Duarte and Ors v Mitchell and Ors

[2007] NSWADT 276

CITATION:	Duarte and ors v Mitchell and ors [2007] NSWADT 276
DIVISION:	Retail Leases Division
PARTIES:	APPLICANTS/CROSS RESPONDENTS Carlos Duarte and Rita Duarte RESPONDENTS/CROSS APPLICANTS Steve Mitchell and Sandra Mitchell
FILE NUMBER:	075102; 075168
HEARING DATES:	29 August 2007, 10 September 2007 and 12 September 2007
SUBMISSIONS CLOSED:	26 September 2007
DATE OF DECISION:	28 November 2007
BEFORE:	Chesterman M - ADCJ (Deputy President); Griffiths G - (Advisory) Non Judicial Member ; Ward R - (Advisory) Non Judicial Member
CATCHWORDS:	Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money - Costs - Damages - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Conveyancing Act 1919 Environmental and Planning Assessment Act 1979 Retail Leases Act 1994
CASES CITED:	Kindful (Australia) Pty Limited v Country Villa Holdings Pty Limited [2006] NSWADT 224 Perrin v Hungay Pty Ltd [2005] NSWADT 257 Sarip Investment Pty Ltd v Uno Uno Pty Ltd [2004] NSWADT 27
REPRESENTATION:	APPLICANTS/CROSS RESPONDENTS L Paraska, solicitor RESPONDENTS/CROSS APPLICANTS N Confos, barrister
ORDERS:	1. It is declared that the lease between the parties, relating to retail shop premises at Shop B, 113 Queen Street, Campbelltown, was validly terminated by the Respondents/Cross Applicants on 11 May 2007; 2. The Applicants/Cross Respondents are jointly and severally liable to pay the sum of $6,864.00 to the Respondents/Cross Applicants; 3. The Applicants/Cross Respondents are to pay the Respondents/Cross Applicants’ costs of the directions hearing held on 9 August 2007, as agreed or assessed on a party/party basis; 4. The Application lodged on 15 June 2007 by the Applicants/Cross Respondents is dismissed.

Introduction

1 This case concerns disputes that arose between the lessors and the lessees under a registered lease of retail shop premises, principally on account of the premises being damaged by rain during the early months of 2007. The damage was serious enough to prompt the local authority to order the lessees to cease using them until specified repairs had been carried out, on the ground that their use would or might constitute a life-threatening hazard or a threat to public health or public safety. A major issue in contest between the parties was whether the repairs that were then carried out on the instructions of the lessors were adequate to permit the lessors to resume the conduct of their business.

2 The Lessors were the Respondents/Cross Applicants, Mr Steve Mitchell and Ms Sandra Mitchell. The Lessees were the Applicants/Cross Respondents, Mr Carlos Duarte and Ms Rita Duarte. The address of the shop (hereafter ‘the Premises’) was Shop B, 113 Queen Street, Campbelltown. They formed part of a building owned by the Lessors.

3 The Lease, which was governed by the Retail Leases Act 1994 (‘the RL Act’), was initially granted to a previous occupier of the Premises, Mr Alidad Rezaie. It ran from 1 March 2005 to 29 February 2008, with an option to renew for a further three years. The rent was expressed to be $3,813.34 per month, payable by monthly instalments in advance. There was a provision in the Lease, reproduced below, governing liability for any GST charged on the rent. Under the heading ‘Outgoings’, the Lease also stipulated that the lessee should pay 100% of ‘Grease Trap pump out’ and 50% of ‘Grease Trap expenses’.

4 The permitted use was described in the Lease as ‘Take-Away Shop’. Mr Rezaie carried on a business in the Premises called ‘A & L Country Style Charcoal Chicken’. It was not very successful.

5 On or about 29 April 2005, the Lessees purchased this business from Mr Rezaie and took an assignment of his interest under the Lease. They continued to carry on the business as a partnership. While they seem to have improved its performance significantly, income tax returns for 2005-06 showed a profit of only $42,580.57 without any amounts being deducted as remuneration. The principal operator of the business was Mr Duarte. Ms Duarte attended to the accounts and other aspects of the paperwork.

6 At all material times, the Lessors’ son, Mr Harry Mitchell (‘Mr Mitchell’) acted as their agent in managing the Premises.

7 On 15 June 2007, the Lessees filed an Application seeking the following relief: (a) a declaration that they were not liable for rent, outgoings or other charges under the Lease as from 2 January 2007 until ‘adequate repairs’ were carried out on the Premises; (b) an order that the lessors return possession of the Premises to them; (c) an award of damages on the ground that the Lessors had engaged in unconscionable conduct; and (d) an award of costs.

8 A Cross Application by the Lessors was filed, by leave, on 12 September 2007, the last day of the hearing. They sought the following relief: (a) a declaration that the Premises were fit for occupation as from 20 April 2007 or such other date as the Tribunal determined; (b) a declaration that the Lease had been validly terminated or was otherwise at an end; (c) in the alternative, a declaration that the Lessees were entitled to possession of the Premises from such date and on such conditions as the Tribunal determined; and (d) an order that a claim by the Lessors for unpaid rent, together with any claim made by the Lessee for damages, should be referred to an arbitrator for decision.

9 Because the claims made by the Lessees included an allegation of unconscionable conduct on the part of the Lessors, the Tribunal is constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’). It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

10 The evidence tendered at the hearing related to a large number of issues that were raised, at least in general terms, by the Application and the Cross Application. But for a variety of reasons, outlined below, it is not necessary in this judgment to resolve all these issues.

Evidence regarding the Lessees’ payments on account of rent, the rain damage, the repairs undertaken and the steps taken by the Lessors to terminate the Lease

11 The ensuing summary of relevant events during 2007 is based principally on lengthy written and oral testimony given by the Lessees and by Mr Mitchell and on documents annexed or exhibited to their affidavits. Much of the Lessees’ evidence was confused and on a couple of issues (notably the time at which they first noticed leaks in the Premises), the oral testimony of Ms Duarte was at variance with her affidavit. Subject to these qualifications, they were reasonably credible witnesses. Mr Mitchell’s testimony did not cover all relevant matters, but he also appeared to be a credible witness.

12 According to the Lessees, heavy rain in the Campbelltown area on 2 January 2007 caused a large quantity of water to enter the Premises and inflict significant damage. In consequence, they closed their shop for two days, and they were compelled to shorten their trading hours (which normally were from 9 a.m. to 7 p.m., every day including weekends) on a number of subsequent days. They rang Mr Mitchell’s business telephone on 2 January and left a message on his answering machine, advising him of this damage and asking him to have it repaired. He visited the Premises on or about 17 January and said that he would arrange for an insurance assessor.

13 Mr Mitchell testified, however, that while it may well have rained in Campbelltown on or about 2 January, he did not receive any notification about rain damage as claimed. He was away on Christmas holidays until about 17 January and his answering machine was programmed so as not to record messages during his holidays. Mr Mitchell also denied having visited the Premises at all during January. He said that on or about 18 January Mr Duarte visited him at his shop to make a rent payment, but did not mention rain damage.

14 When asked in cross-examination whether she could remember being invited by a recorded message to leave her message on Mr Mitchell’s answering machine, Ms Duarte’s responses were not convincing. She also claimed in cross-examination that she and her husband had noticed cracks in the ceiling and leaks during rain on some occasions before 2 January 2007, even though a claim to this effect did not appear in any part of her affidavit.

15 The parties were in agreement that heavy rain fell in Campbelltown on or about 11 February, that it caused the Premises to be flooded and that soon afterwards the Lessees advised Mr Mitchell of these events at his business premises.

16 Clause 4.1.4 of the Lease provided:

The tenant must … give the landlord prompt notice of any damage or defect in the premises or in any of the services (water, gas, electricity or others) to the premises. The landlord may (but is not obliged to) enter the premises to carry out repairs after giving reasonable notice to the tenant.

17 Clauses 5.1.1 – 5.1.5 were identical in all material respects to s. 36(1) of the RL Act. This subsection, so far as relevant in the present context, states as follows:

36 Damaged premises

(1) A retail shop lease is taken to provide for the following if the shop or the building of which the shop forms part is damaged:

(a) The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage.

(b) If the shop is still useable under the lease but its useability is diminished due to the damage, the lessee’s liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage….

18 It was also clear from the evidence that the first written notification of the rain damage given by the Lessees to the Lessors was a letter sent to them on 2 or 3 March, with a copy to Mr Mitchell. That letter commenced as follows:

As you are aware over the last few weeks our business has been affected dramatically due to the constant rain flooding the premises.

19 It went on to advise that because of the leaking roof the Lessees had closed their business during the following periods: 2 – 3 January, 11 – 15 February, 24 – 26 February and from 28 February onwards. The premises, it claimed, were unsafe because the electrical fittings were wet (causing the electricity supply to malfunction and creating a fire hazard) and the ceiling was sagging due to the leaks in the roof.

20 The letter also alleged that the Lessees’ ‘calls for assistance’ to Mr Mitchell had been ‘met with a hostile reaction and constant verbal abuse’ towards them, and that there had been a ‘continuous refusal’ on his part to attend to the repairs. It claimed that under clauses 5.1.1 – 5.1.5 of the Lease the Lessors were obliged to carry out the necessary repairs and indicated that unless they were completed by 9 March the Lessees would approach a number of authorities, including Campbelltown City Council (‘the Council’), and the media. The Lessees enclosed some photographs with this letter to illustrate the unsatisfactory state of the Premises.

21 The Lessees have not traded in the Premises since 28 February 2007, on the ground that the repairs effected since then have failed to prevent the roof from leaking during rain periods.

22 Clause 18 of the Lease relevantly provided that the essential terms of the Lease included ‘Part 3 dealing with the permitted use of the premises’. Within Part 3, clause 3.2.1 required the tenant ‘to keep the premises open during all usual business hours’. Under clause 10.1, if the tenant failed to carry on business, or to perform an essential term of the lease, the landlord could either re-enter the premises, thereby terminating the lease, or call for an immediate surrender of the tenant’s interest under the lease.

23 The affidavits sworn by the Lessees included allegations that during February and March they verbally asked Mr Mitchell more than once to have the Premises repaired as a matter of urgency, but that he responded in a very hostile manner and refused to accept responsibility. These matters were not addressed to any significant extent in the cross-examination of any of the witnesses.

24 Mr Mitchell testified that on 12 February, after being notified of the flooding of the Premises on the previous day, he approached the Lessors’ insurers through their broker. The broker informed him ‘some time later’ that the insurers claimed not to be liable under the insurance policy covering the Premises, on the ground that the cause of the damage was ‘wear and tear’.

25 Mr Mitchell then asked Mr David Goss, a repairer whom the insurers had asked to inspect the Premises, to provide quotes for the repairs. Mr Mitchell accepted one quote submitted by Mr Goss for carrying certain repairs to the roof, but not two others. Mr Goss carried out the tasks specified, but in a fax dated 19 March to Mr Mitchell, he indicated that there remained ‘some issues that will cause further penetration’, including loose brickwork, instability and dents in the roof, corroded flashings, incorrectly fitted ‘penetrations’ causing leaks and restriction of water flow on the roof caused by old disused air conditioning units.

26 Mr Mitchell obtained, but did not proceed with, a quote for replacement of the roof of the building in which the Premises, together with two other shops, were located. In cross-examination, he said that he planned to have the roof replaced after the present proceedings had concluded, as it was necessary for the Premises (and also two shops adjacent to them, within the same building) to be vacant when this was done.

27 During March and April, Mr Mitchell also arranged for repairs and painting to be effected at the Lessors’ expense to the ceiling, the interior walls and the electrical fittings of the Premises.

28 Mr Mitchell pointed out in his oral testimony that during the weeks following the heavy rain in Campbelltown on 11 February it was particularly difficult to obtain the services of qualified repairers. The reason, he believed, was that numerous other properties in the region had also suffered rain damage. These statements were not challenged in cross-examination.

29 On 14 March, at the Lessees’ request, Ms Genevieve Chasten and Mr Raymond Elliott, who were Council officers having responsibility for health and building issues respectively, visited the Premises. They told the Lessees that the business would have to remain closed until repairs had been effected. A number of photographs of the Premises taken on that day by Ms Chasten were in evidence. They showed that there was water damage to the ceiling, internal walls and floor, and that tiles and electrical fittings had become disengaged from the ceiling and the walls, apparently on account of this damage.

30 On 16 March, Johnsons, who have been solicitors for the Lessors throughout, said in a letter to solicitors then acting for the Lessees that ‘maintenance work’ on the Premises was due to be completed by 19 March. They also claimed that the Lessees’ payments of rent were in arrears in an amount of $13,199 (representing the rent due for January, February and March 2007 and two weeks in December 2006) and that the Lessees also owed $1,059.64 for ‘unpaid trade waste’. They referred also to alleged failures to pay rent when it fell due during 2005 and indicated that if the Lessees did not pay the amounts now due the Lessors would ‘pursue all legal avenues to recover their monies’.

31 Clause 18 of the Lease relevantly provided that the essential terms of the Lease included ‘the tenant’s promise to pay rent and outgoings within fourteen (14) days of the due date’. Under clause 10.1, if any money payable under the lease was outstanding for 14 days, or (as already mentioned) if the tenant failed to perform an essential term of the lease, the landlord could either re-enter the premises, thereby terminating the lease, or call for an immediate surrender of the tenant’s interest under the lease.

32 Annexed to Mr Mitchell’s affidavits were a number of copies of what purported to be receipts for rent since the date of assignment of the Lease to the Lessees. It was apparent, however, that they did not provide a reliable indication of the amounts paid, or of whether rent was indeed in arrears at the end of 2006.

33 The Lessees asserted that, when payments made in January 2007 were taken into account, their rent was fully paid up to the end of December 2006. It is common ground that they made no subsequent payments.

34 On 19 March, the Council issued to the Lessees an Emergency Order under section 121B of the Environmental and Planning Assessment Act 1979. It required them to cease using the Premises until one or more suitably qualified persons could certify that (a) the roof structure was structurally adequate to support all expected loadings; (b) the roof covering was weatherproof; (c) all internal ceiling was presently installed in accordance with the manufacturers’ specifications or standard installation practices; (d) the remaining internal wall tiles located above the front entrance door were adequately attached to the wall so as not to be easily dislodged; and (e) (this matter to be certified by a qualified electrician) the electrical wiring complied with all Australian standards. It set out the following reasons for imposing these requirements:

The use of the building constitutes or is likely to constitute a life threatening hazard or a threat to public health or public safety in that there is continual penetration of rainwater into the premises over public and staff areas causing fire hazards, electrical hazard, slip hazards and falling object hazards.

This Order is given in circumstances that Campbelltown City Council believes constitute an emergency.

35 The Council sent a copy of this notice to Mr Mitchell. In its original form, it required compliance by 20 March, the day before it was issued. A subsequent version dated 19 April required compliance by 20 April.

36 On or about 20 April, Mr Duarte (accompanied by his daughter), Mr Mitchell and Mr Elliott visited the Premises. Having inspected the repairs, Mr Elliott indicated to Mr Duarte and Mr Mitchell that they were sufficient to answer the Council’s requirements and that the order under the Environmental and Planning Assessment Act would be lifted. Mr Duarte asked that this decision be communicated by the Council to his solicitor.

37 On or about 24 April, Mr Mitchell, having seen that the Lessees had not recommenced business, asked Mr Duarte on the telephone why this was so. According to Mr Mitchell, Mr Duarte replied that he needed to remove building materials that the repairers had left behind and to clean the Premises. According to the Lessees, the reason was that they had not received official notification from the Council that its order had been lifted.

38 Mr Duarte testified that he came to the Premises on 24 April 2007 in order to finish the task of cleaning them. It rained while he was there. He noticed that there were leaks from the ceiling. Ms Duarte advised Mr Elliott to this effect. Mr Mitchell testified that, having heard from Mr Elliott that Mr Duarte had complained about leaks in the ceiling, he asked Mr Goss to investigate the matter.

39 In a letter dated 26 April to the Lessees, Johnsons claimed that the arrears of rent now amounted to $15,252, that an additional amount of $1,059.64 was owing on account of ‘trade waste’ and that a further amount of $8,007.30 for GST since 1 July 2005 was also owing. The letter concluded by putting the Lessees on ‘formal notice’ that if these amounts were not received within 14 days of its receipt, the Lessors would terminate the Lease and seek possession of the Premises.

40 In a letter to Mr Mitchell dated 30 April, the Council confirmed that ‘an inspection of the premises on 20 April 2007 in combination with documented materials, disclosed [that] the terms of the [Emergency] Orders had been complied with’. The letter stated that, in the Council’s opinion, the use of the building no longer constituted or was likely to constitute a life threatening hazard or a threat to public health or public safety, and that accordingly the Emergency Orders had been revoked.

41 The Council sent a letter in similar terms, also dated 30 April, to the Lessees. It contained an additional sentence, inserted after the statement that the Emergency Orders had been revoked. This sentence was as follows: ‘I also acknowledge that a further inspection at your request on 24 April 2007 revealed that a water penetration occurred and I am advised that the owner has again attended to this matter.’

42 On 2 May, Mr Goss faxed a letter to Mr Mitchell stating that repairs had been effected to the Premises on Mr Mitchell’s instructions and that all work had been carried out to ‘the Australian Standards’. Mr Mitchell faxed a copy of this letter to the Council, marked for the attention of Mr Elliott.

43 According to Ms Duarte, she and/or Mr Duarte attended the Premises on a number of occasions following the Council inspection on 20 April. Their last visit was on 11 May. The purpose of these visits was to check that property within the Premises that belonged to them had not been stolen or damaged.

44 As already indicated, the Lessees made no attempt during this period to recommence trading, despite the Council’s decision to revoke its Emergency Orders. Ms Duarte testified that she did not think that the necessary repairs had been carried out, and she was therefore concerned for the safety of her family. She believed that the Council had not sufficiently taken account of the possibility that further rain might cause the ceiling to collapse.

45 On 7 May, solicitors instructed by the Lessees (the Youth & Enterprise Legal Centre) wrote to Johnsons, disputing the claims for rent, outgoings and GST made in the letter of 26 April. They maintained that because of the Lessors’ failure to effect proper repairs to the damage caused by the rain, the Lessees were excused by section 36 of the RL Act from any liability to pay rent for so long as the Premises remained unusable.

46 On 8 May, Johnsons wrote a letter to the Lessees in terms similar to their letter of 26 April. It again threatened termination of the Lease and repossession of the Premises if the amounts due were not paid within 14 days.

47 In a letter dated 10 May to the Lessees’ solicitors, Johnsons advised however that the Lessors would terminate the Lease on 11 May and repossess the Premises on 12 May. The letter also stated that the Lessees would be given the opportunity to remove their fittings and fixtures within a further 14 days. It gave as the grounds for termination the Lessees’ failure to pay rent and outgoings within 14 days of their falling due and their failure to ‘deal with the permitted use of the premises’. It claimed that both of these breaches were essential terms under clause 18. It referred also to alleged failures to pay rent when it fell due during 2005. With reference to the Lessees’ claim under section 36 of the RL Act, it indicated that the Lessors were prepared to grant an abatement of rent from 2 March 2007 (being the date when the Lessees gave written notice of damage to the Premises) to 23 April 2007 (being the date when the Lessees’ prior solicitors were notified that all repair work had been completed). It claimed a total indebtedness of $11,240 (though the explanation for this figure given in the letter suggests that the amount allowed by way of abatement was mistakenly deducted twice from the amount that would otherwise have been payable as rent).

48 On 12 May, Mr Mitchell (or someone acting on his instructions) placed a piece of cardboard under the door of the Premises bearing the words ‘under possession’ and engaged a locksmith to change the locks. Thereafter, the Lessees considered themselves to have been evicted from the Premises.

49 On 15 June, as indicated above, the Lessee commenced the present proceedings in the Tribunal.

50 On the evening of 19 June, at a time when rain was falling in Campbelltown, the Lessees’ daughter Jessica took video footage of the interior of the Premises through glass doors and windows at the front. Mr Duarte was present at the time. This footage was screened at the Tribunal hearing. It showed water dripping from a number of points along a line in the ceiling, running parallel to the front doors and windows at a distance of about a metre.

51 In a letter to Mr Mitchell dated 25 June, Mr Goss stated that ‘GHI Solutions’ (a building firm owned by him) attended the Premises on 22 June. The letter said: ‘we found that there was a pin hole to the side of box guttering, allowing water penetration to front doorway, this has now been rectified.’ A copy of this letter was annexed to an affidavit of Mr Mitchell. He was not cross-examined on this matter.

52 On 4 July, expert witnesses instructed by the solicitors for both parties inspected the Premises. Their reports formed part of the evidence. Their qualifications were not challenged and neither of them was required for cross-examination. They had had access to invoices relating to the repairs to the building and had been made aware of both the Council’s emergency orders and the subsequent revocation of those orders. Also present at the inspection were Mr Mitchell, the Lessors’ solicitor and two representatives of the solicitors acting for the Lessees.

53 Acting on instructions from the Lessees, Mr John Price, a building and construction consultant, expressed the following opinion in his report:

The property appears in reasonable condition and has obviously had some recent repairs to the ceiling. No access was provided to the roof surface. Photographs provided show substantial water penetration to the premises. The owners advise that the roof has been repaired and no water penetration was evident during the last rain period a week previous to the inspection.

It was agrees (sic) with the owners for a further inspection to be carried out following the next rain period with the owners and the tenant.

54 Beside the heading ‘Description of property’, the report stated:

At the time of the inspection, the interior of the shop was in reasonable condition. Evident recent repairs to the ceiling of the property were satisfactorily completed. These repairs were necessary following damage due to water penetration from the roof into the shop.

55 Elsewhere in his report, Mr Price stated that Mr Duarte had told him of having ‘witnessed water penetration to the front of the shop through the front doors’ on 8 June, and that during the inspection Mr Mitchell told him that this leak had been ‘isolated and repaired’. Under the heading ‘Conclusion’, he suggested that the Lessees should ‘renegotiate the terms of their lease considering the costs involved, loss of trade and subsequent income during the period the tenants were unable to trade’.

56 In his affidavit, Mr Mitchell denied Mr Price’s claim that ‘no access was provided to the roof surface’. He said that on at least three occasions he offered Mr Price an opportunity to inspect the roof, but Mr Price said that there was ‘no need’. He added that access could be gained via an access door in the ceiling of the Premises. He was not cross-examined on this matter.

57 Acting on instructions from the Lessors, Mr George Zakos, whose experience includes arbitration and mediation of many building disputes, concluded in his report that there was evidence of recent repairs or replacement of the ceiling and that there was ‘no apparent water ingress to the shop’. He added that according to Mr Mitchell ‘a small dripping leak appeared during some rain’ about two weeks before the inspection and a roofer had been called to make repairs. In his opinion, the existence of some ‘patchy paintwork’ on the ceiling was consistent with this account.

58 Ms Duarte said in cross-examination that neither of the Lessees acted on Mr Price’s suggestion that Mr Duarte should once more attend the Premises during rain to see whether leaks still occurred. The reason that she gave was that when it had rained on two occasions in July the conditions were ‘too wet’ to permit this.

Evidence regarding the Lessees’ alleged liability to pay GST and expenses associated with a grease trap

59 Clause 25 of the Lease provided as follows:

The amounts payable by the tenant to the landlord under this Lease do not include any goods and services tax (“GST”). If any GST is or becomes payable with respect to the payment by the tenant to the landlord or any other amounts under this Lease, the tenant must pay the GST or reimburse the landlord for any GST paid or payable by the landlord with respect to any amounts payable by the tenant under this Lease.

60 Annexed to Mr Mitchell’s affidavit was a copy of the a memorandum from the Lessor’s accountants to the Lessors, stating that as from 1 July 2005 they were required to collect GST from the tenants in their commercial properties and that their liability for 2005-06 was $10,555. Also annexed were copies of a payment slip sent by the Australian Taxation Office to the Lessors, requiring payment of this amount, and a post office receipt acknowledging payment on 19 June 2007.

61 The letters of 26 April and 8 May 2007 from Johnsons to the Lessees (see [39] and [46] above) included a claim that they were liable under clause 25 to reimburse the Lessors for the GST paid with reference to the Lease. It was stated in both letters that the amount then due from them was $8007.30 and, in the latter letter, that as from May 2007 a sum of $381.50 would be ‘factored into’ their monthly rent.

62 The affidavit sworn by Ms Duarte included a number of allegations (supported by annexed copies of documents) to the effect that the Lessees should not have been required to pay outgoings associated with a grease trap because the drains from the Premises were not in fact attached to a grease trap. This matter did not, however, receive any attention during the hearing.

The positions adopted by the parties at the conclusion of the hearing

63 As initially formulated, the Lessees’ claim was based in part on an assertion that the Lessors, through their agent Mr Mitchell, engaged in unconscionable conduct falling within s. 62B of the RL Act. This assertion was, however, mentioned only in passing in Ms Paraska’s concluding submissions.

64 Ms Paraska relied also on a section of the RL Act that was not mentioned in the original Application. She argued that the Lessors had breached obligations imposed upon them by section 34 of the RL Act (the relevant provisions of which appear below) and were therefore liable to pay ‘reasonable compensation’ for loss of profits and goodwill and damage to equipment.

65 In written submissions handed up at the hearing on 12 September 2007, after the evidence had been completed, Mr Confos, counsel for the Lessors, set out in the following terms the orders that his clients now sought:-

1. A declaration that the lease has been validly terminated.

2. Alternatively, an order that the tenant have possession of the premises on condition that they pay such arrears of rent as the Tribunal determines. In this regard it is submitted that the tenant is obliged to pay rent from at least 4 July 2007. The rent to be in the sum of $3,813.34 per month plus GST of $381.33 per calendar month.

3. A declaration that the tenant is obliged to pay GST payments on rent as and from 1 July 2005 to date and continuing.

4. A declaration that the tenant is entitled to an abatement of rent from 1 February 2005 to 3 July 2007.

5. A declaration that the tenant is not entitled to damages.

66 The written submissions also stated that ‘the landlord reserves the right to claim outgoings and GST otherwise payable outside the period 1 February 2007 to 3 July 2007’.

67 In his oral submissions, Mr Confos indicated that he had been instructed that his clients were prepared (a) to enlarge the period of abatement of rent specified in the fourth order sought so as to include also the month of January 2007 and (b) to forego any claim to arrears for the period before then.

68 M Confos also raised the issue of costs. His submissions on this matter are outlined below.

69 In view of the significant changes in the stance adopted by the Lessors, the Tribunal indicated to Ms Paraska, who appeared for the Lessees, that her clients should be given time to consider what, in effect, was an open offer from the Lessors permitting them to resume their tenancy of the Premises on specified terms. It did so in fulfilment of its duty under section 74(1) of the RL Act to ‘use its best endeavours’ to bring the parties to proceedings to ‘a settlement acceptable to all of them’. It directed that within 14 days the Lessees should notify the Registry whether or not they wished the Tribunal’s judgment to be withheld, on account of the offer of settlement that the Lessors had made.

70 In a letter to the Tribunal dated 26 September 2007, Ms Paraska referred to the Tribunal’s invitation to the parties to attempt settlement, but indicated that her clients wished to ‘submit to the judgment of the Tribunal’.

The claims made by the Lessees

71 It is convenient first to deal with the unconscionable conduct claim made by the Lessees. In her submissions, Ms Paraska suggested that the Lessors’ conduct in evicting the Lessees was ‘unwarranted’ and for this reason alone was unconscionable. The authorities on unconscionable conduct under the RL Act have however made it clear that conduct constituting infringing a retail shop lease is not for that reason alone unconscionable.

72 The affidavits by the Lessees contained allegations that Mr Mitchell behaved in a hostile way towards them, but these allegations were only briefly mentioned in the oral evidence. The Tribunal makes no finding as whether such behaviour occurred.

73 In these circumstances, there is no basis on which the Tribunal could make a finding of unconscionable conduct against the Lessors.

74 As mentioned above, Ms Paraska relied also on section 34 of the RL Act in advancing the Lessees’ claim for damages for loss of profits and goodwill and. Damage to equipment. So far as relevant, this provides as follows:-

34 Lessee to be compensated for disturbance

(1) A retail shop lease is taken to provide that if the lessor:

…

(c) unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or

(d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor’s control,

and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence.

75 By virtue of section 7 of the RL Act, any provision of a retail shop lease that is inconsistent with a provision of this section is void to the extent of the inconsistency.

76 Mr Confos submitted that any claim by the Lessees for losses suffered on account of the rain damage was precluded by the provision in clause 4.1.4 of the Lease that, in the event of notification by the tenant to the landlord of damage occurring in premises, ‘the landlord may (but is not obliged to) enter the premises to carry out repairs after giving reasonable notice to the tenant’. He contended that in consequence of this provision the Lessors had merely a power, but not a duty, to repair any damage to the Premises.

77 The Tribunal agrees, however, with Ms Paraska’s submission that the Lessors were subject to an obligation to repair the damage arising from section 34(1)(d) of the RL Act. By virtue of section 7, this obligation overrode any contrary provision in the Lease.

78 It has indeed been held by the Tribunal (see Perrin v Hungay Pty Ltd [2005] NSWADT 257) that a lessee may invoke section 34(1)(d) to obtain compensation from the lessor for loss of profits due to trading being adversely affected by rain damage, so long as the repairs required are to parts of the building over which the lessor has control. There are examples in the case law of a lessee failing in a claim under section 34(1)(d) by virtue of this last requirement: see Sarip Investment Pty Ltd v Uno Uno Pty Ltd [2004] NSWADT 27; Kindful (Australia) Pty Limited v Country Villa Holdings Pty Limited [2006] NSWADT 224). But it was not suggested in the present case that the Lessors lacked the requisite control over the Premises to enable repairs to be effected which would ‘prevent or put a stop to’ the ‘significant disruption’ of the Lessees’ trading activities caused by rain.

79 A lessor’s obligation under section 34(1)(d) is, however, expressed in terms of failing to take ‘all reasonable steps’ to ‘prevent or put a stop to’ disruption of the lessee’s trading. It is not an absolute obligation. Furthermore, compensation may only be claimed if the lessor fails to ‘rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so’. The Tribunal is of the opinion that where subparagraph (d) of subsection (1) is the provision specifically relied on, this requirement of ‘rectifying the matter’ does not enlarge the lessor’s obligation beyond that of ‘taking all reasonable steps’. In this situation, the concluding words of the subsection make it clear that what are found to constitute ‘all reasonable steps’ must be taken ‘as soon as reasonably practicable’ after written notice has been received.

80 In the present case, the Lessors were not given any written notice of the relevant disruption of trading until Mr Mitchell received a letter from the Lessees on or about 3 March 2007. Because, on his version of events, he had received oral advice from the Lessees about the rain damage on or about 11 February, he had already approached the Lessors’ insurers (without success) and had sought quotations for some at least of the necessary repairs by the time the written notice arrived. His evidence that it was particularly difficult at that time in Campbelltown to obtain the services of qualified tradespeople was not challenged. While clearly the Lessees were unable to trade following the rainstorm that occurred on or about 11 February (as evidenced in particular by the photographs taken by Ms Chasten at the inspection on 14 March and the emergency orders then made by the Council), the Council’s conclusion following the inspection on 20 April was that in view of the repairs that had occurred since 14 March, the Premises could no longer be considered unsafe.

81 It should be pointed out also that no evidence, expert or non-expert, was tendered suggesting that the repairers engaged by Mr Mitchell were patently not qualified or that the tasks that they were instructed to carry out were patently inadequate to render the Premises fit for the Lessees to resume trading. Similarly, there was no evidence as to when, in the particular circumstances of the case, the steps taken by the Lessors to have the repairs carried out should be taken to have infringed the time-limit imposed in section 34(1), namely, ‘as soon as reasonably practicable’.

82 Ms Paraska argued however that the decision of the Council officers on 20 April that the emergency orders should be revoked was insufficient to show that the Premises were safe, let alone fit for trading. In consequence, she maintained, it could not be held that ‘all reasonable steps’ had been taken.

83 The problem with this claim made on the Lessees’ behalf is, however, that it was almost entirely based on their own beliefs regarding the adequacy of the repairs that were carried out. They obtained no expert evidence regarding the state of the Premises at the time when the Council’s officers determined that they were no longer unsafe. Moreover, the expert evidence that they and the Lessors subsequently obtained – i.e. the reports prepared by Mr Price and Mr Zakos following inspections on 4 July – provided no support for this claim.

84 Mr Price stated in his report that the property appeared to be ‘in reasonable condition’ and that ‘evident recent repairs to the ceiling’ had been ‘satisfactorily completed’. His ‘Conclusion’ was that the Lessees should ‘renegotiate the terms of their lease considering the costs involved, loss of trade and subsequent income during the period the tenants were unable to trade’ (emphasis added). He made no suggestion that at the time of his inspection the Lessees were still ‘unable to trade’.

85 The principal conclusion stated by Mr Zakos was that there was ‘no apparent water ingress to the shop’.

86 The Lessees relied also on the following six matters contained in the evidence: (1) the Council officers did not go onto the roof at either of their inspections; (2) the ceiling of the Premises leaked during rain on 24 April 2007; (3) the video taken on 19 June 2007 also showed a number of leaks from the ceiling; (4) Mr Price (who was not required for cross-examination) said in this report that he was not granted access to the roof when he conducted his inspection; (5) Mr Price suggested that Mr Duarte should visit the Premises once more during rain, to see whether or not the ceiling still leaked, and (6) the fax sent by Mr Goss to Mr Mitchell on 19 March 2007 (see [25] above) indicated that, as Mr Mitchell himself acknowledged, it was necessary at some time to replace the roof of the whole property.

87 There are however good reasons for treating the first five of these matters as carrying little weight. These reasons are as follows: (1) there had been recent inspections of, and repairs to, the roof by Mr Goss, a qualified repairer; (2) the leak detected on 24 April was repaired soon afterwards by Mr Goss; (3) the evidence of leakage supplied by the video of 19 June was countered by the Lessors’ evidence (notably, the letter from Mr Goss to Mr Mitchell dated 25 June) that a box gutter near the front of the Premises had been repaired since 19 June; (4) while it is true that Mr Price’s claim of not being granted access to the roof was not challenged by cross-examination, the same applies to Mr Mitchell’s affidavit evidence denying this claim; and (5) for entirely unconvincing reasons, the Lessees themselves failed to act on Mr Price’s suggestion that they check whether the ceiling leaked at some later time when it was raining.

88 With regard to the sixth matter, it is undeniable that Mr Goss in his fax of 19 March 2007 drew Mr Mitchell’s attention to a number of significant defects in the roof, prompting a recognition by Mr Mitchell that the roof would have to be wholly replaced. But in the face of the opinions expressed in expert reports obtained by both parties, this is not enough to establish that until replacement occurred, the Premises should be regarded as unfit for use as a takeaway shop.

89 The arguments raised by Ms Paraska on this question of whether the repairs were adequate were implicitly based on the proposition that in determining the issue of liability under section 34(1)(d) the onus lay on the Lessors to prove that the Premises had been rendered safe by the repairs that they had organised. Ms Paraska submitted in fact that the Tribunal should order the Lessor to obtain, at their expense, an expert report certifying that the Premises were safe. But when asked by the Tribunal during her submissions where the onus of proof on this matter lay, she replied that it was ‘not clear’.

90 The Tribunal, having had no specific authority on this issue drawn to its attention, is of the opinion that the principle to be applied is a familiar one: those who assert must prove. It was for the Lessees, in bringing a claim under section 34(1)(d), to prove the necessary ingredients. While the Tribunal recognises, as Ms Paraska maintained, that the Lessees might experience financial difficulties in paying the expenses of a report such as she described, it is bound to point out that they did instruct an expert witness (Mr Price). The problem for them is that his report did not express the opinion about the safety of the Premises to which they themselves adhere.

91 Taking all these matters into account, the Tribunal’s conclusion is that the evidence available to it does not support a finding that the Lessors, through their agent Mr Mitchell, failed to take ‘all reasonable steps to prevent or put a stop to’ the causes of the disruption of the Lessees’ trading following the heavy rainstorm on or about 11 February. Not being appropriately qualified, Mr Mitchell obtained quotations from tradespeople whom the Tribunal must assume were appropriately qualified and engaged some of them to do what must be assumed to have been the necessary work. He took these steps both in order to cause the initial repairs to be effected (between February and April 2007) and on two subsequent occasions when leaks continued to occur during rain. He reasonably relied on both the opinions of Council officers and the two expert witnesses.

92 Equally, the Tribunal concludes that the Lessors did take these reasonable steps ‘as soon as reasonably practicable’ following their receipt of written notice on or about 3 March. As just indicated, Mr Mitchell commenced the process of getting repairs done to the Premises before this date. Some seven weeks after this date, the Premises were repaired to an extent sufficient to satisfy the Council officers that closure was no longer warranted. On the two later occasions when leaks occurred, Mr Mitchell ensured that repairs were carried out within a few days.

93 This last conclusion makes it unnecessary for the Tribunal to determine (a) whether the Lessees did, as they allege, notify Mr Mitchell during January 2007 of damage inflicted by rain at the beginning of this month, or (b) whether Mr Mitchell attended the Premises and inspected this damage on or about 17 January. Under section 34(1)(d), the obligation to take all reasonable steps to deal with disruptions to a lessee’s trading ‘as soon as reasonably practicable’ arises only when written notice is given. The question whether Mr Mitchell received oral notice three weeks or six weeks earlier than the written notice given on 2 or 3 March is therefore not relevant.

94 For reasons given earlier, the only basis on which the Lessees’ claim for damages for loss of profits might be sustained is this statutory cause of action created by section 34(1)(d). Since for the reasons just outlined the ingredients of this cause of action have not been established, the Lessees’ claim for damages must fail.

95 In the light of one of the concessions made by the Lessors, it is not necessary for the Tribunal to determine whether the Lessees were entitled, on account of rain damage, to withhold payment of rent under section 36 of the RL Act (the terms of which were replicated in clause 5.1.1 of the Lease: see [17] above) for the period between 1 January 2007 and 3 July 2007. The Lessors have agreed to grant an abatement of the rent attributable to the whole of this period.

96 The remaining claim by the Lessees – for an order that the Lessors return possession to them on terms acceptable to them (the Lessees) – is best considered in the context of the claims raised by the Lessors.

The Lessors’ claims

97 The first order in the list set out in Mr Confos’s closing submissions (see [65] above) was a declaration that the Lease was validly terminated.

98 Mr Confos argued that the termination and repossession effected by Mr Mitchell on 11 and 12 May 2007 were justified on two grounds, both of which involved breaches of an essential term of the Lease. These were failure to pay rent within 14 days of the due date (see clauses 10.1 and 18 of the Lease) and failure to carry on business and to keep the premises open during all usual business hours (see clauses 3.2.1, 10.1 and 18).

99 Except as regards GST, the Lessors have abandoned any claim previously made that rent was owed to them for any period earlier than 1 January 2007. But the Lessees have acknowledged that they have paid no rent for any period since that date. The letters sent by Johnsons on 16 March, 26 April, 8 May and 10 May 2007 requiring payment of arrears of rent (see [30], [39], [46] and [47] above) all referred to the Lessees’ failure to pay the rent due for the months of January and February 2007. At the time of termination and repossession, the Lessees had therefore failed to pay two monthly instalments of rent within 14 days of the due dates.

100 In the Tribunal’s judgment, these defaults provided valid grounds for the Lease to be terminated and the Premises to be repossessed pursuant to clauses 10.1 and 18 of the Lease. Although advance notice of termination was not required under the Lease or otherwise by law, it was in fact given in the letter of 26 April and repeated in the letter of 10 May. The contrary indication in the letter of 8 May that termination would not occur before 22 May was not invoked by the Lessees as a ground for ruling that it was invalid. As they had ceased to carry on business in the Premises more than two months previously, there was no evident ground on which they could claim to have been prejudiced by this letter.

101 In the Tribunal’s opinion, it is not relevant in this context that by the time when the hearing of this matter concluded the Lessors had decided to grant an abatement of rent for the months of January and February 2007. This concession was made in the context of a proposal (subsequently rejected) under which the Lessees were given an opportunity to resume occupation of the Premises. It may be added that even on the Lessees’ own account of events they were obliged to pay, but did not pay, a proportion of the rent due under the Lease in respect of these two months. Until the rainstorm of 11 February, the disruption of their trading due to rain damage was partial only. Any claim by them for abatement under section 36(1) of the Act and the corresponding provisions of the Lease could therefore only be partial as well.

102 On the other hand, the Tribunal rejects Mr Confos’s submission that the Lessees’ failure to carry on business and to keep the premises open during all usual business hours provided a valid ground of termination. The reason is that the Lessors failed to comply with the requirements of section 129(1) of the Conveyancing Act 1919. This states that a lessor may not exercise any right of re-entry or forfeiture on the ground of breach of covenant by the lessee until (a) the lessor has served a notice specifying the breach complained of and requiring that the breach be remedied (if this be possible) and (b) the lessee has failed within a reasonable time thereafter to remedy the breach. By virtue of section 129(8), these requirements do not apply to cases of non-payment of rent. But they are applicable to breaches of all other covenants by a lessee.

103 In view of this ruling that the first order sought by the Lessors should be granted, it is not necessary to consider the second order in their list, sought in the alternative. This was an order returning the Lessees into possession on terms that they pay an appropriate amount as arrears of rent. By the same token, the Lessees’ own claim for an order restoring possession to them on terms acceptable to them must be dismissed.

104 The third order in the Lessors’ list was a declaration that the Lessees were obliged to pay GST payments on rent as and from 1 July 2005 to date and continuing. Having considered the evidence on this matter (see [60 – 62] above), the Tribunal sees no reason why clause 25 of the Lease, requiring the Lessees to reimburse the Lessors for any GST paid with respect to the rent, should not be given full effect.

105 The evidence shows that the Lessors became liable for GST in connection with the Lease as from 1 July 2005. They have acknowledged that rent was fully paid up to 31 December 2006 at the stipulated annual rate of $45,760.00, and they have granted an abatement of rent from that date until the date of termination of the Lease. The amount assessable against the Lessors for GST and due to be reimbursed by the Lessees is accordingly 10% of 18 months’ worth of rent, i.e., $6,864.

106 The Tribunal orders that the Lessees are jointly and severally liable to pay the sum of $6,864 to the Lessors.

107 In the circumstances, it is not necessary to consider the two remaining orders in the list set out at [65] above.

Costs

108 Having regard to the statutory provisions (section 77A of the RL Act and section 88(1) of the ADT Act) limiting recovery of costs in proceedings in this Division to cases where there are ‘special circumstances warranting an award of costs’, Mr Confos, in his concluding submissions, sought costs only with respect to two directions hearings. At one of them, he said, there was no appearance by or on behalf of the Lessees. At the other, it was noted that the Lessees had not complied with a prior direction to file and serve their evidence.

109 In her submissions in reply, Ms Paraska did not respond to these submissions.

110 The Tribunal, having inspected the Registry file, notes two matters. First, directions given on 12 July 2007 for the filing and serving of evidence by both parties – not just the Lessees – by 25 July were not complied with. Secondly, there was no appearance by or on behalf of the Lessees at a directions hearing on 9 August 2007, with the consequence that a further directions hearing on 16 August was required. No explanation has been provided for the failure to appear.

111 In the Tribunal’s judgment, the second of these matters, but not the first, amounts to ‘special circumstances’ under section 88(1).

112 The Tribunal accordingly orders that the Lessees pay the Lessors’ costs of the directions hearing held on 9 August 2007.