FAROOQI & FAROOQI v MAZZOCCHETTI & MAZZOCCHETTI No. Scgrg-97-1491 Judgment No. S6619

[1998] SASC 6619

FAROOQI and FAROOQI  v  MAZZOCCHETTI and MAZZOCCHETTI

Magistrates’ Appeal
Bleby J

This appeal concerns a dispute between the lessors and the lessees of some restaurant premises in Waymouth Street, Adelaide.  The appellants as lessees entered into possession of the premises on 4 October 1995.  On the same day the parties signed “Heads of Agreement”, which were said to be subject to preparation of a lease by the lessors’ solicitor/landbroker, with usual covenants and conditions, and incorporating a number of matters then set out in the Heads of Agreement.  Those matters included the identity of the parties, a description of the premises, the term of the lease, a right of renewal, the rental and rent review after 12 months, payment of certain outgoings and some other elementary conditions.

On 24 October 1995 the appellants received a notice in the form of Schedule 1 of the (then) Retail Shops Leases Act 1995, a document required to be supplied by a lessor to a lessee in accordance with the requirements of s12 of that Act.

A formal lease of the premises (“the lease”) was entered into by the parties on 22 December 1995.  The term of the lease was for one year from 4 October 1995 to 3 October 1996, with a right of renewal for two further periods of three years upon the lessees giving notice more particularly specified in the lease.  I will have occasion to refer to some other terms of the lease in due course.

The appellants encountered financial difficulties in the running of the restaurant, and did not exercise their right of renewal.  However, by arrangement with the respondents, they held over until 24 December 1996, and then vacated the premises.

The respondents commenced proceedings in the Adelaide Magistrates’ Court for various amounts alleged to be due by the appellants under the provisions of the lease.  The appellants counterclaimed for amounts that they claim were due to them.  They also alleged that there had been a failure to comply with the requirements of s12 of the Retail Shop Leases Act 1995 by failing to give a disclosure statement as required by that section.  They sought relief under s12(5) of the Act which confers upon a court wide‑ranging powers to avoid or vary a lease or to direct the payment of money to a lessee.

The appellants had been represented by solicitors during some of the interlocutory stages of the proceedings, but conducted their own case at the trial.  The respondents were represented by counsel.

The learned magistrate decided that the respondents were entitled to some, but not all, of their several heads of claim, and he entered judgment for the respondents in the sum of $11,859.76.  The learned magistrate dismissed the counterclaim.

In deciding the respective claims, the learned magistrate was labouring under substantial difficulties because the record keeping by both parties was poor, many payments were made in cash and were not recorded, and receipts were not always issued.  The learned magistrate had to rely heavily on the often conflicting oral evidence of the parties, whilst making what use he could of some rather sparse documentation.

The appellants were represented by counsel on the appeal, and limited their complaints to four matters with which I will deal in turn.  In determining the appeal, however, I must bear in mind the advantage that the learned magistrate had in hearing the parties and their witnesses, and where findings of fact were based on the credibility of a witness, it is not for me to set them aside because I may think “that the probabilities of the case are against - even strongly against - (a) finding of fact”.  (Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and LeHough JJ at 479. Where the learned magistrate’s finding depends to a substantial degree on the credibility of witnesses, his finding must stand unless it can be shown that he “has failed to use or has palpably misused his advantage”, or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which were “glaringly improbable” (ibid at 479). Where a finding of fact by the magistrate was reasonably open to him on the evidence, this Court should be reluctant to interfere unless it is plainly wrong. On the other hand, where his decision involves the interpretation of documents, such as the lease, then this Court can reach its own conclusion on that question, and where his decision involves inferences to be drawn from uncontroverted facts or other primary findings of fact made by the magistrate, then this Court is in equally as good a position to draw its own inferences from those facts as the primary tribunal: Warren v Coombes and Anor (1979) 142 CLR 531.

Outstanding Rental - $3,697.07

At the trial, there were a number of areas of dispute concerning the payment of rent.  The lease provided for an annual rental of $36,400.08 payable in advance by equal calendar monthly instalments of $3,033.34.  Clause 16.0 of the lease provided for a rent‑free period from 4 October 1995 to 31 October 1995, a period of four weeks.  I agree with the appellants’ calculation that that meant that for the period ending 3 October 1996, the total rent payable was $33,607.92.  It was not in dispute that by 4 November 1996 the appellants had paid the sum of $31,800.00, leaving an amount of $1,807.92 outstanding.

One of the major arguments at the trial concerned the amount payable during the period of holding over, from 4 October 1996 to 24 December 1996.  The appellants at trial had argued that there was an agreement that the total amount payable for rent, including rates and taxes, was $5,000.00 for that period.  On the other hand, the respondents contended that the rental provided by the lease continued until 11 November, when a special arrangement was entered into whereby the appellants would pay $6,000.00 plus rates and taxes for the balance of the period.

There had also been an argument before the learned magistrate as to a rent‑free period in addition to the initial period of four weeks.  The appellants had argued that the respondents had granted them an additional concession of six weeks remission of rent during the period of the lease.  The magistrate interpreted that argument as applicable to the holding over period, and decided that no such arrangement had been made.

Neither party before me contended that there had been any such arrangement in respect of the holding over period.  In that respect, there had therefore been a misunderstanding on the part of the learned magistrate.  However, the appellants, to their credit, accepted the finding of the learned magistrate as being related to the earlier period that they had claimed, and did not seek to re‑argue that question on the appeal.  That left the period covered by the special arrangement and the amount of that arrangement.  The learned magistrate, having found that there was no rental holiday during that period, considered that the rent provided by the lease continued until 11 November 1996, and found that the special arrangement had been made for the remaining 43 days of the holding over period.  He found that the agreement was to pay $5,000.00 including rates and taxes for the period, and not $6,000.00 plus rates and taxes as claimed by the respondents.  Before me, the respondents accepted the finding of the learned magistrate as to the amount ($5,000.00 including rates and taxes), but maintained that it only covered the period of 43 days from 12 November to 24 December 1996 and not, as contended for by the appellant, the full period of the holding over.

The learned magistrate found that the shorter period was the period covered by the special arrangement, but only because he had dismissed the claim for the rent‑free period for what he thought was from the expiry of the lease until 11 November.  The appellants’ argument was that the conversation regarding the arrangement took place, on the evidence of the respondents, within a few days of the day on which they considered the lease expired.  The male respondent nominated that as 4 November 1996.  In that, it was submitted, he was plainly wrong, and the learned magistrate should have inferred, as I was asked to infer, that the conversation took place early in October, shortly after the expiry of the lease.

Notwithstanding the confusion in the learned magistrate’s mind regarding the rent‑free period, there was nevertheless evidence on which he could properly find that the conversation occurred on or about 7 November 1996 and in respect of the period following 11 November 1996.  In the first place, the male respondent deposed to the conversation having occurred on or about 7 November 1996 covering the balance of the period.  In the second place, he said that it would have been better for him to re‑let the premises at that time “because that’s a prime time of restaurants”.  It was for that reason that he asked for the sum of $6,000, which the magistrate found as a fact to have been agreed at $5,000.  That figure for the period in question can be shown to be just a little more than the total of rent and rates and taxes that the appellants would have paid under the terms of the lease for the same period, whereas if it covered the period from 4 October 1996, it would have reflected an amount for rent and rates and taxes of approximately half the figure provided for in the lease.  It would be inconsistent with the respondents’ evidence (which the magistrate appears to have accepted) that they would have agreed to a substantially lower overall rent during the busiest period of the year for a restaurant, considering the difficulties they would have to obtain another tenant after December.  In the third place, the finding is supported to some extent by the only three accounts rendered by the respondents to the appellants during the whole period.  The first (Exhibit P5) was an account for rental arrears and rates to 4 February 1996.  The account was dated 2 February 1996.  The next was dated 7 November 1996 and referred to the previous statement showing amounts outstanding and paid up to and including 11 November 1996.  There was an item “rent required to 11 November 1996” in an amount of $28,000.00, which represents the period 4 February to 11 November.  The third document in the series (Exhibit P7) was dated 22 December and showed final amounts outstanding up to and including 24 December 1996.  It referred to the balance outstanding on the 7 November statement and contained an item “rent required to 24 December 1996 (as agreed)” in an amount of $6,000.00, being the amount which the learned magistrate found in fact to be $5,000.00.

Accordingly, it was open for the learned magistrate to find that the amount of $5,000.00 including rates and taxes was to cover the period from 12 November to 24 December 1996.  There is no justification for this Court to interfere with that finding, and accordingly the outstanding amount for rent must be calculated on that basis.  The learned magistrate calculated the net figure owing at $3,697.07.  The arithmetic was not disputed, and accordingly the learned magistrate’s decision on this item must be upheld.

Unpaid Insurance Premiums - $605.51

Part 12 of the terms of the lease contained a number of provisions relating to insurance.  Under clause 12.1, the lessor was to insure the building and the lessor’s fixtures and fittings against loss from usual risks “at the expense of the lessee”.  If required, the lessee was to insure and keep insured the windows in the premises, and the lessee was to maintain a public risk policy in the joints names of the lessor and the lessee for their respective rights and interests (Clause 12.3)).  The heads of agreement stated the lessees’ obligation as “portion of building insurance being $1,800 per year”.  That was also the figure estimated under the item “Insurance” in the disclosure statement provided on 24 October 1995.  There was also in evidence an invoice dated 24 October 1995 from Optima Conveyancing addressed to the appellants, which included the following item:

“Insurance paid to 1/11/96 $1,800 per annum
Purchaser due 365 days  $1,800”

The case for the respondents at trial was that this was the figure due by the appellants in respect of insurance for a full year; that the appellants had paid directly to the respondents’ insurers the sum of $1,450.82 on 24 November 1995 as evidenced by Exhibit D5.  That left a balance owing of $349.18.  There was a further amount (not in dispute) of $256.43 in respect of the holding over period, making a total of $605.61.  The learned magistrate accepted that submission and awarded accordingly.  The appellants claimed that the amount they had paid (being one half of the amount on an invoice covering many items of insurance, some of which were not applicable to the appellants) was paid pursuant to an oral agreement that that was all they were required to pay.

There was no oral evidence relating to the existence of any other agreement in respect of the amount of insurance to be paid, other than by inference from the evidence of the appellants that the amount that they paid was all that they were required to pay.  In my opinion, there was evidence on which the learned magistrate could properly find that the amount owing was as calculated by the respondents, and there is certainly no evidence on which I could find otherwise.  This ground of appeal cannot succeed.

Payments to Fridge Express

This involved repairs to three items of equipment as follows:

1. The icemaker was not producing ice.  It required the replacement of a fused water pump motor.  The cost of repairs was $745.00.

1. A room air conditioner was not cooling at all.  It was found to be low on gas as a result of two leaks in the compressor.  It was charged with freon, checked and cleaned.  The total cost of repairs was $430.00.

1. The coolroom was reported not to be cooling enough.  The condenser fan motor had burnt out and was replaced.  The unit was also low on gas.  A leak was repaired and the unit was recharged.  The total cost of repairs was $333.00.

All repairs were effected on or about 20 January 1996 and were paid for by the respondents.  Reimbursement of these amounts formed part of the respondents’ claim against the appellants.

The evidence of the male appellant was that when he took over the premises none of the three items was working.  He claims to have had an assurance from the male respondent that anything not working would be fixed.

The learned magistrate decided this item in favour of the respondents because of the covenant in the heads of agreement and in the lease itself whereby the appellants agreed to repair, at their expense, all air conditioning, and to repair and maintain any equipment at the respondents’ premises.

The heads of agreement contained the following item under the heading “Conditions”:

“(1).. In relation to all the plant and equipment the Lessee can only use it but the repairs and maintenance shall be paid for by the Lessee.”

.................. There were a number of relevant provisions in the lease itself.  Clause 15.9 referred to an inventory of plant and equipment the property of the lessor, and contained a covenant that “the Lessee shall maintain, clean and repair plant and equipment”.  All three items of equipment concerned were listed in the inventory.

.................. Clause 8.1 contained a covenant as follows:

“8.1The Lessee at all times during the Term at the lessee’s own expense... shall maintain and keep clean... and from time to time shall renovate and repair to the reasonable satisfaction of the Lessor the Leased Premises in the same good and tenantable cleanliness, condition and repair as it was in at the commencement of this lease and shall keep clean and maintain in good condition and repair all fixtures, fittings, plant, furnishings and equipment of both the Lessor and the Lessee PROVIDED THAT:

(a).... the Lessee is not liable for damage caused by... fair wear and tear...;

(b)... the Lessee is not liable for any structural maintenance, replacement or repair,...”

........................... “Leased Premises” was defined in Clause 1.11 of the lease to include, “where appropriate, the Lessor’s fixtures and fittings”.

........................... So far as is relevant Clause 8.5 also provided:

“8.5.. The Lessee shall at the Lessee’s own expense from time to time... repair all heating, air conditioning, ventilation equipment, lighting and electrical equipment...”

.................. Finally, Clause 10.6 contained the following provision:

“The Lessee acknowledges that the Lessor does not include the air‑conditioning system installed in the Leased Premises as part of this lease agreement.  The Lessee further acknowledges that should the lessee use the air conditioning system that the lessee shall be responsible for all costs associated with and relating to the operation and running of any air conditioning unit or units installed in the demised premises including the cost of electrical consumption and all servicing and maintenance costs required to keep such plant in good repair and condition.”

......... The male appellant maintained in evidence that when they took over the premises none of these items of equipment was working.  He maintained that there were constant requests made to the respondents to fix the equipment until it was done.  The respondents admitted to one such request on 20 January 1996.  There was no evidence from the respondents as to the state of the equipment at the commencement of the lease.  Rather, the respondents contended that the appellants took the equipment as they found it, and that if they wanted to use it, it was their obligation to repair and maintain it.

......... The covenants relating to the obligation to repair and maintain equipment are not entirely consistent, but running through them, expressly in some cases and by strongest implication in others, is an assumption that the equipment will be in good working order at the commencement of the lease.  In my opinion, the appellants’ obligation to repair and maintain the equipment did not extend to putting in working order something which was not.  There was no evidence qualifying the appellants’ assertion that the items in question were not in good working order at the commencement of the lease.  Indeed, the respondents’ case assumed that they were not, but relied on the terms of the lease to justify the claim against the appellants.  That, too, was the basis of the learned magistrate’s decision.  But as it appears that the equipment was not in working order at the commencement of the lease, there was no justification for the respondents’ claim for repayment, and the claim should have been disallowed.

......... However, even if the lease did impose an obligation on the appellants to reimburse the respondents for the cost of repairs to the equipment, there is another reason why the respondents’ claim should not have succeeded.  Section 13 of the Retail Shop Leases Act 1995 provided:

“13. A provision of a retail shop lease that requires the lessee to pay or contribute towards the cost of finishes, fixtures, fittings, equipment or services is void unless the liability to make the payment or contribution was disclosed in a disclosure statement.”

The reference in that section to “the cost of finishes, fixtures, fittings (and) equipment” may well be a reference to the capital cost of providing such items, rather than the cost of repairs and maintenance to them.  However, reference to the cost of “services” would include services provided by way of repair and maintenance of equipment.

I deal below with the validity of the disclosure statement that was provided.  Assuming, for present purposes, that the disclosure statement given by the respondents was given in accordance with the requirements of the Act, there was no reference in it to any liability to make payment of or contribution towards the repairs or maintenance of any equipment, even though there was a requirement in the statutory form for estimates to be made for details of outgoings relating to “Air conditioning/ventilation”, “Repairs and maintenance”, “Sinking fund for repairs and maintenance” and “Others”.  Under the heading “Additional outgoings to be borne by lessee”, the outgoings to be paid by the lessee were described as “ETSA and telephone and gas as metered”.

To the extent that the lease required payments for repairs and maintenance of equipment to be made, and as that liability was not disclosed in the disclosure statement, the relevant provisions in the lease requiring payment were void under s13 of the Retail Shop Leases Act 1995.  There was therefore no obligation on the appellants to repay such sums to the respondents.

There were therefore two reasons why the respondents’ claim for these items should have been dismissed and why the appellants’ appeal on this ground succeeds.

Counterclaim - failure to provide a disclosure statement

Section 12 of the Retail Shop Leases Act 1995 provides that before a retail shop lease is entered into or renewed, the lessee must be given a disclosure statement for the lease.  The form of that statement is prescribed in the Schedule to the Act.  It was common ground that the premises occupied by the appellants were included in the definition of “retail shop”, and that the agreement entered into between the parties was a “retail shop lease” for the purposes of the Act.  Section 6 of the Act provides:

“6. For the purposes of this Act, a retail shop lease is taken to have been entered into when -

(a).... both parties have executed the lease; or

(b)... a person enters into possession of the retail shop as lessee under the lease; or

(c)... a person begins to pay rent as lessee under the lease or proposed lease (but not if the payment is an advance payment of rent made to secure the premises),

(whichever happens first).”

The first of the relevant events which occurred in this case was the entry into possession by the appellants as lessees on 4 October 1995.  It was also common ground that the disclosure statement was not provided until 24 October 1995.  There was therefore a failure to comply with s12(1) of the Act.  Sub-section (5) of s12 provides:

“(5) If a disclosure statement is not given as required by subsection (1), or contains information that at the time it is given is materially false or misleading, the Magistrates Court may, on application by the lessee, make one or more of the following orders as may be appropriate in the circumstances of the case -

(a)... an order avoiding the lease in whole or part;

(b)... an order varying the lease;

(c).... an order requiring the lessor to repay money paid by the lessee;

(d)... an order requiring the lessor to pay compensation to the lessee;

(e)... an order dealing with incidental or ancillary matters.”

........................... It was the submission of the appellants that because of the failure to comply, the court should enter judgment on the appellants’ counterclaim for the same amount as that for which the respondents succeeded on their claim.  Specifically, it was put that there had been no disclosure that the various items of plant and equipment were not working, that another part of the premises owned by the respondents was used as a brothel and that the appellants were unaware that the respondents could enter the premises at any time for the purpose of making inspections.

........................... I have already dealt with the question of repairs to plant and equipment.  In that regard the appellants were protected by s13 of the Act rather than s12.  With regard to the other complaints, there was no obligation to include such matters in the disclosure statement, and the failure to provide the disclosure statement before the lease was entered into for the purposes of s12 did not prejudice the appellants in any way in respect of those matters.

........................... The appellants did not seek to have the lease avoided or varied by virtue of the failure to comply with s12(1).  Their claim in effect was for payment of compensation as a result of the failure to provide the disclosure statement.  In my opinion, before that can be ordered, it must be shown that the loss or damage for which compensation is sought was incurred or at least contributed to by the failure to provide the statement.  It was not suggested that the appellants’ outstanding liability for rent or for unpaid insurance premiums was in any way caused or contributed to by the failure to provide the statement.  The appellants’ obligations in respect of both those matters were clearly set out in the heads of agreement which had been signed by both parties on the day that the appellants entered into possession.  There was a loss incurred in respect of the payments to Fridge Express as a result of the failure to comply with the Act, but that is a matter which is specifically provided for in s13 of the Act.  It was not suggested that any of the other items comprising the amount awarded by the learned magistrate constituted a loss to the appellants by virtue of the failure to comply with s12 of the Act.

........................... Other items of the appellants’ counterclaim were not pressed on the appeal, and it follows that this ground of appeal must fail.

........................... The appellants’ appeal therefore succeeds in part, in that the amount awarded by the learned magistrate must be reduced by the sum of $1,508.00.  Accordingly, the appeal is allowed and the judgment of the Magistrates Court quashed.  In lieu thereof I enter judgment for the respondents in the sum of $10,351.76.  I will hear counsel as to whether there should be any consequential adjustment to the award of interest and as to costs.