Harbourside Catering Pty Ltd v TMG Developments Pty Ltd

[2007] NSWSC 1375

CITATION:	Harbourside Catering Pty Ltd v TMG Developments Pty Ltd [2007] NSWSC 1375
HEARING DATE(S):	12 to 20 November 2007
JUDGMENT DATE :	30 November 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Judgment for the Defendant on the Plaintiff’s Second Further Amended Statement of Claim.
CATCHWORDS:	LANDLORD AND TENANT – Lessor refused consent to assignment of lease – whether proposed assignees had “retailing skills that are inferior to those of the proposed assignor” for the purposes of s 39(1)(b) Retail Leases Act 1994 – what constitutes “retailing skills” – whether refusals of consent to assignment made in bad faith and constituted unconscionable conduct in contravention of s 62B(1) Retail Leases Act 1994.
LEGISLATION CITED:	- Retail Leases Act 1994 (NSW) – s 39, s 40, s 62B s 69B, s 72AA - Trade Practices Act 1974 (Cth) - s 51AA(1), s 51AC(1), s 51AC(3)
CASES CITED:	- Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 - Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365; (2000) 104 FCR 253 - Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529 - Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 - NRMA Ltd v Scandrett [2002] NSWSC 1123; (2002) 43 ACSR 401 - Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575 - Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
PARTIES:	Harbourside Catering Pty Ltd – Plaintiff TMG Developments Pty Ltd - Defendant
FILE NUMBER(S):	SC 2075/06
COUNSEL:	F.G. Lever SC, Ms S. Chrysanthou – Plaintiff R.G. McHugh SC, Ms K. Richardson – Defendant
SOLICITORS:	Dibbs Abbott Stillman – Plaintiff Speed & Stracey – Defendant

2075/06 Harbourside Catering Pty Ltd v TMG Developments Pty Ltd

JUDGMENT
30 November, 2007

Introduction and issues

1    The Plaintiff (“Harbourside”) was the lessee of a restaurant called “The Cove” on the Manly Wharf. The lessor was the Defendant (“TMG”). Harbourside entered into an agreement to sell the restaurant business to Manly Cove Brasserie Pty Ltd (“Manly Cove”) for a price of $750,000. The sale was conditional upon TMG consenting to the assignment of the lease by 10 May 2005.

2    Harbourside sought consent to the assignment but TMG refused. Manly Cove terminated the sale agreement.

3    Harbourside says it later made an agreement to sell the restaurant business to Amancha Pty Ltd (“Amancha”) in March 2006 for a price of $450,000. Again, Harbourside sought the consent of TMG to the assignment of the lease. Again, TMG refused consent. Amancha abandoned the proposed purchase.

4    The main ground upon which TMG refused consent to the assignment of the lease to Manly Cove and to Amancha was that the proposed assignees had skills in operating a restaurant which were inferior to those of Harbourside.

5    The lease of the restaurant was a “Retail Shop Lease” within the scope and operation of the Retail Leases Act 1994 (NSW) (“RLA”). Section 39 RLA prevents a lessor from refusing consent to an assignment except in limited circumstances. Section 39(1)(b) relevantly provides that a lessor is entitled to withhold consent “if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor”.

6 Clause 21.3 of the lease between Harbourside and TMG contained a term to the same effect as s 39 RLA.

7    In these proceedings Harbourside alleges that:

– TMG did not, in truth, refuse consent to the assignments because Manly Cove and Amancha had inferior skills in operating a restaurant;

– the real reasons that TMG refused consent to both assignments were vindictiveness towards Harbourside, a desire to obtain a tenant of its own choosing rather than Harbourside’s choosing, and the hope of extracting from Harbourside, as a condition of obtaining consent, an agreement to settle current District Court litigation between Harbourside and TMG on terms favourable to TMG;

– the refusal of the consents was, therefore, prohibited by s 39 RLA;

– the attempt by TMG to extract a settlement of the District Court proceedings as a condition of giving consent to the assignment was the seeking of “key money”, as defined in the RLA, and was prohibited by s 40 RLA;

– the refusal of consent by TMG and its attempts to extract a settlement of the District Court proceedings constituted unconscionable conduct, in contravention of s 69B(1) RLA, causing loss to Harbourside which it may recover under s 62B(8);

– the refusal of consent to the assignments was a breach of TMG’s covenant in clause 21.3 of the lease, for which Harbourside may recover damages;

– the loss and damage which Harbourside is entitled to recover is the amount of the purchase price which Manly Cove or, in the alternative, Amancha, had agreed to pay for the purchase of the restaurant business.

8    By way of defence, TMG says that:

– it was entitled to refuse, and did in truth refuse, consent to both assignments because the proposed assignees had skills in operating a restaurant which were inferior to those of Harbourside;

– it did not attempt to obtain a settlement of the District Court proceedings as a condition of its consent to the assignments;

– in any event, Harbourside has not established the quantum of any damages: it claims the full purchase price for the restaurant business under the sale agreements, but it did not in fact own the restaurant business and would have had to acquire the business and certain fixtures and fittings from a related entity at a cost, which it has failed to take into account in calculating the quantum of its loss;

– Harbourside has not taken into account in proving its damages the fact that, after the contracts for sale with Manly Cove and Amancha were terminated, Harbourside retained the restaurant business until it allowed the lease to expire without exercising an option for renewal;

– there is no evidence proving the quantum of Harbourside’s damages.

There are several other grounds of defence, essentially involving questions of law. I do not need to deal with them because of the findings of fact which I have made.

The first refusal

9    Harbourside, through its shareholding and directorship, embodies a partnership between Mr Alex Antonopoulos and Mr Angelo Nikopoulos. Harbourside has operated “The Cove” restaurant since it first acquired the lease in 1993. Mr Antonopoulos and Mr Nikopoulos have been active in the day-to-day management of the restaurant since 1993, with the assistance of a head chef, managers and other staff. Both Mr Antonopoulos and Mr Nikopoulos had extensive experience in operating a restaurant business before taking up the lease of The Cove in 1993.

10    The Cove restaurant is in a prominent position on the Manly Wharf and has excellent harbour views. The restaurant seats in excess of 400 diners. It is a substantial business. Its turnover for the year ending 30 June 2004 was $1,273,000.

11    As at February 2005 the lease of the restaurant had about eighteen months still to run. However, the lease provided for two further options to renew, each for a term of three years. Accordingly, if both options were exercised, the maximum term of the lease available was seven and half years.

12    In early 2005 Messrs Antonopoulos and Nikopoulos sought purchasers for the restaurant business. Eventually, they agreed with Mr Comparot-Belin to sell the business to him for $750,000.

13    On 15 February 2005, an agreement for sale of the business was executed by Harbourside and Manly Cove. Manly Cove had been incorporated by Mr Comparot-Belin on the date of execution of the agreement as a corporate vehicle for the acquisition and operation of the restaurant business. The shareholding and directorship of Manly Cove embodied a partnership between Mr Comparot-Belin and Mr Carl Frauenstein, an investor who was to be a “silent partner” in the restaurant business.

14    It was a term of the sale agreement that the lease of the premises would be assigned to Manly Cove. Completion of the sale was conditional upon Harbourside obtaining the consent of TMG to the assignment by 10 May 2005.

15 On 25 February 2005, Harbourside’s solicitors wrote to TMG’s solicitors requesting consent to the assignment of the lease to Manly Cove. In view of the provisions of s 39 RLA and Clause 21.3 of the lease, the letter attached the following information concerning the proposed assignee: ASIC searches of Manly Cove and its corporate shareholders, a statement of the assets and liabilities of Mr Comparot-Belin and Mr Frauenstein, their curricula vitae, and Manly Cove’s proposed business plan for the restaurant business.

16    Mr Comparot-Belin’s curriculum vitae showed that he had been born and educated in France and had a Bachelor of Economics degree and a Masters degree in business and finance. He had come to Sydney as a permanent resident in 1993 as marketing manager for the French Tourist Bureau. From 1996 to June 2000, he was involved, as co-founder and major shareholder, in a joint venture to establish and operate a chain of budget motels in Australia. From July 2000 to May 2002 he was the general manager for the Formule 1 motel chain, a division of a large international hotel chain. In that capacity, Mr Comparot-Belin was principally responsible for corporate and business strategies and marketing. From February 2003 to February 2005, he was a shareholder and director of a number of joint venture companies engaged in projects such as the refurbishing and “re-launching” of a hotel in Newcastle and the acquisition and redevelopment of commercial buildings in Hobart, Chatswood and Sydney central business district. The curriculum vitae did not show that Mr Comparot-Belin had any experience in managing or operating a restaurant business.

17    Mr Frauenstein’s curriculum vitae showed that he had been born in South Africa and had degrees in mechanical and aeronautical engineering. From 1992 to 2000, he was engaged in management consulting or project consulting. From 2000 to February 2005 he was a “business investor” with “the San Marco Group”. The investments included investments in a bar café in Bondi Junction, an Italian restaurant in Bondi Junction, and a restaurant, bar and nightclub which was to open in May 2005. He was “landlord of numerous investment properties”, including commercial properties in which restaurants were tenants. The curriculum vitae did not show that Mr Frauenstein had any experience in managing and operating a restaurant business.

18    The business plan did not show that any chef or restaurant staff had been engaged by Manly Cove.

19    On 7 March 2005, Mr Comparot-Belin went to a meeting with TMG’s managing director, Mr Robert Magid, and its property manager, Mr Marcelo Ramirez. The purpose of the meeting, which had been initiated by Mr Comparot-Belin, was to discuss Mr Comparot-Belin’s proposed acquisition of the restaurant business, his qualifications and experience in managing a restaurant business, and his plans for the future of the business.

20    Mr Comparot-Belin has made two affidavits, filed on behalf of Harbourside, as to what was said at the meeting of 7 March. However, the meeting was recorded by TMG, with the consent of Mr Comparot-Belin, and the tape recording has been played in Court. A transcript of the recording is also in evidence. All but a few minutes at the end of the meeting were recorded and the final few unrecorded minutes are uncontroversial.

21    The Court is in the rather unusual position of being able to hear for itself a critical conversation rather than the parties’ later, imperfect, recollections of it.

22    Mr Comparot-Belin prepared his affidavits before he had the opportunity of hearing the taped record of the meeting. His account of what was said, as set out in his affidavits, gave the impression that Mr Magid and Mr Ramirez had been somewhat hostile towards him at the meeting and that they had already made up their minds that TMG would refuse consent to the assignment of the lease. Mr Comparot-Belin, in reporting to Mr Antonopoulos and Mr Nikopoulos what had happened at the meeting, said that he had been treated in a belittling fashion.

23    When one listens to the tape recording of the meeting, however, a different impression emerges. To be fair to Mr Comparot-Belin, when he himself heard the tape played in Court, he agreed that the tape was more accurate than his recollection of the meeting. As I will explain shortly, he also came to accept that Mr Magid and Mr Ramirez had not been as dismissive or as firm in their deprecation of his experience and abilities as he had come to believe.

24    The meeting commenced with an explanation by Mr Comparot-Belin of his business achievements. Coming to his proposed acquisition of the restaurant business, he said that Mr Frauenstein would be “a sleeping financial partner”. He said that it would be left to him and “his team” to do whatever he wanted with the restaurant business.

25    When Mr Magid asked for some more detail of Mr Comparot-Belin’s background, Mr Comparot-Belin said that his family was “in the hotel/restaurant industry in France”. He said that his grandfather had been a “grand chef” in the 1950s, 1960s and 1970s in Burgundy “so … I grew up in restaurants, I grew up in kitchens, I always had a foot in the hotel and restaurant industry”. He then gave some detail about his business activities in the tourism industry, essentially repeating what had been set out in his curriculum vitae.

26    Mr Magid then said that he wanted Mr Comparot-Belin “to know everything” so that he could make a rational decision about acquiring the restaurant business. He ascertained that Mr Comparot-Belin knew how long the lease had still to run if all options were exercised, what the current rent was, what the turn-over of the business was, and that there was a rent review imminent. He asked what Mr Comparot-Belin was prepare to spend on refurbishment of the restaurant. He gave his views about the prospects of obtaining a “drink and dine” licence, and explained the difficulties that would be encountered with Manly Council if one was sought. Mr Magid’s general attitude and tone, as emerging from the tape recording, are polite but pragmatic. He said that his main concern was not to have an unhappy tenant.

27    Mr Magid went on to tell Mr Comparot-Belin that there was a bitter ongoing dispute between TMG and Harbourside. There were District Court proceedings on foot concerning past rent reviews. Mr Magid was highly critical of the solicitor who had been acting for Harbourside in the District Court proceedings and who had been acting for other tenants of TMG in other proceedings. He spent some time elaborating on what he said was “ambulance chasing” and “dodgy conduct” by Harbourside’s solicitor. It is quite obvious from what Mr Magid and from how he said it that he regarded Harbourside’s solicitor and Harbourside itself as having caused him unnecessary trouble and expense.

28    Mr Magid then said:

“ Bob [Mr Magid]: Yeah, yeah. So the last thing I want you is to be unhappy and then point at us and say, you got us into this trouble and start suing us.

Rodolphe [Mr Comparot-Belin]: No, we’re not like that.

Bob: Right, but … but I just want you to know. That we don’t look for trouble, we don’t want any trouble and we’ve got trouble because there are people who … who are bad traders, we’ve got some excellent traders, people who pay their rent because they’re so happy to pay their rent because they’re making so much money.”

29    Mr Magid went on to explain that the head lessor of the Wharf was about to engage in major refurbishment which could cause a great deal of disruption to tenants’ trading.

30    Mr Magid then said, quite courteously, that although he was impressed by Mr Comparot-Belin’s presentation, what he was looking for as the tenant of the restaurant location was “a first class operator … nothing you’ve said convinces me that you [have] a first class operation … We don’t know what brand, what quality you’re bringing in”.

31    Mr Comparot-Belin explained at length that he was in the process of talking to chefs and would bring in a good management team. Mr Magid responded that Mr Comparot-Belin did not already have a name in the restaurant industry and that what TMG wanted was a financially strong tenant who had a good understanding of the industry and a good name in the industry.

32    The following exchange then took place:

“ Bob [Mr Magid]: If you convince us … let me put it this way. We can’t stop you from … we can’t stop you from buying … from having the lease assigned to you except insofar as you have not met the lease terms, one of which is experience in … having at least equal experience to The Cove proprietors as restaurateurs.

Rodolphe [Mr Comparot-Belin]: But do you know the … with all respect for them, none of the players at the moment have any cooking experience.

Bob: No, no but they have experience at managing, at running and managing, they’re behind the counter and they’re getting chefs and they’re … they’re running a restaurant and they’ve had many years of experience of running a restaurant. Now that … which is something that you can’t demonstrate so … so … so we can use that as …

Rodolphe: True.

Bob: And … and … and but … but … what I am saying to you is that … is that …

Rodolphe: [indecipherable]

Bob: If you … if I would … if you convince … so the situation is that we … we can stop you from getting the assignment. But that’s not … that’s not my objective. My objective isn’t to stop you. I mean …

Rodolphe: When I’m in a deal I would prefer you to stop the deal if you said that I’m going to have many problems in the future, to refurbish, to extend the lease.

Bob: Now the whole point is that we want a first class operator there. Now we cannot prevent someone who’s a third rate operator buying the lease from them but they’ve got experience and they’ve got finance and they go in and they can do a lousy job, we can’t stop that because that would be consistent with the lease.

Marcelo [Mr Ramirez]: That’s correct.

Bob: That’s right, we can’t stop. In this case, we can stop you unless you bring a whole team and show how … how … how you can manage the restaurant.

Rodolphe: No I’ve got a whole team, I’ve got …

Bob: Alright …

Rodolphe: But I don’t want to put my names, all my cards on the table …

Bob: Yeah, yeah, yeah.

Rodolphe: Until I know what sort of support we’ll get from you.

Bob: That’s it, so the thing is, that you’ll get, you know unless we are satisfied that you are really going to be our dream tenant, the tenant we want, we’re not going to extend the lease and we’re not going to agree to any external works. We won’t stop you from doing internal works or whatever, but we … but we will do what we’re … we’ll do what a landlord is meant to do but no more. Now I’m not saying that because I don’t like you. I’m not saying that at all. I’m saying that because … because …

…

Bob: So … so … so the … the thing is that you know you strike me as a serious person, you know. You’re not a fly by night. You strike me as though you approach things in a business like way. I am surprised that you’re willing to pay so much money to these guys … or that you should …

Rodolphe: I recognise the upside. Even on the present basis, with the current restaurants I might not make anymore, like big money, but I know that I can recoup, I’m confident that I can recoup my investments within the time that I’ve got left. Worst case scenario, I can’t get to demonstrate to you that we are first class operators when we take on the properties.
…
I’ve worked in the restaurants industry, maybe I can’t demonstrate in Australia my experience but with my background in Burgundy, my mother is still in the hotel industry and restaurants industry, she even had Prince Charles and Camilla as clients, so she’s got a good background and good commissions on the place, not that I can drag her to manage a restaurants in Australia …”

33    Mr Magid said in cross examination that when he read the material submitted by Harbourside in support of the assignment application, principally the curricula vitae of Messrs Comparot-Belin and Frauenstein, he formed the view that the financial resources of Messrs Comparot-Belin and Frauenstein were superior to those of Harbourside, but that their relevant retailing skills were “non-existent”. Mr Magid said that by the time he had the meeting with Mr Comparot-Belin he had already a “strong inclination” to refuse the application for assignment on the ground that Mr Comparot-Belin’s relevant “retailing skills” were inferior to those of Harbourside. However, he said, his mind was still open to persuasion if Mr Comparot-Belin could produce something substantially additional to the material previously submitted by Harbourside. Mr Comparot-Belin agreed in cross examination that Mr Magid had indeed “left the door open” for him to come back with further information.

34    Mr Magid says that he was not persuaded by what Mr Comparot-Belin said at the meeting of 7 March that the relevant skills of Manly Cove were at least equal to those of Harbourside. On 11 March 2005 TMG wrote to Harbourside’s solicitors advising that a meeting with Mr Comparot-Belin had been held on 7 March and that “from the documentation provided and … our meeting, we advise that in accordance with Clause [sic] 39 of the Retail Leases Act 1994 … assignment of lease is not granted [sic]”.

35    Mr Lever SC, who appears with Ms Chrysanthou for Harbourside, cross examined Mr Magid vigorously and at length in an endeavour to show that Mr Magid’s reason for refusing consent to the assignment by TMG’s letter of 11 March 2005 was not a reasonable belief that the “retailing skills” of Manly Cove were inferior to those of Harbourside but, rather, was vindictiveness towards Harbourside and its solicitor and a desire to have a tenant of its own choosing, a “first class operator”. It is significant that in this meeting no suggestion was made by anyone that consent to assignment of the lease might be conditional upon Harbourside agreeing to settle the District Court proceedings on terms favourable to TMG. Accordingly, Harbourside does not ascribe that purpose to TMG in refusing consent on 11 March 2005.

What are “retailing skills” for the purpose of s 39(1)(b) RLA

36 Mr Lever submits that TMG’s refusal of consent was not justified under s 39(1)(b) RLA and must have been actuated by an ulterior purpose because Mr Comparot-Belin’s “retailing skills” were at least equal to, if not much better than, those of Harbourside.

37 Mr Lever concedes – as did Mr Comparot-Belin both to Mr Magid in the 7 March meeting and in his evidence – that Mr Comparot-Belin had no experience in actually operating and managing a restaurant business. However, Mr Lever says that s 39(1)(b) RLA does not limit “retailing skills” to any particular industry or calling. “Retailing skills”, he says, means skill in retailing, not experience in any particular industry or area of activity so that it does not matter what are the particular services or products which a prospective assignee has skill in retailing.

38    By way of example, Mr Lever says,

“… an entrepreneur such as Dick Smith acquires extensive retailing skills managing a successful chain of electronic retail shops. It would be irrational if lessors could disregard those retailing skills in determining whether to consent to an assignment of a restaurant business to one of his companies on the ground that he had inferior retailing skills.”

39    Mr Lever submits that Mr Comparot-Belin had retailing skills which were “vastly superior” to those of Harbourside and Messrs Antonopoulos and Nikopoulos because Mr Comparot-Belin:

– had grown up in France;
– had lived and worked in and around high quality restaurants;
– held a Master’s degree in business and finance;
– had an impressive history in business, property management, refurbishment of the Newcastle hotel, and in the hotel industry generally.

40 I am unable to accept Mr Lever’s submission that the “retailing skills” of an assignee for the purposes of s 39(1)(b) RLA means skill in retailing regardless of the area of retailing activity in which the assignee has acquired those skills. The section is intended as a protection for both lessors and lessees. Lessees are not prevented from realising the goodwill of a business by selling that business and assigning the lease by the lessor’s capricious withholding of consent to the assignment. Likewise, lessors are not compelled to accept as a tenant by assignment those who are not likely to trade at least as well as the outgoing lessee. For that reason, the section requires a comparison between the retailing skills of the existing lessee and those of the prospective lessee. Like must be compared with like if any basis for assessment is to be sensibly available, both to the lessor and to those who may have to review the lessor’s decision under the Retail Leases Act.

41    The fact that a proposed assignee has skills in operating a business which is completely different in character from the business of the assignor provides no readily apparent and sensible means of comparison between the retailing skills of the assignor and those of the assignee and, therefore, no sensible means of assessing whether the assignee, as new tenant, will be at least as satisfactory as the former tenant.

42 A comparison of retailing skills for the purposes of s 39(1)(b) RLA does not require that the businesses of the assignor and the assignee be identical. However, they must be similar enough to permit ready comparison of the retailing skills involved. Whether the similarity is close enough in degree to permit ready comparison for the purposes of the section is a question of fact and impression in each particular case.

43    I do not accept that the retailing skills of Mr Comparot-Belin and of Manly Cove were at least equal to those of Harbourside and Messrs Antonopoulos and Nikopoulos as at 11 March 2005. It was not necessary for Mr Comparot-Belin and Manly Cove to demonstrate skills in operating a seafood restaurant such as The Cove. But they had to demonstrate skills in operating some kind of restaurant and it would have to be a restaurant of similar style and size. Skills in operating a suburban milk bar or a small fast food outlet would not have been comparable to the skills necessary to operate a restaurant such as The Cove.

44    I have no doubt that Mr Comparot-Belin, having grown up in a French household in which food, wine and restaurants were so important, is now an excellent judge of food, wine and restaurants. However, an appreciation of the standards of excellence of goods and services does not necessarily demonstrate an ability to reproduce those goods and services to that standard of excellence in a successful business. I do not accept that Mr Comparot-Belin’s experiences, which he does not particularise, in the restaurant kitchens of his grandfather have given him skills in operating a restaurant. As Mr Magid pointed out in his evidence, Mr Comparot-Belin is a young man in his thirties and would have been an infant during his grandfather’s days of culinary renown. I do not accept that Mr Comparot-Belin’s general experience in business have given him relevant retailing skills in operating a restaurant.

45    As at 7 and 11 March 2005, Manly Cove had not engaged, or secured commitment from, any chef, restaurant manager or other restaurant staff for the operation of the restaurant business. Mr Comparot-Belin could give no particulars of the “team” who might be responsible for the continuing operational success of a business which, under Harbourside’s management, had been running successfully for almost thirteen years.

46    I conclude that as at 11 March 2005, Harbourside had failed to demonstrate that Manly Cove had retailing skills which were not inferior to its own.

Improper motive, good faith and unconscionable conduct

47 Mr R.G. McHugh SC, who appears with Ms Richardson of Counsel for TMG, submits that if it is found as a fact that the retailing skills of Manly Cove were inferior to those of Harbourside, the refusal of consent by TMG was justified under s 39(1)(b) RLA and that is an end of Harbourside’s claim in respect of consent to the assignment to Manly Cove.

48 Mr Lever responds that refusal of consent, even though it could be justified under s 39(1)(b), must nevertheless be “in good faith”: if such consent is refused other than in good faith, the lessor has engaged in unconscionable conduct in contravention of s 62B(1) RLA, affording a right of damages under s 72AA RLA.

49 I put to one side for the moment the question whether the Supreme Court, rather than the Administrative Decisions Tribunal, has jurisdiction to entertain a claim under s 72AA RLA.

50 Section 62B(3)(k) relevantly provides that in determining whether a lessor has, in connection with a retail shop lease, engaged in unconscionable conduct, the Tribunal may have regard to the extent to which the lessor has “acted in good faith”.

51 I have found that Manly Cove’s retailing skills as at 11 March 2005 were inferior to those of Harbourside. However, TMG could have decided not to exercise its right to refuse consent under s 39(1)(b): it could have decided to take the chance that Mr Comparot-Belin’s experiences and skills as a businessman and his background in food and wine would enable him at least to equal the success of Harbourside in operating the restaurant. Mr Lever submits that TMG’s decision to exercise its right to refuse consent was actuated, in fact, by malice towards Harbourside and its solicitor and by a desire to secure a “first class operator” – a tenant of its own choosing.

52    A power conferred by contract or statute, exercise of which may cause detriment to another, must be exercised in furtherance of the purpose for which the power was conferred, and not arbitrarily or capriciously. That principle has long been one upon which Courts of Equity have interfered with the exercise of contractual rights under the rubric “unconscionable conduct”: see e.g. Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529, at 549 per Stephen J; Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575, at 587 per Barwick CJ; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, at 368 per Sheller JA. The same principle, applied in the same way, has recently been re-labelled “the duty to act in good faith”, which is implied by law in contracts: see e.g. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, at 263-264 per Priestley JA; Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, at 37; Alcatel (supra) at 369.

53    The concept of “unconscionable conduct”, including the duty to act in good faith, has been taken into consumer protection law and finds expression in legislation such as s 51AA(1) and s 51AC(1) and (3)(k) Trade Practices Act 1974 (Cth). However, unconscionable conduct for the purposes of this legislation is not limited to conduct which would move Equity to intervene: see Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365; (2000) 104 FCR 253. Unconscionable conduct, including the duty of good faith, in exercising a power conferred under a lease clearly has the same content in s 62B(1) in the Retail Leases Act as it does in the Trade Practices Act.

54    The exercise by a lessor of a right conferred by a lease or by the Retail Leases Act with the intention of causing harm to the lessee will be unconscionable both in equity and for the purposes of s 62B(1) RLA. That is so because the right will have been exercised for a purpose for which it was not conferred. However, it does not follow that hostility between the parties will, of itself, render unconscionable an exercise of the right. It is not the law that those exercising their legal rights against others must do so only with goodwill and disinterest. A legal right may be exercised validly if the end sought is that for which the right has been conferred, even if the person exercising the right feels a personal satisfaction that the other party will suffer as a consequence: see NRMA Ltd v Scandrett [2002] NSWSC 1123; (2002) 43 ACSR 401, at [52]-[55], and the cases cited. The purpose for which a right has been exercised is a question of fact. Where the exercise of the right produces a result which is commensurate with the purpose for which the right is conferred, it is difficult to infer that the right was nevertheless exercised capriciously, arbitrarily, or with an intention of causing loss to the other party.

55 Accordingly, if I were to find that TMG had decided to exercise its entitlement under s 39(1)(b) RLA to refuse consent to the assignment to Manly Cove, not because Manly Cove had retailing skills inferior to those of Harbourside, but rather because TMG, in the person of Messrs Magid and Ramirez, wished to spite Harbourside and to obtain a new tenant of its own choosing, I would find that TMG had acted capriciously and arbitrarily and had not exercised its power for a purpose intended by the Act. I would find that TMG had acted in bad faith and had contravened s 62B(1) RLA. I would then consider what, if any, remedy was available to Harbourside and whether that remedy could be sought in this Court.

56    Despite Mr Lever’s vigorous cross examination of Mr Magid, I am not satisfied that Mr Magid refused TMG’s consent to the assignment to Manly Cove to spite Harbourside, or its solicitor, or because he wanted to procure a tenant of his own choosing. Mr Magid gave his evidence carefully and, generally, in a measured way. He was frank and emphatic as to his dislike of Harbourside’s solicitor; he was candid in saying that Messrs Antonopoulos and Nikopoulos had cost him a great deal of money and time. However, he said that he still liked them as people and had an amicable relationship with them, despite the litigation in the District Court. I did not disbelieve him.

57 Mr Magid struck me as a highly experienced and pragmatic businessman who was disposed to make commercial decisions for rational reasons. In the meeting of 7 March, he demonstrated an accurate knowledge of TMG’s right to refuse consent under s 39 RLA and of its corresponding obligation to grant consent. He must have appreciated that he would be courting litigation if he were to refuse consent to the assignment for spurious reasons.

58    Mr Magid was clearly concerned at the 7 March meeting that TMG have “a happy tenant” in The Cove restaurant, namely, one who was trading successfully enough to pay the rent without difficulty. Mr Magid’s conclusion that Mr Comparot-Belin and Manly Cove lacked the requisite skills in operating a restaurant was not irrational: indeed, no other conclusion was reasonably open. On the other hand, it would have been commercially irrational to refuse consent to an incoming tenant who may prove to be “a happy tenant” for the sake of retaining, out of spite, a tenant who was causing a great deal of trouble and difficulty. To do so would have been a classic instance of ‘cutting off your nose to spite your face’. Mr Magid does not strike me as the kind of businessman who makes commercial decisions in that way.

59    I do not accept that Mr Magid refused consent to the assignment to Manly Cove because he wanted to have as a tenant of his own choosing a “first class operator”, meaning a tenant with retailing skills superior to those of Harbourside. He acknowledged to Mr Comparot-Belin in the 7 March meeting that TMG could not refuse consent to an assignee who was not inferior in skills to Harbourside. His reference to a “first class operator” was the expression of an understandable wish, not a statement of an intended course of action on TMG’s part.

60    As at 7 March 2005, no one other than Manly Cove had appeared to be interested in purchasing Harbourside’s restaurant business. It would make no commercial sense to continue indefinitely with Harbourside as “an unhappy tenant” in the hope that, at some time in the future, a “first class operator” would turn up.

61 I am not satisfied that the refusal of TMG to the assignment to Manly Cove on 11 March 2005 was actuated by any motive or purpose extraneous to a proper consideration of s 39(1)(b) RLA. I hold that the refusal of consent was valid.

The “second refusal”

62    By letter dated 21 March 2005 to TMG, Harbourside’s solicitors invited TMG to reconsider its refusal of consent to the assignment. In support of that invitation, the letter referred to the financial resources of Manly Cove’s directors and placed emphasis on the “retailing skills” of Messrs Comparot-Belin and Frauenstein.

63    In respect of Mr Comparot-Belin, the letter gave no more information about his background and experience than Mr Comparot-Belin himself had given to Mr Magid in the meeting of 7 March. However, the letter contained the statement that Mr Comparot-Belin had established successful restaurants in three hotel chains “and for a number of years has been responsible for the ongoing management of those restaurants”. Mr Comparot-Belin said in cross examination that the statement was not true.

64    The letter also stated that Mr Frauenstein had “operated a number of restaurants”. Again, Mr Comparot-Belin said that that statement was not true.

65    The letter stated that Manly Cove “will be hiring a highly qualified chef who has over fifteen years experience working in international hotels and fine dining restaurants such as [four well known Sydney restaurants were named] together with appropriately qualified staff to conduct operations at the restaurant”. The identity of the “highly qualified chef” was not revealed. The letter concluded by advising that unless consent to the assignment was given within three days proceedings would be commenced in the ADT to compel the giving of consent.

66    On 30 March, Harbourside’s solicitors wrote confirming advice from TMG’s solicitors that Mr Magid was interstate and unable to give instructions, and that Mr Ramirez was not authorised to make a decision in Mr Magid’s absence. Nevertheless, Harbourside’s solicitors advised that they took TMG’s position to be a refusal to consider the request for consent and that they would be commencing proceedings in the ADT.

67 On 22 April, after Harbourside had commenced proceedings in the ADT, TMG’s solicitors advised the registrar of the ADT of the grounds upon which TMG had refused consent. Harbourside alleges that this letter constituted a second refusal of consent for the purposes of s 39(1) RLA, and that this refusal was not justified because:

– Manly Cove in fact had retailing skills which were not inferior to those of Harbourside;

– even if Manly Cove did not have equal retailing skills, nevertheless the exercise of TMG’s entitlement to refuse consent was unconscionable conduct and in bad faith, since it was actuated by malice and by a desire to extract from Harbourside, as a condition of the consent, a favourable settlement of the District Court proceedings and from Harbourside or Manly Cove a payment which was “key money”, as defined by the RLA.

68    The motives ascribed to TMG are said to be revealed by discussions between the parties which occurred between 5 April and 21 April. It is therefore necessary to go into these discussions in a little detail.

69    The possibility of a compromise of the District Court litigation between Harbourside and TMG had been discussed between their solicitors on 23 March. TMG’s solicitor had proposed that the parties agree that the proceedings be discontinued, each party to pay its own costs and TMG would consent to the assignment of the lease to Manly Cove. This proposal had not been made on TMG’s instructions.

70    On 30 March, TMG’s solicitors sought instructions from Mr Ramirez as to whether to pursue the settlement proposal which he had put. Those instructions were not given. On the same day, TMG’s solicitors wrote to Harbourside’s solicitors advising that TMG’s refusal of consent to the assignment was unchanged.

71 On 4 April, Harbourside applied for formal mediation of the dispute under the RLA. Mediation was arranged for 8 April.

72    On 5 April, Harbourside’s solicitors wrote to TMG’s solicitors advising that Harbourside intended to amend its District Court proceedings to claim damages for TMG’s wrongful refusal of consent to the assignment to Manly Cove.

73    It is clear from Mr Comparot-Belin’s affidavit evidence and from his evidence in the witness box that he came away from his meeting with Mr Magid on 7 March believing that Mr Magid did not, in fact, have a problem with the restaurant experience of Mr Frauenstein and himself but, rather, would not consent to the assignment because of animosity towards Harbourside. He could have got this impression because of what Mr Magid had said about Harbourside’s solicitor and the litigation in which that solicitor had involved TMG. However, I think it is more likely that it was Mr Comparot-Belin’s wounded “amour propre” which led him to believe that there must have been some extraneous reason for Mr Magid to consider him incapable of running a successful restaurant. He found that extraneous reason in Mr Magid’s remarks about Harbourside’s solicitor and the litigation between Harbourside and TMG.

74    Mr Comparot-Belin’s impression that the real obstacle to TMG’s consent to the assignment was the District Court litigation with Harbourside led him to believe that if he were to act as peacemaker between Harbourside and TMG, brokering a settlement of the District Court proceedings, he would not only remove the obstacle to consent but would also appear in a good light with TMG and would have a good chance of obtaining a new lease at the expiry of the remaining term after exercise of the two options.

75    On 5 April Mr Magid met Mr Comparot-Belin at Mr Comparot-Belin’s request. No tape recording of this meeting was made. Mr Comparot-Belin initiated discussion about the District Court proceedings and asked what the litigation was really about. Mr Magid said that Harbourside owed TMG arrears of rent and $220,000 in legal costs. Mr Comparot-Belin suggested that an ideal outcome would be to resolve that dispute before Manly Cove took up an assignment of the lease. Mr Comparot-Belin was clearly urging that not only the assignment of the lease should be approved, but that a new lease should be granted to Manly Cove at the expiry of the present lease.

76    Mr Magid described in cross examination the position in which he felt TMG had been placed:

“A. We had a situation where we had 2 negatives, 2 very strongly unpleasant alternatives. One unpleasant alternative was to assign a lease and enter into an extended lease with a party with no proven record in restauranting in an area which has a very high mortality rate. Restaurants come and go, and halfway through leases, a landlord often does find he does not have a tenant to deal with.
Rodolphe and Carl were business men of some ability but they had no proven record in restauranting. They had, Rodolphe in particular had lots of ideas, some were practical, some were hare-brained. And the question was: Is it worth in order to get rid of the problems that we had with the previous landlord, to allow a totally a lessee, to allow a totally inexperienced but energetic young man, inexperienced, run the restaurant and have an extended lease.
We had to weigh up commercially which of the 2 negative situations was worse. Now, at his instigation, he suggested that everyone can win. I, Rodolphe, will win because I will have a long term lease on this wonderful property. You will win because you will get a headache off yourself. The other party will win because they will receive a very handsome amount of money. That was the proposition that was represented to us.
And the scales were fairly balanced and so we thought, well, let's consider giving him a go.”

77    In his affidavit evidence, Mr Comparot-Belin attributes to Mr Magid the statement: “The boys [i.e. Messrs Antonopoulos and Nikopoulos] owe me approx $220,000 in legal costs and arrears of rent. Who would pay for it? There is no way that if you don’t that we would let them walk away until we have been fully paid”. I am not able to rely with confidence on the accuracy of Mr Comparot-Belin’s recollection. Mr Comparot-Belin agrees that these discussions with Mr Magid, whether on 5 April or 11 April, concerned a “global settlement” of all issues between Harbourside and TMG. It is very possible, if not probable, that Mr Comparot-Belin has taken certain parts of the discussion out of context, and that all Mr Magid was saying was that he would not agree to a global settlement on terms that Harbourside walked away from the District Court litigation without paying anything.

78    At the conclusion of the meeting, Mr Comparot-Belin asked whether Mr Magid agreed that he could approach Messrs Antonopoulos and Nikopoulos to see what he could negotiate for the benefit of all parties. Mr Magid agreed but said that he was not hopeful of any resolution.

79    The mediation in the ADT on 8 April was not successful.

80    On 11 April, Mr Magid and Mr Ramirez met Mr Comparot-Belin and Mr Frauenstein at their request. Mr Frauenstein’s actual recollection of the meeting is much vaguer than the account of it given in his affidavit. I prefer to rely on his oral evidence. It is clear that at this meeting Mr Magid reiterated his view that Manly Cove did not have any skills in operating a restaurant business. Mr Comparot-Belin discussed proposed plans for the restaurant and possible menus. However, Mr Comparot-Belin was not able to tell Mr Magid that Manly Cove had engaged, or had even secured commitment from, any chef, manager or other restaurant staff.

81    Mr Frauenstein said that he gained the impression at the meeting that unless the litigation between Harbourside and TMG was resolved, Manly Cove would not get TMG’s consent to the assignment of the lease. He frankly conceded that his recollection of the meeting was not good. I do not doubt that Mr Frauenstein was doing his best to recount accurately what he could recall of this meeting. However, because of his poor recollection, I am not able to rely on his evidence with any degree of confidence.

82    In particular, I cannot rely upon the accuracy of the statement attributed to Mr Magid in Mr Frauenstein’s affidavit: “… I am not going to do the current tenants the favour of assigning the tenancy to you until we have those issues sorted out”. From the commercial perspective of TMG, such a statement does not make sense, for the reasons which I have given earlier in relation to Mr Magid’s motives in refusing consent on 11 March.

83    On 11 April, Mr Comparot-Belin and Mr Frauenstein met Mr Antonopoulos and Mr Nikopoulos in an endeavour to find terms upon which the District Court proceedings could be settled. Mr Comparot-Belin suggested that Harbourside drop the case against TMG. Mr Antonopoulos said that TMG was trying to extract “key money” as a condition of consenting to assignment of the lease. Mr Comparot-Belin had not heard of that term.

84    On 12 April, Mr Comparot-Belin again met Messrs Antonopoulos and Nikopoulos in an endeavour to persuade them to agree to compromise the District Court proceedings. He even offered to pay Harbourside an extra $260,000 if they would drop the case. Mr Nikopoulos says that he understood at the time that Mr Comparot-Belin, in attempting to negotiate a settlement of the District Court proceedings, was acting on his own initiative and was doing so in his own interest to gain favour with Mr Magid in the hope of obtaining consent to the assignment and a new lease upon expiry of the current lease.

85    On 13, or perhaps 14, April – the evidence is unclear but the date does not matter – Mr Magid and Mr Ramirez met Mr Comparot-Belin and Mr Frauenstein at their request. Mr Comparot-Belin informed Mr Magid that Harbourside would drop the District Court case for a payment of $260,000. Mr Magid rejected that proposal and said that TMG would, as part of a global solution, accept $130,000 from Harbourside to settle the case. He said that if TMG were to consent to an assignment to Manly Cove, he would still have to be satisfied that Mr Comparot-Belin would be bringing in a team of people with experience to operate the restaurant.

86    Mr Comparot-Belin said that he would not pay Harbourside any more for the restaurant business unless he was assured of a new lease at the expiry of the current lease.

87    It is not necessary to recount in further detail the comings and goings of Mr Comparot-Belin between Harbourside and TMG. No settlement of the District Court proceedings was achieved.

88    On 15 April 2005, Harbourside commenced formal proceedings in the ADT against TMG seeking a declaration that TMG was not entitled to withhold consent to the assignment.

89    On 22 April, TMG’s solicitors wrote to the Registrar of the ADT giving notice of TMG’s grounds for refusing consent to the assignment. As I have noted, Harbourside contends that this letter constitutes a refusal of a second request for consent to assignment of the lease.

90    On 10 May 2005, the time limit in the sale agreement between Harbourside and Manly Cove for obtaining consent to the assignment of the lease expired. On 13 May, Manly Cove gave notice rescinding the sale agreement.

Whether “second refusal” was invalid

91 The 21 March letter from Harbourside’s solicitors to TMG was an attempt to supply information as to Manly Cove’s position as at 11 March warranting a reconsideration by TMG of its decision on that date to refuse consent. I do not regard that letter as constituting a second and fresh request for consent for the purposes of s 39 RLA. The letter included no new factual information about Manly Cove’s retailing skills. It was simply a letter making further submissions as to why the refusal on 11 March had been wrongful and threatening legal proceedings if TMG did not change its mind. Even Harbourside’s solicitors regarded the letter in that way. Harbourside’s application to the ADT for a determination of the dispute under the RLA, filed on 15 April 2005, alleged only one refusal of consent, that of 11 March 2005.

92 Accordingly, no new factual information having been provided by Harbourside, I do not accept that at any time after 11 March 2005 TMG was under an obligation to consider afresh an application for consent for the assignment of the lease to Manly Cove. However, Harbourside asserts that even if that is so, TMG’s conduct after 21 March was unconscionable, within the meaning of s 62B(1) RLA, so that the Court can award damages under s 62B(8). I find it difficult to see what damages could flow to Harbourside if TMG’s decision to refuse consent on 11 March was valid but later TMG unconscionably refused to change its mind. TMG’s unconscionable refusal to change its mind does not render its earlier valid decision retrospectively invalid. If the earlier decision is valid and if no new information had been provided, then no assignment would ever have been granted to Manly Cove and it cannot have suffered loss by the alleged subsequent unconscionable conduct of TMG.

93 It may be that Harbourside’s solicitors originally took the same view. When Harbourside lodged its application for determination in the ADT on 15 April it sought relief only in respect of its claim under s 39(1)(b) RLA; the application form provided expressly for separate notification that “an unconscionable conduct claim” was being made, but no such claim was notified in the application even though it cannot be in doubt that Harbourside’s solicitor (the same solicitor for whom Mr Magid had expressed dislike) was aware of all of the discussions between Mr Comparot-Belin and his clients concerning the attempts of Mr Comparot-Belin to bring about a compromise of the District Court proceedings

94    Nevertheless, in case I am wrong in this conclusion, I will give my findings as to the facts which underlie Harbourside’s claim arising from the “second refusal”.

95    I am not satisfied that TMG’s decision to adhere to its 11 March refusal of consent was made in bad faith and constituted unconscionable conduct. Nor am I satisfied that, in the discussions between Mr Comparot-Belin and Mr Magid following the 11 March refusal of consent, TMG sought to extract, as a condition of consent, the payment of additional money or the settlement of the District Court proceedings on favourable terms.

96    There is no question that it was Mr Comparot-Belin who took upon himself a role of peacemaker between Harbourside and TMG. He did this, not out of altruism but because he thought a successful resolution of the dispute between Harbourside and TMG would have a substantial commercial benefit for himself. It was Mr Comparot-Belin who proposed the terms of settlement of the District Court proceedings, not TMG. It was Mr Comparot-Belin who urged both disputants to accept those terms.

97    I accept Mr Magid’s evidence that he was certainly prepared to consider again consenting to the assignment to Manly Cove if other commercial considerations made it worth taking the risk of an inexperienced operator in the restaurant business. To take that risk was his prerogative, not his obligation. If he declined to exercise his prerogative to take a risk, he was not acting unconscionably. Still less was he acting unconscionably in listening to the proposals for compromise that Mr Comparot-Belin was urging upon him.

98    I am satisfied that the commercial considerations which motivated Mr Magid to refuse consent to the assignment on 11 March continued to govern his attitude to the proposal for a “global settlement” put forward by Mr Comparot-Belin from 5 April onwards: the settlement proposals were not favourable enough to warrant TMG taking the risk of having Manly Cove as tenant of The Cove.

99    For these reasons, if Harbourside’s solicitors’ letter of 21 March had constituted a fresh request for consent to the assignment, I would have held that TMG was entitled to refuse consent on the ground that Manly Cove’s relevant retailing skills were inferior to those of Harbourside. I would have held that TMG’s decision to rely upon that ground to refuse consent had not been made in bad faith and did not amount otherwise to unconscionable conduct.

Refusal of consent to Amancha assignment

100    On or about 30 March 2006, Mr Antonopoulos and Mr Nikopoulos agreed with Mr Martinuzzo, Mr Christie and Mr Theodorou to the sale of The Cove business for $450,000. The agreement was oral and the terms had not yet been worked out in any detail. The identity of the purchaser was not confirmed. The agreement may be regarded as one in principle and not immediately binding in law.

101    On 13 April 2006, Harbourside’s solicitors wrote to TMG advising that Harbourside had reached agreement for the sale of the restaurant business to Mr and Mrs Martinuzzo, Mr and Mrs Christie, Mr and Mrs Theodorou and Mr Carlos Bacalhau. The solicitors requested TMG’s consent to the assignment of the restaurant lease. The letter enclosed statements of assets and liabilities of Mr and Mrs Martinuzzo, Mr and Mrs Christie and Mr and Mrs Theodorou, but did not include any statement of assets and liabilities of Mr Bacalhau.

102    The letter enclosed a curriculum vitae for “each of the Purchasers who will be actively involved in the management and operation of the restaurant”. The disclosed assets and liabilities of Mr and Mrs Martinuzzo, Mr and Mrs Christie and Mr and Mrs Theodorou were substantial. There is no issue that their financial position, in combination, was at least equal to that of Harbourside.

103    The curricula vitae enclosed with the letter were very brief and general. This was a substantial business transaction and the assignment of the lease was a serious matter. It would have been reasonable to expect a great deal more particularity to have been given about the actual experience of Messrs Martinuzzo, Christie and Theodorou in operating a restaurant business.

104    Mr Martinuzzo’s curriculum vitae showed, relevantly, that in 1998 he had “ventured into the seafood industry”. The venture seemed to involve a seafood shop owned by Mr Theodorou in Gladesville, in which Mr Martinuzzo was employed as a manager. In 2001, Mr Martinuzzo purchased the business from Mr Theodorou. The shop was sold in early 2006. The curriculum vitae stated that “during various stages” of Mr Martinuzzo’s career he worked in several restaurants and his duties included managing floor staff, bar management and “general maître d’” duties. The curriculum vitae did not show that Mr Martinuzzo had any experience in being responsible for the overall management and financial success of a restaurant. However, it stated that Mr Martinuzzo would be responsible for the “front of house” operations of the new restaurant business.

105    Mr Christie’s curriculum vitae showed that he was born in London and arrived in Australia in 2001. His early background was said to be “in the Fashion Industry”. He later:

“… changed directions to pursue his family’s interest in restaurants. Taking his experience from his family’s extensive background in the hospitality industry (restaurants in London since 1948) he managed the 120 seater Bateman’s Restaurant, in the heart of London’s West End. In 1996, upon the retirement of the restaurant’s owner, [Mr Christie] remained in the restaurant business on a consultancy level … until his arrival [in Australia in 2001]. Since then he has been involved with several restaurants on a consultancy basis.”

106    Mr Theodorou’s curriculum vitae showed that his first business, from 1986 to 1990, was a “retail seafood outlet” in North Ryde and another in Gladesville. It would appear that these “outlets” were seafood shops. Since 2001, when Mr Theodorou sold this business, he had been engaged in property development. Mr Theodorou is married to the sister of the Managing Director of a large seafood wholesale business. Mr Theodorou did not have experience in operating or being financially responsible for the success of a restaurant business.

107    A curriculum vitae was included for Mr Bacalhau. He had been the head chef of The Cove restaurant since its commencement. No further details of his experience were given – clearly, those details were not regarded as necessary. The curriculum vitae stated that Mr Bacalhau would remain as head chef in the new restaurant business “and in the near future will be a shareholder of the business”.

108    On 20 April, Mr Ramirez wrote to Harbourside’s solicitors requesting a meeting between the prospective purchasers and Mr Magid and himself. The letter continued:

“ 1. Curriculum Vitae
From the information provided on the prospective purchasers it remains unclear as to what level of actual retailing experience they may have with regard to operating a restaurant.

Mario Theodorou & Anthony Martinuzzo:	What type of retail outlet did Mr Theodorou and Mr Martinuzzo operate? What were the trading names and addresses of these retail outlets in the Macquarie Centre North Ryde and Gladsville [sic]?
Chris Christie:	What restaurants has Mr Christie consulted to since his arrival in Australia in 2001? What level of consultancy has Mr Christie provided to these restaurants?


2. Statements of Assets and Liabilities
The Assets and Liabilities Statements provided do not seem to have been prepared or certified by a CPA. Could you please advise each party that we require an actual certified statement from their respective accountants.

3. Other Information required
a) Entity that the prospective purchaser will be using to purchase the business and assign the lease.
b) Copy of the Assignor’s Disclosure statement as required under the Act.
c) TMG reserves its right to request for further information.

Could you please ensure that the information requested is provided to our office prior to the meeting with the prospective purchasers.”

In view of the scant and imprecise information provided with Harbourside’s letter of 13 April, this request for information was entirely justified.

109    On 26 April, Harbourside’s solicitor e-mailed to Mr Ramirez answers to Mr Ramirez’s request for information. An attached letter from Mr Martinuzzo showed that Mr Martinuzzo had, indeed, owned a seafood shop at Gladesville, and Mr Theodorou had owned two seafood shops, one at North Ryde and one at Gladesville. The information showed that since Mr Christie’s arrival in Australia, he had “consulted for Mr Vida of Romano’s Restaurant, Castlecrag … to offer ideas for a new theme, including menus, décor and some marketing”. Mr Christie had also been asked to give advice for a new restaurant at Bondi Junction. His advice consisted of “offering assistance in the total concept of the fit out and theme, and general running”.

110    The letter enclosed an ASIC search of Amancha which showed that Messrs Martinuzzo, Christie and Theodorou were directors and shareholders, but not Mr Bacalhau.

111    On 27 April, Messrs Martinuzzo, Christie and Theodorou met Mr Magid, Mr Ramirez and TMG’s solicitor. By this time there were some six and a half years left in the term of the lease if both options were exercised. Messrs Martinuzzo, Christie and Theodorou were contemplating spending a substantial amount on refurbishment of the restaurant, and were keen to know whether a new lease would be granted when the current lease expired. They were informed by Mr Magid that TMG would not be granting a new lease because it had its own plans for the site. There was, of course nothing to prevent TMG from taking that attitude, and it was perfectly proper for TMG to make its position known to Amancha.

112    There is no question but that Mr Magid drew attention at this meeting to the fact that Messrs Martinuzzo, Christie and Theodorou had no experience in being responsible for the financial success of a restaurant comparable to The Cove. However, Mr Magid frankly conceded in cross examination that Messrs Martinuzzo, Christie and Theodorou had, between them, experience in the retailing of food and that Mr Christie’s experience in managing a restaurant was a relevant retail skill. He frankly said that the “retailing skills” possessed by Messrs Martinuzzo, Christie and Theodorou were much better than those of Manly Cove. He said that a highly important consideration was the suggestion that the head chef of The Cove, Mr Bacalhau, would become a shareholder of Amancha, thus having a stake in its financial success. If Mr Bacalhau’s participation in ownership of the restaurant business had been secured, he said, he may well have given consent to the assignment. However, it was not clear that Mr Bacalhau was going to take a part in the management team and he felt that he needed further information.

113    I accept Mr Magid’s evidence. The reasons given by him for his attitude to the assignment are commercially rational and are supported by the information – or, rather, the lack of information – which had been provided to TMG by the time of this meeting. There was no suggestion at this meeting that litigation between Harbourside and TMG, or animosity between Mr Magid and Messrs Antonopoulos and Nikopoulos, had anything to do with Mr Magid’s attitude to the proposed assignment to Amancha.

114    There is no doubt that when Mr Martinuzzo learned that TMG was unlikely to grant a new lease upon expiry of the current lease, his enthusiasm for the purchase of the business from Harbourside was somewhat dampened. However, he said, and I accept, that if Harbourside had been prepared to accept a reduction in the purchase price for the business, he was prepared to proceed with the purchase and take the risk that a new lease would not be granted. Consequently, Messrs Martinuzzo, Christie and Theodorou went back to Messrs Antonopoulos and Nikopoulos and tried to negotiate the sale price for the business down.

115    On 3 May, Harbourside’s solicitors sent an e-mail to Mr Ramirez requesting details of any further information required for consent to the assignment. Mr Ramirez responded on the same day requiring information concerning the assets and liabilities of Amancha and its directors and guarantors, and contact details of certain persons who could provide references as to the work experience and skills of Messrs Martinuzzo, Christie and Theodorou. In my opinion, this request for information was not unreasonable.

116    On 9 May, Harbourside’s solicitors provided TMG with some, but not all, of the information requested. One of the persons whom TMG wished to contact as a reference for Mr Christie’s experience was said to be overseas for six weeks and uncontactable.

117    On 10 May, Harbourside’s solicitors faxed to TMG title searches for properties owned by the proposed guarantors of Amancha.

118    On 19 May, Harbourside’s solicitors requested Mr Ramirez by e-mail to advise when TMG would respond to the request for consent to the proposed assignment.

119    On Tuesday, 23 May, Harbourside’s solicitors wrote to TMG’s solicitors advising that the proposed assignees “… include the current head chef of the Cove restaurant, Mr Carlos Bacalhau”. However, it is significant that no statement of assets and liabilities of Mr Bacalhau had yet been provided, none of the title searches of guarantors’ property had included any property owned by Mr Bacalhau, and no advice had been given that Mr Bacalhau was now a director and shareholder of Amancha. In short, the participation of Mr Bacalhau in the venture in any way was left in very general terms.

120    The letter concluded by saying that if no response was received by 5pm on Thursday, 25 May, “we will take steps to expedite proceedings on this issue”.

121    On 25 May, TMG’s solicitors responded in the following terms:

“I am surprised at the tone of your letter and yesterday’s email. Nor do I understand the reference to ‘proceedings’ or the ‘current court proceedings’ . How can any of the current disputes between our respective clients be relevant to your client’s request?

In any event I am instructed as a preliminary matter to advise you that your client and yourselves should be assured that my client has given serious and proper consideration to your client’s request.

As you are aware the subject premises are in a significant and prominent location within the complex and your client has been operating its restaurant at the premises for over a decade. It is therefore of vital importance to my client that an appropriately resourced and skilled operator lease the premises. That has always been my client’s concern.

Unfortunately I have to take issue with your statement that my client has had for a considerable time ‘all the information that it requires to make a decision on an assignment’ . That is not so particularly if the decision you refer to is one limited to a consent. One of the difficulties is that much of the information provided to date is not independently verified. On the basis of the information supplied to date my client cannot be satisfied that the proposed assignees have financial resources and relevant retailing skills superior to the assignor.”

The letter sought specific information and concluded:

“Your comments concerning Mr Bacalhau as a proposed assignee appear to contradict the Cirriculum [sic] Vitae you submitted for him which merely stated he ‘in the near future will be a shareholder of the business’ . Please provide copies of all relevant information for Mr Bacalhau, as has been requested for each other assignee, including the agreement by which it is said he is entitled to become a shareholder of the ‘business’ .

Please advise when Mr Vida, upon whose reference your client relies, will be able to be contacted and provide details of how my client can contact him.

As you will appreciate the above information needs to be supplied to enable my client to properly assess the financial standing and relevant business experience of the proposed assignees. Please advise me if you have any difficulties providing any of the information requested.”

122    Some of the information sought in the letter could be regarded as over-punctilious, although all of it can be justified as vouching the truth and substance of the information previously provided by Harbourside in very general terms. There is nothing unreasonable or unconscionable in a lessor not accepting at face value information provided in support of a request for consent to an assignment to a lease; a lessor is entitled to be assured that the information upon which it is requested to make a decision is accurate.

123    I suspect that the length and detail of the information required by TMG’s solicitors in the letter of 25 May was a response to what was perceived as a precipitate threat by Harbourside’s solicitors to commence proceedings if consent to the assignment was not given immediately. However, the letter reasonably required information as to a highly important factor in TMG’s consideration of the assignment, namely, Mr Bacalhau’s position. The request for that information could not reasonably be brushed aside by Harbourside.

124    Later on 25 May TMG’s solicitors sent a fax to Harbourside’s solicitor in the following terms:

“I note in your correspondence, and that of Mr Buchanan, that reference is made to today being 42 days since your client applied for consent.

There are a number of matters I raise in response:

1. In my letter today I requested a copy of the agreement Mr Buchanan said had been reached for the sale of your client’s business. I also referred to the vacillation concerning who was the proposed assignee(s)/purchaser(s) which was evident in your firm’s correspondence. Until we are provided with the relevant information to adequately confirm who are indeed the purchasers/assignees of the business my client does not accept that a ‘proposed assignment’ , such as to activate the provisions of the sub-lease and Retail Leases Act, exists nor does it accept, if a proposed assignment does exist, that the request dated 13 April 2006 relates to it. In those circumstances my client reserves its rights to contend that a valid request for consent has not been made and that your client was not entitled to make it.

2. The manner in which notices are to be provided under the sub-lease pursuant to which your client occupies the subject premises is set out in the sub-lease. To the extent that your client’s request is valid (in respect of which my client reserves its position as referred to above) the reference to the 42 day time period is as I understand a reference to the period within which my client must respond to your client’s request. I do not accept:

firstly, that the relevant 42 day period will expire by close of business tonight; and
secondly, that your reference to 42 days is the relevant time period having regard to the provisions of the Retail Leases Act.

Notwithstanding the above and to the extent that:

your client’s request for consent was validly made;
your client was entitled to make the request it made; and
you are correct and my client must respond by close of business today (which appears to be your client’s requirement),

then, to ensure that there is no argument that my client may be deemed to have consented to your client’s request for consent to the assignment, my client has instructed me to advise you on your client’s behalf that it refuses to consent to the ‘proposed assignment’ . The reasons for my client’s refusal are as follows:

(a) on the basis of the information provided to date it is of the opinion that the proposed assignees (as my client understands them to be) have financial resources or retailing skills that are inferior to those of your client;

(b) your client has not complied with section 41 of the Retail Leases Act, specifically, but not limited to, its failure to comply with requests made by my client or on its behalf for information concerning the financial standing and business experience of the proposed assignees.

Further the reasons set out above are not intended to exhaust the grounds upon which my client may be entitled to rely to withhold consent and my client expressly reserves its rights to rely on other grounds as and when it becomes aware that they may exist.”

125    By letter dated 25 May, Harbourside’s solicitor responded that TMG’s fax of 25 May was regarded as a failure by TMG to consider properly the request for consent to the assignment, and as a failure to act in good faith for the purposes of the Retail Leases Act and the relevant covenants of the lease.

126    On or about 30 May, Messrs Martinuzzo, Christie and Theodorou met Messrs Antonopoulos and Nikopoulos. They were shown the correspondence which had passed between the parties’ solicitors. They decided not to proceed with the purchase of the business from Harbourside because of TMG’s refusal of consent in its solicitors’ fax of 25 May, and because there was no assurance that TMG would grant a new lease on the expiry of the current lease.

Whether refusal of consent justified

127    TMG does not contend that the financial resources of Amancha, given that Messrs Martinuzzo, Christie and Theodorou would be guarantors, were inferior to those of Harbourside. It says that it was entitled to refuse consent because Amancha’s relevant retailing skills were inferior to those of Harbourside.

128    Harbourside repeats its submission that “retailing skills” for the purpose of this case are not confined to operating a restaurant business and that Amancha, in the persons of Messrs Martinuzzo, Christie and Theodorou, had skills in the food industry which were at least equal to those of Harbourside.

129    For the reasons I have earlier given, I am of the view that Harbourside was required to demonstrate that Amancha had skills in operating a restaurant business which were at least equal to those of Harbourside. That involved demonstrating that those concerned in the management of Amancha had had experience in being responsible for the operation and financial success of a restaurant business comparable to that of Harbourside. If the directors of Amancha were to be Messrs Martinuzzo, Christie and Theodorou, but not Mr Bacalhau in addition, I would conclude that the relevant skills of Amancha were not equal to those of Harbourside. Only Mr Christie claimed experience in running a restaurant business, but the details of his experience in London and his “consultancies” in Sydney were so scant and incapable of verification that TMG was entitled to discount them unless substantial verification was provided. Verification of the “consultancies” was sought but was said not to be available at the time that Harbourside insisted that TMG make a decision to grant or refuse consent to the assignment.

130    TMG was entitled to be concerned that Harbourside had originally indicated that Mr Bacalhau was to be one of the participants in ownership of Amancha, but that his directorship and shareholding of Amancha were never confirmed. It is significant that Mr Bacalhau did not attend any meeting with TMG.

131 I conclude that on the information provided to TMG by Harbourside and Amancha as at 25 May, TMG was justified in refusing consent to the assignment pursuant to s 39(1)(b) RLA on the ground that the retailing skills of Amancha were inferior to those of Harbourside.

Unconscionable conduct

132 Mr Lever SC submits that TMG’s conduct in requiring more information about Amancha’s financial resources and retailing skills, particularly in its solicitors’ letter of 25 May, was unreasonable and is evidence of a determination on TMG’s part to refuse consent to any assignment by Harbourside unless Harbourside paid money to TMG and discontinued the District Court proceedings. Consequently, Mr Lever says, TMG did not act in good faith in refusing the consent, even if it was entitled to do so in law, and it is guilty of unconscionable conduct in contravention of s 62B(1) RLA.

133    There is no suggestion in the evidence that in the course of discussions between the parties for the assignment to Amancha, TMG even hinted that consent to the assignment would be given if Harbourside settled the District Court proceedings on terms acceptable to it. I do not accept that TMG’s attitude to the assignment to Amancha was influenced by some intention on its part to refuse the request for consent as a lever to procure an advantage for itself in the District Court proceedings.

134    There is no suggestion in the evidence that TMG even hinted that it would give consent to the assignment to Amancha if a sum of money – “key money” – were provided as an inducement.

135    As I have observed, I am satisfied that TMG had a legitimate concern as to the retailing skills of Amancha in view of the paucity of verifiable information concerning Mr Christie’s skills in respect of operating a restaurant and because of the unexplained absence of further confirmation that Mr Bacalhau would be a director and shareholder of Amancha. Some of the requests for information in TMG’s solicitors’ letter of 25 May were over-detailed – as I have said, probably in response to pressure from Harbourside’s solicitor for an immediate decision – but I cannot ascribe to these requests a motive other than lawyerly defensiveness. The information sought by way of confirmation of retailing skills, however, was entirely proper and reasonable.

136    I am not satisfied that TMG’s refusal of consent, or its request for further information on 25 May, were actuated by any improper or ulterior purpose. Harbourside’s claim founded upon unconscionable conduct does not succeed.

Damages

137    In view of the findings of fact which I have made, it is not necessary to deal at length with the parties’ submissions on damages. I will briefly state my conclusions on the central issue as to damages.

138 I accept TMG’s submission that Harbourside has not proved the quantum of any damages to which it might have been entitled had it been able to establish liability on the part of TMG under s 62B(8), or for breach of covenants in the lease. Harbourside says that the quantum of its damages is the sale price it would have received from Manly Cove or from Amancha. However, when the sales to Manly Cove and Amancha did not proceed, Harbourside continued to operate the restaurant. It chose to let the lease expire without exercising any further option to renew.

139    In those circumstances, Harbourside cannot have the loss of the sale price of the restaurant business as damages unless it can prove that the business, which it kept in its hands, was rendered valueless as a result of the loss of the sales. It has not attempted to prove that proposition. It has not attempted to prove the amount by which the value of the business may have diminished as a result of TMG’s refusals of consent to the assignments. Neither has it attempted to prove as damages any costs and expenses incurred in the sales thrown away by reason of TMG’s refusals of consent.

140    For those reasons, Harbourside’s claim would have failed even if it had succeeded in establishing liability on the part of TMG.

Orders

141    There will be judgment for the Defendant on the Plaintiff’s Second Further Amended Statement of Claim. I will hear the parties as to costs.

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