Drivas Lakes P/L v Savage
[2014] QDC 188
•22 August 2014
DISTRICT COURT OF QUEENSLAND
CITATION:
Drivas Lakes P/L v Savage [2014] QDC 188
PARTIES:
DRIVAS LAKES PTY LTD
ACN 110 117 149(appellant)
v
CARMEL ELIZABETH SAVAGE
(respondent)
FILE NO/S:
Appeal 604/14 M13244/2010
DIVISION:
District Court Appellate
PROCEEDING:
Civil appeal
ORIGINATING COURT:
Magistrates Court at Brisbane
DELIVERED ON:
22 August 2014
DELIVERED AT:
Brisbane
HEARING DATE:
1 and 12 August 2014
JUDGE:
Andrews SC DCJ
ORDER:
Appeal allowed.
Decision of the Magistrates Court dated 24 January 2014 set aside.
Judgment for the respondent against the appellant in the sum of $89,504.48.
Order that the respondent pay the appellant’s costs of the appeal on the standard basis but so as to exclude the costs of the second day of hearing.
Liberty to the parties within seven days to make submissions electronically for a different order as to costs.
CATCHWORDS:
APPEAL – REHEARING – BREACH OF CONTRACT – ASSESSMENT OF DAMAGES – LANDLORD AND TENANT – where lessor breached contract for agreement to lease dress shop premises – where lessee leased other premises requiring fit-out – whether cost of capital items in fit-out recoverable – whether need for items of fit-out was caused by the breach – where trading interrupted due to breach – where loss of turnover and revenue due to interrupted trading – where no claim for loss of profit – whether proper to allow damages for reduced turnover and revenue in absence of claim for loss of profit – where other premises had extra space and higher rent – whether claim for extra cost of rent for a second two year term was proper component of loss
COUNSEL:
Coveney for the appellant
SOLICITORS:
Herbert Geer Lawyers for the appellant
McKays for the respondent
This is an appeal against the quantum of damages assessed in the Magistrates Court. It is an appeal pursuant to s 45 of the Magistrates Court Act 1921 from a decision dated 24 January 2014 delivered after a one day trial in the Magistrates Court at Brisbane on 10 September 2013 with written submissions to his Honour to 4 October 2013. On the hearing of this appeal the District Court may draw inferences of fact from facts found by the Magistrates Court, or from admitted facts or facts not disputed.[1] The appeal is by way of rehearing.
[1]Magistrates Court Act 1921 s 47.
The notice of appeal misleads. It suggests the appeal is on the ground that the magistrate did not apply the correct principles of law in assessing the damages payable to the respondent (Ms Savage).[2] But the outline of submissions for the appellant and its oral argument consistently added complaints to the effect that the findings of fact were not justified by the evidence.[3]
[2]The appellant abandoned the further ground that “the magistrate at first instance erred by failing to provide adequate reasons for the decision”.
[3]Submissions on behalf of the appellant at paragraphs 26, 32, 39 and 55.
Ms Savage was awarded judgment against the appellant for damages in the sum of $103,603.48. That total was comprised of:
Holding costs: $6,811.05
Storage and transportation costs: $2,070
Additional lease costs: $39,287.50
Additional car parking costs: $2,497.36
Additional fit out costs: $28,079.49
Interest costs: $10,759.08
Loss of revenue and trade: $14,099.
Though the notice of appeal appealed against the whole of the decision, it was obvious from the appellant’s written submissions that the appellant conceded the item for storage and transportation costs of $2,070. During argument the appellant made further concessions.[4] The appellant concedes that if its arguments are accepted there should still be a judgment for Ms Savage comprised of:
[4]On the second day on 12 August 2014.
Holding costs: nil
Storage and transportation costs: $2,070
Additional lease costs: $11,526.50
Additional car parking costs: $670
Additional fit-out costs: nil
Interest costs: nil
Loss of revenue and trade: nil
Total: $14,266.50
Notice of contention by Ms Savage
Ms Savage contends that the appellant is deemed to have admitted her claim for damages pursuant to the operation of UCPR 165(5).
I will deal with the notice of contention first.
In paragraphs 19 to 41 and 45A and 45B of Ms Savage’s further amended statement of claim, Ms Savage alleged the matters relating to her claim for damages and the quantum of her claim. To that comprehensive pleading, the appellant by its amended defence pleaded at paragraph 8, so far as is relevant to this argument:
“(a)The defendant does not admit the matters alleged in that, having made enquiries to find out whether the allegations are true or untrue in the time limited for filing its defence it has been unable to establish the position and remains uncertain as to the truth or falsity of the allegations;
…
(e)The defendant will plead further to the allegations following the completion of further steps, including disclosure and the provision of expert reports.”
That amended defence was filed on 12 June 2012. For Ms Savage it was submitted that paragraph 8(a) of the pleading was patently absurd and that paragraph 8(e) served to highlight the non-compliance with r 166(6). No direct explanation of each non-admission was given. It is strongly arguable that the appellant, by that pleading, was deemed to admit the quantum of the damages of Ms Savage. This was argued before his Honour below. The arguments were repeated by Ms Savage before me.
Counsel for the appellant did not submit that the amended defence had complied with the rules. He did not submit that the argument for Ms Savage that there was a deemed admission was incorrect.
I accept that the amended defence did not comply with r 166(4) and that the appellant, by its pleading was taken to have admitted the allegation and I accept that it was open to Ms Savage to submit below that the allegations were admitted and it was open to his Honour to treat the allegations as admitted.
Ms Savage applied to his Honour at trial for judgment on that very basis. The appellant had already admitted liability and the only issue before his Honour was the quantum of damage. His Honour declined to enter judgment for Ms Savage on the basis of the admission of the allegations in Ms Savage’s further amended statement of claim.
It was submitted for the appellant on this appeal that his Honour had a discretion as to whether to enter judgment in those circumstances. The solicitor for Ms Savage did not contend otherwise before me. For the appellant it was submitted that meant that the principles governing appeals against the exercise of a discretion were enlivened and that the principles set out in House v The King[5] applied. The solicitor for Ms Savage accepted that submission. It follows that I must have regard to the propositions in that case that:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the Appellate Court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the Appellate Court may exercise its own discretion in substitution for his if it had the materials for doing so.
[5][1936] HCA 40; (1936) 55 CLR 499.
The solicitor for Ms Savage drew attention to Pinehurst Nominees Pty Ltd v Coeur de Lion Investments Pty Ltd[6]. In that case Martin J from [34] examined the principles applied on applications for leave to withdraw admissions. For Ms Savage it was rightly observed that there had been no application to his Honour below to withdraw a deemed admission. It was submitted that if such an application had been made, the indulgence would not have been granted having regard to those principles set out in Pinehurst.
[6][2012] QSC 314.
The decision of his Honour below, to refuse to enter judgement[7] implies that his Honour proceeded on the basis that the deemed admission did not bind the appellant. It is not submitted for Ms Savage that his Honour was not free to exercise the discretion as it was exercised.
[7]Pursuant to UCPR 190(2).
At paragraph 69 of the respondent’s outline of argument, the outline ambiguously submits:
“… Even if the appellant had applied for leave, such an indulgence would not have been granted as:
(a)They had not addressed the criteria justifying leave – which are summarised by Justice Martin in Pinehurst… at [35];
(b)No amended defence was provided in any event;
(c)The respondent would have been prejudiced.”
The submission does not go so far as to submit that his Honour did not have a discretion to refuse the application for judgment. The reference to the prejudice to Ms Savage could be relevant. If there was some material prejudice to Ms Savage it might have founded a submission that it was improper to permit the withdrawal of admissions. No such prejudice to Ms Savage was referred to in argument before me.
I am not satisfied that there was an error by his Honour in refusing an application to enter judgment for Ms Savage on the basis of deemed admissions in the appellant’s amended defence.
I was urged to exercise the discretion to enter judgment afresh, on the basis of deemed admissions. I do not regard myself as free to ignore his Honour’s exercise of discretion and to exercise discretion afresh. That is not the proper approach to an appeal against the exercise of a discretion. If I were able to reconsider whether to treat the deemed admissions as justifying a judgment against the appellant, I would now decline to exercise the discretion to give judgment for Ms Savage on the basis of those deemed admissions. I regard the timing of the application to me as raising new matters which I should consider and which favour refusing the application. Those new matters are that since the time when the application for judgment was made in the trial below:
· that trial continued to completion;
· during trial there was cross-examination of witnesses for Ms Savage;
· during trial the appellant produced no evidence and so could not have surprised Ms Savage with evidence;
· there has been no submission of prejudice to Ms Savage.
Ms Savage fails on the argument raised in support of her notice of contention.
The proper approach to an appeal by way of rehearing
On the hearing of this appeal the District Court may draw inferences of fact from facts found by the Magistrates Court, or from admitted facts or facts not disputed.[8] The power to draw those inferences is as complete as the Magistrate’s power below.[9] However, when it comes to assessing the reliability of the evidence of any witness, the finding of the Magistrate below must be given weight.[10] In the trial, there were no witnesses called for the appellant. His Honour made very favourable findings about the evidence of Ms Savage and the expert Mr Leslie. I accept the correctness of his Honour’s assessment. His Honour noted:
“[39]I was impressed with the evidence of (Ms Savage) and the witness… Leslie... I found that both gave their evidence in an honest and forthright manner and cross-examination in no way detracted from their evidence-in-chief. I could detect nothing in their evidence which would cause me to have any doubt upon their respective veracity.
[40]The evidence of the witness Leslie was particularly compelling. I found him to the greater extent an independent witness having no commercial or other interest in the outcome of these proceedings. His evidence was direct, frank and not challenged in cross-examination. His evidence corroborated and gave considerable weight to (Ms Savage’s) version.”
[8]Magistrates Court Act 1921 s 47.
[9]Warren v Coombes (1979) 142 CLR 531, 537-541.
[10]Dewberry v Dixon [2011] QCA 238 [11].
Facts
In his Honour’s reasons, in the portions entitled “Facts”[11] and “The Evidence”[12] his Honour made certain other specific findings of fact which are not disputed and which I accept.
[11]Reasons [7] to [9].
[12]Reasons [21] to [24].
Ms Savage was a sole trader from 2006 and was running a ladies dress shop from the Former Premises. The lease of her Former Premises was due to expire on 30 September 2010. She had an option to renew the lease of the Former Premises. However, Ms Savage hoped to move from her Former Premises so that she could expand to larger premises so as to include a sub-lease to a hairdresser within her shop. She hoped that hairdressing business would bring more customers in and for longer periods which she hoped would increase her own trade. Only a few doors down the street and on the same side of the street as the Former Premises were the Drivas Premises owned by the appellant. The Drivas Premises were available for lease. The Drivas Premises had housed a ladies dress shop. They had a particularly suitable existing fit-out which required “almost” no alteration for Ms Savage to occupy. The Drivas Premises were larger than the Former Premises and were large enough to accommodate Ms Savage’s planned expansion of her business to include an area that Ms Savage planned to sub-let to a hairdresser. On about 20 August 2010 Ms Savage reached an agreement to lease the Drivas Premises. By that date Ms Savage had elected not to exercise the option to renew the lease of the Former Premises.
On 30 August 2010 the appellant repudiated the agreement to lease the Drivas Premises to Ms Savage. On 30 September 2010 Ms Savage’s lease of the Former Premises would expire. It meant Ms Savage had lost her option to renew the lease of the Former Premises and had 30 days to find new premises for her 4 year old business.
On 30 September 2010 Ms Savage was left without premises.
The “only viable option” for Ms Savage on such late notice was the New Premises.
Having regard to the favourable findings about the reliability of Ms Savage and Mr Leslie I accept their evidence as to the state of the respective premises and alternatives, Ms Savage’s evidence of trading patterns, seasons, arrangements with her suppliers, experience with prices and the discounting, the state of the competition in the Stones Corner area.
Compared to the Drivas Premises, the New Premises were a “cement pit” and “completely sub-standard”. The New Premises required a significant fit-out, as opposed to the Drivas Premises into which Ms Savage was “able to effectively walk” in. The New Premises had no fittings or fixtures.
The New Premises were larger than Ms Savage needed. They were 50% larger[13] than the Drivas Premises. Ms Savage did not intend to increase her stock levels. Her stock levels in the Former Premises and in the New Premises to the time of trial, three years later, were the same. Except for the component of extra space used for subletting for a hairdresser and “Lash Bar” the balance of the extra 50% of space in the New Premises caused an additional cost or burden for no corresponding benefit. A “betterment” argument was raised by the appellant at trial and rejected and the applellant does not challenge that finding. Ms Savage carried that burden for the two year term of her lease of the New Premises. She carried the burden of rent for the unnecessarily large New Premises after that two year term ended and until trial.
[13]Appellant’s submissions at trial [38]-[39].
Ms Savage believed that by agreeing to the higher rent on the New Premises she would have to retrench her full-time shop assistant. When she moved, Ms Savage’s assistant was retrenched so that Ms Savage could afford the additional costs at the New Premises which she would not have incurred if the appellant had not repudiated the agreement to lease the Drivas Premises.
The New premises did not come with a car park which would have been included in the lease of the Drivas Premises. The location of the new premises was not in the prime spot for walk-by trade. The Drivas Premises had been in the prime spot, being opposite the only significant car parking in the area.
On 30 September 2010 her lease of the Former Premises expired and Ms Savage was left without any premises until the commencement of her New Premises lease on 7 October 2010. From 1 to 25 October 2010 she was unable to resume normal trading due to the need to sign a new lease, relocate to the New Premises and fit-out the New Premises to a standard appropriate for her business. In her business, there were effectively twelve seasons a year, one per month. The period when she was unable to trade was the peak trading season for Ms Savage being the start of spring. It was a season where she would ordinarily not need to sell any dress at a discount to sell it within four weeks.
Despite the problems with the New Premises, it was reasonable for Ms Savage to move into the New Premises. The appellant accepts that it was reasonable for Ms Savage to incur the rental cost of the New Premises for the two years of its lease term, but disputes, in submissions, the reasonableness of those costs for a second two years. It did not dispute the reasonableness of this in cross-examination.
His Honour’s findings with respect to the “betterment” argument are relevant.[14] Those findings were, in effect, that the appellant failed to establish that any increase in profit by Ms Savage at the New Premises was related to the change in location of the business because the increase in profit could be attributed to a number of factors and would have been greater in the Drivas Premises and that Ms Savage had been conservative in the proceeding by not seeking to claim for that potential loss. Relevantly to that argument, stock levels maintained in the New Premises were the same as the stock levels in the Former Premises. The appellant did not challenge those findings. I accept them and proceed on the basis that they are correct.
[14]Savage v Drivas Lakes P/L Reasons [32].
Under another heading “Damages unreasonable?” his Honour made another finding which seems to be a mixed finding of fact and law.[15] In the “Conclusion” portion of his Honour’s reasons[16] his Honour made further findings of fact. These two portions of the reasons can be distinguished from the portions entitled “Facts”[17] and “The Evidence”[18] and “Betterment”. Some of the appellant’s arguments on damages require me to make different findings from his Honour’s. Thus in these 2 further places, his Honour has found, so far as is relevant:
[15]Savage v Drivas Lakes P/L Reasons [30].
[16]Savage v Drivas Lakes P/L Reasons [41] to [45].
[17]Savage v Drivas Lakes P/L Reasons [7] to [9].
[18]Savage v Drivas Lakes P/L Reasons [21] to [24].
“[30]… I accept the submissions of Mr Evans … For the reasons outlined by him I find that the damages claimed are reasonable and are not too remote …
…
[43]I am satisfied that (Ms Savage) has claimed nothing more than an amount that compensates her for her additional expenditure and losses consequence (sic) on the loss of the agreement to lease, being the loss of her bargain. I am satisfied that (Ms Savage) took all reasonable steps to minimise her losses, (the appellant) failing to show that she has acted unreasonably in this regard.
[44]… I am satisfied … that:
(a).The damages claimed … all relate to costs which flowed as a consequence of the breach … by (the appellant);
(b). The damages are all a direct and reasonable consequence of (Ms Savage) losing her bargain … for the period of the lease together with its options;
(c). (Ms Savage) has not claimed for any costs that she would have otherwise incurred had the lease of the Drivas Premises proceeded;
(d). The costs claimed are fair and reasonable…
(e).The damages are not too remote.”
Holding costs: $6,811.05 or nil
His Honour allowed $6,811.05 for what was alleged in the further amended statement of claim to be “Stock Holding Costs”. The description of the claim is misleading. The claim was for the difference between the “anticipated retail value” of 227 dresses and the price at which Ms Savage sold those dresses. The amount derived by subtraction is not in dispute. Rather, the appellant submits that Ms Savage did not prove that the items could ever have been sold for the prices she alleged. The appellant raises another argument about eight particular dresses. Every one of the 227 dresses was discounted for sale to a price below its “anticipated retail value” and sold at “discounted” prices.
The appellant submitted, in effect, that there were reasons to doubt the reliability of Ms Savage’s estimate because “she made up the recommended retail (price) based on her experience; she had not … sold any of these (dresses) previously and therefore had no historical basis for (her) claimed pricing; and … not a single (dress) was able to be sold at (Ms Savage’s) desired price.” The appellant noted that there was no evidence as to how long goods were held before discounting; that eight of the dresses were apparently not due to arrive until 1 November 2010 after which the fit-out of the New Premises was “substantially completed” and that two orders were placed on 3 September 2010, by which date Ms Savage knew that she had not secured the Drivas Premises. The appellant also noted that Ms Savage took no steps to cancel any of the orders when she became aware that the appellant had repudiated its agreement to lease. The appellant submitted “on the available evidence, the court could not be satisfied that (Ms Savage’s) prices could ever have been achieved”.
Ms Savage gave evidence that the figure of $6,811.05 was “the difference between what I would have retailed it for in the usual course of business, and what I had to sell it for as a result of not having anywhere to trade”.[19]
[19]T1-43 L 10.
Ms Savage’s solicitor relied upon evidence which is consistent with the transcript and which, save for a qualification of (g) below that 2 relevant orders may have been placed on 3 September, I accept that:
(a) Ms Savage had been involved in the fashion industry for over 13 years, her experience covering wholesaling, retailing, buying and management;
(b) that she had stocked the relevant dress labels since 2006;
(c) that it was the busiest part of the season;
(d) that she “very, very rarely, had to discount something in that period”[20];
[20]T1-51 L 25.
(e) that she was the sole trader of the relevant indent labels in the area;
(f) that to retain exclusivity with her suppliers she had to make a minimum number of purchases per month;
(g) that she had pre-ordered the indent labels;
(h) that to retain exclusivity in the area she was required to make minimum monthly purchases and was required to do so to comply with her trading terms and she effectively had one month to turn over her stock.
Ms Savage gave evidence that she could have sold everything at her full retail price in that busy part of the season, by which she impliedly included the months of September and October, unless it was sold outside of the four week period,[21]by which she implied that she would need to discount stock if it was unsold four weeks after delivery. If her particular stock was unsold four weeks after delivery there was a real chance that other stores would receive similar styles of stock and begin to offer similar styles for sale at much lower prices than her full retail price.
[21]T1-51 L 17-26.
I reject the appellant’s first argument. I am satisfied that as a result of Ms Savage’s experience her honest opinion was also reliable and that she would ordinarily have achieved the prices she estimated as her full retail price.
The appellant also submitted that eight of the dresses ordered from Minkpink were not due to arrive until at least 1 November 2010 (which is after the period when the fit-out of the new premises was substantially completed). Assuming that to be correct, it raises the possibility that Ms Savage could reasonably have offered those eight dresses at full retail for 4 weeks while offering to discount the other 219. This was not suggested to Ms Savage at trial and so she was not given the opportunity to explain whether it impeached her other evidence on the issue. Considering Ms Savage’s evidence that $6,811.05 was “the difference between what I would have retailed it for in the usual course of business, and what I had to sell it for as a result of not having anywhere to trade”[22]I am persuaded that Ms Savage had to sell those eight for the same kind of discount as the other 217 and am satisfied the component of loss relating to the eight dresses is reasonable.
[22]T1-43 L 10.
The appellant submitted that order numbers 12583 and 12584 were placed with Ladakh Pty Ltd on 3 September 2010, by which time Ms Savage was aware that she had not secured the Drivas Premises. But I accept her evidence that to retain exclusivity with her suppliers she had to make a minimum number of purchases per month. It was not put to Ms Savage that her conduct in this respect was unreasonable. I find that her conduct was reasonable.
The appellant argued that there was another reason why this part of the claim should be rejected. It was submitted that ordinarily, a person in Ms Savage’s position could suspend ordering stock until the new premises were ready. The appellant submitted that there were features of Ms Savage’s trading which were unusual. It is the case that because her dress stock was all “indent stock” Ms Savage was required to make minimum purchase orders to retain exclusivity with her suppliers despite the loss of her premises. The unique nature of the indent stock was that it was stock in styles not yet offered by other clothing retailers in the area. Similar styles were likely to be available more cheaply to other local retailers about a month later. That meant that she had only about four weeks to sell any item before copies of it would start to appear in other stores and at lower prices.
Under the rule in Hadley v Baxendale[23] a loss caused by a breach of contract will not be too remote if it:
… may be fairly and reasonably considered either [as] arising naturally, that is, according to the usual course of things, from such breach of contract itself or … may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
[23](1854) 9 Exch 341 at 354.
For Ms Savage it was submitted, in effect,[24] that these damages were recoverable under either limb of Hadley v Baxendale.
[24]“Plaintiff’s submissions in reply” par 19.
There was evidence that Mr Leslie, at relevant times in 2010, had been a commercial property manager with the agency which managed the appellant’s properties and which leased those properties.[25] He had been into the premises of the former tenant of the Drivas Premises and knew that tenant to have carried on business as a dress retailer.[26] He had also been into the Former Premises when Ms Savage carried on business there and he visited her there when conducting negotiations on behalf of the appellant. The four dress labels stocked by Ms Savage were all indent labels. She stocked only indent labels. She was the only trader in indent labels in the Stones Corner area. She received her orders monthly. She would receive 12, monthly deliveries and for her there were basically 12 seasons. She had a month to turn over her stock before similar stock was likely to appear in more cheaply in chain stores. Ms Savage needed to move stock quickly. At the particular time of year where she was without premises, it was the busiest time of year, the spring summer season when she could sell all her indent stock and the probability was that she would not need to discount any of it.
[25]T1-22 L 46 to T1-23 L 8.
[26]T1-62 L 26-34.
I infer that persons entering Ms Savage’s premises were able to see and distinguish that her stock was qualitatively different from the stock in other dress shops. The styles available were more expensive but were not likely to be available in other stores at the same time.
The appellant submitted that it was “common experience that retailers often discount their stock.”[27] I accept that submission but it applies also to Ms Savage’s business. I find that losses caused by Ms Savage’s need to discount to sell stock may fairly and reasonably be considered as naturally arising from a breach which prevented Ms Savage from trading for about a month.
[27]Outline par 25.
Mr Leslie’s visits to the Former Premises while Ms Savage carried on business there gave him the opportunity to see her stock and prices. Because of that, I find that loss caused by the need to promptly sell her typically higher priced dresses in the latest fashion styles is also reasonably be supposed to have been in the contemplation of the appellant at the time it entered into the agreement to lease, as a probable consequence of its breach of the agreement to lease.
The claim does fall within the first and second limbs of Hadley v Baxendale.
I allow $6,811.05 for what was alleged in the further amended statement of claim to be “Stock Holding Costs”.
Additional lease costs: $39,287.50 or $11,526.50
His Honour allowed $39,287.50 for additional lease costs for four years from October 2010 being the difference in rent payable at the New Premises and the rent payable at the Drivas Premises. The appellant makes two attacks on this assessment. The appellant submits firstly that damages should be reduced by the amount of earnings from a “Lash Bar” and secondly that losses should be confined to increased rent for two years rather than four.
The appellant accepts that Ms Savage is entitled to damages representing the difference in rent for the first two years, which the appellant calculates as $11,526.50. This is less than Ms Savage’s estimate because the appellant makes a deduction for income earned from a “Lash Bar” business which was carried on in the New Premises.
For the “Lash Bar”, a make-up artist took appointments through the hair dressing salon where he did hair styling, waxing and beauty services. He made appointments to apply eyelashes. Ms Savage’s evidence was that she wanted to retail the lashes that the make-up artist used. In that context she estimated her weekly benefit. Ms Savage calculated that she benefitted to the extent of about $10 per week from 5 March 2011 for 94 weeks until it was no longer viable.[28]I reject the appellant’s submission which implies, incorrectly, that the estimated return was rental income attributable to the extra space in the New Premises.
[28]Transcript at pages 1-56 to 1-57.
Ms Savage’s plan was to include in the Drivas Premises a hair and beauty service retailing associated hair and beauty products. The Agreement to Lease provided:
7. Use
The premises are to be used for the retailing of women’s clothing and accessories/hair & beauty services/retailing of associated hair & beauty products…
8. Assignment
The lease will provide the right of the lessee to sub-let or assign its interest in the property to a financially respectable lessee, subject to the lessor’s approval…
There should be no reduction of income for earnings related to the “Lash Bar”.
The appellant’s second attack was based upon the fact that the New Premises are 50% larger than the Drivas Premises and the appellant submitted that Ms Savage “had other options available to her which were suitable and more economical”. There has been no challenge to his Honour’s findings with respect to the betterment argument.
The increased size in the premises has not resulted in increased profit to Ms Savage. The extra space in the New Premises caused an additional cost. The New Premises were the “only viable option” in 2010.
For taking that option in 2010 the appellant makes no criticism.[29]
[29]Appellant’s submissions par 55
The appellant submitted:
55. As to the claim for the difference in the rent for the third and fourth years, these damages are not recoverable. As noted above, the respondent was not limited to the premises she ultimately leased. Other options were available and could have been taken up. The appellant does not criticise the respondent in this regard. 56. However, as a matter of law, where there are two possible remedies, and the innocent party chooses (albeit reasonably) the more expensive remedy, extension of that remedy beyond that which is strictly necessary to compensate for a loss directly incurred may properly be resisted as not reflecting the true value of that which the lessee had lost as a result of the breach.[30] This is based on the principle that recovery of any expense incurred for a period beyond the termination of the existing lease would place the lessee in a better position than would have been achieved if the contract had been performed.[31]
[30]Lock v Furze (1866) LR 1 CP 441; Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296 at [53].
[31]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82 (per Mason CJ and Dawson J) and 99 (per Brennan J).
The agreement to lease the Drivas Premises was for two years with an option to renew for a further two years. Ms Savage would have taken up the option to renew the lease of the Drivas Premises.[32]
[32]T1-44 L 29.
The trial occurred on 10 September 2013, almost three years after Ms Savage had taken a two year lease of the New Premises. I infer that she renewed a year before trial. It was not put to Ms Savage at the trial that she should have vacated the premises the year before or that there were other suitable premises at less expense at any relevant time, such as the date when she committed to a second two year term in the New Premises. She needed to stay in Stones Corner if she was to retain the right to sell the indent labels. The appellant’s submission quoted above implies that other options were available and should have been taken up. There was no evidence of any such alternative at or near the end of the first term.
I reject the submission because I am not satisfied that Ms Savage is in a better position than would have been achieved if the contract had been performed or that she has, by taking the New Premises for a second term chosen a more expensive remedy than another which was available.
I allow $39,287.50 for additional lease costs for four years from October 2010 being the difference in rent payable at the New Premises and the rent payable at the Drivas Premises.
Additional car parking costs: $2,497.36 or $670 or nil
The appellant submitted:
As to the car parking, the respondent claims the sum of $2,497.36. However, up until March 2012 the respondent had access to a free car park. The respondent terminated the parking arrangement on 30 July 2012, and thereafter took up a cheaper option.[33]
The amount claimed under this head should be limited to:
parking from 1 March 2012 to 30 July 2012 (= 5 x $109.10) = $545.50;
parking from 1 August 2012 to 16 September 2012 (1.5 months) (=1.5 x $71.82) = $107.73
or a total of $653.23.
Therefore, the respondent would only be entitled to recover a total of $653.23 under this head.[34]
However, as the overall gain on the rental exceeds this amount (see paragraph 53, above), no amount for car parking is properly recoverable as damages, as this formed part of the proposed lease in any event.
[33]See Exhibit 5, and Transcript at page 1-55.
[34]No amount should be allowed beyond the term of the proposed lease for the same reasons explained in paragraph 56.
Reference to the transcript shows [35]Ms Savage had free car parking until January 2012, that she properly allowed for it, that the extra car parking fees she incurred because of the loss of the 2 parks which came with the Drivas Premises was $2,497.36. I accept her evidence and assess the damages at that figure.
[35]T1-45
Additional fit out costs: $28,079.49 or nil
The appellant submitted:
61. The respondent claims $28,079.49 for additional fit out costs. She claims these on the basis that, had the appellant’s premises been available, they already had a suitable fit out installed.
62. However, this ignores the fact that whatever the respondent has spent on fitting out her current premises has become her property. She has acquired an asset which she would not have obtained if she had leased the appellant’s premises. The fit out expenses claimed are not costs thrown away but are a capital investment, in respect of which the respondent is entitled to claim depreciation. As the High Court has held, it is “out of the question” to claim capital expenditure represented by acquired assets as damages.[36]
63. Capital is only recoverable where it is wasted, in the sense that the claimant obtains no ongoing benefit. For example, if the respondent had purchased items that were particular to the appellant’s premises and could not be used in the new premises, or had spent money renovating the appellant’s premises, those would be wasted and therefore recoverable as reliance damages. That is not the case here, as the respondent owns the fit out and has the right to take it with her if she leaves her current premises.[37]
64. It follows that, as a matter of law, the additional fit out costs are not recoverable as damages.
[36]McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 416 per Dixon and Fullagar JJ.
[37]See cl.17.2 of the respondent’s current lease, which can be found at p.113 (Tab E) of the documents comprising the respondent’s Summary of Loss and Damage in appeal book 2 tab 14 pg. 113
Clause 17.2 of Ms Savage’s lease of the New Premises relevantly provides:
“17.2 Remove Fittings
The Tenant may and if required by the Landlord must:
(a)prior to the expiration of the Term … remove from the Premises … all the Tenant’s fixtures, fittings, signs … and contents of every description;
(b)make good any damage caused to the Premises by removal of those items;
(c)re-alter any alterations made by the Tenant so that the Premises are converted back to their original layout …”
The appellant prepared a schedule of disputed items. Forty-three of the items, totalling $6,861.38, are items for which the appellant submits no allowance should be made.
There are a further five items in the schedule, totalling $14,772.80, for which the appellant submits there should be some apportionment on the basis that they were items contemplated in any event as expenses which would have been incurred at the Drivas Premises. With respect to the balance of the items allowed, which I calculate to be $6,445.31, the appellant submitted that:
“There should be a further global reduction on the basis that (Ms Savage) received a new fit out, versus the used existing fit out at the (Drivas Premises): see Grosvenor Hotel Company v Hamilton [1894] 2 QB 836 at 840-1.”
A copy of that schedule is annexed to these reasons.
I accept the evidence of Ms Savage that the Drivas Premises had a relatively new fit-out, perfect for retail clothing with a large, glass shopfront with two spacious window displays either side of it; with a new floor and completely painted; with a decorative ceiling with detailed cornices; with built change rooms; with a retail counter that had full electrical installation for hooking up EFTPOS machines and computers; with lights and an alarm system installed; with appropriate plumbing for a hair salon; with two car parks, which was what Ms Savage required; with 83m2 as opposed to the New Premises of 121m2 and the Former Premises of 47m2.
I accept the evidence of Ms Savage that the new premises was like a cement pit with bare plasterboard walls, no skirting, no electric fit-out whatsoever and with a bare cement floor that had PVC piping protruding from it, with panels in the roof that needed replacement, without lights, with an inappropriate door, with chunks out of the cement and unpainted walls.
Ms Savage caused a “schedule of additional fit‑out costs” totalling $28,079.49 to be prepared. It is accompanied by supporting documents. There is no challenge to the arithmetic.
Ms Savage gave evidence by reference to her schedule that $28,079.49 was the cost she incurred in having to fit the premises out to the same standard as the standard of the Drivas Premises, to bring the New Premises up to scratch so that she was able to trade. She gave evidence that she would not have had to spend those costs if she had gone to the Drivas Premises.[38]
[38]T1-43.
Ms Savage actually spent more by way of fit-out than the $28,079.49 which she claimed but she gave evidence that she would have incurred a small amount of overall costs had she gone to the Drivas Premises and so she claimed only an amount which she “would not have had to have spent if there was no breach in the agreement to lease the Drivas Premises”.[39]
[39]T1-43.
By its amended defence the appellant did allege that the fit-out costs “were incurred for a commensurate benefit and do not represent loss or damage”.[40] The meaning of that pleaded allegation becomes clearer by reference to the appellant’s submissions.[41] The appellant submitted that “whatever (Ms Savage) has spent on fitting out her … premises has become her property. She has acquired an asset which she would not have obtained if she had leased the (Drivas Premises). The fit‑out expenses claimed are not costs thrown away but are a capital investment, in respect of which the respondent is entitled to claim depreciation … capital is only recoverable where it is wasted, in the sense that the claimant obtains no ongoing benefit ….”
[40]Amended defence, paragraph 8(c).
[41]Appellant’s outline, paragraphs 62 and 63.
The appellant made that allegation in the context of a non-admission. The appellant was at liberty to call evidence with respect to that allegation. It did not put evidence before the court relating to that allegation. It was an appropriate matter to plead and to explore in cross-examination. However, the appellant did not suggest to Ms Savage or to Mr Leslie with respect to the various items in the schedule that the cost of the item was “incurred for a commensurate benefit” or that it does “not represent loss or damage” or ask any equivalent question in more common language.
The appellant’s “schedule of fit-out costs” contains various reasons for disallowance. One of the most common is “Capital item”. It was not suggested to witnesses at trial that any of these items were either not wasted or were items for which Ms Savage obtained an ongoing benefit. The descriptions of some of the items described as “Capital item” with their corresponding purchase price raised the possibility that it might be reasonable to reuse or sell them at the end of the term. Three examples are, “Pendant lighting…$552.80”, “Vase/Mirror…$204.99” and “Mannequins…$304.61”. But it was not suggested in cross-examination of Ms Savage that their equivalents were unavailable in the Drivas Premises or that Ms Savage would have been required to spend money on mannequins if she had been permitted to take the Drivas Premises. Thus, there is insufficient reason to doubt the evidence of the credible Ms Savage that the purchase price of these items was one of the costs she “would not have had to have spent if there was no breach in the agreement to lease the Drivas Premises”.[42]
[42]T1-43.
It was not suggested in cross-examination that Ms Savage obtained an ongoing benefit from the purchase of such items or that it would be reasonable to reuse or sell them at the end of the term or that any of the “Capital items” would have a market value equivalent to the cost or a portion of the cost. I am not satisfied from the mere description of those three examples or from the mere description of any other “Capital item” in the schedule that at the end of four years’ use, Ms Savage will obtain any benefit from the item or that it will have any relevant value to offset against the claim.
The fact that expenditure on capital items may entitle Ms Savage to claim depreciation was raised. If it was implied that, as a matter of law, expenditure on a capital item which might otherwise be recoverable as damages is disqualified because its owner may claim depreciation, I note that no authority was cited in support of this proposition. I do not regard the ability to claim depreciation as a deduction from income as a proper basis for disallowing the cost of an item from an award of damages.
Another category of “Reason for disallowance” is “Materials for cabinetry/part of fit‑out”. It was not explained why those items should be disallowed. Bearing in mind that Ms Savage’s evidence was to the effect that the Drivas Premises did not need fit-out, prima facie, the fact that a cost was for fit-out of the New Premises tends to suggest it is an appropriate component of damages. The fact that it was for “materials for cabinetry” does not inherently suggest otherwise. I note that there was no exploration of this in cross-examination. I am not satisfied that it is reasonable to reuse or sell cabinetry at the end of the term. The cost of these items should be included.
Another reason for disallowance in the schedule is “not a loss resulting from the breach/required in any event”. It was not pleaded by the defendant. It was not put to Ms Savage in cross-examination. I accept the evidence of Ms Savage in preference to the inferences impliedly alleged to arise from the mere description of the item.
One particular item, described by Ms Savage as a new “glass shopfront”, was supplied at a cost of $4,452.80. The appellant challenged this item with the submission: “This was not strictly necessary. The shop was functional with the existing glass shopfront.” The appellant’s submission is inconsistent with the evidence of Ms Savage[43] which was not challenged and which I accept that the existing concertina doors that were on the New Premises were not suitable for fashion clothing. I accept the claim for $4,452.80.
[43]T1-43 L 29.
I reject the submission that claims for the glass shopfront or other expenses should be discounted on the submitted basis that “Ms Savage was receiving a new fit-out versus the “used existing fit-out” at the Drivas Premises”. The evidence was that the Drivas Premises had a relatively new fit-out.
With respect to the second portion of the schedule containing a claim for $14,772.80, I have already dealt with the claim for the glass shopfront. With respect to the claim for painting equipment of $700, I reject the submission that “some painting was anticipated at the Drivas Premises” on the bases that there was no such evidence, this was not put to Ms Savage and it is contradicted by her evidence that it was one of the costs she “would not have had to have spent if there was no breach in the agreement to lease the Drivas Premises.”
With respect to the claim for $8,000 for fit-out installation costs I reject the appellant’s submission that “some of this expenditure was anticipated in the Drivas Premises” on the basis that this is inconsistent with the evidence and was not put to Ms Savage. The same can be said of the claim for “shop fitting” of $700 and “fit-out painting” of $920.
I assess the additional fit-out costs at $28,079.49.
Interest costs: $10,759.08 or nil
Ms Savage incurred interest on her credit cards used to purchase items to fit out the New Premises. Between 8 October 2010 and 1 March 2012 she incurred $4,720.51 on her Commonwealth Bank of Australia MasterCard. Between 5 October 2010 and 1 March 2012 she incurred $6,038.57 on her ANZ Bank credit card.
The appellant submitted that the interest is not recoverable because the fit-out costs are not recoverable as damages. I reject that argument because I have allowed the fit-out costs claimed as damages.
The appellant’s second submission is that the appellant’s need to use a credit card for interest was a matter of fact not known to the appellant and it takes the claim outside the second limb in Hadley v Baxendale.
I accept the evidence of Ms Savage that the interest on these credit cards was due on borrowings used to pay for about half of the shop fit-out.
It was not put to Ms Savage that she should have obtained finance at lower rates of interest than those which applied to her credit card borrowings. I do not regard the incurring of these finance charges for the costs of half the fit-out as too remote. I regard them as costs which would reasonably be supposed to have been in the contemplation of both parties as the probable result of the appellant’s breach.
I allow the claim for $10,759.08 in interest costs to 1 March 2012.
Loss of revenue and trade: $14,099 or nil
Ms Savage did not make a claim for loss of profits. It was submitted for her that she should have damages for loss of revenue being something different from loss of profits. It was submitted that it was difficult to quantify and that what was allowed by his Honour was a general figure calculated in a rough way. It was submitted that it was appropriate because it is damages for the direct consequence of the loss of the bargain being the loss of the lease which is the capacity to trade. At trial it was a claim based on loss of revenue that would have been “receipted during the period she was closed”. In the further amended statement of claim it was described as “loss in revenue and trade”. On appeal it was explained that, at trial a submission was made that there should be something extra for the possible loss which arose from reduced turnover for 23 days was reduced turnover was estimated by Ms Savage at $14,099. His Honour allowed the whole of that reduced turnover as damages. With respect, that involved an error. Turnover is not the equivalent of profit and loss of turnover is not the equivalent of loss. Turnover of such an amount could not have generated its equivalent in profit. Besides, Ms Savage was making no claim for loss of profit. Whatever damage may have flowed from reduced turnover and which could not otherwise be categorised as profit remains unexplained.
On this rehearing, I allow nothing under this heading for a claim for loss arising from reduced turnover.
Conclusion
The appellant is successful in part for reducing the award by $14,099. It asks for its costs of the appeal. The portion of the appeal devoted to that item on which it succeeded occupied mere minutes at the end of the second day. To reflect the appellant’s degree of success, I propose to order that the unsuccessful Ms Savage pay the appellant’s costs of the appeal on the standard basis but so as to exclude the costs of the second day of hearing. I give liberty of the parties to make contrary submissions as to costs, in writing and sent electronically to each other and to my Associate within seven days, in which case I will reconsider the order as to costs in light of such submissions.
SCHEDULE OF FITOUT COSTS
Items for which no allowance should be made]
| Item(s) | Purchase date | Amount (incl. GST) | Reason for disallowance |
| Pendant lighting (Beacon) (38) | Unknown | $552.80 | Capital item/ required anyway |
| MDF panels (Bunnings) (40) | 14/10/2010 | $1,394.77 | Materials for cabinetry/ part of fitout |
| MDF delivery (Bunnings) (41) | 15/10/2010 | $220.00 | Materials for cabinetry/ part of fitout |
| Screwdriver bits (Bunnings) (42) | 15/10/2010 | $15.36 | Capital item/ chattel |
| Vase/Mirror (Ikea) (44) | 15/10/2010 | $204.99 | Capital item |
| Nightlatch (Mitre 10) (44) | 17/10/2010 | $29.95 | Capital item/not a loss resulting from the breach/ required in any event |
| Deadbolt (Bunnings) (45) | 17/10/2010 | $22.74 | Capital item/not a loss resulting from the breach/required in any event |
| Mitre box (Mitre 10) (46) | 19/10/2010 | $16.99 | Capital item/ chattel |
| Putty blade (Supercheap Auto) (48) | 21/10/2010 | $11.99 | Capital item/ chattel |
| Rod fittings (Bunnings) (49) | 24/10/2010 | $14.56 | Capital item |
| Electronics (Direct Savings) (49) | 26/10/2010 | $15.98 | Capital items |
| Rubber mat (Bunnings) (50) | 28/10/2010 | $27.85 | Capital item/ not a loss resulting from the breach/ required in any event |
| Curtain rod (Mitre 10) (50) | 26/10/2010 | $3.33 | Capital item |
| Coat hook (Mitre 10) (50) | 26/10/2010 | $16.63 | Capital item/not a loss resulting from the breach/ required in any event |
| Travel power adaptor (Mitre 10) (50) | 26/10/2010 | $19.99 | This is a travel item, not a fitout expense |
| Socket rod (Mitre 10) (50) | 26/10/2010 | $5.55 | Capital item/not a loss resulting from the breach/ required in any event |
| Drawer slide (Bunnings) (51) | 26/10/2010 | $8.39 | Part of cabinetry (capital item) |
| Coat hooks (Bunnings) (51) | 26/10/2010 | $7.14 | Capital item/not a loss resulting from the breach/ required in any event |
| Wallpaper adhesive (Bunnings) (51) | 26/10/2010 | $30.92 | Wallpapering was contemplated for the Drivas premises |
| Speaker cables (Dick Smith) (51) | 26/10/2010 | $25.69 | Capital item/not a loss resulting from the breach/ required in any event |
| Heatshrink tube (Dick Smith) (53) | 29/10/2010 | $5.99 | Related to cabling/not a loss resulting from the breach |
| Deadlock (Bunnings) (54) | 07/11/2010 | $25.89 | Capital item/not a loss resulting from the breach/required in any event |
| Punch set (Bunnings) (54) | 07/11/2010 | $10.89 | Capital item/ chattel |
| Picture hooks (Bunnings) (54) | 07/11/2010 | $6.20 | Capital item/not a loss resulting from the breach/required in any event |
| Rail and rod (Bunnings) (54) | 08/11/2010 | $24.16 | Capital items |
| Tool box (Bunnings) (56) | 14/11/2010 | $12.98 | Capital item/ not part of fitout/ chattel |
| Extension lead (Bunnings) (57) | 19/11/2010 | $17.50 | Capital item/ not part of fitout/ chattel |
| Lighting (Bunnings) (58) | 24/11/2010 | $83.20 | Capital items |
| Festive lights (Bunnings) (58) | 25/11/2010 | $36.00 | Capital items/ not a loss resulting from the breach |
| Mirrors (Ikea) (58) | 25/11/2010 | $306.90 | Capital items/ chattels |
| Rails (Bunnings) (64) | 24/10/2010 | $38.73 | Capital items |
| Door wedge (Bunnings) (65) | 21/10/2010 | $3.40 | Chattel/ not a loss resulting from the breach |
| Electrical installations (Zeal) (67) | 25/10/2010 | $1,210.00 | Required anyway. Lighting was anticipated at the Drivas premises |
| Spotlight (Bunnings) (68) | 15/11/2010 | $39.00 | Capital item |
| Spotlights (Bunnings) (68) | 14/11/20111 | $507.00 | Capital items |
| Alarm removal (Pacific Alarm) (70) | 30/09/2010 | $65.00 | This was at the previous premises |
| Various loose items (Ikea) (73) | 11/10/2010 | $128.91 | Capital items/ chattels |
| Mannequins (Apex) (74) | 21/10/2010 | $304.61 | Capital item/not a loss resulting from the breach/required in any event |
| Shopfittings (Apex) (75) | 21/10/2010 | $344.05 | Capital item/not a loss resulting from the breach |
| Furniture (Amart) (76) | 21/10/2010 | $99.95 | Capital item |
| Rack (Apex) (78) | 25/10/2010 | $110.00 | Capital item |
| Decals (J&M) (79) | 17/11/2010 | $440.40 | Not a loss resulting from the breach/ required in any event |
| Reinstall alarm (Pacific) (80) | 26/10/2010 | $395.00 | Not a loss resulting from the breach/ required in any event |
| Total | $6,861.38 |
Items which should be apportioned on the basis that fitout works of the appellant’s premises were contemplated in any event or the items were not necessary:
| Item(s) | Purchase date | Amount (excl. GST) | Reason for reduction |
| Glass shopfront (37) | 18/10/2010 | $4,452.80 | This was not strictly necessary. The shop was functional with the existing glass shopfront |
| Painting equipment | Various | $700.00 | Some painting was anticipated at the Drivas premises |
| Fitout installation costs (61) | 29/10/2010 | $8,000.00 | Some of this expenditure was anticipated in the Drivas premises |
| Shop fitting (63) | 18/11/2010 | $700.00 | Some of this expenditure was anticipated in the Drivas premises |
| Fit out painting (66) | 01/11/2010 | $920.00 | Some of this expenditure was anticipated in the Drivas premises |
| Total | $14,772.80 |
Of the balance, there should be a further global reduction on the basis that the respondent received a new fitout, versus the used existing fitout at the appellant’s premises: see Grosvenor Hotel Company v Hamilton [1894] 2 QB 836 at 840-1.
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