not have security of tenure in respect of Unit 6. In addition, they had come to learn that there were other difficulties with the proposed sale of business transaction. If what Rod Barnett was telling Lewenberg were true, the Campbell interests were free to attempt to secure a fresh lease of the entire first floor or two fresh leases, one in respect of Unit 6 and one in respect of Units 1–5.
The misleading and deceptive conduct case fails.
The Unconscionable Conduct Case
As pleaded, the unconscionability case is based upon “… the unwritten law of the Australian Capital Territory”. The cause of action pleaded, therefore, is not one which has its source in any statute. A statute forms part of the written law of a polity.
Danel appears to rely upon equitable doctrines of the kind explained by the High Court in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. The concept which underlay the decision in that case was that it was unconscientious for the bank to take advantage of a special disability under which the mortgagors found themselves in their dealings with the bank, that disability having been known to the bank. In effect, the High Court held that the bank could not take advantage of that special disability.
There is no special disability in this case of the type which was considered in Amadio. The participants in the dealings amongst the parties were all relatively sophisticated commercial people, each of whom was represented by a firm of solicitors. The difficulties in which Danel found itself in its dealings with the Campbell interests in late 2006 were largely of its own making: It had failed to perfect the assignment of the sublease, it had not secured registration of the relevant business names, it was running the gauntlet to some extent on the renewal of the brothel licence and it seemed to be insensitive to the growing frustration of the Campbell interests which developed as the above matters were progressively revealed.
The claim in equity based upon the principles explained in Amadio or akin to those principles must fail.
Passing Off
The evidence discloses that, from about March 2007, Nexstar traded from the whole of the first floor of the Barrier Street property as a brothel under the name “Tiffany’s”. The external badging of that business by means of a neon sign on the front of the building remained as it had been when the business was conducted by Danel. Nexstar’s advertising of the business utilised names which were close to the business under which Danel had operated during its occupation of Unit 6.
However, by March 2007, Danel had ceased to trade. There was no business in existence as at that date which could be passed off by Nexstar. Further, and in any event, the damages claimed by Danel (the loss of the value of the brothel business and the loss of the sublease) were not caused by the actions of Nexstar post March 2007. Rather, the loss and damage for which Danel seeks compensation in this proceeding was caused by the seizing of possession by Nexstar in about mid December 2006 and the demolition and refurbishment of the first floor of the Barrier Street property which necessarily involved the demolition of the various rooms contained within Unit 6.
For these reasons, the passing off case also fails.
Exemplary or Aggravated Damages
All of the pleaded causes of action raised by Danel against Nexstar, Mr Campbell and Fulvio Gobeo have failed. There is no occasion to consider any award of exemplary or aggravated damages. In any event, I very much doubt whether such an award could conceivably be made in respect of the claims made by Danel in this proceeding.
The $8,000 Deposit
Danel has completely failed as against the defendants in this proceeding. There is no basis upon which it can continue to retain the $8,000 deposit paid by Nexstar to it in July or August 2006. That deposit must be refunded together with interest calculated at the rates prescribed under the Rules of the Court.
Costs
Danel has failed completely as against the defendants in this proceeding and would ordinarily suffer an order for costs accordingly.
However, it seems to me that, when appropriate regard is had to the course of dealings amongst the parties to this litigation, it was not inappropriate for Danel to bring the present proceeding in circumstances where it was not, and could not be, aware of the precise dealings which had occurred between the Vizovitis interests and the Campbell interests concerning Units 1–5 and Unit 6 in the period from about mid September 2006 up to about mid December 2006. As Counsel for Danel submitted, it was not readily apparent to his client which of the two camps were the real villains in the piece or, indeed, whether they both were.
Having considered the documentary record and the other evidence in both proceedings, I am satisfied that the root cause of the conduct of Mr and Mrs Vizovitis and the Campbell interests in seizing possession of the whole of the first floor of the Barrier Street property and excluding Danel from Unit 6 was the repeated assertion made by Rod Barnett to Lewenberg to the effect that Danel did not have tenure in respect of Unit 6. The consequences of that assertion, once made, included some rather crude attempts on the part of Rod Barnett to make good the assertion. For example, at the very same time as he and his clients assisted Danel to secure and execute a Deed of Assignment of the sublease from Ms Ponga to it, Rod Barnett attempted to procure a surrender of that sublease, no doubt in an endeavour to render nugatory the Deed of Assignment which he had co-operated in finalising. In addition, at various points in the course of dealings amongst the parties, Rod Barnett attempted to cover up the role which he had played in causing the lock out of Danel. He was the source of the idea that Danel had abandoned Unit 6. Apparently, he suggested to Lewenberg that Danel was in arrears of rent in late 2006. He even suggested to WMW, quite late in the piece, that perhaps Danel would be better off accepting its eviction and suing for damages for breach of contract.
In my view, it would not be reasonable to visit the costs of this proceeding on Danel. I have considered whether it would be appropriate to order that Danel pay the defendants’ costs of this proceeding and that Danel should recover, as part of the costs which I propose to order in respect of proceeding No SC 470 of 2007, the amount which it is ordered to pay the defendants in this proceeding. I think that such an approach is rather cumbersome and pays too much regard to the formalities of the structure of the two sets of proceedings.
The substance of the matter is simply this: Rod Barnett and his clients actively pursued a course of action which was wrongful in the sense that it constituted a breach of the sublease which entitled Danel to relief. That wrongful conduct was the principal reason that Danel was compelled to bring this proceeding, given that it was not really in a position to know which of the two camps on the other side of the dealings was truly responsible for the destruction of its tenancy. I have held that the root cause of the destruction of that tenancy was the conduct of Rod Barnett and his clients. I think that I should address the question of costs directly. The proceedings were heard at the same time, with evidence in one being evidence in the other. The substance of the matter is that the proceedings were essentially one proceeding brought by the same plaintiff against two groups of defendants.
In those circumstances, I propose to order that Mr and Mrs Vizovitis pay the costs of Nexstar, Mr Campbell and Fulvio Gobeo of and incidental to this proceeding.
Orders
As with the proceeding brought by Danel against Mr and Mrs Vizovitis, I will defer making orders today and will direct the parties to submit orders which they contend reflect these Reasons for Judgment in accordance with the timetable matching the timetable I propose to direct in respect of the other proceeding.
There will be orders accordingly.
I certify that the preceding three hundred and forty-eight (348) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Foster.
Associate:
Date: 28 July 2011
Counsel for the plaintiff: Mr J Pappas
(SC 256 of 2007 and SC 470 of 2007)
Solicitor for the plaintiff: Ben Aulich & Associates
(SC 256 of 2007 and SC 470 of 2007)
Counsel for the defendants: Mr G Blank
(SC 470 of 2007)
Solicitor for the defendants: DibbsBarker
(SC 470 of 2007)
Counsel for the first and third defendants: Mr RP Clynes
(SC 256 of 2007)
Solicitor for the first and third defendants: Phelps Reid
(SC 256 of 2007)
Counsel for the second defendant: Mr S Whybrow
(SC 256 of 2007)
Solicitor for the second defendant: Goodman Law
(SC 256 of 2007)
Dates of hearing: 19, 20, 21 and 22 July 2010
Date of judgment: 28 July 2011
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