Elaura Enterprises v Harnas & Harnas No. DCCIV-01-197

ELAURA ENTERPRISES V HARNAS & HARNAS

[2002] SADC 178
Judge Kitchen
Civil

By a contract in writing dated 19^th July 1995 Baleswood Pty Ltd (“Baleswood”) agreed to sell to Mark Andrew Paech (Mr Paech) “and/or nominee”, for the price of $80,000, plus stock at valuation, the business of a motel and restaurant known as Tony’s Tuscan Inn and Restaurant being conducted by Baleswood in premises at 74 Main Road, Hahndorf which were owned by the defendants and leased by the defendants to Baleswood pursuant to a lease entered into on 2^nd February 1994 for a term of ten years (Exhibit P4).
Tony Sanso (Mr Sanso) was a director of Baleswood. Baleswood’s agent for the sale was Henry Dalton (Mr Dalton).
The defendants had purchased the freehold land comprising the Tuscan Inn from Baleswood in early 1994.
Mr Paech and his colleague in the venture to purchase the business, Timothy James Francis (Mr Francis), bought a “shelf” company and were appointed directors of that company, the name of which was changed to Elaura Enterprises Pty Ltd., the plaintiff. Mr Paech nominated the plaintiff as the purchaser pursuant to the contract.
At settlement for the sale and purchase of the business on 14 September 1995 the lease was transferred by Baleswood to the plaintiff. As a condition of their agreement to that transfer the defendants required Mr Paech and Mr Francis, who agreed, to guarantee the plaintiff’s obligations and liabilities pursuant to the lease. The guarantee is Exhibit D45.
In this action the plaintiff alleges by its amended statement of claim, in summary,
·that before the contract was executed the defendants represented (the first representation) to Mr Paech they intended to build a new restaurant and four new motel rooms (the new works) on the land, Council approval for the erection of which was in the process of being obtained, the construction would be completed by Christmas 1995 and the new restaurant would attract more customers
·that Mr Paech and Mr Francis entered into the contract relying upon and induced by the representations
·that between November 1995 and November 1999 the defendants failed to, or refused the plaintiff’s request that, the defendants commence the construction of the new works
·that in November 1999 the defendants informed the plaintiff that Council approval for the new works had been obtained, they wished to begin construction and represented (the second representation) to the plaintiff:
(a)the new works would be commenced in February or March 2000
(b)construction would take ten to twelve weeks
(c)the kitchen in the new restaurant would be built to accommodate the plaintiff’s existing equipment, fixtures and fittings the moving of which, and the bar and toilets, to the new restaurant would take only four days, the cost to be borne by the defendants
(d)the defendants would supply any necessary fit-out items for the new restaurant.
The plaintiff alleges that Council approval for the new works had not been obtained before the defendants commenced the new works in February 2000, that the new motel units were not built, the construction of the new restaurant was not finished until September 2000, the kitchen in the new restaurant was not built to accommodate the plaintiff’s existing equipment, fixture and fittings, the plaintiff incurred expense in moving to the new restaurant, the defendants did not supply all necessary fit-out items, the moving of the plaintiff’s kitchen, and restaurant, equipment, fixtures and fittings took two weeks and “there are numerous defects in the construction works which restrict the plaintiff’s ability to conduct effective restaurant trade”. The plaintiff alleges it thereby suffered loss of profits and trading losses, loss of quiet enjoyment in the period from February 2000 to September 2000, claims damages for breach of contract and for misleading or deceptive conduct both pursuant to Section 56 and Section 84 of the Fair Trading Act and Section 7 of the Misrepresentation Act and orders under Section 68(2)(d)(e) and (j)of the Retail and Commercial Leases Act 1995.
By their (amended) defence the defendants, in substance, deny they are in breach of contract or that they made any representation as alleged by the plaintiff. By their counterclaim the defendants claim:
·from the plaintiff – rent and council and water rates not paid by the plaintiff in breach of its obligations pursuant to the lease, and orders pursuant to Section 68 of the Retail and Commercial Leases Act 1995
·from Mr Paech and Mr Francis – the enforcement of the guarantee given by them to indemnify and hold harmless the defendants from and against loss and damage suffered by the defendants as a result of the plaintiff’s breaches of the lease, and an order pursuant to Section 68 of the Retail and Commercial Leases Act 1995.
Mr Francis did not enter an appearance to the counterclaim.
The plaintiff was not represented by counsel at the trial. Leave was given to Mr Paech to represent the plaintiff.
Before the trial, orders were made by the Master concerning, among other matters, what the plaintiff could adduce by way of evidence in relation to its case.
Mr Paech at 16 years of age was apprenticed to a chef at the Old Mill Restaurant, Hahndorf upon completion of which he was employed there as head cook. In 1991 he went to Alice Springs where he was employed as third chef rising to be executive chef for the last three years of his employment before taking up a position in Darwin in his trade. After some six months in Darwin he took leave for two days to travel to Hahndorf to attend in June 1995 his father’s fiftieth birthday, a guest at which was Mr Dalton a land agent and principal of Oakbridge Real Estate.
Mr Paech said that Mr Dalton, whom he had known for some years, approached him and said he was the agent for the sale of the Tuscan Inn (which Mr Paech knew to be owned by Mr Sanso), but another person was interested and if he (Mr Paech) was interested in buying the business he would have to do it “straight away”; Mr Dalton gave him some trading figures concerning the Tuscan Inn and told him of some proposal to expand the premises.
Returning to Darwin, Mr Paech said, he discussed with Mr Francis the purchase of the Tuscan Inn, provided the trading figures to an accountant who advised him concerning them and decided to return to Adelaide to inspect the business. Mr Francis did not accompany him to Adelaide.
Mr Paech said his memory is it was in August 1995 some six weeks after Mr Dalton had first spoken to him about the business that he came to Adelaide and attended a meeting at the Tuscan Inn, arranged by Mr Dalton, which took place mid afternoon. He said the meeting was attended by Mr and Mrs Dalton, Mr and Mrs Sanso, Mr John Dawes the manager of the ANZ Bank Stirling (and his associate), Mr Richard O’Donnell, an accountant, and Mr Paech’s parents Roger and Joan Paech.
Mr Paech’s evidence is that the defendants did not attend the meeting until 6 p.m.:
(P50)
"ATo tell you the truth I didn’t get to speak to them for a long time. I met them both, I think may have talked briefly about my experience in the industry, what I have done, and then they showed me the plans of what their plans to build the restaurant in the future were, and that was really about it. It was really a meeting time to see whether we liked each other or got on I suppose, or whether they thought we were appropriate to rent their property.
QWhat did they show to you.
ATwo sets of plans in the front development, and they informed me that they had intentions of doing this. To be honest I cannot recall whether they informed me then that they may come into council problems, I cannot honestly remember. I didn’t think it was an issue because I was being told that they were going ahead and, being young and stupid, I didn’t even question it.”
He identified Exhibit P2 to be the, or a copy of the, plans given to him by the defendants on that occasion. He said the plans were placed on a table, he and Mr Harnas leaned over them and Mr Harnas “pointed out what he was going to do and how it would benefit the restaurant” in a conversation lasting “probably only fifteen minutes” which occurred in the presence of “the whole group, it was a group conversation” including his parents, and in the course of the conversation Mr Harnas told him the plans “were the restaurant which he had plans to build by the end of that year, so we could do our business trade out of it” and “he spoke of the motel, how the motel would be converted. Once again, all very briefly.”
Mr Paech said he returned to Darwin, he and Mr Francis decided they would “go through with” the purchase of the business and each of them resigned from their jobs. They then travelled to Adelaide by car, taking two or three weeks, and the contract was signed when they arrived in Adelaide; he said “the contract was back-dated”.
The contract is Exhibit P3 – it is signed by Mr Paech (as the purchaser) and by two persons (as the vendor) whom I infer from other evidence to be Mr Sanso and his wife, in each case against the date 19^th July 1995. Part of Exhibit P3 is an acknowledgement, signed by Mr Paech and dated 20^th July 1995, of the receipt of the “Form 2” by him as the purchaser.
The contract was subject to the purchaser being granted by ANZ Bank, or another lender, a loan of not less than $70,000 on or before the date of settlement which was fixed for 14^th September 1995. Further it was a condition of the contract that the lease, to be transferred to the purchaser, “is to be modified to provide for the purchaser to have two (2) further extensions of eight and five years each. The cost to be borne by the vendor on or before the date of settlement”.
Mr Paech said that between the date of the meeting at the Tuscan Inn, when he says he was given the plans Exhibit P2, and the purchase of the business, or transfer of the lease to the plaintiff, there was to his memory one meeting between him and the defendants; he said it occurred at the defendants’ house in Uraidla and he thinks one Mr David Martin, a neighbour of his parents, was present, “as a witness for myself… I think from memory we were signing the guarantee and discussing just minor details of the lease”. His memory of the topics of the conversation with the defendants on that occasion is :
(p63)
"AWhether it was that night or another night, I can’t completely recall, however it was the increase of the rent, which was annually, it was the guarantee for my parents being limited to two years. They wanted a guarantee from my parents in case I didn’t know how to run the business and I wanted to limit that to two years only and the extension at the time, I think the lease only had a 10 year, we had an extra five plus five extension put to it, so it would be a total of 20 years which already had three years taken out of it because Tony Sanso used them. So that was the three topics we had to discuss; the extension of the lease, the guarantee and the increase in rent.”
The plaintiff, Mr Paech said, went into possession of the business on 15^th September 1995 and changed its name to The Stables Restaurant; he said “We did our first Christmas there and traded quite successfully for the first twelve months after that”. Concerning what he said Mr Harnas had told him that the new restaurant would be completed by the end of 1995, his evidence is:
(P66)
"AWe asked I think each time we had to pay rent or each time we saw Mr and Mrs Harnas, which we didn’t see them that often, how it was going . By the end of that year we found at that it wasn‘t going to go ahead by Christmas. However, as I sort of mentioned earlier, we weren’t really fussed about that because we were still going to get our feet on the ground from buying a business in the first place, so we weren’t too fazed that it wasn’t done in the first year. We were quite lucky actually because it would have been just a bit too much to take on. You could say we weren’t harassing them over it.”
And, during the course of 1996:
(P70)
"AYes, we then inquired about the development and we discovered through our own investigation that the building hadn’t actually been approved through council. There was a few different issues regarding the neighbouring properties and they were causing more than enough grief for Mr and Mrs Harnas, so we basically thought, that’s it, I guess. We tried to make the best of what we had. We actually sought legal advice at the time and we were told that we didn’t have a case. We went to legal aid and we basically thought well we’ve just got to grin and bear that.”
The business the plaintiff bought from Baleswood was being conducted in a building, which stood at a right angle to the Main Road Hahndorf, and some distance from it disposed such that four motel units were closest to the road and the restaurant and kitchen were behind them, so that, Mr Paech said, “nobody could see” the restaurant (from the road I infer).
Mr Paech said the plans shown to him at the meeting depict that the restaurant component of the new works was to be erected between the motel units and the roadway so that it would abut the footpath and Mr Harnas told him the restaurant would seat eighty to one hundred persons; the existing restaurant seated approximately seventy persons.
Mr Paech’s evidence is:
(P72)
"A“… we bought the business because of the suggestions of the restaurant going ahead, we would probably have not have bought it if it wasn’t for that. However, we didn’t want to rush the fact that it was going to get built, so we were not pushing the issue. When Mr Harnas didn’t do anything about it in the first 12 months we weren’t really upset over that.”
By in the month of August 1996 the plaintiff, Mr Paech said, had increased the business takings two-fold compared with those of Baleswood disclosed in the Form 2, but the plaintiff was having difficulty in paying the rent which, Mr Paech said, had increased pursuant to the lease from $4,700 to $4,982 per month in February 1996. Upon the advice of his bank manager and accountant, Mr Paech said he and Mr Francis spoke to Mr Harnas to the effect that the rent “was an extremely high percentage of our revenue and that the property didn’t warrant the amount of rent he was asking for” proposing that there be a reduction in the rent, but Mr Harnas told him he was not in a position to do that. However some months later, by which time as I understand Mr Paech’s evidence, the plaintiff had increased its takings to three-fold those of Baleswood but was having difficulty paying the rent “at all” and “threatening” to leave the premises, the plaintiff engaged a lease negotiator, Mr Peter Southwick, through whom in March 1997 (after the defendants in January 1997 demanded payment of $9,964 for unpaid rent and further amounts for unpaid Council Rates) an arrangement was reached with the defendants; it is set out in Exhibit P13 a letter from the defendants’ solicitors dated 5^th March 1997 to Mr Southwick in which the defendants offered to purchase certain of the plaintiff’s plant and equipment for $36,000, payment for which would be by reducing to $3,982 for thirty six months the rent payable under the lease. That arrangement required the plaintiff’s bank, which had a charge over the plant and equipment, to consent to the sale. The bank declined to consent unless the plaintiff reduced its liability to the bank; that was not done but the arrangement was implemented to the extent the defendants were content with rent at the reduced rate not only to March 2000 but to September 2000 when the plaintiff went into possession of the new restaurant upon it being completed in that month.
There are issues concerning unpaid rent to the month of September 2000, and beyond, raised in the defendants’ counterclaim which I will deal with later in these reasons. The plaintiff’s position is that so long as the defendants press their claim for rent allegedly not paid in respect of the period to in September 2000 the plaintiff claims damages for the defendants’ failure to build the new restaurant before September 2000.
Mr Paech said that in November 1999 the defendants informed him they were ready to proceed with building the new restaurant. Mr Harnas, it appeared to Mr Paech, was particularly anxious to begin. He asked Mr Harnas to defer commencing until February 2000, the end of the plaintiff’s busy holiday season. Also an al fresco dining area had been established, or refurbished, next to the footpath about one month earlier, a project in which Mr Harnas had participated by providing his expertise and Mr Paech wanted to exploit the use of that in the holiday season; that area as I understand had to be dismantled before, or it would become unusable once, construction of the new restaurant began.
At this point in his evidence Mr Paech was faced with numerous difficulties in the presentation and proof of the plaintiff’s case concerning losses the plaintiff alleges it suffered and asserts to have been caused by the defendants’ plaintiff’s failure to construct the new restaurant by Christmas 1995, the length of time taken to construct beginning in March 2000 and extending to September 2000, and the alleged defects in what was constructed which are asserted to have adversely affected the plaintiff’s ability to efficiently operate the new restaurant, or the motel accommodation section of the business. The discovery, production, or even the preparation, of documents material to or necessary for proof of the plaintiff’s case was poorly done, so much so that a Master apparently “managed” the action before trial giving directions and making orders with the object of, and also assisting Mr Paech in, readying the plaintiff for trial, and to ensure the defendants were fully informed of the case they had to meet. This culminated in the Master qualifying the certificate of readiness for trial by reference to orders he had made on 8^th November 2001. Those orders included:
·    that the plaintiff was precluded from tendering the plaintiff’s financial statements for the financial years to 30^th June 1999, 30^th June 2000 and 30^th June 2001 or from tendering any documents not already discovered
·    a direction that no further expert evidence be produced by the plaintiff as a consequence of its failure to comply with previous orders
·    a direction that subpoenas the plaintiff wished to issue to the Mount Barker Council, Mr Draper an architect and Mr Sanso be issued by 9^th November 2001 and made returnable to the trial date.
In the end, at trial and after numerous indications by Mr Paech that the financial statements for the years 1999, 2000 and 2001 were being prepared, or had been prepared, by the plaintiff’s accountant, they did not materialise and the plaintiff sought to rely upon its own internal records as a means of proving any loss it alleges it has suffered.
I will not even attempt to summarise the interruptions and delays in the progress of the trial and the prolongation of it, which occurred in order to give Mr Paech the opportunity to obtain expert reports, or call evidence from others, to present in a relevant and admissible way proof of the plaintiff’s case, having regard not only to extending fairness to an unrepresented party but also preventing unfairness or prejudice to the defendants.
For reasons said by Mr Paech to be a combination of thefts, or interference with the plaintiff’s records or acts of vandalism, by intruders into the plaintiff’s premises, disorganisation, pressures of the restaurant business on the time Mr Paech could make available, insufficient funds to engage professional assistance, a reluctance of persons to give evidence, to mention some factors, Mr Paech relied or sought to rely on documents which to a large extent were either inadequate for the purpose or were properly objected to by counsel for the defendants. Some of these matters are identified, or adverted to, later in these reasons.

Bearing in mind I knew nothing of the plaintiff’s case except what appears in the pleadings and what was related by Mr Paech in his opening address, I endeavoured to elicit evidence from Mr Paech. Not surprisingly, more evidence of events and circumstances on which Mr Paech relied for the plaintiff’s case came in his cross-examination.
Mr Paech said the defendants commenced construction in March 2000 without obtaining the plaintiff’s approval, the defendant did not have Council approval to commence construction and as a consequence of the latter the Council directed that work cease; work did not resume until some seven weeks later in April 2000 and it was completed in September 2000. Mr Paech said the plaintiff went into possession of the new restaurant on 15^th September 2000 but two weeks later it had to close for a week because of interruptions to the electricity supply - fuses were blowing and “live wires that were hanging, zapping and producing smoke and smell and sound, it didn’t look right, so I called the electrician (Mr Kuchel) to come and have a look”. He said Mr Kuchel did some work and advised Mr Paech to contact the Technical Regulator; he did so, an officer from that authority came to inspect the restaurant and informed him he (the officer) would need to carry out an inspection in the presence of the owners of the building and the owner’s electrician. Mr Paech related that about one month later, it appearing to him that nothing had been done, he telephoned the officer who again came to the premises, informed Mr Paech he had “advised the electrician and the owner of the property” and then left. That officer, Mr Paech said, returned a third time, in February 2001, to “inspect” the premises, by which time an electrician had been to perform some work at the premises. In June 2001 Mr Paech received a report he had sought from the Technical Regulator; he had received an earlier report dated 28^th November 2000. He applied to tender the reports; the defendants objected and I ruled the author of the reports should be called. The reports are Exhibits MFI P10 and MFI P11 respectively. Mr Paech did not, either then or later, call the author and neither did he call the electrician Mr Kuchel.
Mr Paech said that Mr Harnas provided to him scaled architectural plans of the restaurant before construction began (they are Exhibit P6), into the area of which marked “kitchen” he located the proposed position of benches, stoves and other things (to be transferred from the old kitchen) in the manner shown in Exhibit P7, Mr Paech’s drawing dated 27^th August 2000. He said he fixed the dimension of the kitchen (T166). Mr Paech complains that the kitchen was constructed one foot less in length and width than the dimensions shown in Exhibit P6 drawing number 3, he had to purchase replacement appliances to fit into the kitchen, the defendants refused to install a cool-room in the kitchen and told Mr Paech he should use the cool-room in the kitchen of the old restaurant. Mr Paech says the need to go some forty-eight metres from the new kitchen to the old for supplies from the cool-room would waste employees’ time, so the plaintiff purchased and installed a cool-room in the new kitchen the cost of which, and new appliances acquired, totalled $28,000. Further, Mr Paech said the area of the new kitchen is so small that it is possible to put together meals for only three persons at a time.
Exhibit P15 dated 27^th September 2000 is the approval, pursuant to the Liquor Licensing Act, to the alteration of the premises comprising the new restaurant. The new restaurant dining areas occupy a ground floor level, a lower ground floor level and a mezzanine floor, with a maximum capacity of 75 persons. In addition to those and within the boundary of the licensed premises, there are outside areas, and areas of the old restaurant and other sections so that the maximum capacity of all areas, subject to the licence, is 200 persons at any one time.
The general arrangement of the new and old sections of the restaurant, of the motel units and other parts of the complex, including what is called the Chateau, was seen at a view where the parties pointed to features the subject of evidence given or to be given.
The plaintiff’s statement of claim, in paragraph 17, pleads in thirty sub-paragraphs, particulars of the defendants’ works alleged by the plaintiff to be defective.
Paragraphs 17.1 concerns the insufficient size of the kitchen to accommodate the plaintiff’s equipment and fittings and to service the number of diners the restaurant can seat, Mr Paech’s evidence concerning which I summarised earlier. Mr Paech in his evidence progressed through each of the particulars in paragraph 17, in the course of which he tendered a bundle of photographs (Exhibit P8).
The particulars in paragraphs 17 are grouped under headings, viz the new kitchen, the bar, plumbing, electrical, restaurant seating area, motel rooms, previous restaurant, and failure to comply with statutory regulations.
New Kitchen (paragraph 17.1 to 17.12)
Mr Paech said the size and position of the cool-room is such that it impacted adversely upon the position of the exhaust fan which in turn impacted similarly upon the size and position of the oven and the stove and there was no space to fit a grill, a deep fryer or a walk-in freezer. He said electrical wires in the scullery of the kitchen were exposed and, he asserted, dangerous until the defendants’ electrician attended to them about a week before the trial began – he identified, and initialled, a photograph in Exhibit P8 depicting what he described.
There is, Mr Paech said, no floor drain in the kitchen, scullery or restaurant to take away water on the kitchen floor – he volunteered that there is no regulatory requirement for such a drain or drains but, approximately weekly, water or other liquid spilled onto the kitchen floor during the operation of the kitchen gravitates to puddle next to the bar, soaking the carpet; he said that a week before he gave evidence, he closed the restaurant for a day because of an incident when the bar dish-washer overflowed.
The sink and other drains in the kitchen are routed to a grease trap; the grease trap, Mr Paech said, emitted foul odours causing complaints from diners in the restaurant, but the main consequence was he ceased in November 2000 to let motel unit number 2 after some guests (two dozen he said) left without paying their accommodation account. He said the occupancy frequency for that room was 65%, the tariff being $155 for Saturday night, $135 for Friday night and $110 for other nights. However he had not discovered, or produced, to the defendants the plaintiff’s guest register.
Mr Paech said that because a freezer measuring 6 x 4 x 8 feet in the old kitchen was not transferred to the new kitchen, which he claims Mr Harnas had agreed to do, he had to install a fridge in the bar area, it was noisy and it annoyed guests. He said, having read the claim in this connection (paragraph 17.6), “I wouldn’t submit this. This paragraph I somehow must have missed. I wouldn’t really worry about that one.”
The next item (17.7) also relates to the cool-room and freezer. Mr Paech related that the old kitchen had a cool-room and freezer, each measuring 6 x 4 x 8 feet, both of which he says Mr Harnas agreed to relocate into the new kitchen, but the freezer would not fit. It therefore remained in the old kitchen. Mr Paech described that in any one dining session at the restaurant, lunch or dinner, some fifty trips to the freezer fifty metres away would have to be made to retrieve ingredients for meals ordered by diners. To reduce the number of trips by about one half, Mr Paech said he had placed a chest freezer in the disabled toilet “which is obviously against related regulations. However, it is the only place it will fit.”
The scullery, within the new kitchen, does not have a window; that Mr Paech described, made the scullery “a hot sauna … I have gone through thirty-two staff members in twelve months”.
Mr Paech said the old kitchen was approximately twice the size of the area of the new, he was therefore anticipating working in an area half the size but, “if things had been done the way they should have been done, that would have been fine, however, they weren’t”. Mr Paech, therefore, claims there is no area available which can be solely dedicated to preparing food; that has to be done on the same bench from which the remains of previous tasks have been cleared off with the consequence the plaintiff has to restrict to about twenty the numbers of diners in the restaurant “depending on what they order … otherwise we get complaints” about delay. To ameliorate that the plaintiff could, or does, bring staff in earlier, “so they can use the same area, and it just, once again, makes for a restaurant which used to have a capacity of seventy or so people”.
Item 17.10 alleges that “the wall in the kitchen in which a commercial exhaust fan is mounted does not comply with fire rating requirements”. Mr Paech said there is he believes, although he has never seen it, a report from an architect, Mr Feltus, but the architect “refused to offer that to the courts as soon as he had learned that I had no legal representation”. To the suggestion that he subpoena the architect, he said he had not thought of that. He was informed (by the court) that if, as he asserted in his evidence, the alleged non-compliance with fire rating requirements had caused the plaintiff difficulty in obtaining insurance cover against the risk of fire, then some proof of the alleged defect must be brought before the court. That was not done. The same fan, Mr Paech said, vibrates when it operates and “on numerous occasions patrons have left the restaurant due to the noise and vibration”. Mr Paech wished to hand to the court what he described to be “hand-written statements from customers”; told that was not adequate and he would have to call some person he said he would call the defendants’ “architect”, Mr Draper, whom he had subpoenaed. It is to be recalled the Master had directed that subpoenas to, inter alios, Mr Draper were to be issued by 9^th November 2001. Mr Wilson, counsel for the defendants, assured the court, and I accepted his assurance, that no subpoena was issued on 9^th November 2001 directed to Mr Draper. Asked whether he had issued a subpoena on or before 9^th November 2001 Mr Paech said (T204)
"AOnly one of them, I’m afraid.
QAnd to whom was that directed.
AI actually didn’t do it but I’m sure it was to Mark Draper, but he hasn’t answered it, so I’m assuming its too late anyway, but what I’m saying is I did get an allowance for those three people.”
This was but one of a number of occasions in the course of giving evidence where Mr Paech asserted a particular thing to be the case, when it was not. That caused me to be very hesitant indeed to accept his evidence where it is not supported, or it is controverted, by other credible evidence.
Item 17.12 claims that the new kitchen was not built to accommodate the plaintiff’s existing equipment fixtures and fittings and the plaintiff “had to purchase and install stainless bench tops, cool-room, stove, oven, bench, fridge and deep fryer”, and a chest freezer. These things, Mr Paech said, are those for which the plaintiff paid the sum of $28,000 I have previously mentioned.
It is further claimed that the alleged inadequate size of the kitchen has resulted in the plaintiff having to incur costs for additional labour, and for staff training, and it has suffered a decline in trade because of its inability to provide the timely service of meals to diners.
The Bar (paragraph 17.13 to 17.16)
Mr Paech said there is no floor drain in the bar area and the fall in the floor, “about two centimetres” in that area, Mr Paech claims, allows the ingress of water from outside the restaurant and from the kitchen to run into the bar and the adjacent area – “on a bad day I have had water up to my ankles”. He said that on a windy day if it rains “water will just come straight in… There is no guttering or verandah” over the back door to the restaurant. These and other matters in paragraph 17 Mr Paech said he discussed with or pointed out to Mr Greatbatch the defendants’ property manager, on the occasion of an inspection of the premises by Mr Greatbatch before Christmas 2000. He said he had seen one of two reports prepared by Mr Greatbatch but placed “absolutely” no reliance on the report as part of the plaintiff’s case, and he intended to call (but he did not call) a qualified person upon the topic of the ingress of water. Also, in relation to the bar, Mr Paech said he abandoned the claim (17.15) that the bar from the old restaurant could not be installed in the bar area of the new restaurant. As to the claim (17.16) that there was insufficient space to install a built-in bar and wine fridge, Mr Paech said this was a consequence of the kitchen being built to dimensions smaller than those for which he had designed the positioning of equipment. His evidence is:
(P210-211)
"QAnd on the plaintiff’s case is there some connection between this item, 17.16, and what you have claimed to have been the reduced size of the kitchen compared with the plan.
AYes.
QWhat is the relationship.
AThe walk-in coolroom was going to save on electricity as well as on space and work as a double-sided fridge you could say. Therefore one being for the bar and the other half being for the food. Unfortunately this has not happened.
QBut you have the coolroom.
ABut the walls in the bar weren’t built for the coolroom. There is nothing stopping me, I’m sure, from taking a chainsaw and axe and making that the case but I’m afraid I have spent money on a brand new coolroom. I really don’t want to chop the wall down, so I have hired a fridge. The truth of the story is that everything is just undersized and very unworkable.
QYes, but your evidence as I understand it is that the new kitchen was to be half the size of the old one at all times. From the very first, the new kitchen was to be smaller, half the size, of the old kitchen area.
AYes, that’s right.
QThat was your evidence. But as I understand it you say that the kitchen that is built is one foot less width and one foot less length than the plan.
AThat’s correct.
QIs it the plaintiff’s case that because of those differences, the kitchen is non-functional in the ways that you have described.
AThat’s correct.
QDo I understand it to be the plaintiff’s case that if the kitchen had not been undersized by one foot width and length, then the kitchen would have been functional and adequate for the purpose; is that what you say.
AThat’s absolutely correct. I would have been able to install my previous equipment, my equipment which is just now in the old kitchen still. The entire design of the kitchen would have been different. And apart from that, the builder was going to do it for me.
QI’m just trying to understand what the plaintiff’s case is. 17.16, you say this effect is a consequence of the lesser floor area of the kitchen, of the new kitchen, than is disclosed in the plan; is that what you are saying.
AThat is correct. Jointly, with the exhaust fan problem. As we mentioned earlier with the exhaust fan, the flue with the fan. It is important to mention that because that goes in with the regulations of the kitchen, as I mentioned in the plans.
QYou were going to call some evidence about that because you are unable to give evidence about it yourself.
AThat is what Mr Feltus was going to do.
Plumbing
The claim (17.17) is that plumbing installed by the defendants breaches the Sewerage Act and Regulations in that it does not comply with requirements of the National Plumbing and Drainage Code, particulars of which “will be provided upon receipt of a report of an independent expert”. Mr Paech tendered a document (Exhibit P9) dated 31 May 2001 headed “Notice of Encumbrance” from the South Australian Water Corporation addressed to the defendants which requires work to be done to the grease arrester vent pipe, the soil stack and the installation of double-bowl pot sinks. Mr Paech said “most of the plumbing in the property was causing problems”, that the notice was issued following an inspection by an officer of the Corporation in about September 2000 and it was not until the end of October 2001 that any work was done concerning the requirements of the notice. Mr Paech also sought to tender a letter to him from the SA Water Corporation dated 26 October 2000, upon the same topic; the defendants objected to its tender unless the author was called. It was marked Exhibit MFIP10. Mr Paech did not call the author, and did not call any other expert concerning the topic of the plumbing.
Electrical (17.18 and 17.19)
The claim is (17.18) that the method of electrical wiring and installation causes “continual dimming and amplification” of the lighting in the restaurant, and the bursting of light bulbs and (17.19) the electrical installation does not comply with the Electricity Act 1996 and Regulations. Mr Paech said he assumed there was faulty wiring and the “whole place” will have to re-wired. As to the cause of the alleged variation in lighting intensity, and burst globes, Mr Paech sought to rely on an invoice from the electrician Mr Kuchel to the admission of which into evidence the defendants objected unless Mr Kuchel be called. Mr Paech said he would call Mr Kuchel; he did not. For evidence of the alleged failure of the electrical installation to comply with statutory and regulatory requirements, Mr Paech sought to rely on two letters from the office of the Technical Regulator dated 28 November 2000 (MFIP11) and 14 June 2001 (MFIP12) - the defendants objected. Mr Paech said he would call an officer from that body; he did not do so. In the absence of such a witness, or someone else appropriately qualified, the letters do not prove the allegation.
The plaintiff sought and was given leave to amend paragraph 17.19 of the statement of claim by deleting that allegation and substituting claims that the electrical installations incorporated into the building “inappropriately” increased the plaintiff’s electrical usage, from that which it had used in the old restaurant, “due to hot water service, air-con(ditioner) and two coolrooms” and the “electrical work” was not completed by the defendants but by, and at the cost of, the plaintiff. However the plaintiff did not call an electrical worker or contractor to give evidence to support the claims.
Restaurant Seating Area (17.20 to 17.24)
The claim is (17.20) that bi-fold café doors at the front of the restaurant do not open and were fixed shut by the defendants. Mr Paech’s evidence is that he was told by Mr Harnas bi-fold doors would be installed, but they were not installed and the fixtures erected instead “give the impression they are doors. They are constantly shut. Therefore giving the impression that the restaurant is constantly shut”.
Mr Paech’s evidence concerning item 17.21 is that an air-conditioning unit supplied and installed in a wall of the ground floor area of the restaurant by Mr Harnas at no cost to the plaintiff, is inadequate and was placed in the wrong position for the purpose of heating or cooling the restaurant. He called no evidence from an appropriately qualified person to support this claim.
Item 17.22 is a claim that “the vent pipe of the downstairs toilet, vents into a void in the mezzanine floor area rendering the toilet incapable of use”. Mr Paech’s evidence is that use of the disabled toilet produced a bad odour in the restaurant, moisture caused mould which damaged walls and repainting will be necessary. He said that in the week before the trial began the defendants had extended the pipe through the roof so that it now vents outside and no odour from it intrudes into the restaurant.

Item 17.23 alleges “there is no disabled access to the restaurant premises”. The effect of Mr Paech’s evidence is that although there is access for disabled persons from the street into the ground floor area of the restaurant, the toilet for disabled persons is on the lower ground floor to reach which there is a flight of stairs. Therefore, he said, a disabled diner wishing to use the toilet must leave the restaurant, and go to the car park, via the main road and a side road, to gain access to the toilet. As the plan Exhibit P15 makes clear, the lower ground floor of the restaurant is an area licensed for diners and the disabled toilet is on that level. As emerged in cross examination Mr Paech chose not to use the lower ground floor as part of the dining area.
Item 17.24 alleges that exhaust fans fitted in toilets are of a domestic and not commercial kind. Mr Paech’s evidence is that he has had advice that because the fans run for a considerable time they burn out quickly and the plaintiff should purchase a larger system. The plaintiff has had to replace two of the three fans at a cost of $300. Mr Paech said he asked for a report from the person who gave the advice but received no response. Neither that nor any other qualified person was called.
Motel Rooms (17.25 to 17.27)
The new restaurant was built abutting the motel unit nearest to the street. It is alleged the common wall between that unit and the kitchen, part of the new restaurant, is very thin, noise from the kitchen intrudes into the unit and a previously existing window in the unit has been closed over reducing natural light into, and the view from, the unit. Mr Paech also claims that as a part of the works to construct the new restaurant, the front of the property has been raised with the consequence that surface water on the area outside the motel units, which used to run off into the car park, now ponds in front of motel units 3 and 4 and runs runs into unit 4. Mr Paech said he had spoken to the defendant but nothing had been done to correct the problem.
Item 17.27 alleges that the additional four motel units which the plaintiff claims the defendants said they would build have not been built. That they have not been built is not disputed.
Previous Restaurant (17.28)
An existing urinal in the old restaurant premises was removed by the defendants and installed in the new restaurant premises. Mr Paech’s evidence is that upon removal a significant hole and exposed sewers were not properly capped causing a dreadful smell. He placed some boards over the hole and sewer which reduced the smell. His evidence is that this was one of many complaints he included in a list of “faults” which was provided (he said by the plaintiff’s office manager Ms Buttrose-Grove) to Mr Graetbach, but nothing was done. The list is MFI P17.
Failure to Comply with Statutory Regulations (17.29, 17.30)
The allegation is that the premises of the new restaurant were not built by the defendant in accordance with council approval and the defendants have not “provided a notice pursuant to section 67 of the Development Act notifying that the premises are suitable for occupation and that the construction works have been completed”.
The plaintiff called a number of witnesses whose evidence was interposed (by consent) during Mr Paech’s evidence in chief.
Ms Julie Hales was employed by the plaintiff at the Stables Restaurant as a waiter and, she said, an “unofficial” restaurant supervisor between July 1999 and February 2000. She said the restaurant was very busy, and there were many accommodation bookings as Christmas and the New Year approached. She expressed the view the restaurant provided excellent food and more business was being done after tables and chairs were set up on the main street.
Ms Hales said that during an afternoon of Sunday trading the defendants came to the restaurant and spoke to Mr Paech. Mr Harnas said that he could start building the following week to which Mr Paech replied that Christmas would be very busy and he “would prefer that the building start at the end of January or preferably the first week in February and that it would be finished before Easter for Easter trading”. Ms Hales said that Mr Harnas replied “it would only take a couple of months and that it should be open within that time frame”. Also, she said, Mr Paech “expressed his concern over a few design things with the building and Mr Harnas basically said that, you know, together they could sought a few little things out ...”. She said she thought this was regarding some plans “to do with the kitchen”.
Ms Hales said that she had dined in the new restaurant and when she did so she heard an uncomfortable humming sound, a droning, leading her to feel the need to “unblock” her ears, as when in an aeroplane, and there had also been an occasional unpleasant odour.
In cross examination Ms Hales said she was present with, or within a metre of, Mr Paech and the defendants throughout, she believed, the whole of the conversation which occurred between them on the day she identified. She agreed she did not hear Mr Paech speak particularly of the kitchen in what he said to Mr Harnas about “a few design things”.
Ms Caroline Schmidt is a school teacher who in 1997 arranged work experience placements for some of her pupils at the plaintiff’s restaurant, in connection with which she visited the restaurant. She said that at a time when it looked like the building (the new restaurant) was under construction, but work was at a standstill, there were “at some stages pallets of bricks outside the entrance to the restaurant. The sign was not in place .... it was not inviting to customers .... the entrance of the old restaurant looked less like an entrance because of the materials in front of the doorway .... for people walking along the street, it was harder to see if the restaurant was open for business, because it looked like a construction site”.
Ms Schmidt said she dined in the new restaurant after it opened and she noted “that the exhaust fan is particularly noisy, and there is a degree of noise and vibration on the upper level”; she also said she noticed an “obvious” unpleasant, offensive odour “from the pipes at the back door”.
In addition to her job as a teacher Ms Schmidt, in the year 2000 was a distributor of a product described as a waterwall, measuring some 3 metres by 2 metres which, as I understand, is constructed of foam rendered to resemble rock down which water cascades. The plaintiff purchased such a product from her for installation in the new restaurant. Ms Schmidt said she and her husband went to the restaurant one night, before the restaurant opened for the first time, to install the waterwall, but they could not do so because plumbing work had not been completed in the area where it was to be erected - there was a capped pipe projecting from a wall. They returned two days later, the plumbing work appeared to be completed and they were able to install the waterwall over two or three consecutive nights. Ms Schmidt said she did not believe that the installation of the waterwall later required an alteration to the plumbing by Mr Harnas.
In cross-examination Ms Schmidt said that the pallets of bricks she saw near the entrance to the old restaurant, were some 4 to 6 metres from the entrance they or other building materials were present for “lengthy periods” but they did not prevent entry into the old restaurant and her reason for mentioning the topic in her evidence was “the appearance of it”.
Concerning the noisy exhaust fan she spoke of, Ms Schmidt said that did not, on any occasion, cause her to leave the restaurant.
Mr James Cole is an assistant building surveyor employed by the District Council of Mount Barker. He said that Development Planning Consent for the restaurant had been granted in April 1998; it was valid for 12 months and had lapsed when he attended in early March 2000 to carry out an inspection of the excavation works preparatory to the pouring of footings. The defendant had not obtained building approval. Mr Cole directed on 15 March 2000 that no further work be done until the defendants obtained the necessary approval (Exhibit P25). To avoid what Mr Harnas described to him to be the risk of damage occurring to the open footing excavations, the defendants were given approval on 6 April 2000 to pour the footings, but it was not until 26 May 2000 (Exhibit P24) after the provision by the defendants to the council of further information that approval was given for the remainder of the construction to proceed. The approval was subject to a number of conditions, including a condition that:
“9A person shall not occupy this building or part of the building to which this approval relates until the builder’s written statement has been supplied to Council, and a Certificate of Occupancy has been issued by Council (Section 67)”.
Mr Cole said that he visited the site of the restaurant on 19 October 2000 and made notes of aspects of the works which did not appear to be in accordance with the approved plans, although he was satisfied with the safety of the premises; he inspected the restaurant again in November 2000 with the council’s consulting building surveyor, observing among other things that signs for, and access to, disabled facilities and the area available for disabled diners were non-compliant with the approved plans, concerning which and “fire separation” he spoke to Mr Harnas requesting information. Subsequently he wrote to Mr Harnas on 4 April 2001 (Exhibit P23) identifying these issues, and also noting that a builders statement had not been provided to the council, without which a Certificate of Occupancy could not be issued by the council. Mr Cole said that the non-complying “issues” set out in the letter dated 4 April 2001 were not the complete list, there were also matters concerning compliance with heritage conditions, but the council’s adviser on those matters decided not to pursue those questions because they were not significant.
In cross-examination Mr Cole agreed the lower ground floor of the restaurant equals approximately one third of the new restaurant dining area, and were it to be available for use by disabled diners they would have access to the disabled toilet which is on the same level; he commented “that was the basis of the approval”. He also agreed that the plan, as approved by the council, shows the door to the disabled toilet to be inward opening; he could not say whether or not that configuration complied with the appropriate standard. As to his concerns that there were bar stools, and a bar, taking up space on the lower ground floor level thus reducing to less than 30% of the total dining space the area available for disabled diners, he said Mr Harnas told him of difficulties he had had with “his tenant”, and except for a proposed inspection of the premises by the Building Fire Safety Committee of the council, and the outcome of that, the council’s next step would be to ensure a Certificate of Occupancy is applied for.
Mr Don Straccia was an employee of Commercial Food Equipment whom the plaintiff engaged in about August 2000 to advise which equipment could be relocated from the old kitchen to the new. He said he measured up the new kitchen area and concluded some of the equipment which the plaintiff wished to relocate would not fit, whereupon he was asked by Mr Paech which equipment could be modified for the new kitchen. He said a couple of appliances could be modified but other items could not be. Those that were suitable for relocation, and those suitable after modification, were installed into the new kitchen together with new or second-hand items supplied by Commercial Food Equipment; Mr Straccia identified exhibit P19 to be invoices for the work done and the equipment supplied.
In cross-examination Mr Straccia said that following an inspection of the equipment in the old kitchen and measuring up the new kitchen he prepared a plan (it is included as part of P20) showing the location of equipment in the new kitchen, a plan which Mr Paech authorised him to proceed with. The plan included space for an aquarium which Mr Paech wished to install, although Mr Straccia neither supplied nor installed that. He described it to be approximately 1.2 metres x 450 x 850 located in the servery area, taking up space that could possibly have been used for benches to provide more preparation area.
The work, which Mr Straccia supervised, occupied 40 - 50 man hours over a period of about 5 days; Mr Straccia said he was responsible for the work, which was carried out as Mr Paech directed and in accordance with the plan P20.
Mr Straccia described that some of the items of equipment in the old kitchen were in good order, others were not - he said the items re-used were among those in “not good order”, he exampled a double oven-range which was made into a char grill as being, as I understand his evidence (T327), the only item of cooking equipment which was re-used. Other equipment he said was at the end of its useful life or the cost of dismantling and re-erecting it was uneconomic compared with the cost of a new item - he exampled the exhaust canopy and its flue; he said a new canopy and fan was installed by him but not the flue. He said he was informed by Mr Paech that Mr Harnas was to remove the cool-room from the old kitchen and re-locate it in the new kitchen, but he (Mr Straccia) was then instructed by Mr Paech to supply and install a new cool-room.
Mr Straccia said that “conservatively speaking” the cost of removing all equipment from the old kitchen to a new kitchen of adequate size to accommodate it, including fitting, would have been $12,000 to $15,000, remarking the cool-room and freezer “would be very expensive to move”.
Ms Sylvia Dunckis undertook an office training course at a TAFE which included book-keeping to trial balance and later she was employed by SA Water to co-ordinate computer training. More recently she had been working for a provider of temporary office staff. She said she was engaged by Mr Paech, for the plaintiff, to enter invoice and payment records on to a computer spread-sheet form. On taking up the task in about May 2001 she found “there was just a manual system of just the invoices, when they were paid, went into an expandable file. There was no electronic recording of them, and there were no books” and no journals or ledgers that she saw. She said she saw bank statements and cheque butts.
Ms Dunckis said she judged Mr Paech not to be “literal (sic) in computers or managing his accounts”. She found the plaintiff was using a spread-sheet software system but it was limited to “cash-in” figures for previous years with the daily totals for each month of money coming in. She said she keyed into the computer, using a different software system to produce a spread-sheet, invoices “said to have been paid”, those unpaid, cash in figures and information from time books to extract wages paid because payroll records were not very good, all in relation to the financial year 1 July 2000 to 30 June 2001 “and then I ran some figures off for” Mr Paech. Having completed that task at the end of June 2000, Ms Dunckis said she agreed with Mr Paech that, for a monthly fee, she would help keep those records up to date but that was terminated when the plaintiff employed someone else (Miffy) at the end of July 2001. She was asked:
"Q“My understanding or the court’s understanding; you set up the system, Miffy came in and would take it over as an employee and anybody else, anybody could come in and do it really, it was quite a simple system.
AYes, and it was certainly by no means a book-keeping system, as it needed then to go to an accountant to pull out the figures or whatever for the GST or a bookkeeper.
QWould you call this maybe at a stage at the end of the financial year, you could call it business records or would you then put it on to an accountant where you would get your financial records. What would you refer to it as. What term would you use.
AProbably book-keeping in that someone who knew the requirement for taxation and the GST and things like that could pull the figures out.
QSo, therefore, making it a lot easier for an accountant.
AYes, and a manager.”
Ms Dunckis identified in MFI P30 documents which she said appeared to her to have been produced according to the system she had established.
In cross-examination Ms Dunckis said that she brought across into her system the “cash in” figures for previous years which were already in the different spreadsheet system the plaintiff had been using before she was engaged, but “there was sort of gaps in the figures on the computer, Mark had the handwritten sheets and put them all into together, basically, so all the revenue in - and I don’t recall how many years - but the revenue in for the previous years, and I cut and pasted it from Microsoft works into Excel”.
She marked with “1” those sheets in MFIP30 which included information from previous years. She explained:
"Q“Prior to transferring those figures into the spreadsheet that you described as being a Microsoft Works System, (sic) being the system you used, did you check, in any form, the accuracy of the prior year figures or did you just assume their accuracy.
AI assumed their accuracy. If there was - if the figures didn’t tally because there were written records, some of them I did check the written records. Like, there had been adding-up errors so, yes, the records were there as well available, so the figures that I transferred across, if the figures didn’t add up, then I went back and checked them. If there wasn’t a computer record and there was a written record, I did enter them.
QDid that process enable you to put in opening balances.
ANo.
QWhat was the purpose of that process.
APurely to get the records into some sort of order.”
.....
QWas the exercise that you understood needed to be done for Mr Paech to seek to put into some order, for the financial year commencing 1 July 2000, his then accounting records.
AYes.
QAs a result of the work that you did, did you identify that there were inadequate records to determine closing figures for the year ended 30 June 2001.
AI wasn’t given adequate figures to do a closing balance.
QSo the process that you undertook for the financial year ended 30 June 2001, on the revenue side, was incomplete.
AYes.
Mr Kit Seng Lian is a chartered accountant. Mr Lian, as a member of the firm Brauer Lian Ho & Chong, prepared financial statements for the plaintiff for the years ending 30 June 1997 and 30 June 1998 and was to “if possible” prepare and lodge a tax return for the plaintiff. For that purpose, he said, he had “monthly or weekly sales journal, the cheque butts, the deposit book and the bank statements ..... (and) business records” which he returned to the plaintiff. The plaintiff had not discovered cheque butts to the defendant.
Mr Lian said he lodged a tax return for the plaintiff in respect of the financial year to June 1997, but not 1998. He said he also prepared what he described as an “interim account” to 3 November 1998.
Many of the documents to which Mr Lian said he had reference to prepare the accounts or returns he identified, were either not discovered to the defendant by the plaintiff or only partly so; for example wages records prior to the year 2000 were not discovered. The defendants objected to the tender of the financial accounts, and the tax return for 1997, which the plaintiff sought to put in pursuant to section 45b of the Evidence Act, on the grounds which appear at pages 717-719. I ruled that they not be admitted in evidence. In relation to financial accounts for the year ended June 1996 which were prepared by a different firm of accountants, a member of which was Mr Richard O’Donnell, the application to tender those was withdrawn.

Mr Paech was cross-examined at length.
Mr Paech said his father’s birthday was on 28 June and the meeting which Mr Dalton organised at the restaurant was on 19 July 1995, not in August. He retracted the claim he had made in his evidence-in-chief that the contract to purchase the restaurant was “backdated” - he said he was confused, it was the Form 2 which was backdated and he signed the contract at the restaurant, in the presence of his mother who witnessed his signature on 19 July 1995. He denied the defendants were not present for any part of the meeting at the restaurant and rejected the suggestion the defendants were not at the restaurant at all on that day. Mr Paech said he thought the defendants came to the restaurant just before he signed the contract, although he was not sure whether he was given any plans before he signed it, but he thought he may have had a “chat” with the defendants at the restaurant then signed the contract and then Mr Harnas gave him the plans P2, or documents like them, and there then ensued the conversation in which Mr Harnas allegedly made representations about the plans and that the construction would be completed before Christmas 1995. Challenged that no such conversation occurred with Mr Harnas on that day, he said “you are wrong, that did happen. The representations were made mainly by the real estate agent though, more so” (T771). Questioned why he had not called any of the persons he named as being present at the meeting he said “simply my misunderstanding of the time to call them. I thought I had another opportunity after this questioning time, which I now know is not correct, but that’s why”.
Before the trial got underway, I told Mr Paech, among other matters, how a trial is conducted, the course of it, and about the calling of witnesses to give evidence in the case which the plaintiff wished to present to the Court. During the trial Mr Paech was told several times of the need for the plaintiff to call witnesses, as part of its case, upon matters which were in dispute between the parties.
Mr Paech identified two letters from ANZ Bank dated 7 August 1995 (Exhibit D41 and D42) to be the bank’s notification that it would provide to the plaintiff the loan sought to assist in the purchase of the restaurant, upon the terms summarised in the bank’s letter dated 9 August 1995 (Exhibit D43). He said he and Mr Francis expected to be in Adelaide on 25 August 1995 to attend to completing the bank’s requirements, but he thinks that was deferred for some days and it was sometime between 25 and 29 August 1995 that he went to see the defendants at their house in Uraidla. He said his parents went with him but he was uncertain whether or not Mr Francis also attended. He denied that was the first time he had met the defendants and denied that Mr Dalton was present at the meeting; he said Mr Dalton “can’t go through windy (sic) roads. It is an illness”. He identified a document, exhibit D60 dated 29 August 1995 as being in his mother’s handwriting, rejecting it was written by Mrs Harnas; the document, signed by the defendants, records that there be two extensions (each of 5 years) to the term of the lease and the method for fixing the rent at the beginning of the first extension. He agreed no plans were shown to him at the meeting; he rejected he was told by Mr Harnas that he (Mr Harnas) wanted to build a restaurant and four motel rooms but until difficulties with the council were resolved that would not occur.
Mr Paech agreed he knew, at the time the plaintiff went into possession of the Tuscany Inn that the rent was $4,982 but he thought it was $4,700 at the time of the purchase; the contract Exhibit P3 shows the rent to be $4,982 per month, altered from $4,700 the alteration being initialled by Mr Paech. He said he had a copy of the lease before he signed the contract. The lease provides for rent adjustments on 2 February each year. His evidence-in-chief was that the rent was increased from $4,700 to $4,982 per month in February 1996. This is an example of Mr Paech’s unreliability in his assertions on oath.
Mr Paech agreed that by June 1996 the plaintiff’s finances were being “pinched” - “our rent was a lot more than it should have been according to the revenue we were receiving ....”. He identified a letter which he and Mr Francis wrote to the defendant (Exhibit P51); it is undated but Mr Paech implicitly accepted it was sent in about August 1996. It requested that the rent be reduced. He agreed it makes no mention of any representation by the defendants to build a new restaurant by Christmas 1995. It includes comments some of which are –
“Equipment levels in both the kitchen and the restaurant are very bad. Most of the equipment .... was in disrepair or had not been serviced during its working life”
“only one out of three ovens work, dishwasher of the Ark”.
and it concluded –
“So, although these notes paint a gloomy future, there is much to be gained from a reduction in rent. Whilst we both agree you need to cover your costs, we need to reach a compromise that will allow us to remain viable. It could probably be argued that with the current amount of rent being asked it would be near impossible to find two people as willing as us, to continue with the lease (wether (sic) we sell it or go bankrupt).
Finally we would like to thank you for giving us a rent free month, it certainly helped us in the short term. But the overall picture will still look bad unless we can come to some arrangement about our rent in the long term.”
It appears to show that for the period September 1995 to August 1996 (inclusive) total revenue from food and beverage sales was $295,782.82 and total expenditure (including “drawings” by Mr Paech and Mr Francis) was $308,623.82.
In December 1996 the plaintiff increased its overdraft facility with its bank to $25,000 which is recorded in the letter from the bank dated 16 December 1996 (Exhibit D52); the bank noted that the plaintiff’s “financials”, prepared by Mr O’Donnell, showed a net loss, to June 1996, of $33,246.36. The bank required a cash flow forecast to be prepared for the 12 months from 30 June 1996.
Concerning the rent reduction of $1,000 with effect from in March 1997 for three years, Mr Paech said he could not recall being told by Mr Harnas that the rent would then return to the monthly rent required by the lease.
In about May 1997 Mr Francis wrote to the plaintiff’s bank. Mr Paech agreed he approved the contents of the letter. It expresses confidence that, steps having been taken to control the cost of goods and services, increases in gross profit margins in the preceding five to six months would continue. Mr Paech said that he and Mr Francis used to argue about controlling the cost of goods, his (Mr Paech’s) stand being that was being controlled; the letter states otherwise – to that extent Mr Paech said the letter was not correct and it was misleading - “the reason we had high cost of goods was to have low priced meals”.
Mr Paech agreed that in December 1997 he attended a council meeting with Mr Harnas. He denied that in March 1998 Mr Harnas gave to him the, or copies of the, bundle of plans Exhibit D55 – he said he did not receive those until about September 2000 when he acquired them from the Licensing Court.
Mr Paech accepted that in about June 1998 he was informed by Mr Harnas that the plaintiff was in arrears with payment of rent. In July 1998 he received from Mr Harnas a letter (Exhibit D66) listing, from the commencement of the plaintiff’s tenancy of the restaurant, the date rent was due and the date it was paid; the letter asserted the plaintiff had not paid rent for the months of April, May and June 1998. Mr Paech said he disputes the accuracy of the list although he did not think he had made any protest to the defendants about it at the time.
Taken to the conversation which he had with the defendants in November 1999 at the restaurant, Mr Paech agreed that he requested Mr Harnas to defer the construction of the new restaurant until February/March 2000. There was this exchange:
"Q“I suggest to you that you approved the commencement of the building works in or about February 2000.
ANo.
QYour evidence was ‘The restaurant was agreed to start in February at the end of my busy holiday season’.
AYes, that is correct. ‘Agreed to start’. That is not giving approval for the whole development, for the building. It is agreed to start, a starting date we were talking about. The discussion was referring to a starting date being November to February. One of many issues.
QIn your evidence at T94, you made no mention of the fact that you allege that Mr Harnas said the building of the new restaurant would take 10 to 12 weeks from the beginning to end.
AThat is correct.
QAnd I suggest to you that conversation did not happen in November 1999.
AThat is incorrect, wrong.”
Mr Paech said that the conversation with the defendants in November 1999 probably lasted for an hour during which Ms Hales occasionally took food to tables, or answered the telephone, so she “missed bits and pieces of the conversation”, but he said that what she related was accurate. He said Mr Harnas told him the plaintiffs would not have to spend anything on the move to the new kitchen; he rejected the suggestion nothing was said at the meeting about costs which might be involved for the plaintiff in the move from the old restaurant to the new restaurant when it was completed – he said “the only reason I agreed, or would consider agreeing, to that move was because Mr Harnas was going to cover the costs because I could not afford it”. There was this exchange:
"Q“I suggest to you that there was no discussion at that meeting about the supply of any fit-out items by the defendants.
ANo, they weren’t going to supply any items, that’s correct. They were going to move mine.
QYour allegation at para.13.5 of the statement of claim, that the defendants would supply any necessary fit-out items for the new restaurant and kitchen, including certain things, is therefore totally incorrect, isn’t it.
ACould you read the whole statement?
QYour allegation in para.13.5, in relation to the November 1999 conversation, was ‘The defendants would supply any necessary fit-out items for the new restaurant and kitchen’.
AThat’s correct.
QYou agreed with me a minute ago that in fact that was never said at that meeting.
ANo, I am agreeing with your second statement, they were going to move my equipment, not purchase more. The fit-out of the whole restaurant now, we are referring to the whole restaurant and the kitchen, is a different story.
QIt is perfectly clear, isn’t it.
ANo, it is not.
QIt is. The question I asked you was that your allegation in para.13.5, it was said to you that the defendants would supply any necessary fit-out items for the new restaurant and kitchen, is incorrect.
ANo, it is not incorrect.
QI suggest to you that there was no discussion at that meeting, in November 1999, as to the time it would take for you to move the kitchen and restaurant equipment into the new restaurant.
ANo. We had a conversation at that meeting for him to move, not for me to move, for him to move.
QI suggest to you there was no discussion to that effect, for Mr Harnas to move your kitchen and restaurant equipment.
AThere was a conversation for Mr Harnas to move my restaurant equipment.
QI suggest there was no.
AI suggest there was.
QAnd there was no discussion as to the time frame.
AThere was discussion as to time frames.
QI suggest that at that meeting, Mr Harnas advised you that it would take about a week to move your equipment into the new kitchen.
AIncorrect.”
Mr Paech said he did not write to the defendants to record the matters discussed at the meeting because “a new lease was going to be re-done to state it all”.
On about 6 March 2000 excavation for the pouring of footings commenced; work was halted at the direction of Mr Cole. Mr Paech said there was heavy rain throughout March and early April and he would accept that may well have interrupted the progress of building works. He said that during construction of the new restaurant he complained to Mr Harnas on several occasions about access to the old restaurant. He agreed that during construction, on many occasions, he left notes giving directions to Mr Harnas on matters concerning the new restaurant – he said that was a way of communicating his response to requests by Mr Harnas because he (Mr Paech) often did not rise until late morning or midday. Although, he said, he told Mr Harnas on more than three occasions at about the time the water-wall was installed that he wanted the kitchen changed, he rejected suggestions that many of his notes were incoherent or inconsistent, that he changed his mind concerning the layout or the design of the restaurant and the positioning of a stainless steel bench Mr Harnas had purchased at his request. He agreed he told Mr Harnas that he would purchase for the new kitchen a new stove, or repair an old one, and he would install the new cool-room but denied he explained to Mr Harnas the old cool-room should be “left where it was” because money was in short supply and the cost of moving it, $5,000 would not be worth it.
Concerning the aquarium which Mr Straccia spoke about in his evidence, Mr Paech denied that on a particular day he told Mr Harnas that alternations, which had been made to the kitchen at his request, were correct and Mr Harnas could “finish off”, or that the next day he said to Mr Harnas he wanted the kitchen changed again and an aquarium installed.
Mr Paech denied he rejected an offer by Mr Harnas to relocate the canopy from the old restaurant to the new, or that carpets, an airconditioner and lights were installed in the new restaurant by the defendants because he (Mr Paech) told Mr Harnas he could not meet the cost of fit-out.
Taxed about approximately seventy occasions in the period between March to December 2000 when cheques drawn by the plaintiff, or direct debits, were not honoured and approximately 160 occasions in 2001 to the month of November 2001 when the same thing occurred, Mr Paech said he tried to draw only against available funds but “I did not have any control at the time those people deposited cheques”; among the dishonoured directions for payment were those for rent to the defendants under the term of an order made pursuant to the Retail and Commercial Leases Act by the Magistrates Court on 17 January 2001 by which the plaintiff was to pay $3,300 on 25 January 2001 then $3,500 on the last day of each month thereafter and the defendants were restrained from taking possession of the leased premises pending the determination of these proceedings so long as those payments were made.
Mr Paech said that during the construction of the new restaurant he lived in the Chateau at the rear of the premises, therefore he was able to observe the progress of the works and knew the defendants employed tradesmen on the site, including Mr Harbers, an electrician, Mr Hampton a plumber and Mr Post a site supervisor. He agreed that on occasions he would seek to give directions to the tradesmen concerning the work they were doing, and he remarked to Mr Harbers that Mr Harnas “does not know what he is doing” but he said he could not recall saying to Mr Harbers “I am in charge now and I will tell you what changes need doing”. He denied there was an occasion when he watched Mr Hampton install a sink in the new kitchen and then the next day required him to move it some 300 millimetres.
Mr Paech was taxed with other events during the course of construction from which in my view it is apparent there were, to put it somewhat neutrally, tensions and sometimes confrontations between him on the one side, and Mr Harnas or his tradesmen on the other. Mr Paech acknowledged he, at times, felt frustrated because he said “Mr Harnas would ask me to go and see Mr Harbers. Mr Harbers would say go and see Mr Harnas. I was getting very giddy and confused left, right and centre, not getting anywhere” but he denied he ranted and raved and abused Mr Harnas. He agreed there was an occasion, concerning the position of the bar in the lower ground floor area, when his father marked where the bar was to be placed and said “so you cannot change your mind again”; sometime later Mr Paech, and workmen he engaged, moved the bar to a different position.
Concerning the installation of a cool-room freezer in the new kitchen, Mr Paech denied that Mr Harnas and Mr Post told him the kitchen was too small, suggested he should have a smaller fridge instead and use the cool-room in the old kitchen area to which he replied to the effect he did not need much room. In relation to the aquarium he wanted to install, he denied Mr Harnas said the area of the kitchen was too “tight” for that, to which he replied “I know what I want, you do your job and I’ll do mine”. It was installed where Mr Paech indicated, through the wall between the kitchen and the lower ground floor area of the restaurant, such that it protruded into the kitchen. Concerning the lower ground floor area Mr Paech said Mr Harnas provided for a bar to be in that area and he (Mr Paech) voiced concern about the space which would then be available for tables. He denied he required the bar to be put in that area or that in response to Mr Harnas’ concern about complying with council’s approval regarding access of disabled persons to the section he (Mr Paech) said “F... the council, I’ll handle them”.
In relation to the bi-folding doors Mr Paech said Mr Harnas informed him the defendant’s had run out of money and that which was erected at the front of the restaurant would be fashioned into bi-folding doors at a later time, with which he agreed.
Mr Paech maintained that the amounts shown on invoices, in exhibit P31 (each of which he was taxed about) for equipment he purchased for the kitchen, (other than hand equipment and the like), for installing lights, locks and various other fittings, for an alarm system, and for electrical and plumbing services, should be paid by the defendants, either because, as to the first, they were a consequence of the defendants’ alleged failure to provide a kitchen of sufficient size to accommodate his existing equipment or, as to the remainder, they relate to goods or services the defendants failed to provide to hand over a secure and completed building, or were in respect of defects in the electrical and plumbing system installed by the defendants.
Exhibit P30 comprises numerous documents relating to the plaintiff’s business. Mr Paech said it is the plaintiff’s case that it relies on those to show the receipts, expenditure and financial position of the plaintiff in the period commencing in the year 1996 to 29^th October, 2001, and therefore are evidence of the quantum of the plaintiff’s claim against the defendants for loss of profits (he said he did not know whether the claim is for $500,000 or $900,000 referring to his document P32) but he agreed it would be difficult to determine the financial position of the plaintiff from time to time; there was this exchange:
(P992-993)
"QIt was Ms Dunckis’ evidence that she prepared many of the documents that are contained in P30.
AYes.
QIs it your evidence now that you do not seek to rely on any of the work that Ms Dunckis did.
ANo. As I said earlier, it’s not complete. It has not been completed for that year.
QBut you seek to put in P30 incomplete documentation from which his Honour is to draw on occasions something but on other occasions nothing, is that correct.
AAs I said to you at the time of trial most of the evidence I put forward in November was half – a bit here, a bit there. I wasn’t exactly thinking straight.
QYou still press his Honour to have regard to P30 in relation to the quantum of your claim.
AI would ask him to consider it.
QDespite all of the inaccuracies that you’ve identified.
AAs I said yesterday there’s a payment document here – there’s an invoice document there.
QDespite its incompleteness, despite its inaccuracies.
AAs I said, he can look at one document and another.
QHe will find contradiction after contradiction after contradiction won’t he.
AThen I’ll have to leave that up to his Honour to decide.
QThe fact is that during the financial year 2000/2001 as is recorded at the top of document 12, ‘Please check to see what can be reduced!!’ that expenses being incurred by the plaintiff company were running well in excess of income and revenue received, weren’t they.
AYes.
QAnd his Honour has no assistance in the documents in P30 as to the financial position of the company for the very reason you’ve given being the inaccuracy and incompleteness of all the documents contained therein.
AAs I said it would be a very difficult task. I am not denying that.
QYou would be guessing, wouldn’t you, as to the amount of the quantum of your claim.
ANo, I could work out exactly by the documents that I have in front of me, exactly the state of the company at that point in time, however it would not be completely accurate because the documents have been done at different times. They have not been all put in at the end of that financial year, as I said earlier. There is enough evidence here to work out the financial situation on the company, on this evidence, however it would not be completely accurate because the documents are not complete.
QIt would be nothing like accurate would it.
ANo.”
To take but one example of record keeping, which relates to a conflict between the records and that which Mr Paech said in his evidence, his evidence was that two weeks after the plaintiff went into possession of the new restaurant, on 15^th September, 2000, it had to close for a week because of “electrical faults”. Document number 13 in Exhibit P30 is headed “Stable’s Restaurant – Monthly Revenue”; against the date 7^th September 2000 there appear the words “Restaurant Closed 4/9/- 15/9/00”. Contrary to Mr Paech’s evidence, the information to be gleaned from the monthly revenue statement is that the restaurant was not closed for a week at any time after 15^th September 2000 or in the month of October 2000. Mr Paech said the document was prepared by Ms Dunckis “she may be correct and I may be incorrect. It may be the other way round”. He abandoned any reliance on Document number 13, the monthly records of revenue for the period 1 July 2000 to 11 June 2001 saying it is incomplete and inaccurate – it was one of the documents Ms Dunckis identified to be of a kind produced by the accounting or recording system she set up in the period she was engaged by the plaintiff between May 2001 to July 2001.

The plaintiff’s case concerning the meeting in November 1999 is that the plaintiff did not give its approval to the building being constructed. Mr Paech’s evidence on that topic, principally at transcript 826, to the effect he agreed only to the starting date and did not “approve” the building going ahead was not credible.
Mr Paech’s evidence and the plaintiff’s case, is that the defendants agreed to set up the new restaurant at no cost to the plaintiff by providing at the defendants’ cost all necessary fixtures and fittings and removing from the old restaurant to the new items of equipment so that the new restaurant would have the same facilities as the old and its kitchen would be built to accommodate the plaintiff’s existing kitchen equipment; in addition the lease would be redrawn, in some manner which Mr Paech failed in his evidence to make clear with any particularity.
Except that Mr Harnas agreed the defendants would relocate to the new kitchen “most of”, but not all, the equipment in the kitchen, I find that the defendants did not say or represent to Mr Paech the matters he said the defendants agreed to do. Each of the defendants denied making any such representation at that meeting. The defendants did, for example, purchase and install carpets, light fittings and other things in the new restaurant which might suggest they agreed at the meeting in November 1999 to do so, but Mr Harnas explained, and I accept, why it was the defendants did that, namely to assist the plaintiff. Mr Paech had made it apparent by the failure of the plaintiff to pay rent on time that the plaintiff would likely not be in a position to pay for those things. I do not accept Mr Paech’s evidence that the defendants in substance represented to him the plaintiff would not incur any expense for the construction of the new restaurant or fitting it out.
After construction commenced there was a long delay before the new restaurant was completed, much longer than the approximate “three months” Mrs Harnas spoke of to Mr Paech in November 1999, even allowing latitude for the vagaries mentioned by Mrs Harnas which could extend the time for construction. The primary cause for delay was the defendants’ apparent failure to have in place all necessary consents. I accept the defendants’ evidence they had an honest, but mistaken belief, the consents has been obtained but there is no doubt, as Mr Harnas acknowledged, that the delay caused by the council’s direction to stop work which was in place until 26^th May 2000 accounted for the majority of the delay which was then compounded upon by the defendants’ inability to obtain bricklayers and other trades to commence immediately, and continue, after consent was obtained.
In the document Exhibit P32 which Mr Paech prepared in response to the court’s invitation that he provide some quantification of the loss or damage which the plaintiff alleges it suffered because construction of the restaurant was not completed until September 2000, the following appears:
“The plaintiff seeks compensation for the loss of possible profits earned, for the period of the initial purchase of the leased premises in September of 1995, through to the date that the construction of the proposed building was completed, this being September of 2000. The defendant is wholly responsible for the loss incurred, due to the misleading and misrepresentations made at the time of the purchase.
The Estimated possible earnings for this period is 40% higher turnover above previous gross takings. On previous gross takings, 40% of lost earnings equivalent to $500,000 gross revenue (sic).”
Doing the best I can with the collection of documents in Exhibit P30, gross revenue September 1995 to September 2000 (both months included) is stated to be the sum of $1,211,811 (adding only whole dollars). Forty percent of that sum is $524,724. There is no, or no demonstrated and acceptable, basis upon which the revenue would have been greater by 40% were the new restaurant (or restaurant and motel units) to have been operational from December 1995. The revenue for the period October 2000 to June 2001 inclusive is stated to be (my addition) $240,223 compared with $220,100 for the same period in 1998/1999, the last financial year of operation in which the new restaurant made no contribution or its partly completed state had no impact; that is an increase of about 9%. As Mr Paech conceded the records in P30 are incomplete, particularly in relation to the plaintiff’s expenses, so even if the plaintiff had proved the defendants were liable to the plaintiff for alleged losses as a consequence of the restaurant not being completed until September 2000, it would be practically impossible for the court to quantify the loss upon the material before the court.
As I have found, the plaintiff has failed to prove the representations it alleges were made by the defendants in July 1995 and November 1999, except there was an indication by the defendants that construction would take approximately three months and that the defendants would assist the plaintiff to move some of its kitchen equipment to the new restaurant. As to the latter, I find the defendants carried out what they said they would do. As to the former I am satisfied the plaintiff agreed to the construction of the new restaurant so that there was no unauthorised interference by the defendants with the plaintiff’s right to quiet enjoyment as lessee of the premises. To the extent there might have been a disruption to the plaintiff’s business beyond the period of about three months, the construction time Mrs Harnas spoke of to Mr Paech, the evidence for that in the plaintiff’s case in my opinion is so unspecific and in the case of Mr Paech’s evidence so unreliable that it falls far short of proving there was any disruption. Insofar as the plaintiff placed reliance on its records (Exhibit P30 in particular) to show there was an adverse financial affect upon its receipts, or profits, the task of extracting reliable information in proof of that has been impossible. Those records are, as Mr Paech admitted, incomplete as to some years, prime source documents have not been made available and, particularly in relation to the most recent years of the plaintiff’s trading before January 2002, the records come devoid of analysis by a suitably qualified person from which any meaningful findings could be made concerning the plaintiff’s alleged losses.
From Exhibit P30 the plaintiff’s receipts in the months March to September 2000 (inclusive), the approximate period during which the new restaurant was under construction, were (according to some documents in the exhibit) $113,146; in the same period in 1999 they were $145,342, in 1998 $144,981, in 1997 $159,460 and in 1996 $165,647. Those figures show a general down-trend for two years, a small recovery in year three and in the relevant year, 2000, a marked drop in revenue; that drop may be attributable to the disruption of the plaintiff’s business caused by the construction of the new restaurant bur evidence to discount any other extraneous factor and prove disruption to be the cause is lacking in the plaintiff’s case. In any event as I have said the extraction from P30 of an accurate figure for the plaintiff’s trading expenses has not been done as part of the plaintiff’s case, so any loss of profits could not be assessed and, further, the incomplete and unorganised state of the documents in P30 makes in practically impossible for the court to carry out that task.
The statement of Mrs Harnas to Mr Paech that construction would take approximately three months was not, in my opinion, an agreement collateral to the lease. There was no promise made by the defendants before or at the time they consented to the assignment of the lease to the plaintiff that the new restaurant/motel complex would be built. However it was implicit in Mrs Harnas’ statement to Mr Paech that the defendants had all necessary consents and approvals to commence the construction of the new restaurant on the date (end of February or early March as I have found) agreed with Mr Paech. The defendants did not have those consents or approvals, with the result the progress of the works was stopped at the direction of Mr Cole, which caused a delay until 26 May 2000 when the necessary approvals were obtained. In their evidence the defendants spoke of their dealings with officers of the council based upon which the defendants say they believed they were authorised to proceed with the works at the time agreed with Mr Paech. The absence of necessary council approval was not, I find, something to which Mrs Harnas adverted, or even had in mind when she stated to Mr Paech the approximate period of time for construction. The statement by Mrs Harnas was capable of being conduct which was mis-leading or deceptive or was likely to mislead or deceive within the meaning of Section 56 of the Fair Trading Act – it was a prediction or opinion concerning the time for completion which the absence of the necessary consents made substantially erroneous. However the evidence of the defendants concerning the grounds upon which they reasonably believed they were in possession of all necessary consents was not seriously challenged by the plaintiff and, in any event, the plaintiff has failed to prove that it suffered any loss or damage by relying upon Mrs Harnas’ statement. For similar reasons, the claim pursuant to Section 7 of the Misrepresentation Act cannot succeed.
I find that in May 1998 the defendants provided to Mr Paech a copy of the plans Exhibit D55 which show in detail, and to scale, the dimensions of the new restaurant (and kitchen) and the proposed position of it in relation to the existing buildings on the site.
The plans Exhibit D55 show that the abutment of the new restaurant to motel Unit 1 entailed the closing up of a window in what would be the common wall; that is the wall which applicable regulations required to be fire rated. I find that the plaintiff consented to that arrangement and it has no claim against the defendants in relation to it. Mr Paech’s evidence was that the common wall was insufficiently soundproofed from the noise of the adjoining kitchen, with the result, as I understand, some occupants of Unit 1 declined to remain in the unit or refused to pay for their accommodation and the plaintiff had effectively ceased to use the room as guest accommodation. Mr Paech’s evidence on that matter was very general and unsupported by any appropriate qualified person skilled in the topic of sound proofing. In any event the plaintiff did not produce its accommodation register in support of its claim.
Concerning what Mr Paech claimed to be the inadequate size of, and consequently the inefficiency of or insufficient space for equipment in, the kitchen I find that Mr Paech was given by the defendants, and took, the opportunity to identify the size of the area he wanted for the kitchen and on several occasions he requested changes which the defendants made. The plaintiff, I find, has no maintainable claim against the defendants concerning the dimensions of the kitchen or the constraints which its size placed on the disposition of equipment within it or any consequential inefficiency in its operation or the effect of those things upon the plaintiff’s business as a whole.
The claim made under the heading “The Bar” in the statement of claim that water pooled in that area because of an incline in the floor, relied solely on Mr Paech’s evidence and the plaintiff did not call an architect or other suitably qualified person to support the case that the floor caused or contributed to the pooling of water or that a floor drain should have been provided. For similar reasons, that is the absence of any evidence from a suitably qualified person, the claim that water ponds near and runs into a motel unit has not been sustained.
There is some evidence, that of Ms Hales and Ms Schmidt, to support Mr Paech’s evidence that vibration and noise from an exhaust fan was apparent in the mezzanine floor of the new restaurant and there was an unpleasant odour present in the restaurant and near the grease-trap. However, Mr Straccia said, and I accept, that he supplied and installed the exhaust fan for the plaintiff. As to the unpleasant odours, the source of those I find was either the disabled persons toilet or the grease-trap. I accept Mr Hampton’s evidence that the valve he installed in the vent pipe from the disabled persons toilet prevented any emission from the pipe, and any odour emanating from the toilet facility was caused by the plaintiff’s use of that area for storage and not as a toilet. I also accept Mr Hampton’s evidence that the temporary method he used to seal the vent pipe for the grease-trap was adequate for approximately twelve months, and any odour emitted from the trap was, more likely than not, the consequence of the plaintiff’s failure to regularly have the trap cleaned.
Concerning the claims under the heading “Restaurant Seating Area”, I accept Mr Harnas’ evidence that Mr Paech agreed to the “bi-fold” doors being installed at some later time to replace the structure in fact erected by the defendants, and that the plaintiff before these proceedings were issued did not request the defendants to carry out that work. The allegation is that the present structure gives the appearance the restaurant is not open for business. I reject that allegation – no evidence was called to support the evidence of Mr Paech and the photographs in evidence do not to my eye depict what Mr Paech claimed.
For the reasons I have given earlier in this judgment the plaintiff’s claim that there is no access from within the restaurant to the toilet set aside for disabled persons is wholly without foundation; the plaintiff chose to use for some other purpose the ground floor area in the restaurant which would otherwise have been available for disabled persons.
The plaintiffs claim that the removal of the urinal from the old restaurant to the new caused unpleasant odours to arise at the site of the place the urinal had been, is indirectly supported by Mr Hampton’s evidence that the water seal he had left in position, after removal the urinal, could dry out and allow odours to escape. To avoid that possibility Mr Hampton was instructed in October 2001 to “seal off” the water seal. Mr Paech’s evidence that the former site of the urinal was the source of smells is consistent with the water seal having dried out, to minimise which, at some time, he covered with boards what had been left exposed. However Mr Paech did not assert the odours from that source invaded the new restaurant, or the motel units. To what extent, if any, the odours adversely impacted upon the plaintiff’s business has not been shown.
The plaintiff has proved that the defendants had not secured a certificate of occupancy at the time the plaintiff went into possession of the new restaurant; it was not obtained until February 2002. Mr Paech asserted that because there was no such certificate the plaintiff’s ability to obtain appropriate insurance was adversely affected. However no evidence was adduced to prove that assertion and, in any event, I accept Mr Harnas’ evidence that the plaintiff’s action in putting to a different use the area which was to be available for disabled diners was a substantial reason why a certificate of occupancy would not have been provided by the council before that area was made suitable for the use of disabled persons. The plaintiff has failed to prove it suffered any loss or damage by reason of the absence of a certificate of occupancy.
The plaintiff seeks orders pursuant to Section 68(2)(d) and (e) of the Retail and Commercial Leases Act 1995. Those subsections provide:
“68
(2)The (court) may on application under this section, by order -
(d)order the payment of compensation for loss or damage resulting from a breach of this Act, a retail shop lease or a collateral agreement; or
(e)relieve a party to a retail shop lease or a collateral agreement from the obligation to comply with a provision of the lease or agreement.”
As to subsection (2)(d) the plaintiff has failed to prove the defendants are in breach of the Act, the Lease or any collateral agreement. In relation to subsection (2)(e) there are no grounds upon which the plaintiff should be relieved from its obligation to comply with the lease.
In the course of his submissions Mr Paech, it appeared to me, in effect sought an order re-instating the plaintiff into the leased premises, possession of which had been given to the defendants by an order of a Master dated 14^th December 2001. The order was stayed in the event the plaintiff complied with a number of conditions which included the plaintiff duly instituting an appeal against the order and paying certain sums to the defendants’ representative (Mr Greatbatch) by nominated dates. The plaintiff instituted an appeal but failed to wholly perform the other conditions of the stay order and the defendants went into possession of the premises. It was necessary for the defendants to make a further application to secure the removal of Mr Paech from the premises.
On the hearing of the appeal Mr Paech appeared personally and also represented the plaintiff. On 7^th February 2002 the appeal was dismissed. No further appeal was instituted by the plaintiff. In those circumstances I accept the submission of counsel for the defendants that no order can or should be made to re-instate the plaintiff to possession, whether pursuant to Section 68(2)(f) or the Retail and Commercial Leases Act or otherwise. There having been no appeal against the order made on 7^th February 2002, the plaintiff has exhausted its rights. In my opinion not only would it be inappropriate to entertain the plaintiff’s application for possession but also, even in the absence of the order giving possession of the premises to the defendants, upon the evidence given by Mr Paech the plaintiff has neither the means nor assets to pay the arrears of rent even to the extent of the sum admitted by Mr Paech. Also, rates which the plaintiff is required to pay under the terms of the lease have not been paid – they exceed $10,000. Further, the court was told, without objection, that there are outstanding costs orders against the plaintiff, made in these proceedings, totalling more than $12,000. The plaintiff is quite unable to meet those obligations, the payment of which would ordinarily be a term of any order re-instating the plaintiff into the leased premises and, having regard to the plaintiff’s history concerning the payment of rent, it is apparent that the plaintiff would be unlikely to meet the rental obligations under the lease.
On the claim there will be judgment for the plaintiff against the defendants in the sum of $361.50, the cost of goods which Mr Harnas admitted were purchased on the plaintiff’s trade account by Mr Post for the defendants’ purpose in respect of the restaurant. The plaintiff’s claims are otherwise dismissed.
The Counterclaim
The defendants have maintained records in relation to the payment, or non- payment of rent, to the accuracy of which Mrs Harnas testified. I accept her evidence. During their case the defendants, or one of them, made concessions concerning, or waived claims to, some unpaid rent. I accept Mrs Harnas’ evidence that unpaid “rent” to March 2002 totalled $71,488.88; the plaintiff’s obligation to pay rent ceased on the day the defendants re-entered, but pursuant to Clause 13.3 of the Lease the defendants are entitled to damages thereafter. I accept the evidence of Mr Harnas as to the steps the defendants have taken to mitigate their loss. I find the defendants have taken reasonable steps to mitigate their loss and assess their damages as the sum of the rent which would have been payable if the plaintiff had remained in possession up to and including 2^nd March 2002.

The evidence of Mr Crout and the document Exhibit D81 proves the defendants’ case that the plaintiff, in breach of Clause 2.1.1 of the Lease, has failed to pay rates to the District Council of Mount Barker in respect of the leased premises, the total of which is $10,409.24.
Upon the counterclaim there will be judgment for the defendants against the plaintiff in the sum of $81,898.12 and judgment for the defendants against Mr Paech and Mr Francis in the same sum.
I will hear the parties on the questions of interest and costs.

[2002] SADC 178

24 December 2002