Horwood v Memocorp Australia Pty Ltd

[2010] NSWADT 69

CITATION:	Horwood v Memocorp Australia Pty Ltd [2010] NSWADT 69 This decision has been amended. Please see the end of the decision for a list of the amendments.
DIVISION:	Retail Leases Division
PARTIES:	Richard Frank Horwood Memocorp Australia Pty Ltd
FILE NUMBER:	085212; 095064
HEARING DATES:	16,17,18 December 2009
SUBMISSIONS CLOSED:	18 December 2009
DATE OF DECISION:	12 March 2010
BEFORE:	Chesterman M - Deputy President; Griffiths G - Non-Judicial Member ; Fagg N - Non-Judicial Member
CATCHWORDS:	Retail lease – covenant for quiet enjoyment – unconscionable conduct – assessment of damages
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Arndale (Kilkenny) Pty Ltd v Gaetjens (1970) 44 ALJR 37; 20 LGRA 37 Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153; [2003] HCA 18 J C Berndt Pty Ltd v Walsh [1969] SASR 34 Field v Jenolan Caves Resort Pty Ltd [2009] NSWSC 491 Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 191 Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 Telstra Corporation Ltd v Sicard Pty Ltd [2009] NSWSC 827 Vasile v Perpetual Trustees WA Ltd (1987) 10 BPR 97,829 Wallis Lake Fishermen’s Co-operative Ltd v A.C.N. 079830596 Pty Ltd [2008] NSWSC 925
REPRESENTATION:	APPLICANT A Fernon, barrister RESPONDENT M Sneddon, barrister
ORDERS:	1. The Respondent/Cross Applicant is to pay to the Applicant/Cross Respondent damages in the sum of $46,000.00. 2. The Application by the Respondent/Cross Applicant is dismissed. 3. Any application for costs in these proceedings must be filed and served, with supporting submissions, within 28 days of the date of this decision. The opposing party or parties must file and serve submissions in reply within a further 28 days. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.

REASONS FOR DECISION

Introduction

1 The principal issues to be resolved in these proceedings are these: (a) whether the former lessee under a retail shop lease of premises in a shopping centre is entitled to damages from the former lessor, on the ground that renovation works in the centre carried out by a building contractor employed by the lessor disrupted the business of a real estate agency carried on in the premises, in ways amounting to a breach of the lessor’s covenant for quiet enjoyment; (b), if so, what amount of damages should be awarded, having regard particularly to the fact that the business was conducted by a company owned by the lessee; and (c) whether the lessor’s claim for unpaid rent under a new lease created through the lessee’s exercise of an option of renewal should fail by virtue of allegedly unconscionable conduct on the lessor’s part.

2 The lessor in the proceedings is the Respondent/Cross Applicant, Memocorp Australia Pty Ltd (‘Memocorp’). The lessee is the Applicant/Cross Respondent, Mr Richard Horwood. The nature of the Applications filed by each of these parties is outlined below.

3 The leased premises (‘the Premises’) were a shop, Shop 49, forming part of Strathfield Plaza (‘the Centre’). The real estate agency business in the Premises was carried on under the name ‘Boulevarde First National Real Estate’ by Boulevarde Real Estate Pty Ltd (‘Boulevarde’). At all material times, Mr Horwood was the manager and sole licensee of the business and was the sole director and shareholder in Boulevarde. Memocorp was the owner of the Centre.

4 The hearing of the two Applications took place on 16, 17 and 18 December 2009. Because the Application filed by Mr Horwood against Memocorp include an unconscionable conduct claim, the Tribunal was constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

5 An outline of the evidence, except so far as it relates to quantification of damages, now follows.

The lease between Memocorp and Mr Horwood

6 The Centre was situated between two streets in Strathfield, Churchill Avenue and The Boulevarde. It could be entered from both these streets. The Premises were located beside the Boulevarde entrance to the Centre, from which an arcade (‘the Arcade’) led into the principal shopping area. The Premises had shop frontages, with glass windows, facing both the Arcade and The Boulevarde.

7 Mr Horwood first became a tenant of the Premises in 1980. By a registered lease executed on or about 5 September 2005 (‘the Lease’), Memocorp granted to him a lease of the Premises for three years commencing on 1 July 2005, in which the permitted use was stated to be ‘Real Estate Agency’. The Lease was governed by the Retail Leases Act 1994 (‘the RL Act’).

8 The rent due under the Lease was payable by monthly instalments in advance, with the first payment to be made on the commencement date. The initial rent, exclusive of GST, was $36,530 per year, representing $1,300 per square metre. An annual increase of 5% was stipulated. From July 2007 to June 2008, when most of the events of relevance to these proceedings occurred, the yearly rent was $40,272.38 plus GST, representing $1,433 per square metre.

9 Clauses 6 and 11 of the Lease and Item 13 of the annexure to it set out the terms of an option to renew for three years. They were to the following effect. Exercise of the option was to be effected by notice not less than three months and not more than six months before the date of expiry of the Lease and was conditional on performance by the tenant of all its obligations under the Lease. The rent payable under the renewed lease would be ‘the Revised Minimum Rent’: that is, ‘the current market rent determined by the Landlord… as if the Commencement Date of the Renewed Lease was the Rent Review Date unless the parties agree otherwise’. If the tenant disputed the amount stated by the landlord to be the Revised Minimum Rent, the landlord was to nominate a valuer to determine this rent. If the tenant did not object within 14 days to the valuer nominated by the landlord, the tenant was deemed to approve the nomination. If the tenant did object, either party could refer the matter to the President or other principal officer of the Australian Institute of Valuers and Land Economists (New South Wales Division) to appoint a valuer. Until the Revised Minimum Rent was determined, the rent payable under the Renewed Lease would be the rent payable immediately before the commencement date of the Renewed Lease.

10 Clause 24 stated as follows:-

QUIET ENJOYMENT

If the Tenant observes all obligations in this Lease, the Tenant may peaceably hold and enjoy the Shop during the Term without any interruption by the Landlord.

11 Clause 26 was a common-form clause adopting the terminology of section 34 of the RL Act. So far as relevant, it stated:-

COMPENSATION FOR DISTURBANCE

If the Landlord:


(a) inhibits access of the Tenant to the Shop in any substantial manner;

(b) takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the Shop, or

(c) unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the Tenant in the Shop, or

(d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the Tenant in the Shop and that is attributable to causes within the Landlord’s control…

and the Landlord does not rectify same as soon as reasonably practicable after being requested in writing by the Tenant to do so, the Landlord is liable to pay the Tenant reasonable compensation for any loss or damage (other than nominal damage) suffered by the Tenant as a consequence…

12 So far as relevant, clause 15.2 stated:-

ALTERATIONS AND ADDITIONS TO THE CENTRE

(a) Subject to clause 26, the Landlord reserves the right to extend, vary, modify, alter, renovate, re-design, or rebuild the Centre…

(b) The Landlord must carry out the works referred to in clause 15.2(a) so as to minimise, so far as is practicable, any interruption to the Tenant’s business.

(c) The Landlord must not carry out any such work unless the Landlord has notified the Tenant in writing of the proposed work at least two months before it is commenced or the work is necessitated by an emergency…

13 During 1995, Mr Horwood complained to Memocorp that due to works carried out on the façade at the Boulevarde entrance to the Centre, his ‘walk-in’ inquiries diminished substantially and the takings of his business declined by about $70,000. Memocorp granted him an abatement of his rent.

Memocorp’s plans to renovate the entrances to the Centre

14 On or about 19 February 2007, Ms Carol Lazarevich, who was employed by Memocorp as the Manager of the Centre, sent to all Centre tenants, including Mr Horwood, a circular advising that Strathfield Council had approved plans submitted by Memocorp for ‘complete renovation’ of the facades at the Boulevarde and the Churchill Avenue entrances to the Centre.

15 Ms Lazarevich is now known as Ms Albina. But because she was referred to as Ms Lazarevich during the period with which these proceedings are concerned, she is identified by her former name in the present judgment.

16 In or about March 2007, Mr Horwood received from Memocorp a group of photographs of an artist’s impressions of the two renovated facades.

17 On or about 18 July 2007, Ms Lazarevich sent to all Centre tenants, including Mr Horwood, a circular advising that the renovation works on both facades were scheduled to commence at the end of that month and describing the appearance of the two new facades.

18 By a letter dated 24 July 2007, Ms Lazarevich asked Mr Horwood to attend a meeting, scheduled for 30 July, of all tenants of the Centre who were likely to be ‘most affected’ by the forthcoming façade renovations.

The Works Deed

19 At this meeting on 30 July 2007, where according to Mr Horwood those present included three other tenants, Ms Lazarevich gave Mr Horwood a copy of plans of the renovations and a draft of a so-called Works Deed. He said that he wanted to consult a solicitor before signing this document.

20 According to Mr Horwood’s evidence, Ms Lazarevich then insisted that he sign the Works Deed immediately, since (a) the renovations were on a ‘really tight schedule’, (b) if he did not sign immediately the project would have to be postponed for six months, (c) he could be sued for causing a delay and (d) he was the only tenant who was ‘creating a problem’. In addition, on about ten occasions over the next few days, she called him on the telephone or sent him a text message, asking whether he was intending to sign the Works Deed.

21 In her evidence, Ms Lazarevich denied saying any of these things to Mr Horwood or trying to contact him by telephone through text messages. According to her, she told him at the meeting that the renovations were expected to be completed by December 2007, that if he did not sign the Works Deed they would not commence until 2008, and that he should have the opportunity to consult a solicitor before signing. Mr Horwood did in fact consult Mr Joseph Saad, solicitor, and Memocorp, at his request, reimbursed him after the Deed had been executed for the fee that he paid to Mr Saad.

22 Ms Lazarevich’s denial of putting pressure on Mr Horwood to sign quickly is, however, at odds with the contents of an email message sent by her on 3 August 2007, a Friday, to Ms Vanessa Tay and Mr Terence Tay, who were directors of Memocorp. In that message, she stated that Mr Horwood had still not signed the Works Deed, that over the coming weekend he wanted to scrutinise it together with the renovation plans, that she had ‘made him aware that he is holding everything up’ and that she had told him that she wanted ‘the paperwork’ back ‘no later than first thing Monday morning’. She added ‘so we will see what he comes up with next!’

23 During cross-examination, Ms Lazarevich endeavoured to explain the contradiction between her claim not to have told Mr Horwood that he was ‘holding everything up’ and these contemporaneous statements in her message to Ms Tay by saying that the message was ‘just an internal email’ and that in her dealings with Mr Horwood she was always ‘amicable’. She also said that she regarded herself as a ‘mediator’ between Memocorp and its tenants.

24 The parties to the Works Deed were Memocorp (designated ‘the Landlord’), Mr Horwood (‘the Tenant’) and Berem Constructions Pty Ltd (‘Berem’). Berem was the building company that Memocorp had engaged to carry out the renovations. The Deed was principally concerned with the terms and conditions of a non-exclusive licence to enter the Premises, granted by Mr Horwood to Berem, during the period when the renovations were being conducted. The Deed, in both draft and final form, contained provisions (set out below) indicating that the anticipated length of this period was about 13 weeks.

25 Between 30 July and 17 August 2007, there were negotiations between Ms Lazarevich, on behalf of Memocorp, and Mr Horwood or his solicitor Mr Saad regarding some of the terms of the Works Deed. For present purposes, the significant questions canvassed in these negotiations was whether Memocorp should grant a rent abatement to Mr Horwood on account of the disruption of his business caused by the renovations and, if so, for what period.

26 In a letter dated 7 August 2007 to Memocorp, Mr Horwood maintained that the ‘major facelift’ contemplated for the façade at the Boulevarde entrance to the Centre would cause ‘considerable hardship’ to his business and would have a ‘financially adverse’ impact on it. Having pointed out that the Lease entitled him to ‘quiet enjoyment of the Premises, he asked to be relieved of his rent obligations between 15 October and 15 December 2007, adding that at the end of this period he would be in a position to ‘assess any further damages to income caused by this disruption to business’. The letter concluded by saying that if this rent relief were accorded to him, he would be willing to sign the Works Deed.

27 According to an email sent by Ms Lazarevich to Ms Vanessa Tay and Mr Terence Tay on 8 August 2007, Mr Horwood rejected an offer of 50% rent relief for the three-month period from October to December 2007 put to him by Ms Lazarevich during a meeting earlier that day. In the email, she recommended that 100% rent relief for this period should be offered to him, adding that this would stave off a claim by him for compensation for loss of business, which would ‘no doubt’ be ‘a lot more’.

28 Replying to this email, Ms Tay agreed with this recommendation, adding that Mr Horwood would have to sign the Works Deed in the near future or the renovation project would have to be postponed until 2008.

29 In a letter to Mr Horwood dated 16 August 2007, Mr Saad suggested some amendments to the Works Deed, including the deletion of a draft clause 6. On the same day, Mr Horwood forwarded a copy of this letter to Ms Lazarevich and she said in a reply by email that Memocorp agreed to this amendment.

30 Draft clause 6 was headed ‘Releases and Indemnity – the Tenant’ and was in the following terms:-

The Tenant releases and indemnifies the Landlord, its employees and agents from liability, whether arising now or in the future, in respect of any Claim relating to the Works or the carrying out of the Works by Berem or Berem’s Associates.

31 On 17 August 2007, Memocorp and Mr Horwood executed the Works Deed. The text of draft clause 6 was retained, but lines were drawn through it to indicate that it was deleted. Both the initials of the signing parties and the date of execution were placed beside the deleted clause.

32 Clause 1.1 of the Works Deed included the following relevant definitions of terms used in the Deed:-

Access Date means 15 October 2007 or a later date subject to Berem giving the Tenant 5 business days advance notice in writing.

Claim includes ‘any claim, demand, remedy, suit, injury, damage, loss, Cost, liability, action, proceeding, right of action, claim for compensation and claim for abatement of rent obligation’.

Construction Contract means the contract that will be signed between the Landlord and Berem which forms Annexure B to this Agreement.

Cost includes ‘any cost, charge, expense, outgoing, payment or other expenditure of any nature (whether direct, indirect or consequential and whether accrued or paid), including where appropriate all legal fees’.

Estimated Works Completion Date means the date that is 13 weeks after the Access Date.

Premises means the premises leased to the Tenant…

Works means all work to be undertaken by or on behalf of Berem in accordance with the Approved Plans and Specifications.

Works Area means that part of the Premises which is reasonably required by Berem and Berem’s Associates to carry out the Works…

Works Completion Date means the date that the Landlord’s Architect certifies that the Works are complete.

33 Under clause 2.3(a)(iv), Berem was obliged, ‘without limiting clause 4.2’, to ensure that the Works were carried out ‘with only minimal and temporary disturbance or disruption to the Premises…’

34 Under clause 4.2(b), Berem was obliged to ensure during the Works Period that hoarding was erected around the Works Area and that ‘adequate signage’ was installed in and around the Works Area, in order to notify customers and others using the Premises that the Works were being carried out.

35 Under clause 4.2(c), Berem was obliged to refrain from impeding or altering access to or visibility of the Premises, except to the accent that access or visibility was affected by ‘the hoarding or other equipment or material associated with the Works’. It was also obliged to use reasonable endeavours to avoid disruption of the Tenant’s trading, except to the extent that this occurred as a result of the ‘presence of hoarding and other equipment and materials associated with the Works in the Works Area and reasonable noise and activity caused by the Works being carried out during the Work Hours’.

36 Clause 5 was headed ‘Rent Abatement’ and was in the following terms:-

The Landlord agrees that the Tenant is not required to pay rent under the Tenant Lease for the period commencing from ( sic ) 15 September 2007 and ending on 15 December 2007.

37 Under clause 7, Memocorp and Berem agreed to carry out a number of additional works relating specifically to the Premises, including installing additional carpet (to be paid for by Mr Horwood) and new glass frontage panels.

38 Clause 11 was an ‘entire agreement’ clause, in standard form.

39 As indicated in clause 1.1 of the Works Deed, a separate agreement between Memocorp and Berem, described as the ‘Berem Construction Contract’, was Annexure B to the Deed. Clause 6.5(b) of this contract, headed ‘Tenancy Shopfront Work’, stated:-

[Memocorp] will give 7 days grace period from the proposed completion date according to the table below. Berem will be liable for the rent abatement that the following tenants will be entitled to if further delays occur beyond the 7 days grace period.

40 In the table mentioned in this clause, various completion dates, the last of which was 18 December 2007, were stipulated for works relating to the Premises and to three other shops in the Centre. The table also indicated that any rent abatement payable under the clause on account of late completion of work relating to the Premises would be $774.51 plus GST per week.

41 Ms Lazarevich stated in cross-examination that at the time when the Works Deed was signed she was not aware of this provision regarding rent abatement in the Construction Contract.

The impact of the renovations during 2007

42 A great quantity of evidence about the conduct of the renovations and the extent to which they disrupted commercial activity in the Premises was put before the Tribunal. It included the following: testimony from Mr Horwood and from his daughter, Ms Rachael Horwood; diary entries recorded by Mr Horwood while the work was being done; affidavit and oral evidence given by him, by Ms Lazarevich and by Mr Steven Ding, who was the architect engaged by Memocorp to supervise the project; numerous photographs tendered by Mr Horwood or by Memocorp; copies of complaints about the works sent to Memocorp by the tenant of Shop 50 (Café Maldini) and an incoming tenant (Gelatissimo) of a nearby shop; and internal emails within Memocorp, written by or to Ms Lazarevich.

43 This evidence showed, first of all, that from the time of commencement of the renovations in late August 2007 (according to Mr Ding) or mid-September 2007 (according to Mr Horwood) until late December 2007 (at the earliest), access to the Premises was rendered difficult by hoarding, scaffolding, wire fences, cranes, building debris, electric cables and/or other obstacles associated with the works.

44 On some occasions during this period, the Boulevarde entrance to the Centre was completely closed. According to Mr Horwood, this happened on ‘at least 10 to 15 days’. Notices issued by Memocorp to the Centre’s tenants showed that it had occurred on at least three days.

45 During this period of about three months, it was difficult for actual or potential customers of Mr Horwood’s business to determine how they might gain access to the Premises from The Boulevarde. A sign containing the words ‘Boulevarde First National Real Estate’ was displayed at or near the entrance to the Premises. It did not state, however, that this business was operating as usual. Moreover, for significant periods of time it simply lay on the ground or was hung on a large wooden fence, giving no clear indication of how passers-by could gain access to the Premises. Ms Lazarevich asserted that Memocorp provided this sign. Mr Horwood maintained that it was he who provided it.

46 A further consequence of hoardings being erected near the Boulevarde entrance was that Mr Horwood could not use window displays on his frontages to the Boulevarde and the Arcade in order to advertise properties for sale or lease.

47 Between 29 October and 1 November 2007, access to the Premises was barred. The reason was that on or before 29 October demolition works had caused a large concrete buttress to fall through the front window of the Premises, breaking Mr Horwood’s desk in half and causing considerable damage to fittings and equipment.

48 Mr Horwood and his staff inside the Premises suffered significantly from loud noise (caused particularly by jackhammers) and from substantial quantities of dust, notably on a number of days between mid-October and late November 2007 when demolition was occurring. Neighbouring tenants also suffered from noise and dust.

49 Mr Horwood’s daughter, Ms Rachael Horwood, commenced work in his business in 2005. In November 2007, when her role was that of a Senior Sales Person, she resigned. She testified that she did so because she found the noise and dust to be intolerable and she was embarrassed to have to bring clients to the Premises. She believed that the dust was dangerous to her health, particularly because she was asthmatic.

50 It was put to both Mr Horwood and Ms Horwood in cross-examination that the true reason for her resignation was that she wished to complete postgraduate studies that she had already commenced in building design and to seek employment in this field. In fact, she completed the course at the end of 2008 and her occupations after her resignation were initially in the field of business development for a building design company in Bondi, then as a self-employed consultant in building design and estate agency in Queensland.

51 Although, for reasons given below, not much turns on this issue, the Tribunal finds that the noise, dust and feelings of embarrassment that Ms Horwood described in her evidence were, at the least, contributing factors in her decision to resign from Mr Horwood’s employment at the time when she did this.

52 On a number of days after hoarding and scaffolding had been erected, little or no work was done on the renovations. In consequence, Mr Horwood and the owners of Café Maldini and Gelatissimo complained to Ms Lazarevich that the renovations were taking longer than necessary.

53 In describing these complaints in an email dated 15 October 2007 to fellow-employees of Memocorp, Ms Lazarevich observed that Café Maldini’s letter of complaint ‘does not surprise me in the slightest’ and that Mr Horwood had threatened to her that if the renovations were not finished by the proposed completion date of 19 December 2007, he would be ‘demanding a large sum of compensation from [Memocorp] for his extreme loss of trade’. This email also contained the following passage:-

For the last year, whilst planning the front façade works, Terence Tay has always told me that the Boulevarde entrance will be the first to start and finish then Churchill entrance will be done. As you can appreciate, this is the information I have passed on to all the tenants, and off ( sic ) course, the opposite has happened. We now have both entrances hoarded up with hardly any work done on the Boulevarde. This has caused me EXTREME pressure from Shop 50 and Shop 49. They are frustrated and angry enough with losing their exposure, and their anger is increasing when they cannot see any further developments.

54 The Tribunal finds that, as the foregoing summary of the evidence suggests, Mr Horwood’s business suffered substantial and continuous disruption on account of the renovations from mid-September or thereabouts until the last fortnight of 2007. Access to the Premises was impeded and not clearly visible; at times, the convenient mode of access, through the Boulevarde entrance to the Centre, was totally blocked; the signs advertising the business were inadequate and were sometimes badly located; window displays of properties available for sale or lease were obscured by hoarding; people working in or visiting the Premises were compelled to tolerate loud noise and significant quantities of dust. According to the evidence adduced by Memocorp, Mr Horwood’s testimony exaggerated the seriousness of these disruptive aspects of the renovations. But Memocorp did not contest the proposition that significant disruption occurred.

The impact of the renovations during 2008

55 A more controversial issue was the scale and impact of the building activities conducted by Berem during the first eight months of 2008.

56 The period between January and March 2008. During this period, the building operations undertaken by Berem included repairs and renovations to an awning, a skylight and some sections of pavement outside the Premises and to both the exterior and the interior of the Premises. Some of this work relating to the Premises was necessitated by the collapse of the concrete buttress during November 2007.

57 Mr Horwood alleged that from the time when he reopened his business on 7 January 2008 until the second half of March 2008, pedestrian access to the Premises was wholly cut off on some days (with the Boulevarde entrance to the Centre being closed) and on other days required staff or visitors to make their way through or around barricades, safety tape and/or scissor cranes. Furthermore, the noise and dust caused by operations such as drilling and hammering were on a similar scale to what had occurred during the last quarter of 2007. During January and February 2008, the rain leaking through the shop front saturated the carpet inside the Premises, with the result that it developed a bad smell.

58 Email messages between Memocorp and Berem in late January and early February 2008 provided some confirmation for these claims by Mr Horwood. In addition, circulars distributed by Memocorp to all the tenants of the Centre showed that between 15 and 19 March 2008 the Boulevarde entrance was wholly or partly closed to permit installation of skylight glass.

59 According to Ms Lazarevich and Mr Ding, the hoardings obscuring the Premises and neighbouring shops were removed on 24 December 2007. Thereafter, wire fences blocked off parts of the pavement of the Boulevarde and the Arcade, building materials and equipment were present and on a few occasions the Boulevarde entrance was closed. But throughout 2008 access to the Premises was straightforward and clearly visible, and the signage and advertising displays for Mr Horwood’s business were not obscured in any way.

60 During a conversation with Ms Lazarevich on or about 18 January 2008, Mr Horwood complained about the continued impact of noise and dust on his staff and the scale of his business and said that the stress was ‘really getting to’ him. She said that she understood his situation, that she had told the builders to give top priority to completing the work in the Premises and that she had passed on his concerns to Ms Vanessa Tay. Because he did not hear back from Ms Lazarevich, he tried to speak on the telephone to Ms Tay, but was told by her assistant that she did not speak directly to tenants.

61 According to Mr Horwood, on the next day, Ms Lazarevich rang him and said that he should not have tried to speak to Ms Tay, who was ‘upset and angry’ at his attempt to do so. According to Ms Lazarevich’s version of this conversation, she said only that Ms Tay referred his phone message to her on the ground that all communications to Memocorp should go through one person.

62 Having studied the photographs and taken account of both the email correspondence between Memocorp and Berem and the conversations between Mr Horwood and Ms Lazarevich, the Tribunal finds that between January and March 2008 the scale and frequency of disruption to Mr Horwood’s business were substantial. The effect on the business conducted in the Premises was more or less as he alleged.

63 The period from April to August 2008. Mr Horwood acknowledged in his affidavit and in cross-examination that ‘the works affecting my premises’ were substantially completed by the end of March 2008. But he maintained that significant disruption of his business continued intermittently until August 2008. He claimed that bollards, security tape and, at times, scissor cranes were positioned on various areas of the pavement of the Boulevarde near the Premises, in such a manner as to as to discourage passers-by from entering the shop.

64 He also alleged that the Premises were afflicted by noise and dust on an average of two or three days per week. During late May and early June 2008, he sent email messages to Ms Lazarevich complaining about the ‘distracting and annoying’ noise of drilling and hammering during business hours in Café Maldini and also about the presence of scaffolding near the front door to the Premises. On 11 July 2008, he sent an email complaining about the use of jackhammers and a noisy ‘whacker packer’ on the footpath outside the Premises.

65 Ms Lazarevich and Mr Ding maintained that from the end of March onwards only a few minor works were carried out and that these did not significantly disturb the conduct of Mr Horwood’s business. Ms Lazarevich’s email responses to the complaints by him outlined in the preceding paragraph did not, however, include any denial that the events described by him had occurred.

66 Furthermore, Mr Ding acknowledged in cross-examination that between January and September 2008 his firm had prepared a series of defects inspection reports for Memocorp, listing numerous alleged defects in the works carried out by Berem at or near the Boulevarde entrance. Copies of these reports were admitted into evidence.

67 Mr Ding also identified a copy of a letter written by him on 22 September 2008 to Memocorp. In this letter, which was admitted into evidence, he listed in an Outstanding Works Schedule the aspects of the renovation works that were incomplete or unsatisfactory. Noting that Berem had stopped work on the site on 28 August 2008 and had recently gone into administration, he recommended that because a significant amount remained to be done Memocorp should withhold from Berem a substantial progress payment that was due to be made under the Construction Agreement. Ms Lazarevich testified that at the time when he sent this letter to Memocorp she was not aware of its contents.

68 For present purposes, a particularly significant aspect of this letter was a recommendation by Mr Ding that Memocorp should claim entitlement under clause 6.5 of the Construction Contract (see [39] above) to amounts that would be payable as rental abatement to four tenants at the Centre, including Mr Horwood. With reference specifically to the Premises (and also to Café Maldini), Mr Ding advised that while the ‘Contractual date of Shop Front/Awning/Outdoor Paving’ was 18 December 2007, the ‘Actual “almost”** Completion of Shop Front/Awning/Outdoor Paving’ was 15 August 2008. In a footnote, he explained that the word ‘almost’ signified that there were works still to be completed by Berem as shown in the Outstanding Works Schedule.

69 Mr Ding further advised Horwood that Berem was liable to account to Memocorp for rental abatement payable to both Mr Horwood and Café Maldini over a period of 34.75 weeks. He calculated the amount payable to Mr Horwood as $26,914.22 + GST, representing rent over this period at a weekly figure of $774.51 + GST.

70 In cross-examination, Mr Ding stated that he had had a meeting about this letter with Mr Terence Tay, but he could not remember whether this occurred before or after the letter was sent to Berem. He said also that when he later met with representatives of Memocorp and of Berem, the administrator of Berem denied that Berem was liable under clause 6.5 of the Construction Contract. He said he believed that Berem never made any payment to Memocorp under this clause, but pointed out that Memocorp may have had the benefit of it through exercising its right to retain part of the contract price on account of the works being defective or incomplete.

71 The Tribunal’s finding regarding the period from April to August 2008 is that the renovation works continued to disrupt the business carried on at the Premises to a significant extent, though not as severely as in the preceding three months.

The question whether Memocorp granted any rent abatement during 2008

72 Mr Horwood said in his affidavit that no invoice or other demand for rent was sent to him at any time during the period from December 2007 to March 2008. He did not pay any rent during this period. He said also that during his conversation with Ms Lazarevich on or about 18 January 2008 (see [60] above), he said words to the following effect: ‘I hope you do not intend to charge me rent while all the work is going on’. Her reply was that this was a matter for Ms Tay.

73 In her affidavit, Ms Lazarevich did not dispute this aspect of Mr Horwood’s account of their conversation. But in cross-examination, she said that she had no recollection of this exchange between them. She said that she must have ‘overlooked’ this aspect of his evidence when swearing her affidavit. She said also that she would not have passed on to Ms Tay any claim by Mr Horwood for further rent relief beyond that granted by clause 5 of the Works Deed, because by the time of this conversation with him the hoardings had been taken down and his clients could gain access to the Premises.

74 Ms Lazarevich said also that invoices for rent would have been sent to Mr Horwood relating to the rent due for December 2007 and the first three months of 2008. She explained that these invoices were generated automatically, being dated the 15th day of the month preceding the date when the relevant instalment of rent became payable. She added that she did not at that time make any demands on him to pay arrears of rent, because of his history as a long-term tenant and of the impact of the renovations.

75 During the presentation of Memocorp’s case, the Tribunal gave it leave to call an employee, Ms Tricia Jones, as a witness, although it had not filed any written statement by her before the hearing. By agreement between counsel, her evidence was admitted on the basis that (a) Mr Horwood’s counsel, Mr Fernon, would be permitted to read onto the record a statement prepared by Ms Susan Ellem, an employee of Mr Horwood, and (b) no objection would be taken to the admission of her evidence on the ground that, being unavailable, she did not attend for cross-examination.

76 Ms Jones testified as follows: (a) Memocorp had employed her since 2005 as a secretary/receptionist; (b) one of her duties was to post rent invoices to tenants once they had been generated; (c) she remembered the rent abatement that had been granted to Mr Horwood in the Works Deed; (d) she remembered that he asked for his invoices to be sent to a post box address; and (e) while she had no positive recollection of posting invoices to him for the months between December 2007 and March 2008, she would have remembered if those invoices had not sent out.

77 Mr Sneddon, counsel for Memocorp tendered copies of four rent invoices, relating to those four months and addressed to Mr Horwood at a post box address. Ms Jones identified them as being true copies of the invoices that would have been sent to him.

78 In Mr Horwood’s case in reply, Mr Fernon read onto the record the statement that Ms Ellem had prepared. This was to the following effect: (a) she had been employed for 25 years as Mr Horwood’s senior office administrator; (b) the standard instructions that he had given regarding rent due under the Lease had been to pay the rent invoices on receipt; (c) during the period of the renovations to the Centre, however, she had been instructed to refer all rent invoices to him; and (d) she had no recollection of receiving invoices during this period or of referring them to him.

79 In a letter sent to Mr Horwood on 8 April 2008, in circumstances soon to be outlined, Memocorp demanded payment of the rent between December 2007 and March 2008.

80 The Tribunal finds that, on the balance of probabilities, Memocorp did not send rent invoices relating to these four months to Mr Horwood. The Tribunal does not mean to imply by this finding that Ms Jones’s evidence on this matter was untruthful. It takes into account (a) the possibility that, following the suspension of rent invoices during the preceding three months the steps needed to be taken by Memocorp to restart them were not taken; (b) the fact that neither Ms Lazarevich nor anyone else in Memocorp mentioned the matter of rent arrears to Mr Horwood until April 2008; and (c) the Tribunal’s belief that it is more probable that Ms Elton would remember not receiving the relevant invoices than that Ms Jones would remember not sending them.

The exercise of the option to renew

81 On 28 March 2008, Mr Horwood delivered to Memocorp’s office in the Centre a notice exercising his option to renew the Lease for three years. In a covering letter, he requested that a further three-year option be included in the new lease.

82 In a letter to Mr Horwood dated 8 April 2008, Ms Lazarevich advised him that Memocorp could not ‘process’ any request to exercise the option while he was in arrears of rent. She claimed that he owed rent for the five months between December 2007 and April 2008 and asked that he pay the total amount due ($18,459.05) within seven days. She added that Memocorp reserved its rights with regard to recovering interest at 20% per annum, calculated on a daily basis, under clause 20 of the Lease. A copy of a ‘tenant reconciliation statement’ was attached.

83 Mr Saad replied to Ms Lazarevich on Mr Horwood’s behalf in a letter dated 16 April 2008. This letter included the following statements: (a) Mr Horwood had been ‘astonished’ to receive her letter; (b) he denied any liability for arrears of rent, but was prepared, without prejudice to his rights, to pay the current month’s rent of $3,691.81 (a cheque for which was enclosed); (c) he believed, on reasonable grounds, that he was not required to pay rent until the whole of the works were completed; (d) the Lease did not contain any provision anticipating major renovation work near to the Premises; (e) he had not been required to sign the Works Deed, but had done so as ‘an act of good faith’ towards Memocorp, having been led to believe that the works would be completed in or about December 2007; (f) the works actually undertaken had been on a far greater scale than had been described to him and had caused ‘massive hardship and disruption’ to him, his staff and his customers; (g) this disruption was still continuing; (h) he reserved the right to claim full compensation for the losses sustained by his business; and (i) he relied on his lawful exercise of the option contained in the Lease.

84 In a letter to Mr Saad dated 21 April 2008, Mr Kang, an in-house lawyer employed by Memocorp, reiterated Memocorp’s claim that Mr Horwood was liable for arrears of rent and that he was not entitled to exercise the option unless they were paid. Mr Saad also stated as follows: (a) Memocorp was not bound to grant any abatement of rent for longer than the period stated in the Works Deed; (b) in clause 15.2 of the Lease, Memocorp had reserved the right to ‘extend, vary, modify, alter, renovate, re-design, or rebuild the Centre’ without needing Mr Horwood’s permission; (c) Memocorp had shown good faith by paying for his legal advice regarding the Works Deed, by erecting signage for him during the renovation works, painting parts of the Premises and arranging for them to be professionally cleaned; (d) the works carried out had all been disclosed in the Works Deed; and (e) they were substantially completed by the end of 2007 and the remaining works were ‘very minor and/or cosmetic in nature’.

85 In a letter to Mr Horwood dated 24 April 2008, Ms Lazarevich stated that despite her ‘reminder letter’ to him dated 8 April, he was still in rent arrears in an amount of $14,767.24. An attached copy of a ‘tenant reconciliation statement’ showed that his payment of $3,691.81 had been appropriated to the rent allegedly due for December 2007.

86 In a letter to Ms Lazarevich dated 30 April 2008, Mr Saad stated that although many aspects of her letter of 24 April and Mr Kang’s letter of 21 April remained in dispute, Mr Horwood was prepared to pay all the rent demanded by Memocorp, though without prejudice to his rights. A cheque for $11,075.43 was enclosed.

87 During May 2008, further letters passed between Mr Horwood (or Mr Saad on his behalf) and Ms Lazarevich, in which Mr Horwood’s liability for rent, along with the question of who should meet some specific items of expenditure arising from the renovations, remained in dispute.

88 In the last of these letters, dated 31 May 2008 and addressed to Ms Lazarevich, Mr Saad wrote: ‘Our client is astonished by your letter and by your unconscionable conduct as typified in the threatening and heavy-handed tone of your letter’. He also stated that Mr Horwood continued to deny liability for any breach of the Lease. He enclosed, however, ‘without prejudice to our client’s rights’, a cheque for $7383.62 ‘in payment of rent to date’.

89 A letter from Ms Lazarevich to Mr Horwood dated 2 June 2008 commenced as follows: ‘Memo Corporation acknowledges your intent to exercise your option dated 28th March 2008.’ The letter then stated as follows: (a) under the Lease, a rental review was therefore due on 1July 2008, being the date of commencement of the new lease (hereafter ‘the Renewed Lease’); (b) having compared the rents of neighbouring shops, Memocorp had assessed the current market rent for the Premises at $2,150.00 per square metre + GST, giving a yearly rent of $60,415.00 + GST; (c) in accordance with the Lease, an annual increase of 5% would apply after the first year; (d) Memocorp was not prepared to include a second three-year option in the Renewed Lease; and (e) Mr Horwood should indicate within seven days whether he was prepared to accept these terms.

90 Ina reply to Ms Lazarevich dated 11 June 2008, Mr Horwood stated that he found the proposed rental amount, representing an increase of more than 50% on the current rent, to be ‘bewildering’ and asked for identification of the ‘neighbouring shops’ to which she had referred and for copies of the assessment that had been carried out.

91 In a reply to him dated 20 June 2008, Ms Lazarevich stated that the information requested by him could not be supplied on grounds of confidentiality and that if he was dissatisfied with Memocorp’s assessment, he could apply for ‘a separate assessment as contained under the Retail Leases Act’.

92 In a letter to Ms Lazarevich dated 30 June 2008, Mr Saad stated as follows: (a) he knew of no legal reason why the information requested by Mr Horwood could not be supplied; (b) Memocorp’s assessment of rent under the Renewed Lease was disputed, and (c) Mr Horwood would instead offer an increase of 5% on the current rent.

93 In a reply to Mr Saad dated 7 July 2008, Ms Lazarevich advised that this information could not be disclosed for reasons of confidentiality and that Mr Horwood’s offer was rejected. She asked whether Mr Horwood wished to appoint a specialist retail valuer to determine the current market rent by agreement or through the Tribunal, and listed the names of five such valuers who were acceptable to Memocorp.

94 In a reply to Ms Lazarevich dated 16 July 2008, Mr Saad stated that Mr Horwood was ‘bitterly disappointed’ with Memocorp’s response and continued to be ‘frustrated’ by its ‘harsh and unconscionable conduct towards him. He claimed that Mr Horwood’s business had ‘suffered dramatically’ as a result of ‘her actions on behalf of the Lessor’ and could not sustain the rent now being proposed or ‘any new rental approaching it’. Mr Saad advised that he had been instructed to institute mediation proceedings in the Rental Tenancy Unit as a prelude to filing (if necessary) a retail tenancy claim and an unconscionable conduct claim in the Tribunal. His letter concluded as follows: ‘We are instructed that Ms Lazarevich’s personal intransigence and the Lessor’s failure to deal with our client in a fair and reasonable way has left our client with no alternative but to pursue this course of action.’

95 In a reply to Mr Saad dated 18 July 2008, Ms Lazarevich denied his allegation of unconscionable conduct and claimed that Mr Horwood’s ‘knavish behaviour’ was ‘unjustified’, given ‘the amount of time, effort and resources’ that she had provided to him on Memocorp’s behalf ‘at all times’. She pointed out that if the only issue between the parties was as to current market rent, this was not a matter to be referred to the Retail Tenancy Unit, but Mr Horwood could instead apply to the Tribunal for the appointment of a specialist retail valuer. Her letter concluded with a ‘final’ offer by Memocorp, made ‘in the spirit of goodwill and in order to resolve this matter amicably’, to accept rent at a rate of $2,000 per square metre + GST, and with the statement that Memocorp ‘will not entertain any further reduction’.

96 It is convenient to summarise here some evidence given as to the rents paid to Memocorp by tenants of nearby shops in the Centre. This evidence chiefly comprised copies of internal records maintained by Memocorp, though there were no equivalent records relating to its negotiations with Mr Horwood regarding the rent that would be payable under the Renewed Lease.

97 The approximate rents paid by Gelatissimo and Café Maldini, both of which occupied shops adjacent to the Premises, were $1,100 and $1,400 respectively per square metre. The approximate rent paid by Star Pizza and Pasta was $1,500 per square metre.

98 As noted above at [8], the rent paid for the Premises by Mr Horwood between 1 July 2007 and 30 June 2008 was at a rate of $1,433 per square metre plus GST. The rents paid by other tenants after he vacated them are outlined below.

Mr Horwood’s decision to vacate the Premises

99 In a letter to Ms Lazarevich also dated 18 July 2008, Mr Saad asked her to agree that Mr Horwood was in occupation of the Premises pursuant to holding over provisions (clause 24.6) of the Lease, and advised her that ‘on that basis’, he was giving notice of his intention to terminate the Lease and vacate the Premises on 31 August 2008.

100 In a letter to Mr Saad dated 23 July 2008, Mr Kang stated that because Mr Horwood had exercised the option he occupied the Premises under the Renewed Lease, not under the holding over provisions of the Lease, and that if he vacated the Premises before the date of expiry of the Renewed Lease Memocorp would hold him liable for loss of rent until that date and for all other resulting loss or damage.

101 In a letter to Mr Kang dated 28 July 2008, Mr Saad repeated Mr Horwood’s allegations regarding the disruption caused by the renovations, maintained that the recent communications from Memocorp (notably Ms Lazarevich’s allegation that Mr Horwood had engaged in ‘knavish behaviour’) had led to a breakdown of good faith and trust between it and Mr Horwood, and rejected both Ms Lazarevich’s offer of a rent at $2,000 per square metre + GST and Mr Kang’s assertion that Mr Horwood’s occupation of the Premises was under the Renewed Lease.

102 The parties then attempted without success to resolve their dispute by mediation in the Retail Tenancy Unit. The Registrar of Retail Tenancy Disputes executed a certificate to this effect on 20 October 2008.

103 In a letter to Mr Saad dated 21 October 2008, Mr Kang asked whether any of five named specialist retail valuers would be acceptable to Mr Horwood and, as an alternative, whether Mr Horwood would consent to the appointment of such a valuer by the Tribunal. He stated further that if Mr Horwood failed to answer the latter question within three days, Memocorp would apply to the Tribunal for the appointment of a valuer, indicating that Mr Horwood did not consent to the application.

104 In a letter to Mr Kang dated 22 October 2008, Mr Saad referred again to the disruption caused by the renovations and to the breakdown of good faith and trust between the parties and claimed that Memocorp’s demand for an increase of about 50 per cent in the rent had the effect of compounding an already untenable situation. He then stated that Mr Horwood (a) had no alternative but to give notice of his intention to vacate the Premises by 30 November 2008 and (b) would be filing an application to the Tribunal within the next seven days.

105 In this letter, Mr Saad indicated also that a prospective new tenant for the Premises, Mr John Ohmer, had approached Mr Horwood. He enclosed a letter addressed by Mr Olmer to Memocorp, expressing interest in leasing the Premises as a Subway franchisee.

106 In an affidavit filed in these proceedings, Mr Ohmer stated as follows: (a) at a meeting with Ms Lazarevich during October 2008, he again expressed his interest in obtaining a lease of the Premises in order to trade as a Subway outlet; (b) she said that this was not possible because the lease to another tenant in the Centre prohibited any leasing to ‘a fast food chain’; (c) after he said that Subway would permit him to take the lease in his own name, she still said that Memocorp was ‘not interested’; (d) some months later, an Oporto outlet opened in the Centre. In cross-examination, he rejected the suggestion that Ms Lazarevich’s reason for declining his offer to negotiate a lease was that a fast food tenancy in the Centre would ‘affect another tenant’.

107 In a letter to Mr Saad dated 27 October 2008, Mr Kang reiterated that Memocorp required Mr Horwood to abide by his obligations under the Renewed Lease and would not release him from them, particularly since Mr Horwood had foreshadowed filing an application in the Tribunal.

108 On 30 November 2008, Mr Horwood vacated the Premises.

109 Between 23 February and 31 July 2009, Memocorp granted a series of short-term tenancies of the Premises to a firm called Bargain Brands at a monthly rent of $3,080.00 including GST. This converts to an annual rate per square metre of only $1,196.

110 Between April and June 2009, there were also unsuccessful negotiations for the lease of the Premises for the purpose of retailing pretzels. The rent proposed by Memocorp in these negotiations was about $1,900 per square metre.

111 On 15 October 2009, Memocorp leased the Premises to MM Property Consulting Group Pty Ltd for the purposes of an estate agency under the name of Ray White Strathfield. The initial annual rent, which became payable as from 15 January 2010, was about $69,000 plus GST, representing a rent per square metre of $2,455.55 plus GST. The lease was for three years, with an option to renew for five years, and the lease provided for annual rent increases of 4% and a market review on exercise of the option.

The Applications filed by the parties

112 In his Application to the Tribunal, filed on 28 October 2008 and amended by leave at the commencement of the hearing, Mr Horwood sought orders as follows: (1) that Memocorp pay damages to him in a sum to be assessed; (2) that no monies or damages were due and owing by him to Memocorp pursuant to or otherwise in respect of the Renewed Lease; (3) that Memocorp pay his costs; and (4) such further or other order as the Tribunal thought fit.

113 The grounds stated in Mr Horwood’s Application relevantly included the following: (a) that the renovation works constituted a breach of Memocorp’s covenant of quiet enjoyment contained in the Lease and a derogation from the grant of the Lease; (b) that Memocorp failed and refused to provide abatement of rent or other compensation to Mr Horwood in respect of the continuation of these works beyond 15 December 2007; and (c) that by reason of this continuation of the works, this failure and refusal to provide abatement of rent or other compensation and Memocorp’s demand for 50% additional rent under the Renewed Lease, causing the breakdown of good faith and trust between the parties, Memocorp had acted in a manner that was unconscionable under section 62B of the RL Act.

114 In its Application to the Tribunal, filed on 20 April 2009, Memocorp sought the following orders: (1) that Mr Horwood pay to it liquidated damages in the sum of $191,045.07 (inclusive of GST) representing rent under the Renewed Lease from 1 December 2008 until 30 June 2011, and also the sum of $1,375.00 for expenses in repairing and cleaning the Premises; (2) that Mr Horwood pay its costs; (3) such further or other order as the Tribunal thought fit; and (4) that its Application should be joined with Mr Horwood’s Application (as indeed occurred).

115 The grounds stated in Memocorp’s application were that Mr Horwood had failed to pay rent due under the Renewed Lease, to remove his goods from the Premises when vacating them and to restore and make good damage done to the Premises when vacating them. It was acknowledged in the Application that the amount of rent paid to Memocorp until 30 June 2011 under any lease of the Premises after Mr Horwood had vacated them would be deductible from the damages claimed.

116 In the ensuing discussion, the questions of liability arising in the Applications filed by the parties will first be addressed. To the extent necessary, questions of damages will then be discussed.

The covenant for quiet enjoyment

117 Mr Fernon, who appeared as counsel for Mr Horwood, indicated at the hearing that the ground of his client’s claim for damages resulting from the disruption of the business conducted at the Premises was that Memocorp had breached the covenant for quiet enjoyment contained in clause 24.2 of the Lease (see [10] above). He said that clause 26 of the Lease (see [11] above) and section 34 of the Act were not relied upon even though clause 26 had been given prominence in Mr Horwood’s Application. The reason for this was that the written notice required by clause 26 and section 34 had not been given to Memocorp.

118 Mr Sneddon, who appeared as counsel for Memocorp, did not appear to contest the proposition that the renovation works that Berem conducted under authorisation from Memocorp were such as to infringe any entitlement that Mr Horwood might have under clause 24.2 to ‘peaceably hold and enjoy the Shop during the Term without any interruption by the Landlord’. He contended, however, that for two reasons, which will shortly be discussed, Mr Horwood had no such entitlement.

119 In the Tribunal’s opinion, the scale of the disruption caused by the renovation works was clearly sufficient to support Mr Horwood’s claim that for a significant period of time he did not have ‘quiet enjoyment’ of the Premises as contemplated in clause 24.2. Taking account the evidence outlined above at [42 – 62], it finds that the period of time during which he was deprived of ‘quiet enjoyment’ was from the middle of September 2007 to the end of March 2008.

120 The Tribunal also determines that Memocorp may be held liable for breach of the covenant contained in clause 24.2 even though (a) the renovation works were conducted not by Memocorp, but by Berem, an independent contractor that Memocorp had engaged for the purpose; and (b) it was not established that Berem had failed to exercise reasonable skill and care in conducting them.

121 These conclusions receive support from a number of cases that Mr Fernon cited. It is sufficient here to refer to three of them: J C Berndt Pty Ltd v Walsh [1969] SASR 34, Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 and Telstra Corporation Ltd v Sicard Pty Ltd [2009] NSWSC 827.

122 In J C Berndt Pty Ltd v Walsh, a case in the Supreme Court of South Australia, Walters J held that the installation of a hoarding for some four months on the pavement outside a jewellery shop that was occupied under a lease and the use of a hoist and chute near the shop to remove building materials constituted breaches of a covenant of quiet enjoyment contained in the lease. His judgment included the following passages:-

Although the evidence indicates that the plaintiff had its regular and permanent customers, nevertheless it appears that the plaintiff’s business was dependent, to a considerable degree, upon the attraction of the custom of members of the public passing the shop windows… [T]he plaintiff obviously relied upon the display of goods in its window space for the enticement of customers into the shop. ([1969] SASR 34 at 36)

The essence of the plaintiff’s complaint is that because of the erection of the hoarding, there was an obscuration of the shop windows from the point of view of persons passing along Gawler Place in the immediate locality of the shop; that the nature, extent and site of the hoarding left only a narrow tunnel between the hoarding and the shop frontage for the passage of persons along the footpath in front of the shop, and that in the result there was an interference with, or prejudice to, the custom of the business derived from members of the public… (at 36-37)

Interruption contemplated by a covenant for quiet enjoyment need not be an actual interference with the possession or occupancy of the premises demised, but embraces “every interruption to a beneficial enjoyment of the thing demised, whether accidental or wrongful, or in whatever way the interruption may be cause”… (at 37)

By its covenant, the defendant in effect guaranteed the plaintiff against any acts, or the consequences of any acts, done by it or with its authority which could disturb the plaintiff’s enjoyment of the premises. And it is none the less a breach of the covenant for quiet enjoyment that the interferences of which the plaintiff complains were caused by an independent contractor, however competent that contractor may have been, and however little may have been the defendant’s control over the building works. The defendant cannot escape liability because it entrusted the execution of the works to a competent contractor over which it exercised no control… (at 38)

181 A form of expense attaching to individual sales, in the case of sales procured by Ms Rachael Horwood, was a commission paid to her as the selling agent. A schedule attached to an affidavit of Mr Horwood indicated that during the financial year 2007-08 the total gross amount of commissions paid on sales procured by her was $106,009, and that out of this sum she was paid $29,537.65. Since she resigned in November 2007, most of these sales would have related to listings obtained before the renovations began. Mr Horwood did not replace her by another employee, but chose instead to work for longer hours himself. There is no evidence to suggest that during the period of the renovations any other employee was paid an individual commission for achieving a sale. Similarly there is no evidence that Boulevarde, rather than its customers, paid other categories of expense (for example, for advertising) associated with their specific sale. But some expenses would obviously have been incurred.

182 In these circumstances, the Tribunal considers it appropriate to treat the loss of profit associated with the four estimated lost sales as the gross amount of the estimated commission that would have been earned on those sales, less a discount of about 10%. The figure of $51,600 determined for this gross amount of estimated commission should be reduced to $46,000. This is the amount of damages that Memocorp should pay as compensation for its breaches of the covenant for quiet enjoyment.

183 Boulevarde’s profit and loss record. As stated earlier, the evidence on damages included some financial statements for Boulevarde. These suggested that, contrary to Mr Horwood’s claim that the renovations caused him to earn less sales commissions during 2007-08 than he otherwise would have done, he did not suffer any such loss. The gross takings in sales commissions in 2007-08, as indicated above, came to $258,768, whereas the corresponding figure for 2006-07 was only $201,209.

184 Mr Horwood, in his evidence, and Mr Edmonds, in his reports, sought to explain this by referring to four of specific sales that were initially listed with Boulevarde in 2006 or early 2007 and led to the payment of commissions totalling $109,459 during the financial year 2007-08. Mr Fernon submitted that in assessing the fortunes of his business during 2007-08 these sales should be labelled ‘abnormal’ and left wholly out of account when assessing the profit record of the business during the years 2006-07 and 2007-08. The reason that he advanced was that they were conducted on behalf of family members or friends who had been his long-term clients.

185 The validity of Mr Fernon’s assertion that Boulevarde’s trading profits during 2007-08 were diminished to the extent of the substantial amount alleged ($127,520) on account of the renovations was in large measure dependent on the Tribunal’s acceptance of this specific submission regarding the ‘abnormal sales’.

186 In opposing this submission, Mr Sneddon argued, inter alia, that there was no evidence indicating whether or not the commissions earned by Boulevarde in the preceding year were similarly inflated by ‘abnormal’ sales.

187 Since the Tribunal, in seeking to assess Mr Horwood’s loss, has focused on the likely number and profitability of lost sales rather than variations in the overall profitability of his business, it does not need to rule on the correctness of this submission regarding the four ‘abnormal’ sales. It treats the particular characteristics of these sales as relevant in a more limited sense. They assist in reconciling (a) its finding that he did suffer economic loss during 2007-08 because the renovations deterred potential customers from visiting the Premises and listing properties for sale with Boulevarde, with (b) the evidence from the financial statements that Boulevarde’s gross takings from sales commissions increased, rather than declined, in 2007-08.

188 The impact of Ms Horwood’s resignation. Mr Fernon submitted, with support from opinions expressed by Mr Edmonds, that a significant loss sustained by Mr Horwood was the ‘goodwill’ associated with his daughter’s presence on his staff and that because her resignation was caused by the renovations this loss, quantified at $76,000, should form a component of the damages to be paid by Memocorp.

189 Although the Tribunal has held (at [51] above) that the impact of the renovations during the early months was, at the least, a contributing factors in Ms Horwood’s decision to resign from her father’s employment at the time when she did this, it is not persuaded that the case for recognising this separate head of damages has been made out. In the first place, it agrees with Mr Watt that treating goodwill as attached to an individual employee raises significant conceptual problems. Secondly, there is no evidence on the question whether Mr Horwood’s decision to work longer hours following his daughter’s departure did or did not compensate fully for the loss of income that presumptively her departure occasioned. Thirdly, the evidence (summarised above at [50]) regarding Ms Horwood’s studies and future plans at the time of her departure suggests that if the renovations had not commenced, prompting her to leave in November 2007 she might well have left within a period of a few months thereafter.

190 For these reasons, the Tribunal rejects Mr Fernon’s submission that the damages awarded to Mr Horwood should include a component reflecting the value of the goodwill lost by virtue of Ms Horwood’s resignation.

191 Equating Mr Horwood’s loss with that of Boulevarde. Mr Sneddon strongly pressed an argument that Mr Horwood’s claim for damages should fail totally, on the grounds that (a) it was Boulevarde, a company, that carried on business in the Premises and accordingly suffered any relevant losses and (b) Boulevarde had not been made a party to these proceedings. He relied on the well-established rule that, subject to limited exceptions, the proper plaintiff in any action to obtain remedies on behalf of a company is the company itself, not a shareholder (even the sole shareholder) or a director. He cited a recent restatement of this rule (the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189) given by Barrett J in Field v Jenolan Caves Resort Pty Ltd [2009] NSWSC 491 at [18 – 22]).

192 In Wallis Lake Fishermen’s Co-operative Ltd v A.C.N. 079830596 Pty Ltd [2008] NSWSC 925, a case initially arising in this Tribunal under the RL Act, the Supreme Court delivered a firm warning against equating any losses suffered by a private company having a limited number of shareholders with those suffered by the shareholders themselves. It is sufficient to quote the following passage from the Court’s judgment at [23 – 24]:-

23 The Tribunal was required to assess losses suffered by the defendant caused by the plaintiff’s breach of contract. The defendant was a company. The task confronting it was not one of assessing whatever loss may have been suffered by Mr and Mrs Morris (whether it be as shareholders or in some other capacity).

24 Mr and Mrs Morris chose to conduct a business through a corporate vehicle. In the circumstances, it was the loss suffered by the defendant by reason of the breach of contract that was recoverable. It was erroneous to proceed to assess damages on the basis that the existence of the corporate vehicle could be disregarded. The incongruity of the result reached by the President may be illustrated by the observation that what was being allowed as company loss of profits included that which could be expected to be claimed as business deductions.

193 Mr Edmonds expressed the opinion that in the present case the Tribunal could and should find that such losses that it found to have been suffered by Boulevarde were also suffered by Mr Horwood. The reason was that, by virtue of being remunerated as its sole director and/or through his position as sole shareholder, Boulevarde’s profits in any given year would ultimately accrue to him. It followed that any conduct reducing the amount of Boulevarde’s profits would lead to a diminution of the amounts received by Mr Horwood from Boulevarde, whether as director or as shareholder. Mr Fernon submitted that the Tribunal should endorse and give effect to this proposition.

194 The Tribunal must of course be careful to heed the warning given by the Supreme Court in the Wallis Lake case. But equally, it does not see how Mr Sneddon’s submission on this question – that Boulevarde should have been made a party to these proceedings – can be sustained. The lessee in this case was Mr Horwood. He alone can take proceedings, whether in this Tribunal or in any other forum, for breach of the covenant for quiet enjoyment contained in the Lease. If Mr Sneddon’s proposition deriving from Foss v Harbottle were given full scope, Mr Horwood – and others who like him have signed a retail shop lease in their own name – would unfairly be deprived of remedies under the lease simply because they chose to operate their business in the leased premises through a corporate vehicle.

195 In contrast to the situation in the Wallis Lake case, the damages to be assessed here relate to a specific aspect of the financial situation of the business in question, not to its overall profitability. Taking this into account, the Tribunal is satisfied, for the reasons outlined by Mr Edmonds, that the increase in Boulevarde’s takings by way of sales commissions during 2007-08 that would have been apparent if the renovations had not disrupted its business would, on the balance of probabilities, have led to an equivalent increase in the drawings or dividends derived from it by Mr Horwood, its sole director and shareholder. In this particular situation, it is therefore appropriate to assess Mr Horwood’s loss as equal to that sustained by his company, Boulevarde.

196 The rent abatement granted to Mr Horwood under the Works Deed. The Tribunal was initially inclined to treat amount of the rent abatement over three months that Mr Horwood received under clause 5 of the Works Deed as deductible from any damages awarded for breach of the covenant for quiet enjoyment. The amount in question is approximately $10,000. On further consideration, it has determined that this should not be done.

197 Its reasons for so concluding are as follows. This amount was contractually promised to Mr Horwood himself under a Deed that was primarily concerned to define the terms and conditions of Berem’s licence to enter the Premises for the purposes of the renovations. It could well be viewed as representing, at least in part, a form of compensation to him for enduring the noise, dust and other forms of discomfort occasioned by the renovations. His entitlement to it should therefore be treated as independent of the factors underlying the assessment of the economic loss caused initially to Boulevarde (though indirectly to Mr Horwood also, as just explained) by Memocorp’s breaches of the covenant for quiet enjoyment.

198 For the foregoing reasons, the Tribunal assesses the damages to be awarded to Mr Horwood on account of this contravention at $46,000.

Memcorp’s claim for unpaid rent under the Renewed Lease

199 As indicated above at [114], Memocorp claimed in its Application that Mr Horwood should be ordered to pay liquidated damages in the sum of $191,045.07 (inclusive of GST) representing rent under the Renewed Lease from 1 December 2008 until 30 June 2011, and also the sum of $1,375.00 for expenses incurred in repairing and cleaning the Premises after Mr Horwood vacated them.

200 The latter of these two claims was not supported by any evidence and must therefore be dismissed.

201 The amount sought in the former claim appears to have been calculated on the basis that Mr Horwood was contractually obliged to pay the rent determined by Memocorp for the Renewed Lease (see Ms Lazarevich’s letter of 2 June 2008, summarised above at [89]). This was an initial annual rent of $60,415.00 + GST, with annual increases of 5% after the first year.

202 As Mr Fernon submitted, however, there was never a binding agreement or determination as to the current market rent (which would become the Revised Minimum Rent) at the time of commencement of the Renewed Lease. Mr Horwood neither accepted nor objected to any of the specialist retail valuers suggested by Memocorp. Memocorp did not obtain a valuation from any of these valuers. Neither party applied to the Tribunal, or to the person nominated in the Lease for this purpose, for the appointment of a specialist retail valuer. As indicated above at [9], relevant clauses of the Lease stipulated that until a Revised Minimum Rent was determined, the rent payable under the Renewed Lease would be the rent payable immediately before the commencement date of the Renewed Lease. The annual rent at this point of time was $40,274.30 + GST.

203 Furthermore, as acknowledged by Memocorp in its Application (see [115] above), the amount of rent paid to Memocorp until 30 June 2011 under any lease of the Premises after Mr Horwood had vacated them is deductible from the damages that it claims. The leases that Memocorp has in fact granted are outlined above at [109 – 111]. The most significant of them is a three-year lease, granted on 15 October 2009 to MM Property Consulting Group Pty Ltd, with an initial annual rent of about $69,000 plus GST and provision for annual increases of 4%.

204 Mr Fernon’s written submissions included a schedule showing (a) the total rent that was payable by Mr Horwood under the Renewed Lease until its expiry, based on an initial annual rent of $40,274 + GST and (b) the total rent received and due to be received by Memocorp under the leases of the Premises that it has granted since Mr Horwood vacated them. The former total is $110,183.77 and the latter is $115,681.40. It follows, in Mr Fernon’s submission, that Mr Horwood’s termination of the Renewed Lease has not caused any damage to Memocorp.

205 Mr Sneddon did not contest these figures or the approach outlined by Mr Fernon.

206 In the Tribunal’s opinion, this argument by Mr Fernon is a sound one. It observes only that because Memocorp retained the security deposit of $3,348.58 paid by Mr Horwood under the Lease, the gap between the two totals just outlined may be even larger than Mr Fernon claimed. Since Mr Horwood’s unconscionable conduct claim has failed, the Tribunal does not see any basis on which he could recover this sum from Memocorp.

207 The outcome of this reasoning is that Memocorp’s Application must be dismissed.

Costs

208 In their Applications, both parties sought an order for costs. Under section 88 of the Administrative Decisions Tribunal Act 1997, which is applicable by virtue of section 77A of the RL Act, no order for costs should be made in proceedings such as these unless the Tribunal is satisfied under section 88(1A) that it would be ‘fair’ to make such an order.

209 The Tribunal directs as follows. Any application for costs in these proceedings must be filed and served, with supporting submissions, within 28 days of the date of this decision. The opposing party or parties must file and serve submissions in reply within a further 28 days. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved ‘on the papers’, pursuant to section 76 of the ADT Act.

21/04/2010 - Typographical error in order, should read $46,000 not $45,000 - Paragraph(s) Coversheet of order