Huang v Abdelwahed Pty Ltd; Abdelwahed Pty Ltd v Huang

[2021] NSWCATCD 154

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Huang v Abdelwahed Pty Ltd; Abdelwahed Pty Ltd v Huang [2021] NSWCATCD 154

Hearing dates:

29 November 2021

Date of orders:

08 December 2021

Decision date:

08 December 2021

Jurisdiction:

Consumer and Commercial Division

Before:

Graham Ellis SC, Senior Member

Decision:

In COM 21/32611

1   The respondents are to pay the applicant $173,636.11.

2   Any written submissions any respondent wishes to make as to costs are to be provided to the Tribunal and the applicant on or before 22 December 2021.

3   If such submissions are lodged, any submissions in reply are to be provided to the Tribunal and the respondents by 12 January 2021.

4   Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

In COM 21/38733:

1.  The application is dismissed.

2.   Any written submissions the applicant wishes to make as to costs are to be provided to the Tribunal and the respondent on or before 22 December 2021.

3.   If such submissions are lodged, any submissions in reply are to be provided to the Tribunal and the applicant by 12 January 2021.

4.   Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

Catchwords:

RETAIL LEASE – Application of COVID regulations -Whether lessor entitled to terminate for unpaid rent - Whether lessee an impacted lessee – Application of National Cabinet Mandatory Code of Conduct - Whether lessee entitled to rent reduction

Legislation Cited:

Civil and Administrative Tribunal Act 2013 (NSW)

Civil and Administrative Tribunal Rules 2014 (NSW)

Retail Leases Act 1994 (NSW)

Cases Cited:

Ajayi v RT Briscoe (Nigeria) Ltd [1964] 1 WLR 1326

Antonio & Marianna Di Rico v Dion Cominos [2015] NSWCATCD 75

Bonita v Shen [2016] NSWCATAP 159

Darzi Group Pty Ltd v Noble [2021] NSWSC 774

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22

Feyzbashipour v Lee [2021] NSWCATAP 173

Hadley v Baxendale (1854) 9 Exch 341

Haines v Bendall [1991] HCA 15

Latoudis v Casey [1990] HCA 59

Legione v Hateley [1983] HCA 11

Miramax Pty Limited v Mang Yu Lo [2021] NSWCATCD 12

News v Cotes [2019] NSWCATAP 186

Oshlak v Richmond River Council [1998] HCA 11

Pacorp Holdings Pty Ltd v Waller [2017] NSWCATAP 167

Sneakerboy v George Properties Pty Ltd (No 2) [2020] NSWSC 1141

Swiss Concept Australia Pty Ltd v Diamondlite Pty Ltd [2021] NSWCATCD 106

Thompson v Chapman [2016] NSWCATAP 6

Yan Gu and Chunhua Tao v Nicole Panetta, Neill Hendry and Giovanni (John) Panetta [2014] NSWCATCD 247

Texts Cited:

Nil

Category:

Principal judgment

Parties:

In COM 21/32611:
Zhongyuan (Jason) Huang (Applicant)
Abdelwahed Pty Ltd (First Respondent)
Ahmed Nasreldin (Second Respondent)
Ahmed Elakabawey (Third Respondent)
Alaa Moaz (Fourth Respondent)

In COM 21/38733:
Abdelwahed Pty Ltd (Applicant)
Zhongyuan (Jason) Huang (Respondent)

Representation:

In COM 21/32611:
Mr I Ni (Applicant)
Mr A Nasreldin (Respondents)

In COM 21/38733:
Mr A Nasreldin (Applicant)
Mr I Ni (Respondent)

File Number(s):

COM 21/32611, COM 21/38733

Publication restriction:

Nil

REASONS FOR DECISION

Overview

1. These proceedings relate to a retail lease of premises in Sydney’s Pitt Street. The lessor commenced proceedings against the lessee and three guarantors. The lessee subsequently commenced proceedings against the lessor.

2. Both applications sought damages. The lessor’s claim for damages in his application (COM 20/32611) was for $259,641.92, as set out below:

(1)	Unpaid rent (01 Apr 20 to 24 Apr 21)	203,420.45
(2)	Interest thereon (to 01 Oct 21)	20,413.64
(3)	Loss of income (25 Apr 21 to 31 Jul 21)	51,473.79
(4)	Leasing fee	20,790.00
(5)	Advertising fee	6,414.68
(6)	Garbage removal and cleaning fee	990.00
(7)	Parking levy	2,540.00
306,042.56
(8)	Less recovery from bank guarantee	46,400.64
$259,641.92

3. The lessee claimed damages of $288,600.64 in its (cross-)application (COM 20/38733), the components of which were as follows:

(1)	Loss of shop fittings ($270,000 plus GST)	297,000.00
(2)	Loss of stock	40,000.00
(3)	Loss of bank guarantee	46,400.64
(4)	Money owed to Talia	7,200.00
390,600.64
(5)	Less 50% of rent (18 Mar 20 to 23 Apr 21)	-102,000.00
$288,600.64

4. The issues raised by the parties were (1) whether the lessor was entitled to terminate the lease, (2) whether the lessee was an impacted lessee, (3) if so, what rent was payable, and (4) what damages were payable.

5. After considering the relevant law, the evidence and the submissions of the parties, the Tribunal determined (1) that the lessor was entitled to terminate the lease and is entitled to recover an amount of $173,636.11 from the lessee and the guarantors, and (2) that the application of the lessee should be dismissed.

Jurisdiction

6. It is clear there was a retail lease agreement between the parties, that the Retail Leases Act 1994 (RLA) applies, and the Tribunal has jurisdiction to deal with this matter.

The hearing

7. At the hearing, the lessor was represented by Mr Ni, a solicitor, while Mr Nasreldin represented the lessee and each of the guarantors. The documents upon which the lessor wished to rely were admitted as Exhibit 1 while the documents tendered by Mr Nasreldin became Exhibit 2.

8. Having ascertained that there was no request for cross-examination, the Tribunal followed the usual sequence of submissions: first, Mr Ni spoke in support of the lessor’s application; secondly, Mr Nasreldin spoke in response to the lessor’s application and in support of the lessee’s application; thirdly, Mr Ni spoke in response to the lessee’s application. As a result, each party had an opportunity to speak in support of their own case and in response to the case of the other party.

Statutory provisions

9. In relation to retail lease, the Federal Government’s response to the COVID-19 pandemic, announced on 04 April 2020, was the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles (the Code). The full wording of that Code is set out below.

NATIONAL CABINET MANDATORY CODE OF CONDUCT

SME COMMERCIAL LEASING PRINCIPLES DURING COVID-19

PURPOSE

The purpose of this Code of Conduct (“the Code”) is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

These principles will apply to negotiating amendments in good faith to existing leasing arrangements – to aid the management of cashflow for SME tenants and landlords on a proportionate basis – as a result of the impact and commercial disruption caused by the economic impacts of industry and government responses to the declared Coronavirus (“COVID-19”) pandemic.

This Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million (herein referred to as “SME tenants”).

The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).

The Parties to this Code concur that during the COVID-19 pandemic period, as defined by the period during which the JobKeeper programme is operational, the principles of this Code should nevertheless apply in spirit to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses.

Appendix I gives examples of proportionate solutions that may be agreed under this Code, and forms part of the overall Code.

The Code has been developed to enable both a consistent national approach and timely, efficient application given the rapid and severe commercial impact of official responses to the COVID-19 pandemic.

PARTIES TO THE CODE

The Code will be given effect through relevant state and territory legislation or regulation as appropriate. The Code is not intended to supersede such legislation but aims to complement it during the COVID-19 crisis period.

OVERARCHING PRINCIPLES

The objective of the Code is to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords.

It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis.

The following overarching principles of this Code will apply in guiding such arrangements:

• Landlords and tenants share a common interest in working together, to ensure business continuity, and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic during a reasonable recovery period.

• Landlords and tenants will be required to discuss relevant issues, to negotiate appropriate temporary leasing arrangements, and to work towards achieving mutually satisfactory outcomes.

• Landlords and tenants will negotiate in good faith.

• Landlords and tenants will act in an open, honest and transparent manner, and will each provide sufficient and accurate information within the context of negotiations to achieve outcomes consistent with this Code.

• Any agreed arrangements will take into account the impact of the COVID-19 pandemic on the tenant, with specific regard to its revenue, expenses, and profitability. Such arrangements will be proportionate and appropriate based on the impact of the COVID-19 pandemic plus a reasonable recovery period.

• The Parties will assist each other in their respective dealings with other stakeholders including governments, utility companies, and banks/other financial institutions in order to achieve outcomes consistent with the objectives of this Code.

• All premises are different, as are their commercial arrangements; it is therefore not possible to form a collective industry position. All parties recognise the intended application, legal constraints and spirit of the Competition and Consumer Act 2010.

• The Parties will take into account the fact that the risk of default on commercial leases is ultimately (and already) borne by the landlord. The landlord must not seek to permanently mitigate this risk in negotiating temporary arrangements envisaged under this Code.

• All leases must be dealt with on a case-by-case basis, considering factors such as whether the SME tenant has suffered financial hardship due to the COVID-19 pandemic; whether the tenant’s lease has expired or is soon to expire; and whether the tenant is in administration or receivership.

• Leases have different structures, different periods of tenure, and different mechanisms for determining rent. Leases may already be in arrears. Leases may already have expired and be in “hold-over.” These factors should also be taken into account in formulating any temporary arrangements in line with this Code.

• As the objective of this Code is to mitigate the impact of the COVID-19 pandemic on the tenant, due regard should be given to whether the tenant is in administration or receivership, and the application of the Code modified accordingly.

LEASING PRINCIPLES

In negotiating and enacting appropriate temporary arrangements under this Code, the following leasing principles should be applied as soon as practicable on a case-by-case basis:

1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.

3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under “definitions,” below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.

4. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.

5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.

7. A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.

8. Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.

9. If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring and taking into account a reasonable subsequent recovery period.

10. No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.

11. Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.

12. The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.

13. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.

14. Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

BINDING MEDIATION

Where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including Small Business Commissioners/ Champions/Ombudsmen where applicable.

Landlords and tenants must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.

DEFINITIONS

The following definitions are provided for reference in the application of this Code.

1. Financial Stress or Hardship: an individual, business or company's inability to generate sufficient revenue as a direct result of the COVID-19 pandemic (including government-mandated trading restrictions) that causes the tenant to be unable to meet its financial and/or contractual (including retail leasing) commitments. SME tenants which are eligible for the federal government’s JobKeeper payment are automatically considered to be in financial distress under this Code.

2. Sufficient and accurate information: this includes information generated from an accounting system, and information provided to and/or received from a financial institution, that impacts the timeliness of the Parties making decisions with regard to the financial stress caused as a direct result of the COVID-19 event.

3. Waiver and deferral: any reference to waiver and deferral may also be interpreted to include other forms of agreed variations to existing leases (such as deferral, pausing and/or hibernating the lease), or any other such commercial outcome of agreements reached between the parties. Any amount of reduction provided by a waiver may not be recouped by the Landlord over the term of the lease.

4. Proportionate: the amount of rent relief proportionate to the reduction in trade as a result of the COVID-19 pandemic plus a subsequent reasonable recovery period, consistent with assessments undertaken for eligibility for the Commonwealth’s JobKeeper programme.

CODE ADMINISTRATION COMMITTEE

This Code will be supported by state based Industry Code Administration Committees, comprising representatives from relevant industry bodies representing landlord, tenant and SME interests, with an Independent Chair appointed by the relevant State/Territory Government.

Committee members’ roles will be to (1) promote awareness of the Code; (2) encourage application of the Code; (3) encourage its application by the broader retail industry; and (4) monitor the operation of the Code.

The Committee should meet at least fortnightly, and may communicate and meet via   email, telephone calls, or video conferencing.

No formal minutes will be taken; however, the Committee will document key action items and outcomes of each meeting.

The Committee may invite advisers, upon agreement by all Committee members, to assist on specific issues in the course of discharging their obligations under this section.

COMMENCEMENT/EXPIRY

This Code comes into effect in all states and territories from a date following 3 April 2020 (being the date that National Cabinet agreed to a set of principles to guide the Code to govern commercial tenancies as affected by the COVID19 pandemic) to be defined by each jurisdiction, for the period during which the Commonwealth JobKeeper program remains operational.

APPENDIX I

EXAMPLES OF THE APPLICATION OF THE PRINCIPLE OF PROPORTIONALITY

The following scenarios are examples only, noting the circumstance of each landlord, SME tenant and lease are different, and are subject to negotiation and agreement in good faith.

Examples of practical variations reflecting the application of the principle of proportionality may include, but are not limited to:

   Qualifying tenants would be provided with cash flow relief in proportion to the loss of turnover they have experienced from the COVID-19 crisis

o   ie. a 60% loss in turnover would result in a guaranteed 60% cash flow relief.

o    At a minimum, half is provided as rent free/rent waiver for the proportion of which the qualifying tenant’s revenue has fallen.

o    Up to half could be through a deferral of rent, with this to be recouped over at least 24 months in a manner that is negotiated by the parties

   So if the tenant’s revenue has fallen by 100%, then at least 50% of total cash flow relief is rent free/rent waiver and the remainder is a rent deferral. If the qualifying tenant’s revenue has fallen by 30%, then at least 15% of total cash flow relief is rent free/rent waiver and the remainder is rent deferral.

   Care should be taken to ensure that any repayment of the deferred rent does not compromise the ability of the affected SME tenant to recover from the crisis.

o   The parties would be free to make an alternative commercial arrangement to this formula if that is their wish.

10. That Code, although containing the word “Mandatory” in its title, did not initially have any legislative force. It prohibited termination due to non-payment of rent and required lessor to offer lessees concessions in proportion to the reduction in business income in the form of a rent waiver and a rental deferral. The waiver would mean that rent would not be required to be paid and the deferred amount was to be repaid over the greater of two years and the balance of the term of the lease. The Code also froze rent increases (unless the rent was based on turnover), required any reductions in statutory charges to be passed on, and precluded fees, interest, and other charges.

11. To obtain the benefit of the Code, impacted lessees had to demonstrate the extent to which turnover had declined and comply with the remaining terms of their lease.

12. The NSW Government’s response to the pandemic has been to introduce regulations to accompany the provision of the RLA. On 24 April 2020 the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (the First Regulations) took effect for six months: from 24 April 2020 to 24 October 2020 (the prescribed period).

13. The First Regulations applied to an “impacted lessee” by preventing the lessor from taking any “prescribed action” (which included termination, seeking damages, and recovering under a guarantee) during the “prescribed period”.

14. Clause 4 of the First Regulations contained the following definition:

1. A lessee is an impacted lessee if-

   (a)   the lessee qualifies for the jobkeeper scheme under sections 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and

   (b)   the following turnover in the 2018-2019 financial year was less than $50 million-

   (i)   if the lessee is a franchisee – the turnover of the business conducted at the premises or land concerned,

   (ii)   if the lessee is a corporation that is a member of a group – the turnover of the group,

   (iii)   in any other case – the turnover f the business conducted by the lessee.

2. To avoid doubt, in this clause, turnover of a business includes any turnover derived from internet sales of goods or services.

3. In this clause, corporations constitute a group if they are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth.

   15. The wording of clause 5, which also did not change in subsequent regulations, is set out below:

This Regulation applies to the exercise or enforcement of rights under a commercial lease in relation to circumstances occurring during the prescribed period.

16. Clause 8 was also maintained in the same form:

1. To avoid doubt, Part 8 (Dispute Resolution) of the Act extends to an impacted commercial lease dispute as if it were a retail tenancy dispute within the meaning of that Part.

2. In this clause, impacted commercial lease dispute means any dispute concerning the liabilities or obligations (including any obligation to pay money) under a commercial lease to which an impacted lessee is a party, being liabilities or obligations which arose under the commercial lease concerning circumstances occurring during the prescribed period and includes a dispute regarding a negotiation (or failure to take part in a renegotiation) of rent payable under the commercial lease under clause 7.

   17. Clause 9 of the First Regulations contained the following wording, which also did not change in subsequent regulations:

The Tribunal and any court, when considering whether to make a decision or order relating to any of the following, is to have regard to the leasing principles set out in the National Code of Conduct-

(a) the recovery of possession of premises or land from a lease,

(b) the termination of a commercial lease by the lessor, or

(c) The exercise or enforcement of another right of a lessor of premises or land.

18. On 23 October 2020, when the First Regulations were about to expire, the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (the Second Regulations) were introduced. The Second Regulations, which took effect from 24 October 2020, extended the prescribed period for the operation of the First Regulations to 31 December 2020.

19. On 18 December 2020, the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (the Third Regulations) which extended the Second Regulations to 28 March 2021, but only for retail leases where the lessee’s annual turnover was less than $5 million.

20. It is convenient to here note that the definition of an “impacted lessee” was amended in the Third Regulations as the result of the eligibility test for the Jobkeeper scheme changing with effect from 04 January 2021.

21. There was a gap after 28 March 2021 until what was known as the Delta strain of the coronavirus resulted in the introduction of the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Fourth Regulations) which applied from 13 July 2021 to 20 August 2021, imposed different criteria, and did not provide rent relief (waivers or deferrals). However, the Fourth Regulations did prohibit matters which included termination, seeking damages, and recovering under a guarantee.

22. Clause 6B in the Fourth Regulations was in the following terms:

The rent payable under an impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover.

23. However, that provision did not come into force until 13 July 2021 and there was no such prohibition in the earlier regulations, which were in force from 24 April 2020 to 28 March 2021.

24. For the sake of completeness, it is noted that the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (the Fifth Regulations) extend the prescribed period for the Fourth Regulations to 13 January 2022.

25. However, it is noted that the regulations referred to above did not prevent a lessor from taking any of the prohibited steps on grounds not related to the pandemic or if the dispute had been referred for mediation and such mediation had failed to resolve that dispute.

26. As the definition of “impacted lessee” referred to Commonwealth legislation, it is necessary to consider s 7 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 which took effect from 09 April 2020. So far as is relevant to these proceedings, s 7 provides:

1. For the purposes of paragraphs 6(1)(b) and 11(1)(c), an entity qualifies for the jobkeeper scheme at a time if:

(a) on 1 March 2020, the entity carried on a business in Australia, or was a non-profit body that pursued its objectives principally in Australia, and

(b) the entity has satisfied the decline in turnover test at or before the time (see section 8).

27. While s 7 was subsequently amended, the change is not material to these proceedings. In the same rules, so far as is relevant to these proceedings, s 8, headed “Decline in turnover test”, provided:

Basic test

1. An entity satisfies the decline in turnover test at a time (the test time) if:

(a)   the entity’s projected GST turnover for a turnover test period in which the test time occurs falls short of the entity’s current GST turnover for a relevant comparison period (the comparison turnover); and

(b)   the shortfall, expressed as a percentage of the comparison turnover, equals or exceeds the specified percentage for the entity (see subsection (2)).

1. The specified percentage for an entity is:

(a)   if the lower threshold applies to the entity (see subsection (3))—15%; or

(b)   if the higher threshold applies to the entity (see subsection (4))—50%; or

(c)   otherwise—30%.

1. For the purposes of paragraph (2)(a), the lower threshold applies to an entity if the entity is an ACNC‑registered charity other than:

(a)   an entity that is a Table A provider (within the meaning of the Higher Education Support Act 2003) or a Table B provider (within the meaning of that Act); or

(b)   a school.

1. For the purposes of paragraph (2)(b), the higher threshold applies to an entity if:

(a)   the lower threshold does not apply to the entity (see subsection (3)); and

(b)   either:

1. the entity’s aggregated turnover for the income year in which the test time referred to in subsection (1) occurs is likely to exceed $1 billion; or

2. the entity’s aggregated turnover for the previous income year exceeds $1 billion.

Alternative test

1. An entity also satisfies the decline in turnover test if:

(a)   an alternative decline in turnover test determined by the Commissioner under subsection (6) applies to the entity; and

(b)   the entity satisfies the alternative test.

1. The Commissioner may, by legislative instrument, determine that an alternative decline in turnover test applies to a class of entities, if the Commissioner is satisfied that there is not an appropriate relevant comparison period for the purpose of an entity in the class of entities satisfying the decline in turnover test under subsection (1).

2. For the purposes of this section:

(a)   the turnover test period must be:

1. a calendar month that ends after 30 March 2020 and before 1 October 2020; or

2. a quarter that starts on 1 April 2020 or 1 July 2020; and

the relevant comparison period must be the period in 2019 that corresponds to the turnover test period.

…

28. The powers of the Tribunal in relation to retail tenancy claims are set out in s 72 which reads:

1. In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:

(a)    an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person,

(b)   an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings,

(c)   an order that a party to the proceedings:

1. do any specified work or perform any specified service or any obligation arising under this Act or the terms of a lease, or

2. surrender possession of specified premises to another person, or

3. assign his or her or its rights under a lease to a specified person, or

4. do or perform, or refrain from doing or performing, any specified act, matter or thing,

(d)   an order granting a party to the proceedings relief against forfeiture,

(e)   an order (as permitted by section 72AB) requiring the rectification of the lease or the lessor’s disclosure statement,

(e1)   an order (as permitted by section 72AB) deeming a disclosure statement given by the lessor after the lease is entered into (with or without amendments specified by the Tribunal) to have been given in compliance with section 11 before the lease was entered into,

(f)   an order:

1. declaring any provision made by a lease to be void for being inconsistent with this Act or the regulations, or

2. declaring that a lessor is not entitled to withhold consent to an assignment of the rights of a lessee, or

3. declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not, or

4. declaring that a party is or is not entitled to receive payment of the whole or a part of a security bond,

(g)   such other order, in the nature of an interlocutory order of a kind referred to in paragraphs (a)–(f), as the Tribunal considers proper to be made in order to resolve or assist resolution of the dispute between the parties.

1. The Tribunal may make such ancillary orders as it considers necessary for the purpose of enabling an order under this section to have full effect.

2. The Tribunal may impose such conditions as it considers appropriate when making an order under this section.

3. The Tribunal may make an interim order under this section pending final determination of a claim, if it appears to the Tribunal desirable to do so.

Case law

29. In Sneakerboy Retail Pty Ltd trading as Sneakerboy v George Properties Pty Ltd (No 2) [2020] NSWSC 1141 (Sneakerboy) it was observed that, under the COVID-19 statutory regime, it is for the parties to renegotiate terms and, if an agreement cannot be reached, the matter must be referred to mediation and only then may a court or tribunal have jurisdiction to resolve the dispute. It was noted, at [91] that “it is not clear how failures in the required renegotiation process are to be resolved.”

30. In Miramax Pty Limited v Mang Yu Lo [2021] NSWCATCD 12 (Miramax) at [21] it was said:

The Tribunal finds that the Code applies and the respondent is entitled to seek the benefit of the Code. The Code expresses as a guide rental waiver of up to 50% and rent deferrals to be amortised over the balance of the lease term. However, such deferral is not applicable to these facts as the lease ended on 30 June 2020.

31. However, as was noted in Swiss Concept Australia Pty Ltd v Diamondlite Pty Ltd [2021] NSWCATCD 106 (Swiss) at [30], the source of the power to make that reduction was not outlined in Miramax.

32. In Swiss, at [27], it was recorded that the parties agreed that the Tribunal should determine the appropriate split between waiver and deferral. As a result, that decision does not assist on the question of whether the Tribunal has the power to apply the Code to the determination of damages in a retail lease dispute.

33. What was said in Darzi Group Pty Ltd v Noble [2021] NSWSC 774 (Darzi) at [78] is relevant to these proceedings, namely that if the Australian Taxation Office (ATO) was satisfied that a lessee qualified for the Jobkeeper Scheme then a lessor should accept that as adequate proof.

34. There are two principles in relation to the assessment of damages which need to be noted. First, in Haines v Bendall [1991] HCA 15 the High Court, Mason CJ, Dawson J, Toohey J and Gaudron J began their joint judgment with the following sentence:

The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed …

35. Secondly, what is commonly referred to as the rule in Hadley v Baxendale (1854) 9 Exch 341, summarises the position as to when a consequential loss will be recoverable. The rule requires the party claiming damages to satisfy one of two tests: first, if the claimed loss may fairly and reasonably be considered as arising naturally, according to the usual course of things, from the breach; secondly, if the claimed loss may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

The case for lessor

36. From the written and oral submissions of the lessor, the case of the lessor may be summarised in the following propositions:

1. The lessee did not carry on a business by 01 March 2020.

2. The lessee did not satisfy the decline in turnover test.

3. Accordingly, the lessee was not eligible for JobKeeper payments.

4. The receipt of JobKeeper payments did not establish eligibility.

5. The assignor’s disclosure statement was signed on 21 February 2020.

6. The deed of assignment was signed on 18 March 2020.

7. The assignment date was specified in that deed to be 18 March 2020.

8. Talia needed consent to sub-lease which was not sought or obtained.

9. The accounting records and insurance records are consistent.

10. They both suggest the lessee commenced business on 06 March 2020.

11. Stocktaking commonly occurred one or two weeks before handover.

12. As a result, the 26 February 2020 stocktake was not determinative.

13. Video evidence was consistent with a training period for the lessee.

14. Even if the lessee operated the business before 01 March 2020, that is of no moment as the deed was only signed on 18 March 2020.

37. It was contended that there would be unjust enrichment is the lessee was granted a rent reduction in that (1) the lessee would receive a benefit, (2) that benefit would be at the expense of the lessor, and (3) that it would be unjust for that benefit to be obtained. Reference was made to Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 (Farah) at [150], Yan Gu and Chunhua Tao v Nicole Panetta, Neill Hendry and Giovanni (John) Panetta [2014] NSWCATCD 247 (Yan Gu), and Antonio & Marianna Di Rico v Dion Cominos [2015] NSWCATCD 75 (Di Rico).

38. Reference was also made to the provisions of the lease which were said to entitle the lessor to terminate the lease and take possession of the premises. The lessor relied on the written submissions which included not only contentions in support of each component of the lessor’s claim for damages but also a response to each of the amounts claimed by the lessee.

39. Submissions in reply included that a 50% deferral of rent was offered as part of ‘without prejudice’ negotiations. As to the dispute as to who owned the fittings, the lessor maintained that since the previous lessee, Talia, left the fittings they became the property of the lessor. In relation to the suggested value of the fittings, it was contended that there was no evidence of value, and that depreciation should be taken into consideration. It was observed that the tender included in the lessee’s documents was dated 22 April 2021 which was after the subject dispute arose and that the documents submitted by Talia suggested an amount of $23,980 was spent on the fittings that were installed in the premises in August 2016.

The case for the lessee and guarantors

40. Mr Nasreldin indicated that there were negotiations as to rent reduction, but the parties were unable to agree. Reference was made to the Notice of Default dated 16 April 2021 and the Notice of Termination dated 23 April 2021. Submissions were made as to the impact of the pandemic on the lessee’s business, being that of a convenience store in the Sydney CBD region.

41. The question of whether the lessor had a right to question the ATO’s decision in relation to the lessee was raised. It was asserted that a stocktake was conducted on 26 February 2020 and the lessee took over the business from Talia the following day, ie 27 February 2020, with the result that there were three trading days prior to 01 March 2020. Mr Nasreldin said it took until 06 March 2020 to obtain an EFTPOS machine and prior to that he used an ‘old EFTPOS machine’ which appears to have been that used by Talia. That was said to be the explanation for the high initial amount for cash sales.

42. Reliance was placed on an accountant’s letter to suggest a decline in turnover due to COVID-19 of more than 50% and other documents to which reference is made below. There was also a complaint that the lessee was only given seven days’ notice and, since a truck could only be used on Sunday due to the CBD location of the premises, it was difficult to remove stock within time.

43. Mr Nasreldin’s case was that only ½ the rent was payable, that there were losses relating to both fittings and stock and that the lessor obtaining the amount of the bank guarantee should also be taken into consideration.

Consideration

44. By way of overview, the following events are noted to provide context to the dispute between the lessor and the lessee in these proceedings.

45. On 01 August 2016 the lessor granted a lease to Talia Enterprises Pty Ltd (Talia) for a term of five years from that date. On 18 March 2020 a deed was executed which resulted in (1) the assignment of Talia’s interest in the lease to the lessee, (2) personal guarantees being provided by each of the three guarantors, and (3) a bank guarantee of $46,400.64 in favour of the lessor being provided on 31 March 2020. That assignment was subsequently registered.

44. The lessee did not pay any rent during the period it occupied the premises. On 01 March 2021 the lessor’s agent sent a Rental Demand to the lessee. On 26 March 2021 the lessee lodged an interim application which sought a reduction of rent based on it being an “impacted lessee”, as defined in cl 4 of the Third Regulations.

45. On 16 April 2021 that interim application was heard and dismissed. On that day a Notice of Default was issued and on 20 April 2021 a Notice of Termination was issued. On 24 April 2021 the lessee vacated the premises and on 27 April 2021 the lessor terminated the lease and took possession of the subject premises. On 03 May 2021 the lessee withdrew the substantive application that had been lodged with its interim application.

Lessor’s application – liability

48. There was a period between the Third Regulations and the Fourth Regulations, namely from and including 29 March 2021 up to and including 12 July 2021, when there was no prohibition on termination of a retail lease by a lessor for non-payment of rent by a lessee. The failure to pay the monthly rent within 14 days of the 01 April 2021 due date, the 16 April 2021 Notice of Default, the 20 April 2021 Notice of Termination, and the 27 April 2021 termination each occurred during that period.

49. The relevant provision in the deed is clause 4 which operated to impose on the lessee the obligations imposed of Talia prior to 18 March 2020. The lease by lessor to Talia was for a term of five years from 01 August 2016. It set the initial annual rent, payable in monthly instalments, at $150,000 plus GST with 4% annual increases (in Item 13 within Annexure A) and required that rent to be paid monthly in advance (in clause 5.2 within Annexure B). The obligation to pay rent no later than 14 days after the due date was specified to be an essential term (in clause 12.5 within Annexure B), entitled the lessor to “enter and take possession of the property or demand possession of the property” if that obligation was breached (in clause 12.2 within Annexure B), and provided that the lease would end of that occurred (in clause 12.1 within Annexure B).

50. Since there is no dispute that the lessee had failed to meet its obligation to pay rent under the lease, it follows that the termination was valid, both by reference to the applicable law and the provisions of the deed and the assigned lease.

Lessee’s (cross-)application – liability

51. However, if it be assumed that the lessor was not entitled to terminate the lease, what would be the position? If the lessor took possession of the premises without being entitled to do so, then that would constitute repudiation of the lease that would entitle the lessee to elect to treat that as a basis for it to terminate the lease and claim damages. But there is nothing in the lessee’s evidence to suggest that, when the lessor took possession of the premises in April 2021, any such claim was made by the lessee. Indeed, nowhere in Exhibit 2 is there any indication of a basis for a claim for damages by the lessee.

Lessee’s (cross-)application – quantum

52. Even if the lessor was not entitled to terminate the lease, and even if the lessee could be said to have a valid claim for damages, what would be the amount of the lessee’s damages?

53. The first component of the lessee’s claim for damages was an amount of $297,000 for loss of shop fittings. While a quotation for that amount from Bespoke Projects NSW was provided, it was dated 22 April 2021 (the date of the termination notice), did not indicate to which premises it related and, did not indicate the expenditure of any amount as it is only a quotation.

54. The remaining documents which suggest amounts relate to other premises. There is no evidence of any expenditure on shop fittings, and it appears that the lessee did no more than make use of the fittings installed by Talia. From the evidence, those fittings cost a total of $23,980 and were installed in late July or early August of 2016. Of course, the depreciated value of those fittings well over four years later would have been considerably less. Further, the fittings installed by Talia but not removed when Talia vacated the premises became the property of the lessor by reason of clause 12.3.2 in Annexure B of the lease. The lessee has not proved any amount in respect of this claim. It is noted that, in an email dated 24 April 2021 (2/43), Mr Nasreldin said “I have left the shop fitting for you as per your request”.

55. Secondly, loss of stock was claimed at $40,000. There is no evidence of what items of stock were lost or of the cost of acquisition. Supporting evidence for this claim is confined to a suggestion that, due to time constraints, the lessee left behind 30 belts said to have cost $50 each, giving an amount of $7,500, but that is insufficient to warrant holding the lessor liable for that amount. The stocktake conducted on 26 February 2021 does not provide evidence of what stock was present when the lease came to an end or what was its cost. Accordingly, this claim also fails.

56. Thirdly, loss of the bank guarantee in the amount of $46,400.64 was claimed. There is no doubt that a bank guarantee of that amount was provided and has been obtained by the lessor.

57. Fourthly, an amount of $7,200 was said to be “Money owned to Talia”. The only evidence in relation to this matter is that provided by the lessor (1/3 at [13-15] and 1/244). The records of the leasing agent (1/244) suggest an amount of $6,929.98 is payable by the lessor to Talia. However, there is no basis for that amount to be credited to either the lessee or the guarantors in these proceedings. It appears to be an amount which Talia is still entitled to claim from the lessor.

58. From the evidence before the Tribunal, the total amount which has been established, assuming the lessee is entitled to make a claim for damages, is $46,400.64. However, even if the 50% rent reduction for which the lessee contends is presumed to apply, an amount in the vicinity of $102,000 is payable by the lessee to the lessor. The difference between those two figures is $55,599.36, in favour of the lessor. If the claimed rent reduction does not apply, then that amount increases to more than $150,000 payable by the lessee to the lessor. Indeed, not unless the lessee could prove it sustained losses exceeding $55,599.36 if there is a 50% rent reduction, or more than $150,000 in the absence of any rent reduction, could the lessee be said to have suffered any loss.

Lessee’s (cross-)application – summary

59. Thus, the cross-application must fail as the lessee has not established either (1) that it was entitled to claim damages, or (2) that is entitled to be awarded any amount of damages even if it was entitled to claim damages.

Lessor’s application – quantum

60. Since it is clear the lessor was entitled to terminate the lease due to the non-payment of rent by the lessee, it remains to consider what amount the lessor is entitled to recover as damages and against whom it is entitled to recover.

61. The first claim is for arrears of rent. The questions which arise in relation to the amount owing for rent are: (1) whether the lessor was entitled to increase the rent on 01 August 2020, and (2) whether the lessee is entitled to any rent reduction due to the COVID-19 statutory provisions.

62. The first of those two points is straightforward. As was indicated earlier, the prohibition on rent increases did not commence until 13 July 2021, when the Fourth Regulations took effect. The First Regulations, which applied from 24 April 2020 to 24 October 2020, did not prohibit any rent increase with the result that the lessor was entitled to increase the rent by 4% on 01 August 2020.

63. Annual rent of $150,000 plus GST was payable in monthly instalments of $13,750 from the commencement of the lease on 01 August 2016. As a result of the annual increase of 4%, specified in Item 13 within Annexure A of the lease, the monthly rent due from 01 August 2019 was $15,466.88 and from 01 August 2020 was $16,085.56. There is evidence that the lessee paid rent due on 01 March 2020 (2/16, ie page 16 in Exhibit 2) but no further payments of rent were made.

64. On 24 April 2021, when the lessee vacated the premises, the unpaid rent was twelve whole months (01 April 2020 to 31 March 2021) plus the amount due for the month of April 2021 (24/30^ths of a month’s rent). That amount is $203,420.45 (as shown in the lessor’s table at 1/449 and in Appendix 1 below).

65. Turning to the question of whether there is any entitlement to a rent reduction, the lessee conceded that no agreement was ever reached in relation to a rent reduction. A consideration of the contemporaneous documents contained in Exhibits 1 and 2 confirms that, while offers were made, there was no agreement, either written or oral.

66. Further, the impact of COVID-19 on rent obligations was considered by an Appeal Panel in Feyzbashipour v Lee [2021] NSWCATAP 173, albeit in a case involving a residential tenancy and not a retail lease. After referring to Legione v Hateley [1983] HCA 11 and Ajayi v RT Briscoe (Nigeria) Ltd [1964] 1 WLR 1326, it was held that estoppel operated to prevent the landlord from enforcing strict legal rights against a tenant. That principle could operate in this case if the lessor made an offer not to enforce its rights but only if the lessee altered its position and there is no evidence that occurred in this case. As a result, this area of the law does not assist either the lessee or the guarantors.

67. As a result, the question of whether there is any entitlement to a rent reduction depends on the statutory regime introduced as a response to the onset and impact of the COVID-19 pandemic.

68. It is clear there was no completed agreement between the lessor and the lessee until 18 March 2020. That appears to be the result of the time periods which applied following the provision of a disclosure statement. Plainly, there was agreement between Talia and the lessee prior to that date.

69. However, it is clear the lessee was conducting business at the premises prior to 18 March 2020 and that the lessor was aware of that, the relevant evidence being the payment of rent by the lessee and not Talia on 02 March 2020. There is unchallenged evidence that the lessee commenced business at the premises on 27 February 2020 with the result that there were three days of business prior to 01 March 2020.

70. Since the lessee was only incorporated on 31 January 2020, it could not have a comparison period in 2019. Although it was suggested by the lessor that the lessee did not commence business before 01 March 2020, that contention is rejected. There is evidence from the lessee’s accountant which suggests a decline in turnover of more than 50%: at 1/442 information was provided for the months of April, May, and June 2020 and at 2/48 for the quarters ending 30 June 2020, 30 September 2020 and 31 December 2020 when compared to the sales for the three days in February 2020.

71. It is the Tribunal’s view that, consistent with what was said in In Darzi at [78], it should not go behind the ATO’s determination that the lessee was entitled to receive payments under the JobKeeper scheme.

72. Having regard to the evidence and the submissions, the Tribunal finds that the lessee (1) conducted business prior to 01 March 2020, (2) qualified for payments under the JobKeeper scheme, (3) suffered a decline in turnover of more than 50%. As a result, the Tribunal finds that the lessee was an “impacted lessee”.

73. The fact that the interim application of the lessee was dismissed does not appear to be relevant to the outcome of these applications as that application was only directed to the question of whether there were urgent considerations which warranted relief being granted prior to the hearing of the substantive application. Further, the fact that the substantive application was withdrawn does not impact on the Tribunal’s consideration of these applications.

74. It is noted that on 16 April 2021 a certificate was issued by the Deputy Registrar, Retail Tenancy Disputes (2/82) certifying that mediation had failed to resolve the dispute between the lessor and the lessee. That provides another reason why there is no impediment to the lessor terminating the lease and claiming damages.

75. In these proceedings, the focus of the dispute between the parties was whether the lessee was an “impacted lessee”. As it would not be necessary for that point to be contested if the Tribunal did not have the power to determine what rent was payable during any part the lease, it would appear the parties have impliedly but not expressly taken the view that the Tribunal can determine the rent payable under a retail lease when negotiations, including mediation, fail to result in any agreement as to a reduction and/or deferral of rent.

76. The Tribunal determines that it does have the power to decide what rent was payable by the lessee to the lessor in this instance for the following reasons.

77. First, even though the lessor took steps to enforce his rights outside the prescribed period, and even though there was a failure to pay rent outside the prescribed period, the fact that the lessor is seeking to recover rent that was not paid during the prescribed period means that the regulations apply by reason of clause 5 of the regulations which says: “This Regulation applies to the exercise of enforcement if rights under a commercial lease in relation to circumstances occurring during the prescribed period”. The lessee’s claim for unpaid rent includes failures to pay rent during the prescribed period.

78. Secondly, clause 8 operates to bring an “impacted commercial lease dispute” within the ambit of the Tribunal’s jurisdiction.

79. Thirdly, clause 9 of the regulations requires the Tribunal to “have regard to” the principles set out in the Code in circumstances which include the enforcement of a right to claim damages which falls within paragraph (c) of clause 9. The quoted words suggest that, while the title of the Code included the word mandatory, that only related to the process and that a court or tribunal is only required to “have regard to”, ie consider, the principles contained in the Code.

80. Fourthly, the effect of those principles (quoted above), as illustrated by the examples in Appendix 1 of the Code, is that there should be a reduction in the rent payable that is consistent with the reduction in turnover with half that rent reduction waived and the other half deferred.

81. Applying those principles to the circumstances of this case, the evidence for the nine-month period from 01 April to 31 December in 2020 (1/48) suggests an average decline in turnover of 60% during that period. Adopting the minimum 50% waiver suggests a rent reduction of 30% but only during the prescribed period, which is from 24 April 2020 to 28 March 2021 by reason of the successive effect of the First, Second and Third Regulations.

82. To choose a waiver percentage of less than 50% would not accord with the Code and to apply a waiver percentage of more than 50% would appear to go beyond the available evidence. The assessment of that waiver percentage is not a matter that can be determined with precision and the Tribunal is required to do the best it can, based on the available evidence: Pacorp Holdings Pty Ltd v Waller [2017] NSWCATAP 167 at [58].

83. It is necessary to calculate that reduction for the period from 24 April 2020 to 31 July 2020, when the monthly rent was $15,466.88 and for the period from 01 August 2020 to 28 March 2021, when the monthly rent was $16,085.56 (ie 4% higher). For convenience, the amounts are set out in Appendix 1. The total amount of the rent reduction is $53,141.23.

84. As to any deferral, the Tribunal adopts what was said in Swiss at [36]:

I do not accept the tenant’s submission that the obligation to pay deferred rent terminated when the lease was terminated. As the landlord submits, the Code clearly contemplates that the repayment of deferred rent may continue beyond the expiry of the lease. There is no basis in the Code or in the regulations for the conclusion that the termination of a COVID-19 impacted lease must result in the termination of the obligation to make payments of deferred rent.

85. As to the lessor’s suggestion that any rent reduction would constitute unjust enrichment, the Tribunal is of the opinion that there could not be said to be unjust enrichment when a rent reduction is the result of the operation of statutory provisions.

86. Taking the amount of rent to 24 April 2021 of $203,420.45 and deducting the rent reduction as found by the Tribunal, namely $53,141.23, gives $150,279.22 in respect of the claim for rent.

87. The second component of the lessor’s claim for damages is interest on unpaid rent. In Annexure A of the lease, Item 15 provided for an annual interest rate of 10% while clause 5.1 made interest payable whenever a payment of rent was 14 days overdue, calculated from that due date to the date of payment. The Tribunal’s calculation of interest is set out in Appendix 1. An amount of $17,293.74 is found to be payable in respect of interest.

88. Next, is the claim for loss of income due to the failure of the lessor to fins another lessee. That loss is plainly recoverable as it may be considered as a natural consequence of the failure to pay rent and since it is reasonable to infer that the parties would see that as the probable result of a failure to pay rent. Thus, it appears both limbs of the rule in Hadley v Baxendale are satisfied.

89. There is evidence that the lessor tried to find another lessee, without success. Had there not been a breach of the obligation of the lessee to pay rent under the lease, the lessor would have continued to receive rent until 31 July 2021. Apply the principle outlined in Haines v Bendall, referred to earlier, of seeking to put the lessor in the same position as if a breach did not occur, warrants an award of damages for loss of rental income for the period from 24 April 2021 to 31 July 2021.

90. The rent that would have been payable for the remainder of the lease would be $3,217.11 for the remainder of April ($16,085.56 less the amount of $12,868.45 included in the calculation of unpaid rent to 24 April 2021) plus rent for the months of May, June and July in 2021. The total of those amounts is $51,473.79 (as shown in the lessor’s table at 1/449).

91. The next claim made by the lessor was the leasing fee of $20,790 charged by his leasing agent. A copy of a Leasing Agency Agreement dated 11 June 2021 was provided (1/163). However, the date of that agreement is close to 31 July 2021 which suggests this is an agreement that the lessor would have entered not long after 11 June 2021 had there been no breach of the lease. It is the finding of the Tribunal that this claim does not warrant and award of damages as it only brought forward to 11 June 2021 an expense that was going to be incurred on or before 31 July 2021.

92. An advertising fee of $6,414.67 was claimed, based on a tax invoice dated 09 June 2021 (1/160) that was issued by the lessor’s leasing agent. As with the previous claim, the Tribunal considers this is an expense that was “brought forward” by a short period. Since it was incurred earlier then if there had been no breach, the Tribunal is not satisfied that is an additional expense which warrants inclusion in an award of damages.

93. There was also a claim for an amount of $990, based on an invoice dated 07 July 2021 from Copec Enterprises Pty Ltd (1/159) that was described as “garbage removal and cleaning fee”. The lessee complained that this work was carried out well after 24 April 2021 when the lessee vacated the premises.

94. However, while that period may have required some additional cleaning due to the passage of time, a consideration of the available photographic evidence (1/444-448, 2/108) provides support for the view that garbage removal and cleaning was required. The work carried out, according to the invoice, was to clean up the site, dispose of all waste to the waste centre and wash the floor which work was said to have been undertaken on 07 July 2021.

85. It is clear this claim is recoverable by reference to the rule in Hadley v Baxendale and what was said to be a fundamental principle in Haines v Bendall. This claim is allowed in full.

86. The final claim was $2,540 for a parking levy which cluse 19.2 of Annexure A to the lease required the lessee to pay. At 1/474 was a very small print copy of a document issued by Revenue NSW. While that document does contain the address of the premises, there is nothing, either in that document or in the lessor’s evidence, to indicated to what period that relates. There was a submission (1/580 at [63]) which suggested a date of “On or about 08 August 2021 …” but that is will after the lessee vacated the premises and there is no evidence as to whether the document provided is imposed a charge in advance or in arrears. Since the lessor bears the onus of proof, the basis for an award of this amount has not been established.

87. As was indicated in respect of the lessee’s (cross-)application, there is no dispute that the lessee provided, and the lessor has obtained, the benefit of a bank guarantee (1/233 or 2/18) in the amount of $46,400.64.

Lessor’s application – summary

98. From what appears above, the amount payable by the lessee to the lessor is $173,636.11, calculated as follows:

(1)	Unpaid (reduced) rent (01 Apr 20 to 24 Apr 21)	150,279.22
(2)	Interest thereon (to 08 Dec 21)	17,293.74
(3)	Loss of income (25 Apr 21 to 31 Jul 21)	51,473.79
(4)	Leasing fee	0
(5)	Advertising fee	0
(6)	Garbage removal and cleaning fee	990.00
(7)	Parking levy	0
220,036.75
(8)	Less recovery from bank guarantee	46,400.64
$173,636.11

99. The lease contained provisions which rendered the guarantors responsible for the lessee’s obligations to pay rent, outgoings and damages (Clause 13.2 in Annexure A). There was no suggestion, either in the lessee’s evidence or the submissions (written and oral) that the guarantors were not liable for any amount which the less was found to be liable to pay the lessor.

100. From the lessee’s documents, it is clear Mr Moaz (2/110) and Mr Elakabawey (1/109) authorised Mr Nasreldin to represent them in these proceedings. Accordingly, each of the guarantors has had the opportunity to lodge evidence and make submissions in relation to these applications.

101. In these circumstances, there does not appear to be any reason why an order should not be made each of the four respondents for the payment of the amount to which the Tribunal has found the lessor to be entitled.

Costs

102. In the Civil and Administrative Tribunal Act 2013 (CATA), the effect of s 60 is that each party is to bear their own costs unless there are special circumstances which warrant an order for costs. However, s 35 of the CATA operates to make s 60 subject to Rule 38 of the Civil and Administrative Tribunal Rules 2014 which provides as follows:

1. This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal.

2. Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if:

(a)   the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or

(b)   the amount claimed or in dispute in the proceedings is more than $30,000.

103. When rule 38 applies there is a general discretion to award costs and it is well established, by decisions such as News v Cotes [2019] NSWCATAP 186, Bonita v Shen [2016] NSWCATAP 159 and Thompson v Chapman [2016] NSWCATAP 6, that: (1) the starting point is that the usual order for costs should be in favour of the successful party, (2) the award is not to punish the unsuccessful party but to compensate the successful party for the costs incurred in the proceedings, and (3) departure from the usual order is permissible if the circumstances favour that course of action.

104. Simply stated, when rule 38 applies it is not necessary to establish special circumstances and the usual order is that costs follow the event (ie follow the outcome of the case) unless there is disentitling behaviour by the successful party: Latoudis v Casey [1990] HCA 59, Oshlak v Richmond River Council [1998] HCA 11.

105. Since both the application and cross-application involved claims for more than $30,000, it appears that the lessor is entitled to an order for costs in relation to both his application and the (cross-)application of the lessee. However, the orders will provide two weeks for the unsuccessful parties to make any submissions as to costs. If no such submissions are lodged, then orders will be made for costs. On the other hand, if submissions are lodged by or for the unsuccessful parties then the lessee being the successful party, will be provided three weeks (allowing for the Christmas and New Year holidays) in which to provide any submissions in response.

Orders

106. For the reasons set out above, the orders that will be made are as follows:

In COM 21/32611

1. The respondents are to pay the applicant $173,636.11.

2. Any written submissions any respondent wishes to make as to costs are to be provided to the Tribunal and the applicant on or before 20 December 2021.

3. If such submissions are lodged, any submissions in reply are to be provided to the Tribunal and the respondents by 10 January 2021.

4. Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

In COM 21/38733:

1. The application is dismissed.

2. Any written submissions the applicant wishes to make as to costs are to be provided to the Tribunal and the respondent on or before 20 December 2021.

3. If such submissions are lodged, any submissions in reply are to be provided to the Tribunal and the applicant by 10 January 2021.

4. Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

Appendix 1

Month	Rent	Reduction	Reduced rent	Days Overdue	Interest
Apr 20	15,466.88	1,082.68	14,384.20	603	2,376.35
May 20	15,466.88	4,640.06	10,826.82	572	1,696.70
Jun 20	15,466.88	4,640.06	10,826.82	542	1,607.71
Jul 20	15,466.88	4,640.06	10,826.82	511	1,515.75
Aug 20	16,085.56	4,825.67	11,259.89	480	1,480.75
Sep 20	16,085.56	4,825.67	11,259.89	450	1,388.21
Oct 20	16,085.56	4,825.67	11,259.89	419	1,292.57
Nov 20	16,085.56	4,825.67	11,259.89	389	1,200.03
Dec 20	16,085.56	4,825.67	11,259.89	358	1,104.39
Jan 21	16,085.56	4,825.67	11,259.89	327	1,008.76
Feb 21	16,085.56	4,825.67	11,259.89	299	922.39
Mar 21	16,085.56	4,358.68	11,726.88	268	861.04
Apr 21	12,868.45	12, 868.45	238	839.09
Totals	$203,420.45	$53,141.23	$150,279.22	$17,293.74

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 15 March 2022