Giardini v Blandino
[2008] NSWADT 66
•4 March 2008
Set aside by Appeal:
CITATION: Giardini and ors v Blandino and ors [2008] NSWADT 66 DIVISION: Retail Leases Division PARTIES: APPLICANTS/CROSS RESPONDENTS
RESPONDENTS/CROSS APPLICANTS
Robert Guy Giardini
Danielle Simone Giardini
Gabriele Giardini
Gemma Giardini
Guiseppe Balndino
Berenice Blandino
Paul BlandinoFILE NUMBER: 075023, 075086 HEARING DATES: 17 December 2007 SUBMISSIONS CLOSED: 17 December 2007
DATE OF DECISION:
4 March 2008BEFORE: Rickards K - Judicial Member CATCHWORDS: Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Lease Act 1994 CASES CITED: Armstrong Jones Management Pty Ltd v Saies-Bond and Associates Pty Ltd (2007) ADTAP47
D & D Ventures Pty Ltd v Evans and Another (2004) NSWADT 30
Karacominakis v Big Country Developments Pty Ltd (2000) NSWCA313
O’Neill v Medical Benefits Fund and Another (1992) 108ALR479
Young v Lamb (No.2) (2001) NSWSC1014REPRESENTATION: APPLICANT
RESPONDENT
S Walsh, barrister
J Reimer, barristerORDERS: 1. In proceedings number 075086, the Application is dismissed
2. In proceedings number 075023, order that the Respondents pay to the Applicants the sum of $39,692.76
3. Either party may file submissions regarding costs within twenty one days and, if so filed the other party to file any submissions in response within a further twenty one days and the issue of costs is then to be decided on the papers. If no submissions are made then there is to be no order as to costs.
REASONS FOR DECISION
Background
1 The applicants are the owners of a property known as 560 and 262 Box Road Jannali New South Wales. The property comprises two separate shops with provision for vehicular entry, toilets and three tenants’ car parking spaces at the rear.
2 The shop premises at 562 Box Road were leased to a Mr and Mrs Bugiotis for use as a fruit and vegetable retail shop, pursuant to an Assignment of Lease entered into in 2002, prior to the time that the Applicants had purchased the property.
3 The shop premises at 562 Box Road Jannali were leased to a Mr and Mrs Hickey (the Hickeys) for use as a pharmacy.
4 In May 2004 the Respondents agreed to purchase the fruit shop business conducted at 560 Box Road from Mr and Mrs Bugiotis. The Respondents instructed their then solicitor Mr Margiotta to write to the Applicants’ solicitors enquiring as to whether the then current Lease was stamped or registered and enquiring as to the Applicants’ requirements for assignment of lease to the Respondents.
5 In the course of subsequent communications, the Applicants’ solicitor in a letter dated 13 May 2004 advised the Respondents’ solicitor as follows:
6 By letter dated 17 May 2004, the Respondents’ solicitor asked:
“We are instructed that there is presently a dispute between the existing Lessees and another Lessee in relation to parking in the premises … We have recommended to our clients that this dispute be sorted out prior to our issuing any consent to the consignment of the existing lease …”.
7 The above letter from the Respondents’ solicitor went on to enclose a reference and to state that it was the Respondents’ intention to invest money in improving the business conducted at the premises. This letter also indicated that the Respondents would be willing to take a new lease on the same or similar terms as opposed to an assignment or transfer of the existing lease.
“… are you able to advise us as to whether any rights, easements, etc have been given to the neighbour to park her vehicle on your clients’ property?”
8 In the then existing lease, Special Condition 1(e) relevantly read: “The rights to use the toilets, loading space and loading ramp and rear yard are acknowledged by the tenant to be in common with those of the tenant of the adjoining lock up shop, number 562 Box road, Jannali”.
9 Further to the above, Special Condition 1(c) also provided:
10 Having been made aware in May 2004 of the existence of a dispute concerning parking, the Applicant Mr Robert Giardini (whom I accept to have acted at all times in this matter on behalf of all Applicants) accepted a recommendation by the Applicants’ managing agent on 19 May 2004 that:
“In the event of any dispute between the tenant of the premises hereby demised and the tenant of the adjoining shop premises number 562 Box Road, Jannali as to the common use of the loading space, loading ramp, rear yard and toilets or as to the observance of this covenant such dispute shall be referred to the Landlord whose decision shall be final and whose directions as to such matter in dispute shall be carried out and observed by the tenant …”.
11 This determination adopted by the Applicants was forwarded to the solicitors for Mr and Mrs Bugiotis, who in turn forwarded such determination on to Mr Margiotta, the Solicitor then acting on behalf of the Respondents. Mr Margiotta then sent a letter to the Applicants’ solicitor dated 24 May 2004 advising that unless the Applicants reconsidered the issue in relation to the car parking the Respondents could not purchase the business. The letter pointed out that one single car space at the rear of the fruit shop was too narrow to allow loading and unloading of a truck if a car was parked in the adjoining car space. A meeting was suggested between the parties.
“… the three parking spaces in the common area behind 560 and 562 Box Road Janalli be allocated as follows:
The space behind the chemist shop near common toilets to Hickey’s Pharmacy.
The space behind Jannali Fruit Market closest to Hickey’s Pharmacy.
The second space behind the fruit shop to Jannali Fruit Market”
12 The Applicants’ solicitor immediately responded on 24 May 2004 reiterating the Applicants’ position and advising that they did not wish to get “involved in a debate about this matter”.
13 Thereafter, between 24 May 2004 and 9 June 2004 there was no indication by the Applicants there they were changing their stance in relation to the determination about parking but the Respondents nevertheless acquired the business from Mr and Mrs Bugiotis and also executed the new lease which had been prepared. The executed Lease was returned by Mr Margiotta to the Applicants’ solicitor under cover of letter dated 9 June 2004.
14 This new lease was essentially upon the same terms as the previous lease, including the Special Conditions, which are referred to above.
15 In particular, with this lease, the standard Clauses 3.4 and 11.3.2 set out that the Respondent shared the common facilities with the Applicant and the Hickeys, that the Applicant should allow reasonable use of the facilities and service connections including the right for the Respondent and other persons to come and go to and from the property over the areas provided for access, and that the Applicant could set reasonable rules for sharing the common facilities.
16 Further, as indicated above, Special Condition 1(c) of the lease provided that the Applicant’s decision concerning any dispute arising between the Respondent and the Hickeys concerning common use of the loading space, loading ramp, rear yard and toilets would be final and binding upon the Respondents. Given that the Applicants had only recently made a determination as to the allocation of car parking spaces, there is no apparent reason why such determination could not have been embodied within the terms of this new lease. Nevertheless, by the terms of this new lease, and the events which had preceded the agreement to lease, the Respondents were certainly aware that the two car parking spaces had been allocated to the Hickeys and that if there was any further dispute concerning such issue, any subsequent decision of the Applicants concerning such dispute would be final and binding. It is also apparent that the issue as to whether the determined allocation of parking made in May 2004 would allow reasonable delivery access for the Respondents in the conduct of their business, would have been considered by the Respondents prior to entering into the new lease.
17 Over the ensuing months, there certainly appears to have been further disputes concerning the parking at the rear of the premises. The Applicants arranged for the managing agent (LJ Hooker Commercial) to write to the Respondents on 28 April 2005 advising that, in view of the “continual disputes over the parking” the Applicant would be organising for definite lines to be painted and car spaces numbered and that the car spaces would again be allocated as follows:
18 The Respondents’ solicitor Mr Margiotta then forwarded a letter dated 5 May 2005 to the Applicant’s solicitor indicating that the main cause of the parking dispute had been the placement by the Respondents of a large bin within the area designated for parking by the Hickeys. The Respondents’ solicitor asserted in that letter that, by their determination on 28 April 2005, the Applicants were now “taking away an area which was to be used in common and thereby making the continued use by our client of the premises impossible”. The letter went on to offer that the Respondents simply surrender the lease and that the parties forego any claim against the other for damages or loss.
“1. The space behind the chemist shop near common toilets to Hickey’s Pharmacy
2. The space behind Janalli Fruit Market closest to Hickey’s Pharmacy to Hickey’s Pharmacy
3. The second space behind the fruit shop to Janalli Fruit Market”.
19 By letter dated 11 May 2005 the Applicant’s solicitor advised that the above offer was not accepted. Accordingly, on the same day, the Respondents issued a “Notice of Termination of Lease”, and shortly thereafter vacated the premises.
20 The Notice of Termination of Lease specified three grounds for termination, namely that the Applicants had breached the provisions of clause 11.3 of the lease in allocating part of the common area for exclusive use by the Hickeys, that for the same reason clause 11.1 of the lease had been breached in that the Respondents’ possession and use of the premises had been interfered with, that the Applicants breached the lease by failing to repair stairs at the rear of the premises within a reasonable period, and that they had not registered the lease. At this point, I should record that neither of these latter two grounds were further pursued during the hearing of this matter, notwithstanding they were also set out within the Application filed on behalf of the Respondents in the accompanying proceedings numbered 075086 (which I hereafter refer to as “the cross claim”).
21 By letter dated 13 May 2005, the Applicants advised through their solicitor that they did not accept the purported termination of the lease by the Respondents.
22 The annual rental payable for the first year of the lease, and which was then current as at the date that the Respondents purported to terminate the lease, was $35,285.76 per annum, which equates to $678.57 per week. As and from 12 June 2005, the rent payable was adjusted by CPI to an amount of $36,134.56, which equates to $694.90 per week.
23 The premises were subsequently advertised by the managing agents for the Applicants as being available for lease at an annual rental of $46,800.00, which equates to $900.00 per week. Advertising was placed on the internet as and from 17 May 2005, a series of advertisements were placed in the local newspaper over ensuing months and a signboard was placed outside the premises.
24 The evidence of the Applicants is that this higher rental figure sought came about because the Applicant Robert Giardini was advised by the managing agent that “the amount of rent which we should attempt to get was $900.00 per week plus GST”. Mr Giardini also said that after approximately two months of advertising, the advertised rent sought was reduced to $44,200.00 per annum, which equates to $850.00 per week.
25 A new tenant for the premises was eventually secured on a lease commencing on 1 September 2006 with rent payable of $36,000 per annum, which equates to $692.30 per week. The Applicants gave these new tenants a three month “rent holiday” until 1 December 2006.
The Proceedings
26 The Applicants commenced proceedings in the Local Court at Kogarah and these proceedings were subsequently transferred to this Tribunal for determination. In the Statement of Claim filed by the Applicants they claim, in addition to interest, the sum of $66,429.91 but this claim was modified at the hearing of this matter to be as follows:
27 In proceedings 075086 (“the cross claim”) the Respondents seek a number of declarations or orders to the effect that the Applicants had breached section 34 of the Retail Leases Act 1994 ( “the RL Act” ), that Special Condition 1(c) of the subject lease is void to the extent that it contravenes such section, that the Notice of Termination issued by the Respondents was valid, that the Applicants had breached section 15 of the RL Act in failing to register the lease, and that the Applicants had also breached paragraph 7.1 of the lease in failing to keep the premises in good condition and serviceable repair. The cross claim also seeks damages asserted to be “in the amount of $400,000.00 or such other amount as the Tribunal orders”.
a. Rental outstanding as at the date the Respondents vacated the premises b. Rent payable but not paid for period 12 June 2005 to 11 June 2006 c. Rent payable but not paid for period 12 June 2006 to 31 August 2006 Total 28 As indicated previously, the Respondents have not pursued their argument concerning non-registration of the lease nor their argument concerning failure to repair the stairs at the rear of the shop as being proper grounds for termination of the lease. The real issue pursued between the parties has been whether or not the Respondents were entitled to terminate the lease upon the ground that the Applicant had refused them use of the second car parking space within the area at the rear of the premises.
29 Notwithstanding the claim for damages made by the Respondents, no evidence has been advanced in support of such claim, and it accordingly must fail.
Were the Respondents Entitled to Terminate the Lease?
30 The Respondents rely upon the provisions of clause 11 of the Lease which permits them reasonable use of the common facilities without interference, and also rely upon section 34 of the RL Act which mandates that a lease is taken to provide that the lessor of premises will be liable to pay the lessee reasonable compensation for any loss or damage arising from the lessor inhibiting access of the lessee to the shop in any substantial manner or unreasonably taking any action which causes significant disruption of, or has a significant adverse effect upon, the trading of the lessee in the shop or fails to take all reasonable steps to prevent anything which causes significant disruption or adverse effect upon trading.
31 The situation concerning allocation of parking within the area at the rear of the premises was well known to the Respondents prior to the time that they entered into the lease. Indeed, this was an issue that was expressly raised by the Respondents during the course of their negotiations to purchase the business, which was being operated at the premises, and a clear determination was subsequently made by the Applicants and communicated to the Respondents prior to the time that the lease was entered into. As indicated previously, there is no apparent reason as to why such determination was not incorporated into the new lease instead of the continuation of Special Condition 1(c) which allowed for further determination of any future parking or any other dispute by the Applicants, but it is clear that in simply reaffirming again in April 2005 that the Respondents were only entitled to the use of one car parking space, there was no new event or action which had taken place and which was inhibiting access or disrupting the Respondents’ business such as to require action upon the part of the Applicants pursuant to the provisions of section 34 of the RL Act.
32 The language of section 34 of the RL Act is plain in that it contemplates actions or events arising after the date of commencement of a lease, as opposed to the prevailing situation at the time of commencement of the lease. Further, regard should be had to section 34(3) of the RL Act which allows a lease to include a provision preventing or limiting a claim for compensation in respect of (my emphasis) “any particular occurrence” if the likelihood of the occurrence was specifically drawn to the attention of the lessee in writing before the lease was entered into.
33 Of further relevance to the argument raised by the Respondents pursuant to section 34, is the requirement under section 34(1) that the lessee make written request for rectification. No such request was made here by the Respondents.
34 The situation which emerges from the evidence is that the Respondents chose to enter into a lease knowing that there had been a previous determination as to allocation of parking spaces at the rear of the premises and having presumably satisfied themselves as to the compatibility of such arrangement with the profitable operation of the business which they were proposing to purchase and operate within the premises. Neither the provisions of section 34 of the RL Act nor paragraph 11 of the Lease assist the Respondents in their argument that they validly terminated the lease.
35 The Respondent Mr Paul Blandino in his Affidavit dated 9 October 2007 refers to a conversation had with a representative of the managing agent for the Applicants, Mr Ray Miller, in late April 2005 in which he asserts that, during the course of argument concerning the viability of the Respondents only having one car parking space, Mr Miller said words to the effect of “If you want to walk, walk as we can get more money for the shop”. It has been argued that this statement represents an agreement by the Applicants to release the Respondents from their obligations under the lease. Given the context of this conversation, the fact that it was not referred to in any subsequent communications between the parties and the firm advice given by the Applicants through their solicitor on 13 May 2005 that the purported termination of the lease by the Respondents was not accepted, it cannot be concluded that there has been any variation or release relating to the lease agreement made by the Applicants.
36 Given the above, the Respondents wrongfully repudiated the lease, and are liable in damages to the Applicant.
Assessment of Damages
37 In assessing the extent of damages payable by the Respondents to the Applicants, the primary issue to be resolved is whether or not the Applicants have acted unreasonably in failing to minimise their loss arising from the Respondents’ wrongful repudiation of the lease. A useful summary of the approach to be taken in a matter such as this is contained within the judgment of Giles AJ in the Court of Appeal Decision of Karacominakis v Big Country Developments Pty Ltd and Another (2000) NSWCA313 as follows:
“(187) a plaintiff who acts unreasonably in failing to minimise his loss from the Defendant’s breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the Plaintiff is not under a positive duty. The Plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is the on the Defendant to show that he has not and the extent to which he has not … Since the Defendant is a wrong doer, in determining whether the Plaintiff has acted unreasonably a high standard of conduct will not be required, and the Plaintiff will not be held to have acted unreasonably simply because the Defendant can suggest other and more beneficial conduct if it was reasonable for the Plaintiff to do what he did …
38 The above passage was also cited with approval by Deputy President Chesterman of this Tribunal in D & D Ventures Pty Ltd v Evans and Another (2004) NSWADT130 . In this decision, the Tribunal also noted and adopted the approach set out by Austin J in Young v Lamb (No.2) (2001) NSWSC1014 that “where the assessment of damages relates to a commercial operation, the question relates to what the Plaintiff ‘would do in the ordinary course of business’”.
“.
39 The question therefore to be resolved is whether the Respondents have established that the Applicants have failed to act reasonably in minimising their loss, as compared to what would or should have been done in the ordinary course of business and, if so, the extent to which the Applicants have so failed.
40 It is clear that within a short period of time after the Respondents had vacated the premises, where they had been paying weekly rent of $678.57, the Applicants began advertising the premises as being available for a weekly rent of $900.00 per week and then after a further period of some two months, for a weekly rent of $850.00.
41 The undisputed evidence given on behalf of the Applicants is that the premises were advertised on the internet, that a Notice Board was placed outside the premises and that a great number of advertisements were placed within local newspapers. The initial issue to be determined is whether the actions of the Applicants in placing a required rent for the premises at something in excess of 30 percent over what the rent had previously been, and thereafter dropping to a rent sought which was still approximately 23 percent above the previous rent payable, was unreasonable. The Respondent argues that such a significant increase in rent sought is of itself unreasonable in the absence of other supporting evidence as to the reasonableness of such amounts. Further, the Respondent points out that the undisputed evidence is that the Applicants were only successful in obtaining a tenant at a rental much closer to $700.00 per week some fifteen months after the date that the Respondents had vacated the premises. The Respondent submits that the then prevailing rent should have been sought in order to minimise loss and that the behaviour of the Applicants in seeking such a significantly increased rent is inherently unreasonable.
42 In support of the Applicants’ position on this issue, it is argued that the Applicants relied upon the expert advice of their managing agent, and that therefore their behaviour was reasonable.
43 The relevant evidence provided on behalf of the Applicants in relation to this issue is contained within paragraphs 38 and 41 of the Affidavit of Robert Giardini dated 27 August 2007. Paragraph 38 confirms that a new tenant was eventually located for the property on 1 September 2006 with an annual rent payable of $36,000.00, which equates to $692.00 per week. In paragraph 41 Mr Giardini states that because the Respondents needed to meet due mortgage repayments in relation to the property, the managing agents were instructed in May 2005 to “aggressively” market the property. He then goes on to state, “I was advised that the amount of rent which we should attempt to get was $900.00 per week plus GST”.
Later, Mr Giardini states that after approximately two months of advertising the rental sought was reduced to $850.00 per week.
44 There is no evidence as to the basis upon which the figure of $900.00 was arrived at. More specifically, there is no evidence provided by LJ Hooker Commercial Sutherland as to how such an amount was arrived at. Rather, the Applicants merely say that they relied upon the expertise of the anonymous person or persons within LJ Hooker Commercial Sutherland who advised that the Respondents should “attempt” to obtain that rental figure. It is clear that it was only in September 2006 when the rental being sought was reduced to an amount roughly equivalent to that, which was being paid by the Respondents at the time that they vacated the premises that a new tenant could be secured. This fact reinforces the argument that the behaviour of the Applicants in seeking such a drastically increased rent over such a prolonged period was inherently unreasonable.
45 It would have been in accord with ordinary commercial operation as a landlord of commercial premises for the Applicants to make reasonable enquiries concerning the basis for a decision to drastically increase the amount of rent sought for the premises. Mere reliance upon a proffered rental figure of this amount given by the managing agents, and without any further justification given or explanation sought for such figure, constitutes an unreasonable failure on the part of the Applicants to minimise their loss arising from the Respondents’ breach of the lease.
46 Having accepted that the behaviour of the Applicants was unreasonable, the next issue to be determined is to what extent damages should be reduced. This requires a determination of likely damages which would have been suffered by the Applicants had they acted in a reasonable manner. Whilst the onus of showing the correct extent of loss remains with the Respondents, assessment of the amount of reduction of damage is only required to be undertaken with as much certainty as is reasonable in the circumstances given the material available: see the decision of the Appeal Panel in Armstrong Jones Management Pty Ltd v Saies-Bond and Associates Pty Ltd (2007) ADTA47 at paragraph 164, and the judgment of the Full Court of the Federal Court of Australia in O’Neill v Medical Benefits Fund and Another (1992) 108ALR479 at page 508.
47 The evidence of the Applicants is to the effect that the rent amount sought of $900.00 was reduced to $850.00 after approximately two months of advertising, and that the reduced rent figure sought of $850.00 was then maintained up until approximately September 2006 when agreement was reached to rent the premises for $692.00 per week. If this lower rent figure had been sought at the outset, such an approach would have been reasonable and would have been likely to attract greater interest than the higher and largely unexplained rent figures, which were in fact sought.
48 There is no evidence or material directly available to assist consideration of when the premises may have been likely to have been successfully leased had a lower rent figure been sought from the outset. Such an approach may have yielded immediate success, but it would be more reasonable to expect that there would have been some period of delay in successfully securing a new tenant, given a number of factors including the time required to properly circulate information about the premises to potential lessees, the general uncertainties relating to the retail business market and the availability of tenants interested or able to operate a business at the premises over the applicable period.
49 According to the Applicant Robert Giardini, the weekly rent figure of $900.00 was sought for a period of eight weeks and plainly failed to attract any interest. Thereafter, the weekly rent figure of $850.00 failed to secure a tenant for a further prolonged period until September 2006, with this lowered rent figure still being approximately 23 percent higher than the rent, which had previously been paid by the Respondents for the shop premises. A perhaps inelegant but appropriate approach to assess the appropriate reduction in damages is to adopt the following method:
50 Accordingly damages due and payable by the Respondents to the Applicants are calculated as follows:
a) To allow the amount of rent unpaid as at 11 June 2005
b) In relation to the remaining period of 63 weeks between 12 June 2005 and 31 August 2006, to deduct 8 weeks for the period over which the rent figure of $900.00 was sought and to then deduct a further 13 weeks representing approximately 23 percent of the remaining period of 55 weeks over which the reduced figure of $850.00 was sought without successfully attracting a tenant.
a. Rent due and payable as at 11 June 2005 b. Rent payable from 12 June 2005 to 2 April 2006 (42 weeks) at $694.90 Total 51 The Applicants seek interest in relation to unpaid rent and this claim is justified in the circumstances. Interest is calculated as follows:
Accordingly, orders are made as set out below:
a. For the period 12 June 2005 to 2 April 2006 (.807 years) at half statutory rate (.045 percent) b. 2 April 2006 to 21 February 2008 (1.88 years) at statutory rate (10 percent) Total ORDERS
1. In proceedings number 075086, the Application is dismissed
2. In proceedings number 075023, order that the Respondents pay to the Applicants the sum of $39,692.76
3. Either party may file submissions regarding costs within twenty one days and, if so filed the other party to file any submissions in response within a further twenty one days and the issue of costs is then to be decided on the papers. If no submissions are made then there is to be no order as to costs.
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