International Enterprises Company Pty Limited v Kingsmede Pty Limited & Anor

[2007] NSWADT 15

CITATION:	International Enterprises Company Pty Limited v Kingsmede Pty Limited & Anor [2007] NSWADT 15
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT/CROSS RESPONDENT International Enterprises Company Pty Limited FIRST RESPONDENT/CROSS APPLICANT Kingsmede Pty Limited SECOND RESPONDENT/CROSS APPLICANT Pamiers Pty Limited
FILE NUMBER:	065076, 065090
HEARING DATES:	14/08/2006- 16/08/2006 & 13/10/2006
SUBMISSIONS CLOSED:	13 October 2006
DATE OF DECISION:	11 January 2007
BEFORE:	Chesterman M - ADCJ (Deputy President); Griffiths G - (Advisory) Non Judicial Member ; Fagg N - (Advisory) Non Judicial Member
CATCHWORDS:	Claim for payment of money - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd [2006] NSWADT 323 Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64 Prsa & Anor v Polymeris [2000] NSDWADT 108 Shevill v Builders Licensing Board (1982) 149 CLR 620
REPRESENTATION:	APPLICANT/CROSS RESPONDENT G Mallory, agent FIRST & SECOND RESPONDENTS/ CROSS APPLICANTS A Hourigan, barrister
ORDERS:	1. The Applicant/Cross Respondent is liable to pay the sum of $193, 926.97 to the Respondents/Cross Applicants.; 2. The Applicant/Cross Respondent’s unconscionable conduct claim is dismissed.; 3. The Tribunal’s interim order of 24 May 2006, prohibiting the Respondents/Cross Applicants from taking any steps to enforce the bank guarantee contained in the lease between them and the Applicant/Cross Respondent, is discharged.; 4. Any application for costs 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 s 76 of the Administrative Decisions Tribunal Act 1997.

Introduction

1 The principal issue arising in this case is the nature and extent of any duty imposed on a lessor to consider future leasing agreements with a prospective purchaser of a business being carried on by the lessee, when the lessee has asked for this prospective purchaser to be considered as a replacement lessee and stands to benefit significantly from the business sale that has been arranged.

2 This issue arose following a lockout of the lessee by agents of the lessor, on the ground that the lessee had failed to pay an instalment of rent due some thirty days earlier.

3 The lease in question (‘the Lease’) was governed by the Retail Leases Act 1994 (‘the RL Act’).

4 The lessee was International Enterprises Company Pty Limited (hereafter ‘International’). The joint lessors were Kingsmede Pty Limited and Pamiers Pty Limited (hereafter ‘Kingsmede’).

5 International instituted these proceedings on 25 May 2006 (file 065076). In an amended application lodged on 4 July 2006, it alleged that Kingsmede had acted unconscionably, notably (a) in failing to negotiate with the prospective purchaser despite being asked frequently to do so and (b) in locking out International and terminating the lease in bad faith. International sought orders that the Kingsmede should release unconditionally a bank guarantee in the amount of $68,750 that International had provided pursuant to the lease, should compensate it for the loss of the benefit that it would have obtained through the sale of its business to the prospective purchaser and should pay its costs.

6 On 24 May 2006, the Tribunal granted an interim order prohibiting Kingsmede from taking any steps to enforce the bank guarantee.

7 In a cross claim lodged on 21 June 2006 (file 065090), Kingsmede claimed the following amounts: the rent due and unpaid at the time of the lockout; the rent payable between the lockout and expiry of the lease; expenses incurred in conducting the lockout and making good the premises; interest; and costs.

8 Since the proceedings include a claim of unconscionable conduct under s 62B of the RL Act, the Tribunal must be 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 non-judicial members of that Division acting in an advisory capacity only.

Relevant aspects of the lease between the parties

9 Under the Lease as initially agreed, the lessor was a company called NOL Properties Pty Limited and the lessee was International.

10 The leased premises (‘the Premises’) were the basement toilets and ground floor (excluding services and common areas) of a property at 62 Pitt Street, in the Central Business District of Sydney. The area of the Premises was approximately 181 square metres.

11 The permitted use stated in the Lease was ‘retail sales of leather goods and souvenirs’. The Premises constituted the only retail shop in the property. The remainder of the property was leased for commercial uses.

12 The term of the Lease was from 15 September 1995 to 14 September 2001, with an option to renew for six years. The initial rent was $200,000 per annum, payable in monthly instalments on the first day of each month commencing 1 December 1995.

13 Clause 4.1 stipulated that the lessee should not use the Premises for any purpose other than the permitted use without the prior written consent of the lessor.

14 Clause 4.2.1 provided in sub-paragraph (a) that the lessee must not assign the lease without the prior written consent of the lessor. Under sub-paragraph (b), the lessor was entitled to withhold consent in its absolute discretion in any of the following circumstances, but was not entitled to withhold consent in any other circumstances:-

(i) if the proposed assignee proposes to change the use to which the Demised Premises is put;

(ii) if the proposed assignee has financial resources or retailing skills that are inferior to those of the Lessee; or

(iii) if the Lessee has not complied with clause 4.2.1(c).

15 Clause 4.2.1(c) contained common-form requirements regarding assignment, including that the lessee must make any request to the lessor for consent to an assignment in writing and must provide the lessor with ‘such information as the Lessor may reasonably require concerning the financial standing and business experience of the proposed assignee’.

16 Clauses 13.1 and 13.2 provided, amongst other things, that if the rent payable, or any part thereof, was unpaid for a period of 14 days following the day on which it ought to have been paid, the lessor would be entitled (a) to re-enter and repossess the Premises, (b) to treat the Lease as having been repudiated by the lessee and (c) to claim damages for the loss sustained as a result of the repudiation. Clause 13.4 provided that interest should be paid on any arrears of rent at a rate fixed at 2% more than the current maximum overdraft rate being applied by the Commonwealth Bank of Australia.

17 Clause 17 provided for the delivery of an unconditional bank guarantee securing payment of the sum of three months’ rent at the initial rate.

18 International took possession of the Premises pursuant to the Lease and traded in them as Spring Leathergoods and Souvenirs Shop. The Lease was registered.

19 Kingsmede purchased the property at 62 Pitt Street, Sydney on 17 November 2000, and became the lessor.

20 On 4 October 2001, Kingsmede and International executed a Variation of Lease extending the date of expiry of the Lease to 14 September 2007, deleting the option to renew, increasing the annual rent to $250,000 and stipulating that International was liable also for GST.

The approach adopted by the parties to finding a new lessee

21 At all material times, International was controlled by Mr George Mallory, its sole director. Mr Mallory also appeared for International as its agent in these proceedings.

22 Until March 2006, International made rent payments as required by the Lease. But in the latter part of 2005, it began to experience trading difficulties.

23 On 29 August 2005, Mr Mallory telephoned Mr Carlos Maureira, who was employed by Kingsmede as its asset manager, to ask about Kingsmede’s criteria for consenting to an assignment of the Lease. In a letter faxed to Mr Mallory on that day, Mr Maureira, having referred to their conversation, indicated that Kingsmede would need to satisfy itself as to the risks of granting any such consent. The letter stated that Kingsmede would require as much information as possible about any prospective purchaser of International’s business, including (but not limited to) information within seven specified categories. Relevantly, these included financial statements, references from trading partners and previous landlords and, as the final category, ‘Business Plan (if available)’. The intended mode of use of the Premises by a prospective purchaser was not included. The letter then stated that the ‘purpose of the exercise’ would be to ascertain the financial capabilities and business experience of any purchaser.

24 On 9 November 2005, in a meeting with Mr Maureira at the office of Kingsmede, Mr Mallory said (a) that International was experiencing trading difficulties; (b) that he was financing its losses by borrowing money on the security of his home; (c) that he believed that International could not continue trading for more than three months; and (d) that he was starting to advertise for a purchaser of the business. Mr Maureira’s response was that while International was looking for a purchaser Kingsmede would try to find a lessee to take over the Lease. He added that in the meantime International must comply with its obligations under the Lease, including the obligation to pay the rent on time.

25 According to Mr Maureira, Mr Mallory told him that International was ‘a two dollar company’ and had no assets, and that therefore Kingsmede would not recover any money if it sued International for unpaid rent. Mr Mallory denied having said this.

26 In a file note, bearing the same date as this meeting, Mr Maureira purported to summarise what was said at the meeting. The note did not record any statement by Mr Mallory to the effect that Kingsmede would not recover any money by suing International. It included a statement by Mr Maureira that Kingsmede would assist by providing the names of leasing agents to International. A handwritten annotation on the file note said: ‘Further, we would speak to our contacts.’

27 After this meeting, Mr Maureira was instructed by Mr John Garland, who was employed by Kingsmede as its General Property Manager, and Mr Andrew Potter, a director of Kingsmede, to ask Mr Scott Harris, of Property Partnership Australia Pty Ltd (‘Property Partnership’), who were commercial sales and leasing agents, to try to find a lessee. It seems that both Mr Maureira and Mr Potter separately made contact with Mr Harris.

28 Mr Harris met Mr Maureira on 15 November 2005, following which Mr Harris, in a letter to Mr Maureira dated 16 November, confirmed that he would ‘now contact Mr George Mallory to obtain formal instructions to offer the premises to potential lessees’.

29 In a letter dated 15 November 2005 to Mr Mallory, referring to the meeting six days earlier, Mr Maureira confirmed Mr Mallory’s advice that International was seeking to surrender the Lease and that in the meantime International was expected to meet all its obligations under the Lease, including the timely payment of rent. The letter then stated that Kingsmede would assist in finding an alternative tenant and that ‘to this effect’ it had engaged the services of Mr Harris. The letter then said:-

You may wish to speak to some of the major leasing agents in the CBD, such as Jones Lang LaSalle and CB Richard Ellis, however it is strongly suggested that all dealings be done through Mr Harris.

Once the tenant is found, it is expected that you will meet the cost of the leasing fee.

30 According to Mr Harris, when he contacted Mr Mallory on or about 17 November 2005, Mr Mallory said that he did not want to engage Property Partnership because he was not prepared to meet the costs of procuring a new lease for the Premises. Mr Harris indicated that these costs, which were ‘standard’, would include Property Partnership’s fees and ‘something between three and six months rent free for the new tenant’. Mr Mallory’s reply was that he was looking for someone to purchase his business.

31 According to Mr Harris, when he reported this conversation to Mr Garland on or about 22 November 2005, Mr Garland said: ‘Scott, that’s a worry. I will need to speak to Andrew [Potter], as I can see a problem looming.’

32 Further letters passed between Mr Maureira and Mr Mallory during November 2005. The following aspects of this correspondence are of significance.

33 On 18 November, Mr Maureira insisted that ‘the project must be co-ordinated by one person, and that person is Mr Harris’. On 28 November, he advised that Kingsmede had appointed Mr Harris ‘on an exclusive agreement to market your space’ and that Kingsmede considered that ‘a coordinated effort through Scott Harris from Property Partnership is the right approach in this regard’.

34 Mr Maureira’s letter of 28 November also contained the following passage:-

The difficulty we see in relation to your current lease is its residual term (less than 2 years), which must be seen as a deterrent by any prospective tenant seeking lease security. The landlord is better positioned to determine the highest and best use for the premises and assess the new tenant’s commercial nous and financial standing.

35 The letters from Mr Mallory included (a) advice (on 23 November) that he intended to sign ‘a non-exclusive general agreement’ with CB Richard Ellis but that when ‘concrete offers’ arose he would certainly contact Mr Harris and (b) the observation (on 28 November) that the ‘new tenants’ would most likely need a five year lease with a five year option, or something similar, and would therefore have to negotiate directly with Kingsmede.

36 Mr Mallory’s letter of 28 November 2005 also contained the following passage:-

I see no prospect of this company being in a position to foot all leasing costs, which could include for example such items as a rent-free period and other fit-out concessions which you may wish to grant them. You would have been up for such costs at the expiration of our lease, had it continued. It is just that these costs have moved forward in time.

37 On 20 December 2005, Kingsmede and Property Partnership signed a formal agreement appointing Property Partnership as Kingsmede’s exclusive agent to find a new tenant for the Premises. In his affidavit, Mr Garland said that an alternative tenant was being sought by Kingsmede ‘with a view to negotiating a forfeiture of’ the Lease to International.

Prospective long-term lessees proposed by Property Partnership

38 Between November 2005 and February 2006, Mr Harris asked Mr Garland to consider three written offers to lease the Premises that Mr Harris had received. In each case, Mr Garland, having done so, told Mr Harris that Kingsmede did not want to accept the offer.

39 The first offer, conveyed to Mr Garland on or about 28 November 2005, was from Opera Express. It related to the front 100 square metres of the Premises. The rent offered was $1,800 per square metre, the suggested period was five years, with an option to renew for five years, and the proposed use was as a convenience store. According to Mr Harris, Mr Garland told him that Opera Express was ‘not the type of tenant we are looking for’ and expressed the hope that he could ‘find something better than a convenience store’.

40 Secondly, on or about 15 December 2005, the Bank of Queensland offered to lease an area of 100 square metres at a rent of $1,500 per square metre. The suggested period was five years, with an option to renew for five years. About five days later, Mr Garland rejected this offer on the grounds that the rent was insufficient and that the Bank required compliance with a number of onerous commercial conditions.

41 Mr Harris conveyed the third offer to Mr Garland on 13 February 2006. He had received it from CB Richard Ellis, to whom an agent called Pharos Retail had conveyed it. The offer was made by City Convenience Stores. It was for the whole of the ground floor area occupied by the Premises. The suggested period was seven years, with an option to renew for seven years, and the proposed annual rent was $280,000.

42 On or about 15 February, Mr Garland told Mr Harris that the proposed use was unacceptable to Kingsmede as it would have a negative impact on the value of the commercial office space in the property. The proposed use, as formulated in this offer, was as follows:-

The operation as a convenience store, which shall include but not limited to, retail of convenience items including health products, natural health products, vitamins, beauty products, first aid supplies, fast food, novelty products and general gift products, confectionery, drinks, newspapers and magazines

Money exchange facilities and internet kiosks.

43 During February and early March 2006, there was, however, further correspondence regarding this offer between Pharos Retail, CB Richard Ellis and Mr Garland. It appears that City Convenience Stores submitted a photomontage in an effort to demonstrate that the appearance of their proposed shop would not impair the value of the commercial premises. They asked for reconsideration of their offer, but it was not accepted.

44 In an internal email within CB Richard Ellis relating to this attempt by City Convenience Stores, it was mentioned that Kingsmede’s main concern was ‘the overall appearance’ of the building and that its purpose in removing the current tenant was to ‘find a cleaner use’.

The prospective lessee proposed by International

45 From November 2005 onwards, Mr Mallory advertised the sale of International’s business. One advertisement, annexed to an affidavit by him, included the phrase ‘Take over the lease, or negotiate a new one’.

46 International did not pay the instalment of rent due on 1 March 2006. This prompted an exchange of correspondence, which is outlined below, between Mr Maureira and Mr Mallory. It was also the ground on which Kingsmede locked International out of the premises on 31 March 2006. This correspondence and the lockout constitute the background against which Mr Mallory sought to effect a sale of International’s business to a prospective purchaser with whom he had made contact.

47 On 3 March 2006, following negotiations that had lasted some weeks, Mr Mallory received from Mr Masoud Abdollah a written offer to purchase the business. So far as relevant, the letter of offer stated:-

… as we agreed I Masoud Abdollah have the pleasure in offering you total amount of $200,000 for your shop.

The $200,000 price we agreed includes all your stock and fittings, and taking over your lease.

I will spend more money on upgrading the current condition of the shop by improving the lighting and the floor.

This offer is only good if I get permission from the owner of the building. All I need is for the owner to agree for me to take over your lease and agreement with the owner to give me the option to negotiate a longer term lease when the existing lease finishes…

I would appreciate if give me the name of the owner as soon as possible to be able to lodge my proposal for further procedure…

48 Mr Abdollah testified that he intended to spend about $80,000 improving the fit-out. He also said that he would have taken over the debts of the business. He understood these to have been of the order of $100,000, which was roughly the value of the stock that he was intending to purchase.

49 On 7 March, Mr Mallory wrote to Mr Abdollah accepting his offer, stating that he would ask Kingsmede for an appointment to introduce Mr Abdollah to them and asking Mr Abdollah to prepare the requisite documents, including trade references, for use in presentation to them.

50 On 9 March, Mr Mallory rang Mr Garland to ask for a meeting to introduce Mr Abdollah, whom he described as intending to operate ‘a convenience/souvenirs type of business’.

51 Mr Mallory’s version of their conversation was as follows. Mr Garland expressed no interest in such a meeting. He said that he had received an expression of interest from City Convenience Stores, which was a large national operator of 40 stores, and that he also had two other offers ‘waiting in the wings’. He agreed ‘reluctantly’ to accept a written submission from Mr Abdollah. Mr Mallory emphasised that Mr Abdollah was a ‘buyer of some substance’ and was ‘hot’.

52 In a letter dated 16 March 2006 to Mr Maureira, Mr Mallory described this conversation in these terms.

53 According to Mr Garland, Mr Mallory described Mr Abdollah to him as a potential lessee of the Premises, not as a purchaser of International’s business. He told Mr Mallory that he would be pleased to receive details of Mr Abdollah, but that it was probably premature to meet him and discuss terms without obtaining further information about him and his proposal. Mr Garland suggested accordingly that Mr Abdollah should be asked to forward his proposal and any references.

54 According to Mr Abdollah, on 9 March he rang Mr Garland, who said that he was too busy to hold a meeting but that Mr Abdollah should send his proposal to an address in Bligh Street, Sydney. Mr Garland also said, according to Mr Abdollah, that he preferred City Convenience Stores to any individual store of this type because they had 40 stores in Sydney. He said further that he did not want a ‘messy’ convenience store, but ‘something upmarket’. Mr Abdollah then said that he could make the store ‘presentable’, like the shops that he already owned, which were ‘in very, very good hotels’.

55 On 13 March, Mr Abdollah hand-delivered a written proposal, dated two days earlier and addressed to Mr Garland, to Kingsmede’s head office at Edgecliff. This letter commenced as follows:-

I Masoud Abdollah would like to announce my keen interest to establish a new business at premises located at No 62 Pitt street grand ( sic ) floor for the purpose of up market convenience store.

I have studied the location, and there is no such business in Pitt street nearby, I believe the location is most suitable for this service therefore I would have the opportunity to do some business.

56 The letter then stated that Mr Abdollah had ten years’ retail experience and was currently operating three gift shops in three major Sydney hotels, one photo shop and one convenience store. It contained a promise by him to upgrade the lights, the floor, the ceiling and fit-out of the shop and to keep the shop clean and tidy. It also said that he had ‘the support of many suppliers in the business’ and good references from the three Sydney hotels and from Savills, a property management company.

57 Copies of these references were attached. They were all dated 9 or 10 March 2006 and they all described Mr Abdollah as a tenant who paid the rent punctually and maintained a high standard of presentation for his shop. The three references from hotels mentioned commencement dates for his tenancies within the period from 1997 to 1999.

58 The reference from Savills stated that he had been operating a convenience store within 383 Kent Street Sydney – the giving of this particular address is significant – for the past 20 months.

59 On or about 13 March, Mr Garland instructed Mr Harris to start looking for short-term tenants for the Premises.

60 In a telephone conversation on 14 March between Mr Mallory and Mr Maureira, Mr Mallory mentioned Mr Abdollah’s interest in the Premises. Mr Mallory testified that he presented Mr Abdollah as a buyer and urged Mr Maureira to meet him. He described his conversation of 9 March with Mr Garland, referring to Mr Garland’s refusal to meet Mr Abdollah and reluctance to deal with him. Mr Maureira told Mr Mallory that it was not his responsibility to deal with Mr Abdollah, but that Mr Garland would attend to this.

61 In a letter dated 16 March to Mr Maureira, Mr Mallory referred again to Mr Garland’s refusal to meet Mr Abdollah and reluctance to deal with him, and urged Mr Maureira once more to meet him

62 According to Mr Abdollah, he spoke on the telephone to Mr Garland on 15, 21 and 29 March and left messages for him on 20 and 28 March. He also sent an email on 23 March. During the conversations on 15 and 21 March, Mr Garland said that he was too busy to meet Mr Abdollah, but that he would have a look at Mr Abdollah’s convenience store when he was next in the CBD. According to Mr Abdollah, he was ‘abrupt’ on the second of these occasions.

63 Mr Garland testified that Mr Abdollah contacted him ‘numerous times’. He did not question Mr Abdollah about his financial credentials because, as he put it, Mr Abdollah ‘made sure’ that he was ‘aware of those things’. He did not invite Mr Abdollah to submit any plans or drawings to give an impression of his proposed shop.

64 These two witnesses were in conflict as to the address that Mr Abdollah gave for his convenience store. Mr Garland said that the address given to him was 383 Kent Street whereas Mr Abdollah said that it was an address in Sussex Street. When asked in cross-examination whether his shop was in the same building as 383 Kent Street, he said that it was not.

65 Mr Garland testified that on or about 22 March, he inspected a convenience store at 383 Kent Street. He described it in his affidavit as a ‘usual … convenience type retail outlet with a number of street stickers and displays’. In his opinion, the appearance of the shop was ‘untidy’ and ‘not very attractive’.

66 According to Mr Garland, he told Mr Abdollah on the telephone on or about 24 March that he had ‘dropped by’ the shop at 383 Kent Street, that it was a ‘usual type of convenience store’ but that he did not think it would ‘fit the image’ that Kingsmede was trying to achieve at the Premises. Mr Abdollah then said that his shop was not at 383 Kent Street, but in Sussex Street, and that it was a new shop. Mr Garland then said that he would look at that shop when he was next in the CBD.

67 It would appear that Mr Garland’s inspection of the shop at 383 Kent Street actually occurred on or before 20 March. In a letter bearing that date to Mr Mallory, Mr Maureira said that Mr Garland had spoken to Mr Abdollah ‘numerous times’ and had attempted to inspect one of his shops, but that Mr Abdollah had ‘provided the wrong details’. He added that ‘if we are going to enter into a direct lease with a prospective tenant we want to have the right to choose the right operator/usage for the shop’.

68 In a letter dated 23 March to Mr Maureira, Mr Mallory again urged him to ‘do everything possible to examine [Mr Abdollah’s] shop and credentials’, despite apparent reluctance to do so, and to ‘conclude a mutually satisfactory lease agreement with him’.

69 In a further letter, dated 27 March, to Mr Maureira, Mr Mallory repeated his version of the contacts made between Mr Garland and Mr Abdollah and referred to the ‘unfortunate mix up’ regarding the address of Mr Abdollah’s convenience store. He said that Mr Garland looked at the wrong shop ‘because it was in the same complex as the address Mr Abdollah had given to him to inspect’. He claimed that Mr Garland was ‘as they say in the business, “stonewalling”’. The letter also stated:-

Instead of doing everything possible to interview Mr Abdollah, you chose to ignore him, perhaps wishing him to go away. But he is still there and still willing, in spite of many snubs by Mr Garland.

70 A letter from Mr Maureira to Mr Mallory, dated 28 March, included the statement that ‘we reject categorically your suggestion that we have ignored or stalled the process’.

71 According to Mr Abdollah, when he rang Mr Garland at about 3 p.m. on 29 March, Mr Garland told him that Kingsmede had decided to lease the Premises to someone else. On the same day, he came to the Premises and passed this information on to Mr Mallory. Mr Mallory corroborated this, as did Ms Haida Fox, who was employed by International as the manager of its shop.

72 Mr Garland denied having made any such statement to Mr Abdollah on or about 29 March. He said that early in April, after the lockout, he went to what he understood to be the correct address for Mr Abdollah’s convenience store, found it to be closed temporarily and took a photograph of its exterior. He claimed that although by the time of this visit a short-term tenant had gone into occupation of the Premises, he had not ruled out Mr Abdollah as a possible long-term tenant. By the middle of April, however, he had decided not to accept any offer from Mr Abdollah, and he informed Mr Abdollah accordingly.

73 In the course of cross-examination, Mr Abdollah answered a number of questions about his agreement with International, his plans for a shop at the Premises and the terms of any agreement for lease that he would have been prepared to conclude with Kingsmede. Some aspects of these answers are set out below.

The events leading to the lockout

74 Between December 2005 and March 2006, various people appearing to be architects or surveyors came to the Premises and took measurements. Ms Fox heard some discussions of subdivision of the shop. Correspondence between Mr Harris and Kingsmede suggested that this idea was being considered, on a temporary basis at least, from December 2005 onwards.

75 As already mentioned, International did not pay the instalment of rent due under the Lease on 1 March 2006. At that stage, the annual rent had increased under the Lease to $304,537.32 and the amount of each monthly instalment was $25,378.11.

76 In a telephone conversation, already mentioned, between Mr Mallory and Mr Maureira on 14 March, Mr Maureira asked whether International would be paying this rent due. As stated above, Mr Mallory referred to Mr Abdollah’s interest in purchasing the business. Mr Maureira testified that Mr Mallory claimed not be in a position to pay the rent, because International ‘had no money’. Mr Mallory denied having said this.

77 On 15 March, in a letter faxed to Mr Mallory, Mr Maureira, after referring to this conversation, specified the amount of overdue rent to be $25,466.11 and demanded payment by 4 p.m. on 22 March. The letter stated that failure to meet the demand would prompt legal action and that the demand was made without prejudice to any of the lessor’s rights under the Lease.

78 On 16 March, Mr Maureira telephoned Mr Mallory and suggested that International should contribute about $4,000 to the cost of advertising for a new tenant.

79 On the same day, in a letter (mentioned above) to Mr Maureira, Mr Mallory contended that he had given Kingsmede ‘a very long notice of our intention to vacate the premises’ and had co-operated fully with Kingsmede’s employees in granting them access to premises in order to obtain shop measurements and quantity surveys. In view of this, and of having proposed Mr Abdollah as a ‘fully qualified applicant’, Mr Mallory maintained that there was no need to advertise and therefore no need for International to contribute to advertising expenses.

80 On 20 March, in a letter (mentioned above) to Mr Mallory, Mr Maureira stated (a) that International was expected to fulfil its obligations under the Lease until 14 September 2007, the date of its expiry; (b) that Kingsmede stood by its demand for rent; (c) that the cost of media advertising, which was recommended by agents, was $7,000 to $8,000; and (d) that Kingsmede was prepared to assist International by meeting one-half of this cost.

81 On 22 March, at Mr Maureira’s request, Mr Mallory attended his office. Mr Maureira said that Kingsmede was prepared to reduce the rent in the short term, but would expect the shortfall to be made good later.

82 On 23 March, in a letter (mentioned above) to Mr Maureira, Mr Mallory referred to this offer, but said that ‘we have reached the conclusion that our business is not viable with the overheads it is carrying and the sales we have been getting’. Accordingly, he said, ‘we still want to relinquish the lease as we have informed you back in November 2005’.

83 The copy of this letter attached to Mr Maureira’s affidavit displays a handwritten note, appearing above initials that seem to be Mr Maureira’s and the date 24/3/06. The note in the following terms:-

John,

As expected/anticipated this is the end of the road. I will now take action to re-enter and terminate.

84 On 24 March, Mr Maureira faxed to Mr Mallory a letter which, after referring to a telephone conversation on that day, demanded payment, ‘no later than 31 March 2006’, of all the outstanding arrears of rent and outgoings, totalling $25,466.11, that were due on 1 March 2006. The letter then said: ‘If payment in full is not made by that date, the landlords intend to re-enter the premises and terminate your lease without further notice.’ It stated further that if International relinquished possession of the Premises, Kingsmede would treat this as a repudiation of the Lease, that Kingsmede was not accepting a surrender of the Lease, that it held International liable for all its obligations under the Lease until the Lease expired on 14 September 2007 and that Kingsmede’s rights under the Lease were ‘reserved in full’.

85 A lengthy letter of 27 March (mentioned above) from Mr Mallory to Mr Maureira restated International’s contentions regarding the Lease, with particular emphasis on Mr Garland’s reluctance to deal with Mr Abdollah. Relevantly, it also said that Mr Mallory had discerned an intention by Kingsmede to ‘convert the shop to alternate usage (as of course it is your right to do so)’ and that International had ‘enthusiastically aided towards that end’. It concluded by stating that International had written out a cheque for $25,466.11 and was prepared to exchange it in return for being released from the Lease effective 1 April 2006, ‘with no penalties and return of the bond you hold, secured by the bank guarantee’.

86 On 28 March, in a letter (mentioned above) to Mr Mallory, Mr Maureira rejected Mr Mallory’s contentions and reiterated the contents of Kingsmede’s letter of demand dated 24 March 2006. He claimed to find it ‘insulting’ that International should offer to pay the arrears subject to a release from its obligations effective 1 April 2006, since those obligations were ‘far greater than a mere month’s rent’.

87 On 29 or 30 March, workers apparently instructed by Kingsmede knocked a hole in the rear wall of the Premises, preparatory to subdividing them. They did so without prior warning to International.

88 On 30 March, Ms Fox advised a small number of traders who had supplied stock that since this hole had been made in the rear wall it was probable in her view that International would be evicted. She suggested that they might come to the Premises to retrieve their stock.

89 On the morning of 31 March, Mr Mallory negotiated the sale, at a low price, of some of International’s fittings in the Premises to a buyer whom he claimed to have located through the ‘Trading Post’.

90 Also on the morning of 31 March, which was a Friday, a number of people came to the Premises and took stock away. According to Ms Fox, they constituted many more than the few suppliers whom she had contacted, and some of them removed items of stock to which they were not entitled.

91 At about 3.20 p.m. on 31 March, while Ms Fox was temporarily absent from the Premises, agents instructed by Mr Maureira pulled down a roller door in front of the Premises and installed a padlock. She was unable to re-enter the shop.

92 At 4.10 p.m. on that day, Mr Maureira attempted to send a ‘Notice of Termination of Lease by Re-entry’ by fax to International. Mr Mallory testified that International’s fax number had by then been disconnected and that this Notice only reached International by post on 4 April.

93 On 1 April, Mr Mallory succeeded in re-entering the Premises in order that the buyer of International’s fittings could take delivery of them. In a letter dated 3 April to him, Mr Maureira referred to his ‘illegal and forceful entry’ into the Premises and said that Kingsmede regarded both this entry and ‘the deplorable state’ in which he left the Premises after taking away International’s stock as ‘ a very serious matter indeed’.

The aftermath of the lockout

94 Between 3 April and 30 June 2006, Kingsmede entered into short-term leases or licences relating to the Premises with two companies, Lulu’s Australia Pty Ltd and Altruism Pty Ltd. The Premises were subdivided to enable these transactions to take place, with one shop facing Pitt Street (‘the front shop’) and the other facing Spring Street (‘the rear shop’).

95 The business conducted by Altruism Pty Ltd was the sale of clothing and other goods on the liquidation of a major Sydney department store, Gowings.

96 On or before 11 April, Mr Rupert Ansteed, a design consultant acting on behalf of City Convenience Stores, asked Mr Harris if Kingsmede would reconsider this company as a tenant, provided that a quality fit-out was installed. Mr Harris consulted Mr Garland, who said that Kingsmede would only consider City Convenience Stores if the fit-out was of a very high standard and there was limited signage. At Mr Harris’s suggestion, Mr Ansteed then submitted a design proposal.

97 On 27 April, City Convenience Stores submitted two leasing proposals for the front shop. The proposed rents were $1,600 per square metre (for 125 square metres) and $1,800 per square metre (for 114.4 square metres) respectively. The proposed term was five years, with two five-year options.

98 In addition, during mid-April Mr Garland commenced negotiations with a company called The Vision Centre NSW Pty Ltd, trading as Perfect Vision (‘Perfect Vision’), for a longer-term lease of the front shop. The proposed use was to be as an optometrist shop. According to Mr Harris, he heard of these negotiations from Mr Garland on or about 14 April.

99 During June 2006, Mr Garland advised Mr Harris that Kingsmede would prefer to lease the front shop to Perfect Vision rather than City Convenience Stores, adding that ‘whatever rent we lose downstairs we will more than make up for upstairs’. There was no further consideration given by Kingsmede to any offer from City Convenience Stores.

100 On 1 November 2006, following approval of a development application, a ten-year lease of the front shop to Perfect Vision commenced. The area leased is 114.4 square metres and the rent is $171,600 per annum, with a rent-free period of seven months.

101 According to Mr Garland, testifying on 15 August 2006, there was a ‘better than 50/50’ chance that negotiations for a lease of the rear shop, comprising 66 square metres, to a café business would be successful. He believed that the lease was likely to commence during October 2006, with an annual rent in the vicinity of $75,000.

International’s claim of unconscionable conduct

102 International did not dispute that it had paid no rent under the Lease with respect to the period from 1 March 2006 onwards. It claimed, however, that on account of unconscionable conduct by Kingsmede relating to the lockout and the termination of the Lease, it should not be liable for any part of the amount claimed by Kingsmede. It claimed further that Kingsmede was liable to compensate it for the loss of the value of the sale of its business to Mr Abdollah.

103 In making this assertion, Mr Mallory, as International’s agent in these proceedings, relied principally on Kingsmede’s response to the approach made to it by Mr Abdollah.

104 As depicted by Mr Mallory, this response took the form of refusing to meet Mr Abdollah, failing to reply to his letter and his telephone calls, making only one attempt to inspect his convenience store (which failed due to a misunderstanding as to its location) and ultimately rejecting his proposal without ever giving it proper consideration.

105 The chief grounds on which, in Mr Mallory’s submissions, this treatment of Mr Abdollah by Kingsmede was unfair and unconscionable vis-à-vis International were these: (a) that Mr Garland and Mr Maureira knew that Mr Abdollah had agreed in principle to purchase International’s business and was keen to do so as soon as possible; (b) that his references from landlords were very favourable; (c) that the purchase, if completed, would be of great benefit to International, whereas none of the other prospective lessees being considered by Kingsmede was interested in purchasing International’s business; (d) that it was oppressive of Kingsmede to have insisted that Mr Harris should be the sole agent to lease the Premises, thereby making it harder for someone proposed by International, the current lessee, to gain acceptance; (e) that despite Mr Abdollah’s obvious desire to purchase the business and become a lessee, Kingsmede put pressure on International to contribute to advertising costs; (f) that Kingsmede rebuffed Mr Abdollah’s proposal of an ‘upmarket’ convenience store despite being prepared at the time to consider seriously the similar proposals being put forward by City Convenience Stores; (g) that until March 2006 International had been an exemplary tenant for more than ten years; (h) that Kingsmede planned nonetheless to terminate International’s tenancy from the moment when International disclosed its financial problems, in order to pursue Kingsmede’s real ‘agenda’ of enhancing the value of the commercial offices upstairs by reletting the Premises for a more prestigious use; and (i) that it concealed this ‘agenda’ from International, even to the extent of failing to notify International that from the middle of March 2006 onwards it was seeking short-term tenants for parts of the Premises and indeed was having some degree of success in this regard.

106 Mr Mallory (who is not legally qualified, so far as the Tribunal is aware) relied expressly on s 62B of the RL Act. Section 62B(1) provides that a lessor must not, in connection with a retail shop lease, engage in ‘conduct that is, in all the circumstances unconscionable’.

107 Some of the epithets that Mr Mallory used to characterise Kingsmede’s conduct appear in s 62B(3). This subsection sets out matters to which the Tribunal may ‘have regard’ in deciding whether conduct by a lessor was unconscionable. The relevant parts of s 62B(3) are as follows:-

Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to:

(a) the relative strengths of the bargaining positions of the lessor and the lessee, and…

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and...

(i) the extent to which the lessor unreasonably failed to disclose to the lessee:

(i) any intended conduct of the lessor that might affect the interests of the lessee, and

(ii) any risks to the lessee arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and…

(k) the extent to which the lessor and the lessee acted in good faith …

108 At various points in his written and oral submissions, Mr Mallory appeared also to be advancing an argument based on Kingsmede’s obligation under clause 4.2.1 of the Lease (see [14] above) to consent to an assignment of the Lease if certain conditions were fulfilled. In this connection he put forward the argument that the type of business that Mr Abdollah wished to conduct (a convenience store) differed to only a limited extent from the permitted use in the Lease (retail sales of leather goods and souvenirs). He also pointed out that Mr Maureira, in his letter of 29 August 2005 to International spelling out Kingsmede’s requirements regarding any assignment (see [23] above), made no reference to the question of permitted use.

109 Mr Mallory also pointed to the fact that despite having specified a deadline of 31 March for payment of the arrears of rent (this was in Mr Maureira’s letter dated 24 March 2006), Kingsmede actually effected the lockout at about 3.20 p.m. – i.e. before close of business – on that day. Moreover, it did not sufficiently ensure that International received formal notification of the lockout and the termination of the Lease before these events occurred.

110 Mr Mallory did not cite any case law in support of his submissions.

The Tribunal’s conclusions regarding this claim

111 Mr Hourigan, counsel for Kingsmede, put forward detailed written and oral submissions responding to this claim by International. Some discussion of these submissions is incorporated into the ensuing outline of the Tribunal’s conclusions.

112 Consent to assignment never requested. It is useful at the outset to state that although, as just mentioned, Mr Mallory appeared at times to depict the proposed transaction with Mr Abdollah as including an assignment of International’s rights and liabilities as lessee, falling within clause 4.2.1 of the Lease, the Tribunal is satisfied that this way of characterising what was proposed was never put to Kingsmede, expressly or by implication, and, indeed, was not what Mr Abdollah had in mind. This view is supported by at least four components of the evidence.

113 First, as Mr Hourigan emphasised, nowhere in Mr Abdollah’s or Mr Mallory’s communications with Kingsmede or its agents during March 2006 was any reference made to Mr Abdollah seeking to take possession of the Premises as an assignee, let alone to Kingsmede’s obligation under clause 4.2.1 to consent to an assignment on the ground that the conditions there set out would be fulfilled.

114 Secondly, Mr Abdollah, in his letter of 3 March 2006 to Mr Mallory, indicated that he required both ‘permission’ from Kingsmede and ‘agreement’ with it ‘to give me the option to negotiate a longer term lease when the existing lease finishes’.

115 Thirdly, Mr Abdollah made it clear during his oral evidence that he would not have gone ahead with the purchase of International’s business unless he had obtained what he described as a ‘certainty’ of obtaining a longer lease. He indicated that this might have sufficiently been established by a ‘letter of comfort’, adding that if any such letter had been offered he would have taken legal advice about it. As the Tribunal views his evidence, he required at the very least an undertaking from Kingsmede to enter into negotiations in good faith for a lease extending significantly beyond September 2007.

116 This finding is supported by the consideration that the purchase price of $200,000 that he offered to International would have been unrealistically high if his tenure of the Premises had been limited to the period of about 18 months between March 2006 and September 2007. In this connection, it is relevant that he spoke of spending a further $80,000 on improving the fit-out.

117 Fourthly, in his letter of 13 March 2006 to Mr Garland, Mr Abdollah spoke of establishing a ‘new business’ at the Premises, which he described as an ‘up market convenience store’. Even if a business of this nature resembled the business of retailing ‘souvenirs and leather goods’ which International carried on at the Premises, the phraseology that Mr Abdollah adopted here was not that of a request for consent to an assignment, which Kingsmede would be obliged to grant under clause 4.2.1. It strongly implied instead that this was a transaction in which, to quote the terms of clause 4.2.1(i), ‘the proposed assignee proposes to change the use to which the Demised Premises is put’. In cross-examination, Mr Abdollah said that while he would have maintained many if not all of the products in International’s business, he would have wanted to introduce a number of new ones. The Tribunal’s own opinion on this matter is that if Mr Mallory and Mr Abdollah had endeavoured to rely on clause 4.2.1 (or indeed s 39 of the RL Act, which is in similar terms) to require the granting of consent, Kingsmede could legitimately have insisted that Mr Abdollah forego any plans to establish a convenience store.

118 It may be added that if Mr Abdollah and Mr Mallory had been prepared to enter into an agreement for the sale of International’s business at a substantially lower price than $200,000, on the footing that the permitted use was not expressly changed and Mr Abdollah’s possession of the Premises was initially limited to the period remaining under the Lease to International, they could then have requested Kingsmede’s consent to an assignment of the Lease under clause 4.2.1. But there is no evidence that they gave any consideration to this expedient.

119 Possible formulations of a landlord’s duties when an outgoing tenant proposes a replacement tenant. Without the benefit of any argument based on a duty to grant consent to an assignment, International’s unconscionable conduct claim must depend, in the opinion of the Tribunal, upon the existence of an implied principle formulated in the alternative along the following lines: when an existing tenant is seeking to surrender its lease, the landlord is bound to give preference, or at the very least genuine consideration, to a would-be replacement tenant which, in contrast to other prospective new tenants, is known by the landlord to be proposing to buy the current business and for that reason is significantly preferred by the existing tenant.

120 The opposing contention put forward by Mr Hourigan was that in this situation the landlord is clearly not bound by any duty to accept the offer made by the tenant’s preferred ‘candidate’, but is instead free to pursue its own interests. It may conclude a lease with any candidate for the new tenancy that it chooses, irrespective of whether this involves rejection of the candidate that for obvious reasons is preferable to the existing tenant.

121 The only authority cited by Mr Hourigan with regard to this proposition was Prsa & Anor v Polymeris [2000] NSWADT 108. In this case, the lessees under a retail shop lease sought unsuccessfully to recover damages from the lessor on the ground of that an alleged unreasonable refusal to consent to an assignment deprived them of an opportunity to sell their business. In rejecting this claim, the Tribunal pointed out, at [4], that the intending purchaser was ‘only willing to buy the business if she secured a new lease rather than an assignment of the existing lease’. It then said, at [5]:-

During the hearing of the matter I put to the lawyer for the applicants that, while the Retail Leases Act contained a regime obliging a lessor to consent to an assignment subject to certain procedures and conditions, there was no obligation on a lessor to agree to the termination of one lease and the grant of a new lease to the replacement tenants. This proposition was accepted on behalf of the tenants.

122 While appropriately noting the important distinction between requiring the landlord’s consent to an assignment and requesting the grant of a new lease to a proposed replacement tenant, this dictum does not furnish much assistance regarding the propositions on which International seeks to rely in this case.

123 A duty to give preference to the outgoing tenant’s preferred ‘candidate’? In the Tribunal’s opinion, there exists no principle that a lessor of a retail shop owes the higher of the two duties suggested in the formulation given above (at [119]): that is, a duty (in the absence of any express contractual provision) to give preference to the candidate for a new tenancy who is preferred by the existing tenant, irrespective of whether this is detrimental or beneficial to the interests of the landlord. The Tribunal is unaware of any such implied duty within real property law. The provisions of s 62B(3) of the RL Act giving guidance as to what may constitute unconscionable conduct by a lessor – using phrases, as they do, such as ‘unfair tactics’ and ‘good faith’ – could not be taken to imply that such a duty exists.

124 In the present case, the Tribunal finds that Kingsmede, at or after the time (in November 2005) when it knew that it was likely to desire a replacement tenant for the Premises, formed the bona fide opinion that it would be in its own commercial interests to obtain a tenant whose business was more ‘prestigious’ (for want of a better word) than the business currently carried on by International or the business of a convenience store. While it remained willing between February and April 2006 to give consideration to the proposals put forward by City Convenience Stores, it remained concerned that the image presented by a convenience store would lower the value of the office space upstairs. For this reason, it consistently treated a long-term lease to a business of this nature as one to be avoided if a more acceptable type of business could be found to take over the Premises. In the Tribunal’s opinion, it was entitled to form and act upon this opinion.

125 A duty to give ‘genuine consideration’ to the outgoing tenant’s preferred ‘candidate’? The lower of the two duties suggested in the formulation given above (at [119]) is that a landlord is bound to give what may be called ‘genuine’ or ‘bona fide’ consideration to any candidate for a new tenancy that is preferred by the existing tenant for good reasons known to the landlord.

126 A major component of the case advanced by Mr Mallory was that neither Mr Garland nor any other employee or agent of Kingsmede was prepared even to do this, even though they were well aware of the benefits that would accrue to International if Mr Abdollah’s proposal were accepted.

127 In the Tribunal’s opinion, if a lessor of a retail shop to whom the lessee had indicated a wish to surrender paid no significant attention at all to an offer made by a candidate for a replacement lease who was to the lessor’s knowledge clearly preferred by the lessee, and it was shown that this attitude of the lessor was motivated by a desire to inflict harm upon the lessee, the lessor’s conduct might well be held unconscionable. Such conduct, when attributable to this motive, could readily be characterised as ‘unfair tactics’ (under s 62B(3)(d) of the RL Act) and as showing lack of ‘good faith’ (see s 62B(3)(k)). It may be also that if behaviour of this type stemmed from a wholly reckless disregard for the lessee’s interests, a finding of unconscionable conduct could be made: cf Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd [2006] NSWADT 323 at [335]. In relatively extreme instances such as these, a refusal or failure by the lessor to give genuine consideration to an offer put forward by the lessee’s preferred candidate for a new lease could expose the lessor to remedies under s 62B.

128 The reasons why International cannot obtain relief based on an alleged breach of this duty. The Tribunal is satisfied, however, that the degree of attention paid by Mr Garland to the offer made by Mr Abdollah did in all the circumstances amount to ‘genuine consideration’. It agrees with Mr Mallory that Mr Garland did not devote much time at all to considering the offer during the period of about three weeks during March 2006 that is of primary significance. But this is not a case in which the offer made by the existing lessee’s preferred candidate was wholly or substantially ignored. The Tribunal is accordingly not persuaded that the behaviour of Kingsmede in this regard was clearly unfair, or ‘highly unethical’ (see Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583, per Spigelman CJ) so as to warrant a finding of unconscionable conduct.

129 There is a further impediment, which the Tribunal believes to be fatal, to this element of International’s claim under s 62B. It follows from the fact that the remedies available for unconscionable conduct under the RL Act are confined by s 72AA to orders for the payment of money (whether by way of debt, damages, restitution or refund) by a party to the proceedings and orders that a specified amount of money is not due or owing by a party. In consequence, International could only succeed in its unconscionable conduct claim based a failure by Kingsmede to give genuine consideration to Mr Abdollah’s offer if it could show that, had such consideration been given, either (a) the offer would have been accepted or (b) there was a sufficient chance of the offer being accepted to support a contention that International had been deprived of a material opportunity to derive the benefits flowing to it from acceptance (cf the principles laid down by the High Court in Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64).

130 Mr Mallory’s submissions did not address this question of causation at any length. They appeared to be based on an assumption that if Kingsmede had given full and thorough consideration to Mr Abdollah’s proposal it would have leased the Premises to him.

131 Mr Hourigan drew the Tribunal’s attention to this question, pointing out in particular (a) that there were a number of reasons why Kingsmede would have been likely, even after full investigation, to reject Mr Abdollah’s offer and (b) that there was no evidence on which the Tribunal, applying the principles in Amann, could base an assessment of the ‘chance’ or ‘likelihood’ that this offer might be accepted.

132 Relevant evidence. The following five components of the evidence in this case support to a substantial degree the Tribunal’s findings, set out above, that (1) Kingsmede did in fact give ‘genuine consideration’ to Mr Abdollah’s offer, and (2) even if it did not do so, it would, on full investigation, have most likely rejected this offer, with the consequence that any breach of its duty to give consideration could not be held to have caused any damage to International.

133 First, the written offer sent by Mr Abdollah to Mr Garland contained little information on a number of matters in which Kingsmede was bound to have been interested in assessing it. It contained little more than the expression of a desire to establish an ‘upmarket convenience store’ in premises that would be upgraded and some landlords’ references. In this regard, it compared unfavourably with the expressions of interest being conveyed by other prospective tenants. It prompted the comment by Mr Garland during cross-examination – a comment with which the Tribunal agrees – that Mr Abdollah was not very ‘professional’ in this regard.

134 Secondly, Mr Mallory, when introducing Mr Abdollah to Kingsmede, and Mr Abdollah, in subsequent dealings, chose to bypass the agent whom, rather to Mr Mallory’s chagrin, Kingsmede had appointed to find a new tenant for the Premises. By approaching Mr Garland rather than Mr Harris, they created a risk that consideration of Mr Abdollah’s offer would have to await an appropriate moment in Mr Garland’s schedule.

135 Thirdly, as an enclosure to his letter of 11 March 2006 to Mr Garland, Mr Abdollah sent a reference dated only two days earlier – the reference by Savills – identifying the address of his convenience store as 383 Kent Street. He did this even though according to his testimony his store was located in a different building in a different street (Sussex Street). Even if – as Mr Abdollah testified – he told Mr Garland on the telephone that the store was in Sussex Street, it is quite probable that Mr Garland, when making the requested visit a few days later, relied on the reference by Savills when ascertaining the address. The Tribunal does not make a specific finding to this effect, because this explanation for Mr Garland choosing to go to 383 Kent Street was not put to him in the witness box. But the fact remains that it may well be the reason why what Mr Mallory called ‘an unfortunate mix-up’ occurred. The significant consequence of this ‘mix-up’ was that through no fault of Mr Garland his assessment of the merits of Mr Abdollah’s offer suffered an unnecessary impediment.

136 Fourthly, if Kingsmede had proceeded to a fuller investigation of Mr Abdollah’s offer than in fact occurred, there is a distinct probability that this mysterious discrepancy – which remains unexplained – between the address given for his convenience store on the contemporaneous reference from Savills and the address which he claimed to be the correct one would, to say the least, have reinforced Mr Garland’s impression that Mr Abdollah’s approach to Kingsmede was not very ‘professional’.

137 Fifthly, and possibly most significantly, even a comprehensive investigation of Mr Abdollah’s proposal would in all probability have been insufficient to ensure its acceptance by Kingsmede in preference to the other proposals that there made to it. The reason is that, as already indicated, Kingsmede regarded granting a long-term lease to the owner of a convenience store as a measure that it would only adopt if other more attractive proposals failed to materialise. Furthermore, if it were ultimately compelled to adopt this measure, the probability is that it would have granted a lease to City Convenience Stores, which had consistently expressed a wish to obtain a lease, and which it regarded as preferable to an independent proprietor such as Mr Abdollah.

138 For this reason alone, International has failed to establish the requisite causal link between any breach (if such occurred) of Kingsmede’s duty to give genuine consideration to Mr Abdollah’s offer and the damage that International suffered in consequence of this offer being rejected. The rejection would probably have occurred in any event.

139 Concealment of plans for leasing the Premises. A further matter relied on by Mr Mallory in support of International’s unconscionable conduct claim was the extent to which Kingsmede concealed its plans regarding both short-term and long-term leasing of the Premises. In making this argument, he relied implicitly on s 62B(3)(i) of the RL Act.

140 The Tribunal does not see, however, why Kingsmede was under any obligation to reveal these plans to International, or how any concealment of them could be said to have inflicted damage on International. As explained above, Kingsmede was entitled, once the foreshadowed surrender or other termination of International’s Lease had occurred, to relet the Premises in such manner as it thought fit. No basis for requiring disclosure of its ‘agenda’ in this regard to International was identified to the Tribunal. Similarly, no grounds on which International could be held to have suffered damage because no disclosure occurred were put forward.

141 A determination to evict International at all costs. Finally, Mr Mallory submitted that Kingsmede had a ‘mindset’ against International from the moment when International indicated that it was in financial difficulties. Kingsmede, he said, showed that it was determined to evict International as soon as it could, irrespective of the harm to International that would result and regardless of the fact that International’s record as a tenant was unblemished until March 2006. This hostile attitude of Kingsmede was manifest not only in the manner of rejection of Mr Abdollah’s proposal, but also in (a) passages in the letters written by Mr Maureira, (b) comments about International made both in internal correspondence within Kingsmede and to third parties, (c) the unannounced visit by workers on 29 or 30 March 2006 in order to make a hole in the wall of International’s shop and (d) Kingsmede’s failure to wait until the time limit that it had specified (31 March 2006) had passed before it took possession of the Premises.

142 The Tribunal agrees with Mr Mallory that Kingsmede gave very little leeway to International to remedy the situation once Kingsmede had failed to pay the rent due on 1 March 2006. The only step by way of softening its attitude that it did take was to offer to accept a reduced rent for a period of time. But the background to its conduct was International’s own acknowledgment, made as far back as November 2005, that it could not maintain rent payments beyond February 2006. This acknowledgment was repeated in the correspondence during March 2006.

143 It cannot be regarded as unconscionable, in these circumstances, for Kingsmede to have proceeded on the basis that one or more new leases should be negotiated as quickly as possible and that, consistently with the terms of the Lease, International should be evicted on the ground of non-payment of rent as soon as was necessary to admit new tenants into the Premises. By succeeding in obtaining new tenants in the period immediately following the eviction, Kingsmede acted both in its own interests and, in the context of the present proceedings, in the interests of International.

144 In effecting the lockout before close of business on 31 March 2006, Kingsmede did not contravene the terms of the Lease, since it became entitled under clause 13 to take this step on 15 March. But it did fail to allow International the time to pay off the arrears that Mr Maureira specified in his letter of 24 March. In this way, its conduct was unfair and improper. Mr Mallory effectively conceded, however, that International had already taken steps in preparation for being evicted. In particular, it had reached an agreement, which it was able to complete, for the sale of some of its fittings. It therefore did not suffer any tangible damage solely because the lockout occurred some hours earlier than it should have done.

145 For the foregoing reasons, the Tribunal dismisses International’s unconscionable conduct claim.

Kingsmede’s claim for damages

146 As already indicated, Kingsmede claimed damages from International under the following heads: rent due and unpaid at the time of the lockout; rent payable between the lockout and expiry of the lease; expenses incurred in conducting the lockout and making good the Premises; interest; and costs. It acknowledged, however, that it was under a duty to mitigate its loss by endeavouring to relet the Premises once it had repossessed them.

147 As also indicated above, International did not dispute that the amount of the unpaid instalment of rent due on 1 March 2006 was $25,378.11.

148 Mr Hourigan submitted that International’s conduct during March 2006 constituted a repudiation of the Lease, entitling Kingsmede to recover (subject to its duty to mitigate) the balance of the rent due under the Lease. He referred in this connection to International’s failure to pay the instalment of rent due on March 1 within 14 days thereafter (which under clause 13.2 of the Lease was deemed to amount to repudiation), to its indications of being unable to pay current rent (though these were somewhat contradicted in Mr Mallory’s letter of 27 March to Mr Maureira) and to steps that it took on the last two or three days before the lockout suggesting that it intended to abandon the Premises.

149 Mr Hourigan also relied on well-known authorities (for example, Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625) to the effect that when a lessee acts in a manner that constitutes a repudiation of the lease, the lessor may treat the lease as repudiated and enforce such contractual rights as remain available to it, including the right to claim damages representing the loss of the benefit of its bargain with the lessee.

150 Mr Mallory’s submissions did not directly challenge these propositions.

151 In the Tribunal’s opinion, International’s conduct, viewed both independently and in the light of clause 13.2 of the Lease, amounted to a repudiation of the Lease, entitling Kingsmede to recover (subject to its duty to mitigate) the balance of the rent owing under the Lease.

152 During the period of 17.47 months between 31 March 2006 and 14 September 2007 (the date of expiry of the Lease), the rent due amounted to $443,355.58.

153 Accordingly, the total amount recoverable on account of unpaid rent, subject to mitigation, is $468,733.69.

154 Mr Hourigan argued that in assessing an amount to be deducted on account of rent that Kingsmede has received, or should have received, through reletting the Premises, the Tribunal should take account of (a) the relatively small figure ($47,085.51) paid to Kingsmede under the short-term tenancies granted to Lulu’s Pty Ltd and Atruism Pty Ltd between April and June 2006 and (b) the rent that will be payable by Perfect Vision (occupying the front shop) and the café (occupying the rear shop) under leases commencing in October or November 2006. Although the annual rent under this lease is $171,600, the amount to be received will be significantly less because of the rent-free period of 7 months. The figure given by Mr Hourigan was $85,890.11.

155 The Tribunal is inclined, however, to adopt a different approach with respect to two aspects of this argument.

156 First, it accepts an argument made by Mr Mallory in his letter of 28 November 2005 that since at the expiry of the Lease in September 2007 Kingsmede would have had to offer a rent-free period to the incoming tenant or tenants, this should not be taken into account in assessing any damages payable by International following the early termination of the Lease. This argument receives support from the consideration that Kingsmede has wished all along to bring about a change in the use of the Premises once the Lease to International came to an end.

157 Secondly, the Tribunal is concerned that if, through achieving this change of use in its long-term arrangements regarding the Premises, Kingsmede has indeed enhanced the value of its commercial office space within the same building (as it overtly sought to do), any diminution in the rent received for the Premises should not be charged to International. If the shortfall in rent is to be included in the damages payable by Kingsmede, it should in principle be offset by the benefit accruing to Kingsmede in its leasing of the commercial space. Any assessment of the amount of this benefit would, however, be highly speculative.

158 In circumstances such as these, it must be recognised that a ‘broad brush’ approach must be adopted in assessing damages. In the Tribunal’s opinion, it is fair both to Kingsmede and to International to adopt as the available market rent the figure of $280,000 per annum that was offered for the whole of the Premises by City Convenience Stores during February 2006. On the footing that a period of about 7 months might be needed to secure a long-term lease, a deduction to take account of the rent receivable for such a lease should deem the lease to have commenced (as indeed has been the case with the lease to Perfect Vision) on 1 November 2006. Adopting an annual rent of $280,000, which represents $23,333.33 per month, the amount that would be payable during the 10.47 months between this date and 14 September 2007 is $244,300.

159 For reasons already given, there should be no allowance on account of a rent-free period. In addition, account must be taken of the rent amounting to $47,085.51 that was actually received by Kingsmede under the short-term tenancies between April and June 2006.

160 On this basis, the amount to be deducted from the rent recoverable under the terms of the Lease (i.e., $468,733.69) should be the sum of $244,300 and $47,085.51, which is $291,385.47. When this deduction is made, the net amount recoverable from International, principally by way of damages on account of unpaid rent, is $177,348.22.

161 The expenses claimed by Kingsmede in conducting the lockout comprised a fee of $110.00 paid to a locksmith. The expenses claimed in making good the Premises were $9,487.50. Although Mr Mallory contested the documentation furnished in support of these claims, the Tribunal considers it have been adequate. These two amounts should therefore be added to the damages to which Kingsmede is entitled.

162 The aggregate of these damages, subject only to any further award for interest, is $186,945.72.

163 Kingsmede claimed interest on the principal sum awarded, pursuant to clause 13.4 of the Lease (see [16] above). In its application, the rate specified was 11.95% per annum, representing 2% more than the overdraft rate applied by the Commonwealth Bank as at 15 June 2006.

164 In the submissions made at the hearing, neither party addressed the issue of how any interest awarded should be calculated.

165 Although International’s liability to pay interest and the rate at which it is payable both derive from the contract created by the Lease, the Tribunal’s award is one of damages as from the day (31 March 2006) on which Kingsmede exercised its right to treat the Lease as repudiated.

166 Within this award, a significant component represents compensation for rent which, under the Lease, would have fallen due before the date of this decision. This rent would have been payable in 11 monthly instalments, due on the first day of each month between 1 March 2006 and 1 January 2007. A further significant component represents rent that would have been payable in 8 monthly instalments between 1 February and 1 September 2007.

167 In these circumstances, it would clearly be inappropriate to award interest, as claimed in Kingsmede’s application, at the rate of 11.95% per annum on the total sum being awarded over the period of more than 10 months between 1 March 2006 and the date of this decision. Instead, two adjustments must be made.

168 First, the rate should be halved to take account of the fact that, to the extent that the award represents 11 instalments of rent that would have been payable before the date of this decision, the periods for which different instalments of rent would have been overdue ranges between slightly more than 10 months and less than one month. If an interest rate of one-half of 11.95% per annum is applied to the principal sum of $186,945.72 over a period of ten months, the resulting amount is $9,308.34.

169 Secondly, a discount should be made to take account of the fact that the principal sum includes compensation for 8 instalments of rent that have not yet become payable. It must be remembered here, however, that the damages award has been reduced by an amount representing a notional market rent available for the Premises as from 1 November 2006 (see [158] above). Kingsmede may fairly claim that the bulk of its economic loss should be deemed to have been suffered before this date, even though the middle point of the period during which rent instalments were due but unpaid under the Lease actually fell in December 2006.

170 In the Tribunal’s opinion, an appropriate discount to take account of this second factor is 25%. Applied to $9,308.34, this produces an award of $6.981.25.

171 The total amount recoverable by Kingsmede is accordingly $193, 926.97, representing the sum of $186,945.72 (principal) and $6,981.25 (interest)

172 The Tribunal’s interim order of 24 May 2006, prohibiting Kingsmede from taking any steps to enforce the bank guarantee contained in the Lease, should be discharged.

173 Any application for costs 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 s 76 of the Administrative Decisions Tribunal Act 1997.