Eather v Nguyen
[2011] NSWADT 80
•19 April 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Eather v Nguyen [2011] NSWADT 80 Hearing dates: 25 June and 2 August 2010 Submissions closed 13 September 2010 Decision date: 19 April 2011 Before: S Higgins Deputy President Decision: 1.The respondent to pay the applicant an amount of $28,186.27.
2.The respondent to pay the applicant's cost in the amount of $2,400.00 (inclusive of GST). Otherwise no further order as to costs.
Catchwords: Damages - lessor's breach of lease - failure to maintain in a state of good condition and serviceable repair the floor of the property and failure to fix structural defects to the floor - costs Legislation Cited: Administrative Decisions Tribunal Act 1997
Food Act 2003
Retail Leases Act 1994Cases Cited: Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 64 Category: Principal judgment Parties: Robert David Eather (Applicant)
Uyen Vu Ngoc Nguyen (Respondent)Representation: Solicitors:
Shaddicks Lawyers (Applicant)
Aquinas & More Lawyers (Respondent)until 18 August 2010)
N Nguyen (Respondent in person) from 19 August 2010
File Number(s): 105039
REasons for decision
Introduction
The applicant, Mr Eather, and his wife are the owners of a bakery business operated from premises owned by the respondent, Ms Nguyen. Mr Eather and his wife purchased the business in September 2007. When purchasing the business Ms Nguyen assigned the lease of the premises from which the business had been operating since 2004 (the 2004 lease).
The initial parties to the 2004 lease were Rightscene Pty Limited (the lessor) and Nugenuly Pty Ltd (the lessee). It was a lease for 5 years, with an option to renew for a further 5-year period. The commencement date was 12 October 2004 and it expired on 11 October 2009.
In October 2005, Ms Nguyen became the owner of the premises.
During the latter part of 2009, a dispute arose between Mr Eather and Ms Nguyen over the condition of the floor in the premises. Mr Eather asserted that he had complained about the condition of the floor for some time as it was having a direct effect on his ability to keep the premises clean and hence his ongoing inability to comply with the food regulations. After a number of inspections of the premises, on 2 October 2009, the Hawkesbury City Council (the Council) issued Mr Eather with an Improvement Notice, followed by a Prohibition Order, on 13 November 2009. The Prohibition Order prohibited Mr Eather from handling food on premises that were intended for sale, or using any of the equipment on the premises in connection with food intended for sale.
As a result of the Prohibition Order, Mr Eather ceased trading and did not recommence trading until 4 March 2010 after Ms Nguyen had replaced the floor of the premises and an agreement had been reached on a new lease. A new lease was necessary as Mr Eather had failed to give the requisite written notice of his intention to exercise his option to renew the 2004 lease.
On 15 March 2010, Mr Eather made an application to the Tribunal, seeking orders, including an order that Ms Nguyen pay him an amount by way of damages for alleged breaches, by Ms Nguyen, of the 2004 lease and specified provisions of the Retail Leases Act 1994. Mr Eather's claim was retail tenancy claim under section 71 of that Act and an unconscionable conduct claim under section 71A of that Act.
Prior to the matter being listed for hearing, Mr Eather withdrew his unconscionable conduct claim.
The matter was listed for hearing, before me, on 25 June 2010. At the commencement of the hearing, the solicitor for Ms Nguyen argued that Mr Eather's application was misconceived and should be dismissed. Her argument was based on the terms of clause 19 of the new lease. I indicated to Ms Nguyen's solicitor that the matter would proceed and that the clause 19 argument could be raised in submissions after all the evidence was heard. I was then informed that Ms Nguyen was overseas and not available to give evidence and be cross-examined that day. As this had not been raised at the time the matter was set down for hearing and Mr Eather's solicitor had not been informed of her unavailability that day, I directed that the hearing of the matter proceeded with Mr Eather being available to give evidence and to be cross-examined by Ms Nguyen's solicitor. At the conclusion of hearing of Mr Eather's evidence, the hearing of the remaining evidence was adjourned to 2 August 2010.
During the course of the hearing on 2 August 2010, Ms Nguyen's solicitor advised the Tribunal that Ms Nguyen's argument in regard to clause 19 was no longer pressed.
In regard to Mr Eather's claim for loss and damage as a result of not trading from 14 November 2009 to March 2010, Ms Nguyen's solicitor conceded that during this period, Mr Eather continued to occupy the premises under the terms of the 2004 lease.
Ms Nguyen did not appear to dispute that the effect of the Council's Prohibition Order was that Mr Eather could not trade until the matters referred to in that Order were attended to.
On this basis the matters in issue are as follows:
(a) was the condition of the flooring the reason Mr Eather ceased trading?
(b) who was responsible for the condition of the flooring - Mr Eather through his use/misuse of the floor, or Ms Nguyen in her failure to maintain or repair the flooring?
(c) in the event the Tribunal finds that the condition of the flooring was the reason Mr Eather ceased trading and Ms Nguyen is found to have been responsible for the condition of the flooring, the loss (if any) suffered by Mr Eather as a result of being unable to trade from 13 November 2009 to 3 March 2010?
(d) is Mr Eather entitled to an abatement of rent from 14 November to 11 December 2009? and
(e) Costs.
The Evidence
Mr Eather tendered into evidence 3 affidavits sworn by him on 14 April and 26 May 2010 (2). In addition to this, Mr Eather tendered into evidence a copy of the contract for the sale of the bakery business he and his wife purchased in 2007 and an affidavit sworn by Mr Colin Harvey Fotheringham, a licensed builder, who had inspected the leased premises on 24 November 2009.
Mr Eather also gave oral evidence and was cross-examined by Ms Nguyen's solicitor. During the course of giving oral evidence Mr Eather drew a floor plan of the leased premises, which was tendered into evidence.
Ms Nguyen tendered into evidence an affidavit sworn by her (with paragraphs 40 to 61 not pressed), an affidavit sworn by Mr John Mullins, a building consultant who inspected the premises on 23 January 2010 and an affidavit sworn by Mr Stephen Lincoln (with paragraphs 6 to 11 not pressed), who is the managing agent of the leased premises. Each affidavit was sworn on 11 May 2010.
At the conclusion of the hearing on 2 August 2010, I made directions for the filing and serving of written submissions. As part of his submission, Mr Eather provided a report of Mr Stephen Young (Chartered Accountant), dated 15 August 2010, which set out his calculations on the amount of loss suffered by Mr Eather as a result of the closure of the bakery business.
Ms Nguyen and Mr Lincoln both gave oral evidence and were cross-examined.
The reasons why Mr Eather ceased trading
It was not disputed that the floor of the premises consisted of vinyl laid on top of particleboard flooring. This floor was laid on top of timber joists, which were laid above the concrete floor. The particleboard flooring was level with the entry level of the premises. However, concrete floor was a step below this.
In identifying the reasons as to why Mr Eather ceased trading it is necessary to consider the terms of the Council's 2008 and 2009 inspection reports, the Improvement Notice, the Prohibition Order and 2 incidents that occurred in regard to the flooring.
The first Council inspection of the premises , relevant to these proceedings, occurred on 15 July 2008. The report of this inspection identified 10 minor breaches. Two breaches arose from the condition of the flooring and the report identified the following as what was required: 'Repair/Replace exposed timber (damaged chipboard)' and 'Holes in flooring requires repairs'. The other breaches required cleaning of equipment/bench surfaces, floors, walls, ceilings and shelving, correct storage and protection of cooked food and the repair of cracks and holes in the ceiling. The report also required Mr Eather to provide to Council a pest management plan and cleaning roster and the receipts/invoices for treatment of pests to the Council.
In regard to the holes in the floor, Mr Eather explained that, in about November 2007, the wheels of the loaded trolley of his flour deliveryman had fallen through the particleboard flooring near the cool room. He said this was due to the then already poor condition of the particleboard flooring. Mr Eather said he reported this incident to Ms Nguyen's agent, Mr Lincoln, and asked him to have Ms Nguyen arrange for the floor to be fixed. Mr Eather said that shortly after this Ms Nguyen came and inspected the floor but she did nothing further about it. He said he screwed an aluminium plate over the holes in the floor, however the particleboard flooring continued to deteriorate.
Ms Nguyen and Mr Lincoln did not dispute that Mr Eather informed them about this incident. Ms Nguyen explained that she had done nothing further as Mr Lincoln had told her that Mr Eather had repaired the floor himself.
It was the evidence of Mr Eather that following Council's inspection he immediately contacted Mr Lincoln and informed him of the inspectors concern about the condition of the flooring. In his evidence Mr Lincoln did not specifically acknowledge that Mr Eather had contacted him on this occasion. However, he did acknowledge that Mr Eather had contacted him on a number of occasions about the condition of the floor. It was Ms Nguyen's evidence that after the November 2008 incident, she received no further complaints about the condition of the floor in the premises until October 2009.
The second Council inspection occurred on 22 May 2009. On this occasion, the report of the inspection identified 8 minor breaches. Again, the breaches are identified as having arisen from the condition of the floor and the overall cleanliness of the premises. In regard to the floor, the report said: 'holes in flooring require repairing - replace wooden patches on floors with flooring material that is smooth, impervious and easy to clean as per food safety standards'.
In regard to the other breaches, the report required shelves to be sealed, the ceiling to be cleaned and repaired and all foods in the cool room to be covered. Reference was also made to evidence of cockroaches in the premises.
The third Council inspection occurred on 22 June 2009. On this occasion, the report of the inspection recorded 4 minor breaches. In regard to the flooring, the report said: 'Holes in flooring require repairing (provide timeframe to Council)'.
The other matters raised in the report were a requirement to repaint the ceiling (with a time frame to be provided), providing a mixer spout for the hand wash basin, temperatures in the display cabinets to be monitored and recorded and pest control to be ongoing with pest control certificates to be provided to Council. It was the evidence of Mr Eather that he immediately informed Mr Lincoln about the inspection report and the urgent need to fix the flooring in the premises.
The fourth Council inspection occurred on 22 September 2009. It would appear that Mr Eather was not present at this inspection. The report of the inspection identified 7 minor breaches. A requirement to 'upgrade damaged floor and surface' and to 'seal exposed timber' was again included in the report. The remaining requirements concerned pest control, cleanliness of the premises, ceiling wall gaps/openings, appropriate covering of food products and obstructions to the hand basin.
The fifth Council inspection occurred the following day (23 September 2009). It would appear that Mr Eather was present on this occasion. The report of the inspection was similar in terms to the report of the previous day. Once again the report noted a requirement to upgrade the damaged floor and its surface and to seal exposed timber. The report also contained a note to the effect that Mr Eather was to consider attending a food seminar and investigate basement storage room for pests.
Not long after this inspection one of Mr Eather's customers fell through the particleboard flooring just inside the entrance to the premises. Mr Eather said he immediately telephoned Mr Lincoln's office and informed a member of his staff about the incident. He said he also telephoned Ms Nguyen and informed her of the incident and said words to the effect 'if I get sued for this, you will be responsible. The floor needs fixing urgently.' He said that about two days later Ms Nguyen's mother came and inspected the premises and took photos of the damaged floor. He said that when Ms Nguyen did nothing he replaced the flooring where the customer had fallen through.
Ms Nguyen did not dispute that Mr Eather had contacted her on this occasion. However, she said she did not recollect him saying the floor was her responsibility. In my view, there is no basis not to accept Mr Eather's evidence. He had consistently contacted Mr Lincoln or Ms Nguyen, since November 2008, about the condition of the floor as he believed it was the responsibility of Ms Nguyen to repair it.
The sixth Council inspection occurred on 1 October 2009. On this occasion, the Council issued Mr Eather with an Improvement Notice, pursuant to section 58 of the Food Act 2003. This Notice identified 4 defects in the premises. These concerned (a) the lack of cleanliness of the entire food business (i.e. an accumulation of grease, grime and food matter), (b) evidence of pests (cockroaches) throughout the premises, (c) 'vinyl type flooring surfaces in the food premises had cracked, had been covered with timber, have holes in it, is a potential harbourage for pests and unable to be effectively cleaned' and (d) the inadequate skills and knowledge of employees in regard to food handling practices at the premises. In addition to identifying the specific defects, the Improvement Notice gave directions as to what action should be taken in regard to the defects. In regard to the flooring the direction was to upgrade the flooring surface with a surface that was able to be effectively cleaned, unable to absorb grease, food particles or water and to be laid so that there was no pooling of water and pests could not harbour within it.
It was Mr Eather's evidence that immediately after he received the Improvement Notice he faxed a copy to Mr Lincoln. As mentioned above, Ms Nguyen acknowledged that she was informed about Council's Improvement Notice. Again she did nothing as she believed the matters requiring repair in the Notice were the responsibility of Mr Eather.
The seventh Council inspection occurred on 13 November 2009. On this occasion, Mr Eather was served with a Prohibition Order under section 60 the Food Act 2003. The Schedule to Order listed the same 4 defects that had been listed in the Improvement Notice and what was required to rectify these. Mr Eather said that immediately upon receiving the Prohibition Order he contacted Mr Lincoln and faxed him a copy of the Order.
It was Mr Eather's evidence that the condition of the flooring in the premises was such that it was impossible for him to keep the premises clean and free of any pests, including cockroaches. He provided evidence of the pest control services he had engaged in order to address the concerns of the Council's inspectors in regard to pests. He said that despite having regular attendance of the pest controllers, the condition of the flooring was such that it was impossible to control them let alone eradicate them. He said that the state of the flooring also made it impossible for him to keep the premises clean.
Mr Eather went so far as to say that the Council inspector had issued the Improvement Notice and the subsequent Prohibition Order so that Ms Nguyen would make a commitment to repair the floor.
Having regard to the terms of the Council inspection reports, the Improvement Notice and the Prohibition Order, it is evident from the first inspection in July 2008 the Council had formed the view that the visible condition of the floor was such that it potentially provided a hazard to or was detrimental to the preparation of food for sale in the premises. As time passed, the Council inspectors clearly became more and more concerned as there was no evidence of it being repaired.
Accordingly, I accept that the condition of the floor (i.e. its state of disrepair in that it could not be cleaned properly and harboured pests) was a reason underlying the Council's Prohibition Order and hence the underlying reason for the closure of Mr Eather's business in November 2009. However, this was clearly not the only reason. It is evident from the inspection reports, the Improvement Notice and the Prohibition Order that the Council was also concerned about the ongoing failure by Mr Eather to keep the premises clean in areas other than the floor, such as the floor and the ceiling.
Who was responsible for the condition of the floor?
Clause 3 of the 2004 lease provided that the property leased was that described on page 1 of the lease. This was a description of the property as contained in the Real Property Act Register and the address of the premises. Sub-clause 3.2 provided that the land and the fixtures were included in the property leased. Clause 6 of the lease set out how the property was to be used. Paragraph 6.1.1 provided that the property was to be used for the purpose stated in item 16 in the schedule to the lease and not for any other purpose. Item 16 of the schedule stated that the permitted use of the premises was a bakery. Sub-clause 6.3 set out what the lessee must not do. Paragraph 6.3.5 provided that the lessee must not 'overload the floors or walls of the property.'
Clause 7 of the lease set out who was to repair the property. Paragraph 7.1.1 provided that the lessor was required to 'maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls, and the floors of the property and must fix structural defects'. Clause 7.2 provided that the lessee 'must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition'. The clause went on to state that the lessee was not required to fix structural defects or repair fair wear and tear.
As I have indicated, there was no dispute about how the floor was constructed.
There was no evidence before the Tribunal about the ownership and condition of the particleboard flooring and the floor covering at the commencement of the 2004 lease. The only evidence as to what belonged to the tenant, Rightscene Pty Limited, was an 'Inventory' of plant, fittings and fixtures that was attached to the contract of sale of the bakery business to Mr and Mrs Eather in 2007. This 'Inventory' makes no mention of the particleboard flooring or the floor covering being a fixture belonging to the original tenant. Had these been fixtures belonging to the original tenant one would have expected their inclusion in the Inventory. As it was not mentioned and Ms Nguyen did not adduce any evidence about the premises at the commencement of the 2004 lease, I find that the entire flooring and the floor covering were part of the leased premises and not a fixture belonging to the tenant.
This finding is consistent with the letter, dated 9 November 2009, from Mr Lincoln and addressed to Mr Eather, in which Mr Lincoln said Ms Nguyen had agreed to replace the particleboard flooring and its covering, subject to Mr Eather installing steel flooring on the concrete in front of the oven. It was Mr Eather's evidence that Mr Lincoln handed him this letter some days after he had been served with the Prohibition Order and ceased trading. Mr Lincoln did not dispute this.
The fact that the floor and the flooring has been found to be part of the premises and therefore belonging to Ms Nguyen does not necessarily mean that she was responsible for its condition. This will depend on whether the condition was due to Mr Eather's use of the premises beyond what would be regarded as usual wear and tear, or whether it was due to Ms Nguyen failing to maintain the floor and its covering, or due to her failure to fix a structural defect in the flooring. For the reasons set out below, in my opinion, the condition of the floor and its covering was due to Ms Nguyen failures in maintaining the floor, or failure in fixing structural defect in that the flooring was at all times unsuitable for use in a bakery business.
Although Ms Nguyen pointed to the heavy equipment (i.e. trolleys) used by Mr Eather in his business, the evidence was that this was the type of equipment that was usually used in a bakery of the kind operated by Mr Eather.
It was the evidence of Mr Fotheringham, a licensed builder, who inspected the floor of the premises some 10 days after Mr Eather ceased trading, that the particleboard flooring had deteriorated 'due to the high moisture content and collapsing under the appliances, shelving and also the walkways ...' He went on to say that in his opinion the moisture content was high because there was no ventilation between the concrete and the timber flooring. He said the floor was a safety hazard and recommended that the timber floor be removed and a new concrete floor be poured on top of the existing concrete slab.
Mr Mullins, a building consultant, who inspected the floor 2 months later, made a similar recommendation. He went so far as saying that the flooring and the floor covering was 'unsuitable for current use and requires removal and replace (sic) with a concrete floor.' That is, in his opinion the particleboard flooring would not have been intended for the current use as a bakery, which was subject to refrigeration condensation and point loads by heavy small wheeled trolleys and high load shelving. He also referred to the lack of ventilation under the particleboard flooring, which exacerbated the moisture levels in the flooring. Mr Mullins attributed the cause of the moisture in the flooring to a leak from the cool room. In light of Mr Mullin's evidence that the flooring was in any event not suitable for use in a bakery business and in the absence of any evidence of leaking from the cool room prior to Mr Mullin's inspection, I have not accepted his opinion as this being the cause of the moisture in the particleboard flooring.
As Mr Fotheringham and Mr Mullins both appear to agree that the flooring was in any event unsuitable for conducting a bakery business, I find that this was in effect a structural defect in the leased premises. From the commencement of the 2004 lease the lessor was aware of, and consent to, the use of the premises as a bakery and as the flooring formed part of the premises, it was incumbent on the lessor to ensure that the floor was suitable for that use. As it was unsuitable, the terms of the lease provided that the lessor (including Ms Nguyen) was required to fix this structural defect.
In the event I am wrong, I also find that Ms Nguyen failed to maintain the flooring in a good state of repair. The undisputed evidence is that Mr Eather immediately informed Ms Nguyen of any incidents involving the flooring. These incidents did not arise as a result of Mr Eather having used the flooring other than in the usual course of his day-to-day business activity. At the same time, Ms Nguyen did nothing to ensure that the flooring was maintained in a good state of repair.
Accordingly, I find that Ms Nguyen breached paragraph 7.1.1 of the lease in that she failed to fix the flooring which was a the structural defect, or she failed to maintain the flooring in a state of good condition.
The loss suffered by Mr Eather as a result of the closure of his business
Mr Eather claims that as a result of being unable to trade from 14 November 2009 to 4 March 2010 he suffered the following losses:
Stock thrown out on the closure $ 6,198.27
Estimated net profit lost during closure period$21,156.02
Estimate net profit lost during 6 months after reopening$ 5,568.00
Ms Nguyen in her written submissions contended that regardless of the condition of the floor, Mr Eather would have been required to cease trading due to the many other breaches of the food safety standards identified by the Council in its Prohibition Order. In the alternative, she contended that the amounts claimed by Mr Eather were excessive and should be reduced.
While I have found that the overall lack of cleanliness was a reason for Mr Eather's inability to trade after he was served with the Prohibition Order from the Council, I do not accept Ms Nguyen's contention that any losses he alleges he suffered as a result of the closure of the bakery were attributable to this lack of overall cleanliness. Of the matters requiring attention in the Prohibition Order, the most substantial matter was the flooring. Even though, the Order made reference to 'repairs' and not replacement, the evidence of Mr Fotheringham and Mr Mullins was that in order for the floor to be repaired it had to be replaced. On the evidence before the Tribunal, Ms Nguyen did not take any steps towards this until late January or February 2010. That is, she did nothing for more than 2 months. At the same time, it would appear that Mr Eather did not attend to the overall cleanliness concerns of the Council, prior to the issue of the Prohibition Order.. The evidence is that Mr Eather addressed this issue during the time the flooring was being repaired. Accordingly, the time it took him to address the issue of the overall cleanliness of the premises did not take him as long as it took Ms Nguyen to address the issue of the repairs to the flooring. However, I do accept Ms Nguyen's contention that in determining the loss suffered by Mr Eather as a result of his inability to trade from 14 November 2009 to 4 March 2010, account must be taken of the time it would have taken Mr Eather to address the issue of overall cleanliness, which was his responsibility and not Ms Nguyen's.
Loss of Stock
In support of his claim for loss arising from stock thrown away, Mr Eather relied on a hand written itemised list of stock that was disposed of. There was no dispute that the items on the list were thrown away. Ms Nguyen contended that: (a) the non-perishable items such as coke, iced tea etc. did not need to be thrown away and (b) Mr Eather was only entitled to recover the amount he paid for the items.
In general, I agree with the propositions put forward by Ms Nguyen. However, in the absence of any evidence to suggest that the items on Mr Eather's list of stock thrown away could have been retained for sale subsequently or that the value of the stock was other than the amounts Mr Eather paid for these items, I can do no more than accept his evidence that he was required to throw away each of the items on the list and that the amounts on the list were what he had paid for them. Accordingly, I am satisfied that Mr Eather has established his loss in respect to stock thrown away,
Loss of profit while the bakery was closed
In support of his claim for loss of profit while the bakery was closed, Mr Eather relied on the calculations prepared by Mr Young. These calculations were based on Mr Eather's 2009 profit and loss statement, prepared for submission with his 2009 Tax Return, and the actual sales he made in the 43 days preceding 14 November 2009.
Ms Nguyen contended, on a number of grounds, that the amounts calculated by Mr Young should be reduced. In my view, there is no basis to some of the grounds. For example, Ms Nguyen contended that, on grounds of failure to mitigate his loss, Mr Eather could not recover any loss of profit after 23 December 2009. This was the date on which she proposed that they each pay half of the cost of replacing the floor, until it was determined who was responsible for its replacement. In my view, Mr Eather's refusal to accept Ms Nguyen's proposal does not evidence a failure to mitigate his loss. Had her proposal been for alternative premises from which Mr Eather could continue to trade and Mr Eather did not accept this proposal, this might have amounted to a failure to mitigate.
However, I do agree with some of the grounds raised by Ms Nguyen. For example, I agree that account needs to be taken for the time it would have taken Mr Eather to clean the walls and the ceiling of the premises as required by the Prohibition Order.
It was Mr Eather's evidence that this would have taken him no longer than 2 days. If this was correct it is difficult to understand why he had not attended to this when the overall cleanliness of the premises (i.e. the cleanliness of the walls and ceiling) was initially raised by the Council's inspectors in the report of the first inspection on 15 July 2008. As I have already indicated, I accept it would not have taken him more than 2 months to attend to this. However, in the absence of any evidence as to how long it did in fact take him to attend to this I find, on the basis of the material before the Tribunal, that it would have taken him 2 weeks to attend to this and his claim for loss of profit should be amended accordingly.
Ms Nguyen also contended that account should be taken of the fact that the period during which the bakery was closed, included the Christmas and Christmas holiday period. That is, although Ms Nguyen did not appear to dispute the estimated daily net profit as calculated by Mr Young (i.e. $200.26), she asserted that for the days during which the bakery would have been closed over the Christmas and January holiday period, the estimated daily amounts for these days should be deducted from the amount claimed. She also contended that account had to be made for the fluctuations in the actual value of sales from month to month. As I understand her argument, Ms Nguyen's contention was that the month of January would be a period during which the actual value of sales would be considerably lower than other months because of the holiday period and this should be taken into account when calculating the amount of loss.
In my view, on the material before the Tribunal, there is some support for the contentions of Ms Nguyen. Mr Eather's schedule of actual sales in the months before the bakery was closed, clearly show that monthly sales figures did vary from month to month. In the absence of any evidence of actual value of sales for December and January the previous year, I accept Ms Nguyen's contentions that account needs to be taken for days when the bakery would not have trade because of holidays during the Christmas and January period. Having regard to the material before the Tribunal, I find that a further adjustment of 1 week needs to be made.
Mr Eather ceased trading was Friday, 14 November 2009 and Council's Certificate of Clearance for him to resume preparing food for sale from the premises was issued on Friday, 26 February 2010. This means that his bakery was not operational for 15 weeks. On the basis of my findings that an adjustment of 3 weeks needs to be made, I find that he is entitled to recover an amount that equates to 12 weeks of the weekly loss of profit as estimated by Mr Young. The estimated weekly loss of profit on Mr Young's calculations is around $1,405 (i.e. $73,094/52). Accordingly, I find that Mr Eather's loss of profit for the period during which his bakery was closed was $16,860.
Loss of profit after the bakery was reopened
In support of his claim for ongoing loss of profit after the bakery was re-opened, Mr Eather also relied on the calculations of Mr Young. These showed the actual value of sales for the months of March, April, May, June, July and August 2010. By using the amounts in Mr Eather's 2009 profit and loss statement, Mr Young made an estimate of Mr Eather's loss of profit for each month after the bakery had re-opened. That is, the loss of profit for these months was calculated on estimates derived from the annual accounts and not on the basis of monthly or quarterly accounts of actual sales, cost of sales, expenses and profit earned by the bakery for the same months or quarters the previous year.
On the basis of the schedule of his actual value of sales immediately prior to his bakery being closed, there does not appear to be any dispute that Mr Eather did not have the same value of sales immediately after he re-opened the bakery. It was Mr Eather's evidence that this was due to losing many of his customers after the bakery was closed and in light of it having been closed for such a long period they did not return and it took him some time to rebuild his customer base.
Ms Nguyen contended that the loss of customers was due to Mr Eather's failure to keep the premises clean. She also contended that Mr Young's calculations failed to take into account the month-to-month variations in sales, costs of sales and expenses.
On the basis of my findings that the overall cleanliness of the premises was a reason for the closure of the bakery, I accept Ms Nugen's contention that Mr Eather's loss of customers was in part due to this fact. However, as I have indicated, this was an issue that would have been rectified within 2 weeks and not 3 months, which was the time it took Ms Nguyen to repair the floor. This extended period of closure of the bakery must have contributed more substantially to the number of customers lost.
For the reasons I have already stated, I accept Ms Nguyen's contention that account should be taken of monthly variations in sales, costs of sales and expenses.
While it is not possible to be exact about the adjustments that should be made in regard to what portion of loss of customers is attributable to the bakery being closed because of the overall cleanliness of the walls and ceilings and the monthly variations, I find that an appropriate adjustment, on the amount claimed by Mr Eather, is an amount of $2,200.00. Accordingly I find that Ms Ngugen's failure to repair the floor caused Mr Eather to suffer an amount of $3,368.00 in loss of profit after he re-opened the bakery.
Abatement of rent
Mr Eather's claim for an abatement of rent is essentially a claim for re-imbursement of the monthly rent he had paid, on 14 November 2009, for the month ending on 11 December 2009. He did not pay any further rent after this date while the bakery was unable to trade.
Clause 8.2 of the lease deals with what happens if the premises is damaged, in whole or in part, and cannot be used or is inaccessible due to that damage. The essence of this clause is that the tenant's liability to pay rent and outgoings is reduced in proportion to the reduction of the useability of the premises.
Section 34 of the Retail Leases Act 1994 also makes provision for abatement of rent and outgoings in regard to a retail shop lease where the premises the subject of the lease is destroyed or damaged. This section, as with other provisions in that Act override the terms of a retail lease to the extent the terms of the lease is inconsistent with it: see s7 of the Retail Leases Act 1994. It provides 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.
(c) If the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee may terminate the lease by giving not less than 7 days notice in writing to the other and no compensation is payable in respect of that termination.
(d) If the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor in writing to do so, the lessee may terminate the lease by giving not less than 7 days notice in writing of termination to the lessor.
(e) Paragraphs (a)-(d) do not affect any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which those paragraphs apply.
(2) A retail shop lease must not contain any provision the effect of which is to limit any liability of a party to the lease to pay compensation to another party to the lease in respect of damage to the shop or the building of which the shop forms part.
(3) Nothing in this section prevents the parties to a lease from terminating the lease by agreement if the shop or the building of which it forms part is damaged or destroyed.
The question in this application is whether the premises could not be 'used' due to the damaged floor. The evidence is that Mr Eather did in fact use and continued to trade in the premises up until the Council issued in him a prohibition Order in November 2009. That is, despite the condition of the floor he continued to trade.
It was the Prohibition Order, which resulted in Mr Eather ceasing to trade and as I have already found, a basis for the issue of the Order was the lack of cleanliness in the premises due to the condition of the flooring and Mr Eather's failure to keep the walls and ceilings clean. This lack of cleanliness was not recent, but had been an ongoing issue of concern to the Council's inspectors since mid 2008. Nevertheless, a requirement of the Prohibition Order was that the floor be repaired and until such time it was repaired, Mr Eather was unable to trade from the premises.
Another requirement of the Prohibition Order was that the walls and ceilings be cleaned and I have found that it took Mr Eather 2 weeks to attend to this. Although he did not do this until some time after 11 December 2009, in my view it is appropriate to take this period into account for the purpose of his claim for abatement of rent. That is, he should not be compensated for the period of time it would have taken him to clean the premises as required under the Prohibition Order.
Accordingly, I find that Mr Eather is entitled to a rental abatement of 2 weeks, being the weeks for which he paid rent and when he was unable to use the premises because of the damaged floor. That is, he is entitled to a rent abatement of $1,760.00.
Conclusions in regard to Mr Eather's retail lease claim
On the basis of my findings above, I am satisfied that Mr Eather has established that he has suffered the following loss and damage due to Ms Nguyen's failure to fix or keep in a good state of repair the floor of the leased premises:
a) $6,198.27 for stock thrown away
b) $16,860.00 for loss of profit during the closure of the bakery
c) $3,368.00 for loss of profit after re-opening of the bakery
I am also satisfied that Mr Eather is entitled to an abatement of rent in the amount of $1,760.00. Accordingly, the appropriate order is an order that in regard to the applicant's claim, the respondent pay the applicant an amount of $28,186.27.
Costs
Mr Eather has sought the following costs orders:
(a) costs of half a day hearing on 25 June 2010 thrown away as a result of non-attendance of Ms Nguyen and Mr Lincoln;
(b) costs in relation to the submissions prepared in response to Ms Nguyen's argument on clause 19 of the new lease, and
(c) his professional legal costs and disbursement as agreed or assessed.
Section 77A of the Retail Leases Act 1994 gives the Tribunal the power to award costs in respect to proceedings commenced under that Act. However, that power is that which applies under section 88 of the Administrative Decisions Tribunal Act 1997 (ADT Act).
Subsection 88(1) of the ADT Act provides that each party to proceedings before the Tribunal are to bear their own costs, except as provided in that section. Subsection 88(1A) provides that the Tribunal 'may' award costs, 'but only if it is satisfied that it is fair to do so' having regard to the factors listed in that subsection. These factors are as follows:
(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings by conduct such as:
(i) failing to comply with an order or direction of the Tribunal without reasonable excuse, or
(ii) failing to comply with this Act, the regulations, the rules of the Tribunal or any relevant provision of the enactment under which the Tribunal has jurisdiction in relation to the proceedings, or
(iii) asking for an adjournment as a result of a failure referred to in subparagraph (i) or (ii), or
(iv) causing an adjournment, or
(v) attempting to deceive another party or the Tribunal, or
(vi) vexatiously conducting the proceedings,
(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,
(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,
(d) the nature and complexity of the proceedings,
(e) any other matter that the Tribunal considers relevant.
The relevant legal principles in regard to the Tribunal's powers to award costs under section 88 were recently discussed at length in the decision of the Tribunal in Profilio v Coogee Bay Village Pty Ltd (N0 4) [2011] NSWADT 64 at [32] to [58]. It is unnecessary to repeat these, other than the onus is on Mr Eather to satisfy the Tribunal that the conduct of Ms Nguyen in these proceedings was such that an award of costs in his favour is fair. The fact he has substantially succeeded in his claim is clearly not sufficient.
In my view there is no basis on which to make a general cost order in favour of Mr Eather. Other than Ms Nguyen's argument in regard to clause 19 of the new lease and the unavailability of Ms Nguyen and her witness, Mr Lincoln, at the hearing on 25 June 2010, Mr Eather has not pointed to any conduct by Ms Nguyen that unnecessarily disadvantaged him. Accordingly, I make no order as to Mr Eather's professional legal costs generally.
In regard to Mr Eather's legal costs arising for the Ms Nguyen's unavailability and her abandoned clause 19 argument, I am satisfied that it would be fair to make an award for costs in this regard. The hearing date of 25 June 2010 was set down with the agreement of Ms Nguyen's solicitor. That is, it was a date that was suitable to both parties. Without informing Mr Eather's solicitor, or the Tribunal Ms Nguyen nevertheless decided not to be available for the hearing and failed to inform the tribunal or Mr Eather's solicitor of this fact. Consequently, Mr Eather and his solicitor attended the hearing believing Ms Nguyen and Mr Lincoln would be available for cross-examination that day. Instead Ms Nguyen, through her solicitor sought to argue, without prior notice, the proper construction of a term of the new lease. The consequence of this was that the proceedings were adjourned to 2 August 2010.
I accept Ms Nguyen was entitled to raise the proper construction of clause 19. However, I find that it was her unavailability and that of Mr Lincoln on 25 June, which unnecessarily disadvantaged Mr Eather in that his application, which could have been heard in one day were heard over 2 days. On this basis I find that Mr Eather should be awarded costs for 2 August 2010. According to the submissions filed by Mr Eather, his legal costs for half a day were $1,200.00 (excluding GST). On this basis, the appropriate order is that Ms Nguyen pay Mr Eather's costs to a sum of $2,400.00 (inclusive of GST).
Orders
1.The respondent to pay the applicant an amount of $28,186.27.
2.The respondent to pay the applicant's cost in the amount of $2,400.00 (inclusive of GST). Otherwise no further order as to costs.
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Decision last updated: 20 April 2011
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