Gizah Pty Ltd v AXA Trustees Ltd
[2001] NSWADT 116
•07/12/2001
CITATION: Gizah Pty Limited -v- AXA Trustees Limited [2001] NSWADT 116 DIVISION: Retail Leases Division PARTIES: APPLICANT
Gizah Pty Limited
RESPONDENT
AXA Trustees LimitedFILE NUMBER: 005052 HEARING DATES: 07/06/2001, 08/06/2001 SUBMISSIONS CLOSED: 06/08/2001 DATE OF DECISION:
07/12/2001BEFORE: Molloy GB - Judicial Member APPLICATION: Claim for compensation for pre lease misrepresentations - Claim for declaration of rights, obligations and liabilities under a lease MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Leases Act 1994 CASES CITED: REPRESENTATION: APPLICANT
C Newlinds, barrister
RESPONDENT
H Woods, barristerORDERS: 1. The lease executed by the Applicant as Lessee and the Respondent as Lessor in respect of premises being part Folio Identifier 3/789759 and being Shop 8, Food Court, Level 7, MMI Centre, 2 Market Street, Sydney and commencing 5 January 2000 be and is hereby terminated as at the date of this order; 2. The Applicant vacate the said shop as at the date of this order; 3. Upon the vacation and termination of the said lease neither party to that lease be under further liability to the other thereunder; 4. The Respondent pay to the Applicant damages in the sum of $132,976.00; 5. Leave granted to the Applicant to re-list this matter before me within fourteen days of the date of this order to argue either or both of the following issues: (a) whether the Respondent should pay interest upon the damages so ordered; (b) whether the Respondent should pay the costs of the Applicant of the whole matter, or any part of the matter; Should the Applicant re-list to argue either or both of the above issues then such argument will be limited to the issue or issues the subject of the re-listing. In the event that the Applicant does not re-list for argument on the question of interest, then no interest will be payable; in the event that the Applicant does not re-list on the argument that the Respondent pay the Applicant’s costs then there will be no order for costs.
Background
1 The Applicant is the Lessee of a retail shop pursuant to a retail shop lease in a retail shopping centre, being shop 8, MMI Food Court, Level 7, MMI Centre, 2 Market Street, Sydney, in which the Lessor is the Respondent.
2 The Lessor provided to the Lessee a Disclosure Statement, which statement was signed by the Lessee through its directors/shareholders on 7 December 1999.
3 On 9 December 1999 the Lessee entered into a contract to purchase from the then Lessee of the shop premises the business of the vendor (a Mr Park Wei) for $25,000.00, the whole sum being for “plant fittings and chattels” with no apportionment for goodwill or fixtures. The sale did not include the benefit of any Lease in which the vendor was the Lessee, rather it required a new Lease to be entered into between the Applicant and the Respondent.
4 The parties thereafter entered into a Lease for the shop for a term of five years commencing 5 January 2000 and terminating 4 January 2005 with no option for renewal. The Lease incorporated a registered Memorandum and contained a number of further provisions which were relevantly:
a) An acknowledgment by the Lessee that it had received a Disclosure Statement under the Retail Leases Act 1994 at least seven days before it entered into the Lease and which the Lessee read and understood (and a copy of which was attached to the Lease).
b) The permitted use of the leased premises was as a food outlet in which the Lessee was restricted to a menu specified in the Lease pursuant to Item 12.
c) The directors and shareholders of the Lessee (Rosemary Anne O’Connor and Graham O’Connor) provided a personal guarantee and the Lessee provided a Bank Guarantee in $17,850.00, being one-half of the annual base rent.
Issues:
5 The Applicant sought a number of orders in its Amended Application filed 4 June 2001, relevantly as follows:
- 1. That the Lease ("the Lease") executed by the Applicant with the Respondent in respect of the Shop be terminated as of the date of the Order.
2. That the Applicant vacate the Shop as of the date of termination of the Lease.
3. That upon termination of the Lease neither party to be under any further liability to the other thereunder.
4. That the Respondent pay to the Applicant the following damages:
Set Up Costs $38,712.00
Liability of Applicant to pay outstanding Wages
To Anne & Graham O’Connor hours of work from
17 January 2000 to 8 June 2001
Anne O’Connor (3520 hours @ $20 per hour) $70,400.00
Graham O’Connor (3620 hours @ $15.00 per hour)$ 48,900.00 $119,300.00
$158,012.00
Less accumulated Profit to 8 June 2001 $ 25,036.00
$132,976.00
5. In the alternative the Respondent pay to the Applicant damages in such amount as the Tribunal assesses.
6. That the Respondent pays the Applicant its costs of these proceedings.
7. That the Respondent pays the Applicant interest on the above damages at the rate prescribed by the Tribunal.
Liability:
7 It is convenient to deal with the material put forward at the hearing by dealing firstly with the question of liability and then, if the Applicant is successful on that issue, the question of damages and how those damages ought properly to be quantified.
8 On the issue of liability evidence was given by the Directors of the Applicant, Mrs Rosemary O’Connor and Mr Graham O’Connor, and by the Respondent through Mr Zachary Stollznow and Mr David Humphries, all by filed Statements and sworn evidence.
9 In a nutshell the case for the Applicant was that the Respondent represented to it :
- a) Applicant would be entitled to sell from the shop certain items of food forming part of a restricted menu such that the Applicant “may only sell or make available the items listed in the written menu and no changes are allowed to the written menu without the (Respondent’s) prior written approval who may its consent as it sees fit” (Item 12 of the Lease). The Applicant contented that the Respondent represented that parts of that written menu were unique or exclusive to the Applicant such that no other shop Lessee in this food court could sell those items. The Applicant contended that the following items were exclusive in the food court to it:
- i) frozen yogurt
ii) salads
iii) hot meals.
c) The Respondent would carry out renovations to the food court such that the food court would present to a higher standard and those renovations would be completed prior to the Olympic games in September 2000.
11 The evidence of the O’Connors was to the effect that Con’s shop sold salads, fruit salad, fresh juices and frozen yogurt in breach of its Lease. In addition, the Applicant alleged that Mr Stollznow told them that Con had never been permitted to market roast meals which he was apparently doing.
12 At the outset it is important to make the following relevant observations:
- a) It was not in doubt that the Applicants and its directors were experienced shop lessees. They had operated a shop at the Chifley Food Court, two shops at Wynyard ramp, prior to that in York Street and clearly had made an economic success of their various undertakings.
b) The MMI Food Court was a small food court consisting of (at the relevant time) seven shops. Con’s shop has now been divided into two shops, 5.1 and 5.2 but for the purposes of the case that shop has been regarded as one shop, the business of both shops being conducted by the one company and generally regarded by the Applicant and referred to generally in the evidence as "Con’s Shop".
c) The shop the subject of the hearing was shop 8, being the last shop situate on the right of the food court entry and furtherest away from the entry. The Applicant "knew it was a difficult shop" but thought it could make it a success, build up the business and sell the business at a profit provided that the Respondent honoured its representations. Although Mrs O’Connor denied that the shop was "in the worst position" I do not think the evidence supported that contention, rather that it could be made into a successful business if the Respondent honoured its obligations by abiding to its representations and ensuring other lessees did not trespass in their particular menus upon the menu represented to the Applicant as being its exclusive menu.
d) It was contended by the Applicant but not seriously challenged (if at all) by the Respondent that food courts have restrictive menus for each shop, that this was normal in a food court milieu, and I have therefore no hesitation in concluding that provided the Applicant conducted its business in a responsible manner and all things otherwise being equal then not only would the Applicant have made a success of the business but also, and as an obvious corollary, the owner of the food court would also have made a success of the food court. After all, what is the point of having unsuccessful businesses in a food court or businesses that do not function?
e) This food court had a professional manager (Leda Holdings Pty Limited) ("Leda") which itself at the relevant time employed an experienced person (Mr Zachary Stollznow) whose duties "included, maintaining a standard of service and hygiene within the food court; ensuring uniforms were worn, fresh food was served, food presentation was appealing and that each tenant stuck strictly to their menu usage clauses; advising tenants on marketing policies and preparing a written report on daily activities of the food court". Leda also employed Mr David Humphries who holds a qualification styled "Certified Shopping Centre Manager - Australia (CSMA)", who had been in the shopping centre industry for 24 years and whose role in relation to the food court was "Property Manager". I conclude clearly that the intention of the Respondent was to conduct an economically successful food court.
f) Furthermore, it was not in dispute that at the relevant time of signing the disclosure statement and lease the food court was not in a pristine state, rather it was in need of renovating/upgrading including re-furbishment, treatment to the ceilings, walls, new furnishings and signage. Indeed, Mr Stollznow’s written evidence indicated clearly that he told Mr & Mrs O’Connor in about October 1999, prior to the signing of any documentation, words to the following effect:
- "We intend renovating the food court. It will include renovations to the shop fronts, counter-facings and columns. There will also be a new neon sign. The proposed Refurbishment will still need approval but it is planned that they will take place over three weekends at a time prior to the Olympics".
- "These plans are still subject to approval by Leda and the Council".
First Alleged Representation:
13 On or about September 1999 Mrs O’Connor responded to an advertisement for the sale of the business conducted by the then tenant of shop 8 Mr Wei. Mrs O’Connor said, and she was not challenged on this point, that she in fact met with the previous tenant to discuss the purchase. She then discussed the purchase with Mr Stollznow who was at that time working for Leda which at the relevant time was the manager of the food court for the Respondent. Mrs O’Connor gave detailed evidence about a meeting that she had with Mr Stollznow on the 5 October 1999 and there were other meetings with him also. It was plain from the evidence, however, that even Mr Stollznow accepted that the Applicant would have “an exclusive entitlement to serve hot meals (and) an exclusive entitlement to serve frozen yogurts”. (Stollznow statement paragraph 21).
14 Mr Stollznow’s sworn evidence was that in having any conversations with Mrs O’Connor he was simply acting as the agent of the vendor of Shop 8, being a person whose command of the English language was not good. As far as that evidence goes I have no hesitation in rejecting it entirely. Mr Stollznow’s duties were, in his own words: “maintaining a standard of service and hygiene in the food court; ensuring uniforms were worn, fresh food was served, food presentation was appealing and that each tenant stuck strictly to the menu usage clauses; advising tenants on marketing policies and preparing a written report on the daily activities of the food court”. Although he endeavoured to explain that he reported to the property manager (Leda) and did not have decision making authority as to a shop’s exclusive use, refurbishment or who would be accepted as a Lessee, it was plain to me that he did not act as the agent for the previous tenant/vendor of shop 8, rather he acted as the front person for the manager of the food court. In that role it seems to me he was held out as the representative who would have ostensible or implied authority to bind the Respondent. After all, he was the contact point between a prospective Lessee and the Respondent, and presumably also (as the evidence showed) the contact point between a signed-up operating Lessee and the Respondent..
15 Mr Stollznow’s evidence was further illuminating: he said that Mr Humphries, the Property Manager and employed by Leda (the manager of the food court) said to Mr Stollznow words to the following effect in about November 1999:
- “Con is not going to get a new Lease. There is no-one at the moment to take over however there will be a new operator for those businesses”.
Mr Stollznow then said to Mr and/or Mrs O’Connor words to the following effect:
- “Con’s Lease is coming to an end and it will not be renewed. The Lease for the sandwich shop has expired and, Con and Bill are operating on a week to week arrangement. If they are to secure a new Lease they will probably have to give up certain items being fresh juices, muffins and frozen yoghurt and hot meals ", and any "items so forfeited by Con would go mainly to the Coffee Shop".
- 16 It was further part of Mr Stollznow’s evidence that Con ceased selling frozen yoghurts in about January/February 2000 and that David Humphries spoke to Con on a number of occasions “in relation to (Con) selling hot meals which he was not entitled to do”.
17 Pausing at this point it is without any doubt that Con (DAF Holdings Pty Limited) entered into two new Leases commencing 8 November 1999. However, it is also plain that although the Lease was entered into at a date after the commencement of the Lease to the Applicant (simply because one sees that the common seal of DAF Holdings Pty. Limited was not affixed until 24 February 2000), the lease in fact, and relevantly, commenced on 8 November 1999, about two months before the Applicant’s lease commenced. Con’s shop was in fact two shops, one being the sandwich shop at a shop now renumbered 5.1, and a fish shop at a shop now numbered 5.2. Shop 5.2 had a primarily seafood restricted menu, mainly related to hamburgers and seafood.
18 At this point it is educative to make the following observations about this new Lease over Shop 5.1: it also contained (Item 12) a restricted menu which included “hot roast meals” (also included in the Applicant’s restricted menu under the heading “hot meat dishes”), salads (also included in the Applicant’s restricted menu); soups (also included in the Applicant’s restricted menu) and also includes this clause: “the usage set out is exclusive to the sandwich shop except for salads, only those items set out in this usage are permitted to be sold by this shop, for any additional lines permission has to be obtained from management in writing”.
19 The evidence of Mrs O’Connor was that upon the new Lease (for Shop 5.1) being entered into for Con’s sandwich shop that he would be limited to sandwiches.
20 It is now clear (in my respectful opinion) from the written statement of Mrs O’Connor that the representations made to her by Mr Stollznow were exclusive to the Applicant. I have no hesitation in finding that the specialities of Mr & Mrs O’Connor in conducting their various businesses from time to time were "salads and frozen yogurts". I also have no hesitation in concluding that "it was important to (them) that these are (their) items alone." I have read the written statements of Mr & Mrs O’Connor carefully and I am unable to see any evidence from which I could conclude that salads and frozen yogurt was to be exclusive to shop 8, save that in her Further Statement made 12 February 2001 she states that she said to Mr Stollznow (when he told them that he would prepare a menu and fax it to her to consider): "This will be our menu and ours alone" and he replied, "Yes".
21 Whatever be the defects in the written Statements as to exclusivity, it became clear from the oral evidence that the exclusivity representation was made. And this conclusion is supported (in my view) by the context in which the negotiations took place, the size of the food court, the restrictive nature of the menus of the various shops in the food court such that I have no hesitation at all in concluding that it was represented to Mr & Mrs O’Connor as directors and shareholders of the Applicant that the Applicant would have exclusive right to sell salads and frozen yogurts within the food court.
22 Indeed, that was absolutely essential from their point of view so that they could build up a business from what was unarguably a difficult location in the food court - in order to build up that business it must follow commercially that they needed that exclusivity such that the food court offered a range of food to the public and such that there would not be undue competition between various lessees in the food court (particularly bearing in mind that it was a very small food court) such that the food court as a whole would be an economic success from the point of view of not only the Applicant but also the Respondent because it would offer a varied array of menus from its various shops.
23 Indeed, this would be (in my view) the very essentiality of a small food court. The Applicant (and its directors/shareholders) were experienced people who would not (in my view) have ever contemplated signing up for a shop in this particular location without having that exclusivity in their menu as an essential part of their commercial negotiations.
24 I have reached this conclusion notwithstanding the fact that the word "exclusive" or any similar word does not appear in the menu attached to the Applicant’s lease, but rather from the evidence of Mrs O’Connor and the evidence of Mr Stollznow. Indeed, in paragraph 14 of his statement he says that he recalled saying to Mrs O’ Connor:
- "Businesses at shop 8 have continued to fail. It will take somebody very clever to make it work. However, as a result it has a lower rent than any of the other shops in the food court."
It would seem extraordinary to make that statement and yet at the same time agitate an argument that the very essentiality of the business of the Applicant, namely salads and frozen yogurts, would not be exclusive to them.
I therefore find that the Respondent represented to the applicants that they would have exclusive right to sell in the food court frozen yogurt and salads.
25 The Applicant also contends that it was entitled to exclusively sell hot meals. In paragraph 21 of Mr Stollznow’s statement he makes it plain that he told Mrs O’Connor (and before the lease was entered into): "You have an exclusive right to sell hot meals ... you .... have an exclusive entitlement to sell frozen yogurts" but he says he did not tell Mrs O’Connor that she had an exclusive entitlement to sell salads, rather he said to her: "You do not have an exclusive entitlement to sell salads and in fact you are only entitled to sell salads with a meal".
26 For the reasons specified above I have found that the representations of exclusivity relating to frozen yogurts and salads has been made out. I also conclude from Mr Stollznow’s own evidence that the Applicant was entitled to exclusively vend hot meals.
It is also important to note that Mr Humphries (the food court manager) said in oral evidence that he knew of the exclusive menu representation, admitted it was not set out in the Disclosure Statement but when asked: "That wasn’t very fair, was it?" replied: "I am not going to comment on that".
Second Alleged Representation:
27 The second alleged representation agitated by the Plaintiff was that the Respondent represented to it that the lease of shops 1 and 2 in the food court to DAF Holdings Pty Limited (described in the evidence as "Con’s Shop") would not be renewed upon its expiry.
28 Detailed evidence was given about this alleged representation. The evidence of Mr & Mrs O’Connor was that it was made to them by Mr Stollznow and Mr Stollznow in his written statement makes these telling observations:
- a) In paragraph 30 in about November 1999 he recalled being informed by Mr David Humphries, the Property Manager, that: "Con is not going to get a new lease. There is no one at the moment to take over, however, there will be a new operator for those businesses" (apparently referring to the sandwich business and the fish shop business).
b) At paragraph 31 Stollznow said that he did tell the O’Connors, although he could not recall exactly when, that "Con’s lease is coming to an end and it will not be renewed. The lease for the sandwich shop has expired and, Con and Bill, are operating on a week to week arrangement. If they are going to secure a new lease they are probably have to give up certain items being fresh juices, muffins, and frozen yogurt and hot meals."
And in oral evidence Mr Stollznow agreed that he told the O’Connors that Con’s lease ran out in November 1999 "and whatever happens his lease will not be renewed".
29 It was of particular concern to the Applicant whether or not Con’s shop lease was going to be renewed, simply because during the course of negotiations Mrs O’Connor expressed considerable concern about the operations of Con’s shop, particularly his sale of frozen yogurts, salads and hot roast meals. It was therefore vitally important to them to be assured that the operators (whoever they were going to be) did not conflict in their menu with the exclusive menu items that would be sold by the Applicant. Furthermore, this was even more important from the point of view of the Applicant, because Con’s shop was situated immediately to the left at the entrance to the food court where he would obtain the immediate custom of persons entering the food court, whereas the Applicant’s shop was the last shop on the far right from the entrance.
30 I have no hesitation in finding that the representation as alleged by the Applicant is made out ie. that the lease of Con’s shop would not be renewed upon its expiry.
Third Alleged Representation:
31 The third alleged representation was that the Respondent represented that it would carry out renovations to the food court such that the food court would present to a higher standard and those renovations would be completed prior to the Olympic games in September 2000.
32 Again, a considerable body of evidence was adduced by both parties in this regard. But again, and in a refreshingly honest way, Mr Stollznow gave this evidence in his written statement at paragraph 24: he said that he recalled a conversation with Mr & Mrs O’Connor in about October 1999 when he said to them words to the following effect:
- "We intend renovating the food court. It will include renovations to the shop fronts, counter facings and columns. There will also be a new neon sign. The proposed Refurbishment still need approval but it is planned they will take place over three weekends at a time prior to the Olympics".
33 He then said he showed the O’Connors the plans for the refurbishment, a diagram of the proposed neon sign, the materials for new chairs and tables and said to them: "These plans are still subject to approval by Leda and the Council".
Later in about November 1999 he recalled showing the O’Connors plans for the neon sign and saying to them: "These plans are with the Council and still need to be approved.
And it is important to note that Mr Humphries in his oral evidence said that he knew that Mr Stollznow told the O’Connors that it was intended to upgrade the food court piror to the Olympic Games.
Detailed evidence was also given by Mr & Mrs O’Connor in relation to what they were told by Mr Stollznow. There were going to be new chairs and tables, they were shown samples of material, there would be a stained glass mirror, the telephone would be relocated, the ceiling was to be made a special feature, there would be a new sign outside the Kent Street entrance and the toilets would be up-graded. It was their evidence that Mr Stollznow said that the whole job would be done over three weekends, there would be no disruption to the business and it would all be completed by the Olympics.
34 The whole of the evidence satisfied me that this representation was also made out. There is no doubt that the O’Connors would have replied upon that representation (as well as the others). It is unchallenged (probably even conceded) that the food court needed refurbishment to make it more attractive to the public and in my view it was not a serious impediment (and there was no evidence before me that would have indicated otherwise) to have obtained the approval of Leda and the approval of the city council. After all, it would have been to the benefit of both the council and to the Respondent to have refurbished the food court to make it more attractive and an economic success.
Conclusion on Representations:
35 I have therefore found that all three representations as contended by the Applicant have been made out. I should say that I have reached that conclusion without a great deal of difficulty. But in diffidence to the argument that was put by the Respondent in or to the effect that because the representations were not included in the disclosure statement, in addition or alternatively, were not part of the submissions made by the solicitor for the Applicant, with respect to the terms of the lease, then I could conclude that the representations were in fact not made. So, it was submitted, for example, in the disclosure statement the words appear: "Changes or Developments planned for the Lessor: nil". Again, the disclosure statement states: "Give details of any rights or obligations of Lessor under that lease (referring to the Lessor) that may affect the shop" and nothing appears thereafter. Later under the heading "Declaration by Lessor" there was a box providing for details of "any other agreements between the Lessor and Lessee or representations made by Lessor or Lessee including those relating to exclusivity or limitation on competing uses" and nothing there appears as to any of the representations agitated by the Applicant. Furthermore, further down that page appears a "Declaration by Lessee" in which the Lessee, signed by Mr & Mrs O’Connor and dated 7 September 1999, "acknowledge that this Disclosure Statement contains all agreements and representations that influenced me to contemplate entering into the proposed lease".
36 From those items and the undoubted expertise of the O’Connors in entering into leases it was submitted that I could not conclude that there were representations made as alleged and it must follow that the Applicant was bound by those declarations. Indeed, it was submitted that the content of the Disclosure Statement amounted to a positive representation by the Applicant to the Respondent that the Disclosure Statement contained all the representations of the Respondent as lessor.
37 I do not believe as a matter of law that is the case. One of the reasons for this case being now before this Tribunal is the failure by the Applicant and its directors/shareholders in ensuring that the Disclosure Statement was in fact correct as to the representations. However, I do not think it follows as a matter of law that because the representations as alleged are not in fact set out in the Disclosure Statement then I must find that the representations were not made at all.
38 It seems to me that all parties to a retail lease are bound to ensure that all disclosures and representations are properly set out in the Disclosure Statement and any consequent lease such that there can be no room for argument. This Applicant, and its directors/shareholders, were experienced retail tenants. They should have known and should have insisted upon the representations being properly set out in both those documents. That having been said, however, it does not follow in my view that they are estopped from alleging the representations, although it clearly does not assist their case by them having failed to include those representations as part of the Disclosure Statement and as part of the lease itself.
39 However, I am satisfied, and clearly satisfied, that the representations were in fact made by the Respondent as I have found above and although the argument based on the Disclosure Statement and the lease has force, in my view it is not an overriding argument such that I am precluded from making a finding otherwise.
40 The failure of the Applicant and the Respondent (for that matter) to set out in full in the Disclosure Statement and the lease the full and complete terms of the representations and exclusivity of menu has undoubtedly contributed to this matter being so fully argued before me over two days, at no doubt considerable expense to each party.
Legal Effect of Misrepresentations:
41 Retail Leases Act 1994, Section 10(1), provides as follows:
- (1) A party to a retail shop lease is liable to pay another party to the lease ( the injured party ) reasonable compensation for damage suffered by the injured party that is attributable to the injured party’s entering into the lease as a result of a false or misleading statement or representation made by the party, or any person acting under the party’s authority, with knowledge that it was false or misleading.
42 This Section provides for reasonable compensation for damage suffered by an injured party (in this case the Applicant) that is attributable to the Applicant’s entering into the lease as a result of a false or misleading statement or representation made by (the Respondent) or any person acting under (the Respondent’s) authority with knowledge that it was false or misleading.
43 In order to come within Section 70 and constitute a retail tenancy claim under Section 70(a)(x) it seems to me that there are four separate matters that need to be proved by a successful Applicant:
- i) there must be a false or misleading statement or representation.
ii) the Applicant must show that the statement or representation caused or contributed to the Applicant entering into the lease.
iii) the false or misleading representation must be made by the Respondent or a person acting under the Respondent’s authority.
iv) and it must be made with knowledge that the statement or representation was false or misleading.
45 I find that the representations contributed to the Applicant entering into the lease. I am satisfied on the evidence, overwhelmingly satisfied in fact, that without those representations having been made in all the circumstances the directors of the Applicant would not in their wildest dreams have caused the Applicant to enter into a lease for this particular shop in this particular location and having regard to the size of the food court, the absolute necessity for economic success being an exclusive menu in their particular expertise and having regard to the standard of the food court at the time.
46 The final matter about which an Applicant has to satisfy this Tribunal is that the party or person making the false or misleading statement or representation has made same "with knowledge that it was false or misleading". This is a fairly serious finding to make and one must tread with care in making that type of finding. However, in this particular case I have no hesitation in making that finding for the following reasons:
- a) It was absolutely essential for this Applicant to have exclusivity of its primary menu without which, at the very least, having regard to the location of shop 8 within this small food court, it was not unreasonable to conclude, and having regard to the history of tenancies at this shop (which were unsuccessful) that without the exclusivity the shop would be a non-economic business.
b) The Applicant and its directors/shareholders were experienced and were otherwise successful in conducting take away food businesses.
c) The Respondent was aware that having a vacant or unsuccessful shop as part of its small food court was not to its advantage neither would it be to the general advantage of the other lessees.
d) Importantly, it is plain that the representations made in regard to Con’s shop were at all times false and misleading. The new leases of Con’s shop (renumbered shops 5.1 and 5.2) although not signed by DAF Holdings Pty Limited until 24 February 2000, were stated to commence on 8 November 1999, being a date considerably prior to the date of the Disclosure Statement given to the Applicant (7 December 1999) and the date of commencement of the lease to the Applicant 5 January 2000. In my opinion it was deliberately misleading for the Respondent to suggest even for one minute that somehow or other Con’s lease was not going to be renewed, in addition or alternatively that if it was going to be renewed his menu would be severely restricted such that it would not conflict with that offered to the Applicant.
e) There was clear evidence to the effect that notwithstanding the protestations of the O’Connors Con’s Shop continued its trade in frozen yogurt up to at least February 1999 and probably until March; the admissions by Mr Stollznow that Con was selling product similar to the Applicant, that the Applicant would "do better" if Con’s menu did not compete and that the Applicant would "do better", indeed", very much so", if the food court was refurbished.
f) The representation relating to the refurbishment of the building prior to the Olympics was clearly a representation that was false and misleading because at no time did the Respondent propose to carry out that refurbishment within that time limit. I reject the argument that somehow the Respondent protected itself by saying that it would be subject to the approval of the food court manager and the City Council - no evidence was placed before me that would indicate that there would be the slightest delay in obtaining those approvals. Indeed, the evidence before the Tribunal as to the nature of the refurbishment indicated to me that there would be no difficulty at all in obtaining appropriate approvals.
Having made those findings in my view the claim for reasonable compensation by this Applicant under Section 10(1) falls within a retail tenancy claim under Section 70(a)(x). Furthermore I note that sub-section (x) is specifically stated as being "without limiting the generality of sub-paragraph (i)" which deals with "a claim for the payment of a specified sum of money" which is precisely what this claim is in any event.
Damages:
47 The most difficult part of my consideration has been how does one assess damages that are properly payable having regard to the findings that I have made above?
48 The Applicant put its case in a specific and restricted way. It submitted that had it not been for the representations the Applicant would not have purchased and conducted its business from the particular location. Consequently, the Applicant arranged with Mr & Mrs O’Connor that they would be employed by the Applicant thereby creating a liability in the Applicant to pay the O’Connors as employees. It was submitted that I should disregard the fact that the O’Connors were directors /shareholders, rather they were simply employees of the Applicant and thus the Applicant was liable to pay them wages in accordance with the provisions of the Shop Employees (State) Award applicable at the relevant time. Indeed, that part of the Applicant’s damages claim in $119,300.00 was made up purely of the liability to pay wages to the O’Connors pursuant to that Award from 17 January 2000 through to 8 June 2001.
49 It was submitted that the Applicant was legally obliged to pay the O’Connors that money because it was said, by tender of the Income Tax Return of the O’Connor Family Trust for the year ended 30 June 1999 that demonstrated a course of conduct from which it could be said that the Applicant as the trustee during the relevant tax year in fact paid wages to the O’Connors in respect of its then activity as a take-away food shop in the Chifley Plaza for that particular tax year. There was no argument, and no submissions or evidence to the contrary, that would have challenged the applicability of the relevant Award or the amount of hours worked by Mr & Mrs O’Connor, neither was any challenge made to the hourly rate. It was submitted that because the O’Connors did the work in the shop, had done the same sort of work in previous years, thereby I should infer an employer/employee arrangement having regard to the tax return for the year ended 30 June 1999.
50 Alternatively, it was submitted that I should base damages upon the concept of unjust enrichment, quantum meruit, because the O’Connors worked for the benefit of the Applicant and therefore a payment was due to the Applicant under Section 72(1). Alternatively, I was invited to "cut through the corporate structure" and under Section 72(1)(a) pay the money direct to the O’Connors, it being said that this sub-section entitled this Tribunal to make that type of Order. It was submitted that this type of Order met the justice of the case and avoided legal technicalities.
51 The basic submission however of the Applicant is that the object of the exercise was to put the Applicant back into the position it would have been in had the representations not been made, had the Applicant not relied on those representations, signed the lease, gone into occupation and attempted to conduct its business from the particular shop.
52 The Applicant had prepared a statement (Exhibit C) which showed that, taking into account the return of the Bank Guarantee moneys, and absent payment of any wages, the Applicant made a profit of $25,036.00. This exhibit did not include any rent not paid but it was plain that if the Applicant was required to pay rent pursuant to any decision of this Tribunal then the profit in Exhibit C would be nil. This Exhibit however did include rent that had in fact been paid for a period of about six months.
53 The Respondent submitted that there were no time sheets kept by the Applicant, that if the Applicant made no money then the O’Connors (as directors/shareholders) would have made no money, there was no evidence of any actual contractual liability from the Applicant to the O’Connors anyway, no course of conduct had been proved and certainly no course of conduct proved by the tender of the tax return which was based on a different location, different circumstances and at a different time. It was submitted that Retail Leases Act, Section 10, requires this Tribunal, when making a finding of loss, is only entitled to assess loss as "reasonable compensation for the damage suffered".
54 As was discussed in argument there are probably a number of ways of assessing damage or reasonable compensation. One method (for example) is to attempt to work out what the profit would have been had the representations been honoured and had the other tenants been held to their menus. No doubt one could employ a brace of accountants, at considerable expense, to present bulky documents in support of submissions one way or the other.
55 It seems to me, however, that as a matter of commonsense the owners of many small companies struggle all year to provide a stable income for their employees and themselves if they are in fact employees. Indeed, one’s experience shows that the take home "wage" of owners of small companies is often irregular and often below staff levels. And, at the end of each income tax year, the owners then review the economic situation of the company and draw what the business can (in their view) economically bear in lump sums in circumstances where those drawings often look like bonuses but are in fact either "wages" for themselves or as a distribution of profit by way of dividend.
56 It seems to me however that the proper approach to the assessment of "reasonable compensation" under Retail Leases Act Section 10 and having regard to the provisions of Section 72 is not to accede to the hypotenuse argument and direct that moneys be paid direct to the O’Connors but rather to assess the loss that is the loss of the Applicant. After all, it is the Applicant’s loss, not the O’Connors loss and it is the Applicant that comes before this Tribunal seeking relief.
57 I have thought long and hard about what is the appropriate approach to the assessment of that loss. I am persuaded that the approach so eloquently argued on behalf of the Applicant is in fact that correct approach, namely that the claim of this Applicant is the absolute minimum that this Applicant would be entitled to in all the circumstances having regard to the findings that I have made. The Applicant’s claim takes into account no profit component, relies entirely on unchallenged hourly rates pursuant to minimum Award requirements and supports its argument that had it not been for the representations the Applicant would never have purchased the business and never invested in the business and never conducted the business from this location. And the losses are those of the Applicant, not the O’Connors, simply because the O’Connors would have any rights as against the Applicant; but it is the Applicant that brings these proceedings and it is the Applicant that has suffered the loss and is entitled to reasonable compensation.
58 When one looks at it in that light it is plain that the amount claimed by the Applicant in $119,300.00 is more than reasonable and is minimal in all the circumstances. After all, it was not seriously in issue that the Applicant (and the O’Connors) were very experienced take-away food shop operators, would have formed an expert opinion as to the viability of this shop had the representations been met by the Respondent, and in any event, and surely, the Respondent would have expected the Applicant to have been an experienced operator (the evidence shows in fact the Respondent "checked out "the Applicant and was satisfied that the Applicant was an experienced take-away food shop operator), was itself conducting a food court as an economic entity, would have expected that all shops in the food court would have been conducted in an economic satisfactory manner and thus would have contributed to the economic viability and profitability of the food court as a whole. Consequently, it seems to me that once the misrepresentations have been proven (and bearing in mind the particular speciality of the Applicant’s business) then it does not sit well for a Respondent to assert in respect of a claim for damages that somehow this experienced Applicant, with its experienced director/shareholders, would on balance have not made a profit in this particular location.
59 Having weighed up all the arguments I am clearly of the view that the amount claimed by the Applicant is the minimal amount that it could properly claim having regard to the way in which it presented its case and the failure of the Respondent to meet the damage particulars such that reliance could not be placed upon them.
60 Consequently, it must follow that the Respondent is entitled to the following damages:
- a) Set-up costs
(I note that these were not challenged): $38,712.00
b) Reasonable gross compensation calculated by
reference to the relevant Award: $119,300.00
$158,012.00
Less accumulated profit to 8.6. 2001
(before unpaid rent and salaries) $ 25,036.00
Net reasonable compensation awarded
to Applicant: $132,976.00
- a) That the Lease executed by the Applicant with the Respondent in respect of the Shop (“the Lease”) be terminated as of the date of the Order.
b) That the Applicant vacate the Shop as of the date of termination of the Lease.
c) That upon termination of the Lease neither party to be under any further liability to the other thereunder.
Having regard to the findings that I have made and the evidence placed before this Tribunal I have no hesitation in making those orders.
62 The Applicant also seeks an order for costs. There was some argument before me on that issue but I indicated at hearing that if the Applicant wished to further agitate this issue then I would reserve this question and grant leave to either party to re-list this matter for hearing before me limited to this discrete issue. However, I propose to place a time limit on that leave such that if the matter is not re-listed within fourteen days of the date of this decision then there will be no order made as to costs.
63 Similarly the Applicant sought an order for interest based, it was submitted on one-half of any amount this Tribunal ordered. No material was put before me that would encourage me to express a view one way or the other on the question of interest and if that matter was to be seriously argued then the Applicant would need to put before me some demonstrable figures based on appropriate rates of interest such that any award of interest would on balance appear to be reasonable. On this aspect I also grant leave to the Applicant to similarly re-list the matter before me , limited to the discrete issue of interest and similarly limited as to time such that such it be not so relisted then there will be no award made for interest.
ORDERS:
- 1. The lease executed by the Applicant as Lessee and the Respondent as Lessor in respect of premises being part Folio Identifier 3/789759 and being Shop 8, Food Court, Level 7, MMI Centre, 2 Market Street, Sydney and commencing 5 January 2000 be and is hereby terminated as at the date of this order.
2. The Applicant vacate the said shop as at the date of this order.
3. Upon the vacation and termination of the said lease neither party to that lease be under further liability to the other thereunder.
4. The Respondent pay to the Applicant damages in the sum of $132,976.00.
5. Leave granted to the Applicant to re-list this matter before me within fourteen days of the date of this order to argue either or both of the following issues:
- a) whether the Respondent should pay interest upon the damages so ordered;
b) whether the Respondent should pay the costs of the Applicant of the whole matter, or any part of the matter.
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