Irresistable Frocks v Sparbac and Roche

[2003] NSWADT 241

CITATION:	Irresistable Frocks v Sparbac and Roche [2003] NSWADT 241
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Irresistable Frocks Salon Pty Ltd FIRST RESPONDENT Sparbac Pty Ltd SECOND RESPONDENT Roche Group Pty Ltd
FILE NUMBER:	035060, 035103
HEARING DATES:	11/09/2003
SUBMISSIONS CLOSED:	09/11/2003
DATE OF DECISION:	11/10/2003
BEFORE:	Chesterman M - ADCJ (Deputy President); Fagg N - Member; Griffiths G - Member
APPLICATION:	Claim for payment of money - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367
REPRESENTATION:	APPLICANT R Titterton, barrister FIRST RESPONDENT No appearance SECOND RESPONDENT R Angyal, barrister
ORDERS:	1 Each Respondent is liable to pay to the Applicant the sum of $21,818.63, comprising a principal sum of $20,085.25 and interest totalling $1,733.38; 2 The Second Respondent's cross application is dismissed; 3 In the absence of agreement on the matter, each party is to file written submissions on the matter of costs within 28 days of the date of these reasons

1 The principal application in this matter (file no. 035060) was made by Irresistible Frocks Salon Pty Ltd (‘Irresistible’) on 13 June 2003. It applied for an order that Sparbac Pty Ltd (‘Sparbac’) and/or Roche Group Pty Ltd (‘Roche’) pay to it the sum of $20,085.25. This was an amount debited to its bank account under a guarantee (‘the guarantee’) given by it to Sparbac, as lessor, in its capacity as lessee under a retail shop lease (‘the Lease’) of premises at Shop 2, 20-26 Cross Street, Double Bay (‘the premises’). Irresistible also sought interest and costs.

2 A cross application by Roche against Irresistible (file no. 035103) was filed on 9 September 2003, two days before the hearing. The principal relief that it claimed was an order that Irresistible pay to it the sum of $45,000 as damages for a breach of the Lease, or as damages for conversion of items of fitout that were the property of Roche. In the alternative, it sought a declaration that it was entitled to retain the sum of $20,085.25 pursuant to the guarantee and to apply it to the cost of reinstatement of the premises at the end of the current lease, refunding any balance to Irresistible, or that Irresistible breached the Lease by failing to provide an appropriate guarantee. Further in the alternative, it sought a declaration that Irresistible was liable to pay damages in the amount of the cost of such reinstatement. It also sought an order for costs.

3 Irresistible tendered an affidavit stating that its application had been duly served on Sparbac. Sparbac filed no notice of reply, evidence or submissions. It did not appear at the hearing. Although we received no submissions on its behalf, we consider that if any ground of defence that Roche put forward would also operate in Sparbac’s favour, we should take due account of it in determining the liability of Sparbac.

4 The case was heard on 11 September 2003. On 16 September, Roche’s solicitors filed and served a supplementary written submission. Irresistible’s solicitors objected by letter to the receipt of these submissions, on the grounds that leave had not been granted for further submissions to be filed and that in the absence of leave submissions should not be received after the conclusion of a hearing. We endorse these grounds and uphold this objection.

Uncontested facts

5 The Lease commenced on 1 July 1997 and was for five years, with an option for renewal for a further five years. The permitted use was ‘retail sale of clothing’. The Lease fell within the provisions of the Retail Leases Act 1994 (‘the Act’).

6 No security deposit was required. Instead, clause 26.2 of the Lease required Irresistible, as lessee, to give a guarantee of its obligations under the Lease to Sparbac, as lessor. Subparagraph (d) of this clause provided that the guarantee should entitle Sparbac to apply any money paid under the guarantee ‘on account of any money payable by the Lessee under this Lease as the Lessor may determine’.

7 On 17 July 1997, the Commonwealth Bank of Australia, at the request of Irresistible, executed a guarantee in favour of Sparbac. It provided for payment to Sparbac of any amount demanded to a maximum of $20,085.25, without notice to Irresistible. The expiry date was 2 January 2003. It contained the following statement: ‘The benefit of this guarantee is personal and not capable of assignment.’

8 At the time of commencement of the Lease, Irresistible expended a significant sum on fitout for the premises. Mr Thomas Danos (‘Mr Danos’), a director of Irresistible, gave an estimate of about $100,000. He said that the premises were initially an ‘empty shell’ and that the fitout included a new parquetry floor, a false ceiling with high-quality lighting, two fitting rooms, a kitchen, a stove area, shelving, hanging space for clothes, mirrors and signage. It did not include a shopfront, as the premises already had one. A partition separating Irresistible’s shop from an adjoining shop was already in place.

9 This fitout was, it appears, installed by Irresistible with the consent of Sparbac.

10 On 14 January 1998, Sparbac entered into a contract for sale of the premises to Roche, which until October 1998 had the name Peakhurst Properties Pty Ltd. Clause 37.7(f) of the contract provided for Sparbac to execute a deed of assignment of ‘the vendor’s right, title, interest and benefit of Lessor Securities which comprise bank guarantees’. It further provided as follows:-

If an assignment of those bank guarantees is not permitted or is ineffective at law or in equity, then the vendor agrees that it will after completion hold that right, title, interest and benefit for and on behalf of the purchaser.

11 In a deed of assignment dated 13 February 1998, Sparbac assigned to Roche, with effect from the date of completion of the sale of the premises,

…the benefit of all assignable covenants or agreements contained in any of the leases or new leases to which the sale is subject, together with the benefit of any guarantees, securities or bonds in favour of the Vendor as Lessor in respect of those Leases.

12 On 18 March 2002, Mr S R Danos (the father of Mr Danos), who was also a director of Irresistible, sent a letter on Irresistible’s behalf to Laing & Simmons, Double Bay, in their capacity as property agents for Roche, advising that Irresistible did not wish to exercise its option to renew the Lease when it expired on 30 June 2002. The letter stated that a company called Tinine Group Pty Ltd (‘Tinine’) was interested in negotiating the terms of a new lease and would be contacting Laing & Simmons in the near future.

13 On the same day, Mr S R Danos wrote to Tinine, stating that Irresistible intended to vacate the premises on 30 June 2002, that it was notifying Laing & Simmons of this, that it would also notify Laing & Simmons of Tinine’s interest in obtaining a lease and that it was prepared to sell to Tinine ‘the fittings and fixtures’ at an agreed amount of $25,000, subject to a lease being negotiated with Roche.

14 At some time before 1 July 2002, this sale of the fixtures and fittings was concluded and Irresistible vacated the premises. According to a contemporaneous handwritten note made by Mr Danos, on the afternoon of 1 July he delivered the keys in a sealed envelope to a nearby shop owned or occupied by Tinine.

15 Neither Mr Danos nor anyone else on behalf of Irresistible took any steps to procure a release of the guarantee.

16 Roche leased the premises to Tinine for a term of three years from 1 July 2002, with an option to renew. The lease was executed by Roche on 4 July. It also bears the seal of Tinine, but no date of execution is shown. The space in the lease headed ‘date’ has the entry ‘22 July 2002’.

17 About this time there was a dispute between Tinine and Roche because Tinine objected to the insertion of a ‘make-good clause’ in the lease between them. In the lease that they concluded, clause 13.1 answers this description.

18 On 26 July 2002, without notice to Irresistible, Roche wrote to the managing director of Sparbac requesting that Sparbac make a call on the guarantee on Roche’s behalf. The important paragraphs of this letter were as follows:-

We understand that you are aware that we need to make a claim under the bank guarantee provided by [Irresistible] pursuant to its lease and that we are unable to make the claim ourselves as the guarantee cannot be assigned.

We would therefore be most grateful if you would arrange for Sparbac to claim the whole of the amount guaranteed and to forward the funds to Laing + Simmons Double Bay. We will of course pay any fees Sparbac incurs and will indemnify Sparbac in the event that any claim is brought by the lessee in connection with carrying out our request.

19 Roche repeated this request in a letter dated 5 September 2002. On 25 November 2002, Sparbac called on the Commonwealth Bank to pay to it the full amount guaranteed, namely $20,085.25. The Bank did so by cheque on the same day, and by a letter dated 26 November notified Irresistible that this amount had been debited to Irresistible’s account.

20 On 20 December 2002, Frenkel Partners, solicitors for Irresistible, wrote to both Sparbac and Roche, demanding the return of the sum of $20,085.25 to Irresistible on the ground that it had been wrongfully paid to Sparbac on behalf of Roche.

21 In a letter of reply to Frenkel Partners dated 9 January 2003, Roche stated that the call was made on the guarantee ‘as a result of your client’s failure to make good the premises it leased from at (sic) the expiry of the tenancy by removing its fitout as required by the terms of its lease’.

22 The letter continued as follows:-

As you may be aware, your client sold this fitout to the current tenant, however we were not a party to that agreement and our managing agent discussed the make good provisions of the lease at length with your client prior to it vacating the premises. Furthermore, at the time of entering into its lease the current tenant disclaimed any responsibility for removing the fitout when its tenancy expires and its lease so reflects this. Your client was well aware of this at the time it vacated and that we did not accept it abdicating responsibility for the removal of the fitout and would be arranging for a call on its bank guarantee. As you would appreciate, this is a matter which should have been resolved between your client and the current tenant, however, this was not done and as the landlord we should not have to bear the costs of your client’s failure to either make good or make provision for it with the current tenant.

23 The letter then stated (a) that Roche estimated at $5,000 the cost of removing the fitout when the lease to Tinine expired, (b) that Roche expected soon to receive from Sparbac, pursuant to clause 16.4(c) of the Lease, the funds paid under the guarantee and (c) that it would then pay them to Irresistible less this amount of $5,000. It added that if it transpired that this sum of $5,000 was not required for the costs of removal of the fitout, it would be refunded also to Irresistible.

24 Clause 16.4(c) of the Lease relevantly provided that the lessor might ‘assign or otherwise dispose of or deal with the Land or its rights under a Lease Document as the Lessor sees fit.’ Under clause 1.2, a definition of ‘Lease Documents’ included ‘any guarantee or guarantee and indemnity given in connection with this lease’.

25 Sparbac endorsed the cheque to Roche and on or about 16 January 2003 it was paid into Roche’s bank account.

26 In subsequent correspondence, Irresistible rejected the proposal of Roche that it should receive the funds paid under the guarantee less a retained amount of $5,000. Roche then stated that it would withhold all the funds until Irresistible agreed to this retention. The present litigation ensued.

Disputed questions of fact

27 Conflicting evidence was put to the Tribunal on two linked issues of fact. The witnesses testifying on these matters – being in fact the only witnesses who gave oral evidence at the hearing – were Mr Danos, on behalf of Irresistible, and Ms Suzanne (or Susie) Reid. Ms Reid was a licensed real estate agent employed by Laing & Simmons and had day-to-day management of relations between Roche and its tenants, including Irresistible.

28 The first and principal factual issue in dispute was whether, before Irresistible’s lease expired on 30 June 2002, Roche, either directly or through its agents Laing & Simmons, notified Irresistible that it was required either to remove its fitout and restore the premises to their original condition, or to put funds into an account to cover the cost of removal at the conclusion of the lease to Tinine. The second was whether the dispute between Roche and Tinine as to whether the lease to Tinine would include a ‘make-good clause’ occurred before or after 1 July 2002, the date of commencement of this lease.

29 The evidence of Mr Danos was that at no time before 30 June 2002 did he receive any oral or written notification, directly or indirectly, from Roche to the effect that the fitout should be removed or funds made available to cover the cost of removal. He said that he, not his father or any other representative of Irresistible, was the person with whom Laing & Simmons dealt in matters such as these. This was the case, even though, on account of his primary occupation as a barrister, he did not sign letters on behalf of Irresistible. On other matters, he said, Laing & Simmons did deal with his father.

30 According to Mr Danos, there was an occasion on which Ms Reid, in the course of a ‘quite heated’ conversation with him, insisted that Irresistible was obliged to make some provision for the cost of removal of the fitout because Tinine was not prepared to do this. During this conversation, she mentioned the guarantee. He considered this proposition to be ‘ridiculous’. He said also that he had been never been asked to actually remove the fitout and that he never discussed with Ms Reid the sale of the fitout to Tinine.

31 Mr Danos was firm in his testimony that this ‘heated conversation’ with Ms Reid occurred after, not before, 30 June 2002. He did not make any contemporaneous note of its occurrence or its content.

32 According to Mr Danos, the period in which Tinine and Roche were in dispute about the ‘make-good clause’ was after 1 July 2002. Consistently with this, he said that, although the lease between them was expressed to commence on 1 July, Tinine did not, as far as he was aware, take possession of the premises until later in that month. He was in fact given to believe that on account of this dispute the proposed ‘deal’ between Roche to Tinine ‘nearly fell apart’ during the first two weeks of July.

33 Ms Reid asserted that on ‘at least eight to ten’ occasions before 30 June 2002 she spoke to Mr Danos on the telephone, indicating that Roche required Irresistible to restore the premises to their original condition before the Lease expired or to provide funds for the costs of its removal at the end of the lease to Tinine. She stated that by the end of March 2002, she had raised the matter both with him and with Mr Tennant, representing Tinine. Her proposal was that funds from both these companies should be put into an interest-bearing account during the period of the lease to Tinine.

34 Ms Reid did not make any contemporaneous note of the occurrence or the content of any of these phone calls. She agreed that it was with Mr Danos that she normally dealt in matters involving Irresistible. In her evidence, she described three specific conversations with him.

35 The first, she said, was within a week or two of the receipt by Laing & Simmons of Irresistible’s letter of 18 March 2002. She said that she was aware of Irresistible’s proposal to sell the fitout to Tinine but that Irresistible was obliged to restore the premises to their original condition when it vacated them. According to her, Mr Danos said that Irresistible would be selling the fitout to a new tenant, that Roche would be getting the benefit of a new tenant and that as far as he was concerned that was an end of the matter.

36 Secondly, she said that ‘shortly before 30 June 2002’ she told him to agree with Tinine to ‘place a sum of money’ to cover the costs of removal of the fitout. His reply was that it was not his problem. She told him that it was his problem because of Irresistible’s obligations under the Lease.

37 The third conversation that she described occurred ‘immediately prior to 30 June 2002’ and just after she had received an instruction from Mr Damian Roche, representing Roche, to tell Mr Danos to remove the fitout. He repeated this instruction after she suggested that Roche would ‘lose the incoming tenant’. She then rang Mr Danos and told him to remove the fitout. He said that this was ‘ridiculous’, as there was a new tenant who wanted the use of the fitout, and that he was not going to remove it. She told him that it was his responsibility to do so and that Roche would be making a claim for the cost of the removal.

38 In cross-examination, Ms Reid said that she could not say that it was impossible that this last conversation with Mr Danos occurred after, not before, 30 June 2002. But she affirmed strongly that all the other conversations with him regarding removal of the fitout occurred before this date.

39 Ms Reid testified that, like these conversations with Mr Danos, the dispute with Tinine regarding the ‘make-good clause’ took place before 30 June 2002. She said also that she was ‘surprised’ that a clause of this nature was ultimately included in the lease to Tinine.

40 There was no written evidence, either in the guise of file notes or in any other form, to corroborate the oral evidence of either of these witnesses. Neither of them appeared overtly to be untruthful or for any other reason unreliable. It is therefore difficult for us to determine whether at any time before 30 June 2002 Ms Reid did in fact tell Mr Danos that Irresistible was required by Roche to remove the fitout or bear the costs of its later removal.

41 The fact that the lease to Tinine bears a date as late as 22 July 2002, suggesting that the dispute between it and Roche was probably not resolved until some time within that month, provides some indication that Ms Reid’s version, placing the start of discussions of the matter with Tinine as early as March, is incorrect. Another reason for doubting the accuracy of her recollection, which was not assisted by contemporaneous file notes or other written records because she did not maintain any, is that she had a number of other real estate matters to manage on behalf of Roche and her other clients. By contrast, Irresistible was, for Mr Danos, a family company, of whose affairs he might be expected to have a reasonably detailed recollection without having made notes at the time.

42 We note also that there was no evidence from Mr Damian Roche, or from any other director, manager or employee of Roche, to corroborate Ms Reid’s account of the instructions that had been given to her on this issue, let alone the timing of those instructions.

43 Our conclusion is that, on the balance of probabilities, neither Ms Reid nor anyone else on Roche’s behalf told Mr Danos, or any other representative of Irresistible, before 30 June 2002 that Irresistible must remove the fitout or pay the cost of removal. An oral demand along these lines was however made to Mr Danos during July 2002.

44 In this connection, we reject a subsidiary argument by Mr Angyal, counsel for Roche. This started from the proposition that because on 1 July 2002 Mr Danos delivered the keys to the premises to a third party, not to Laing & Simmons or anyone else on Roche’s behalf, Irresistible must be taken to have continued in possession by way of holding over. Mr Angyal relied on this proposition to argue that a notification given to Irresistible after 30 June 2002 that the fitout must be removed would have been just as effective as one given before that date.

45 This argument fails, in our view, because there was no evidence as to how long any such period of holding over lasted, if indeed there ever was a holding over. It may only have been a matter of days, or indeed hours, before the keys came into the possession of Roche, an agent of Roche or some other person having the consent of Roche to receive them.

46 Having made this finding as to the timing of Ms Reid’s demand upon Irresistible, we should add that, in view of our interpretation of the notice requirements in the Lease, it may not after all be of major significance in this case.

The provisions of the Lease dealing with removal of fitout

47 Irresistible, in its claim against both Sparbac and Roche, contended (a) that it was not bound by any express or implied term of the Lease to remove the fitout or to make any payment to Roche with regard to the cost of removing the fitout; and (b) that it was free to sell the fitout, which was its own property, to Tinine.

48 Both in defending this claim and in support of its cross-claim, Roche disputed these propositions. In its submissions as finally formulated, it relied on the following provisions of the Lease:-

1.2 Definitions…

‘Lessee’s Property’ mans all plant and equipment, fixtures, fittings, furniture, decorations… and other property not owned by the Lessor which the Lessee… brings on to or fixes to the Premises or to any shopfront.

19. LESSEE’S OBLIGATIONS ON EXPIRY OR TERMINATION

19.1 Lessee to vacate

Unless holding over with consent, the Lessee must vacate the Premises on the earlier of the Terminating Date and the date when this lease is terminated and may or if required must remove the Lessee’s Property on or within 7 days of that date. The Lessee must leave the Premises in the same condition as they were… on the Commencing Date, fair wear and tear excepted….

19.2 Lessee’s Property not removed

The Lessor may remove the Lessee’s Property from the Premises and store it at the risk and cost of the Lessee if the Lessee does not remove it under clause 19.1. The Lessor will notify the Lessee that the Lessee’s Property has been removed and stored under this clause 19.2 and give details of the location of the Lessee’s Property. The Lessor will allow the Lessee to collect its Property from that location on giving the Lessor reasonable notice.

19.3 Lessee’s Property Abandoned

The Lessor may treat the Lessee’s Property as abandoned and deal with it in any manner the Lessor sees fit if:

(a) the Lessee has not removed the Lessee’s Property from the Premises by the Terminating Date; and

(b) the Lessee has not given a notice under clause 19.2 within three months after the Terminating Date.

19.6 Indemnity by Lessee

The Lessee indemnifies the Lessor against:

(a) damage caused to the Premises or to the Building by the removal of the Lessee’s Property; and

(b) any liability or loss arising from, and costs, charges and expenses incurred in connection with the Lessor acting under this clause 19.

19.7 No removal of certain items

Despite clauses 19.1 to 19.3 inclusive, the Lessee may not remove Lessee’s Property that:

(a) is specified by the Lessor in a notice under clause 11.8(b); or

(b) is fixed in, outside, or on the outside of the Premises or any shopfront by the Lessee without the Lessor’s approval; or

(c) is part of structural work done by the Lessee to the Premises

unless the Lessor notifies the Lessee that clauses 19.1 to 19.3 inclusive apply to that Lessee’s Property.

49 Mr Angyal formulated two lines of argument based on these provisions. We will consider each of them in turn.

50 The first of these relied on a finding by the Tribunal that Ms Reid did tell Mr Danos before 30 June 2002 that Irresistible was required by Roche to remove the fitout before it vacated the premises. Mr Angyal argued that this constituted notice under clause 19.1, bringing clauses 19.1 – 19.3 into effect. Because Irresistible did not remove the fitout before 30 June (the ‘Terminating Date’) or within seven days thereafter, Roche became entitled under clause 19.2 to remove the fitout and under clause 19.6(b) to claim an indemnity for the costs of removal.

51 In response, the first submission of Mr Titterton, counsel for Irresistible, was, as already indicated, that no notice of any requirement to remove the fitout was given before 30 June 2002.

52 He argued further that the oral notice on which Roche relied was insufficient, on account of the terms of clause 24.1(b) of the Lease. These were as follows:-

24.1 Notices

A notice, approval, certificate, consent or other communication in connection with this lease:

(b) must be in writing unless expressly specified otherwise in this lease;…

53 Mr Titterton pointed out that the phrase within clause 19.1 on which Roche relied – ‘may or if required must remove the Lessee’s Property…’ did not specify any means by which the requirement of removal could or should be made known to the Lessee. It followed that this was a ‘communication in connection with’ the Lease that, pursuant to clause 24.1(b), had to be made in writing.

54 Mr Angyal endeavoured to refute this argument by submitting that there was an implicit distinction between ‘notifies’, in clause 19.7, and ‘required’, in the phrase that we have quoted from clause 19.1. The former term, being more formal, implied that writing was necessary, but the latter was sufficiently broad to include other forms of notification.

55 We do not think that this distinction exists. On our reading of clause 24.1, the broad terminology of its opening words was intended to bring within the scope of the clause all forms of ‘communication’ that were made ‘in connection with’ the Lease. There is no reason why a ‘requirement’ under clause 19.1 should have been excluded from the obligation, spelt out in subparagraph (b), that such communications must be in writing. Indeed, the facts of this dispute provide a sound practical justification for the view that matters such as a requirement to remove fitout at the conclusion of a lease should have to be notified to a lessee in writing.

56 This conclusion makes it unnecessary for us to consider a second submission made by Mr Titterton, which was that Roche had not complied with the requirement, set out in clause 19.2, of giving notice to Irresistible of its removal of the fitout.

57 Mr Angyal’s second line of argument proceeded from the premise that the Tribunal might not find that notice was given by Roche under clause 19.1 before 30 June 2002. On this footing, he said, clause 19.7 would apply. Under clause 19.7(b), Irresistible would not be permitted to remove, without Roche’s approval, any property fixed in the premises. Under clause 19.7(c), it could not remove any property that was part of structural work done to the premises. Some of the fitout fell within one or other of these categories. It followed that Irresistible’s sale of the fitout amounted, in part at least, to a breach of the Lease and a conversion of property belonging to Roche.

58 In addition to pointing out that this second line of argument by Roche was based on factual assumptions directly contradictory to those underlying its first line of argument, Mr Titterton’s response took the form of three propositions.

59 The first was that clause 19.7 did not apply because none of the fitout fell into any of the three categories of Lessee’s Property described in the three subparagraphs. Subparagraph (a) did not apply because there had been no notice under clause 11.8(b). (This provision empowered the Lessor to stipulate, as a condition of approving work to be done by the Lessee, that Lessee’s Property could not be moved without the Lessor’s consent.) Subparagraph (b) did not apply because, contrary to Mr Angyal’s submission, the words ‘without the Lessor’s approval’ applied to the immediately preceding phrase ‘is fixed in… by the Lessee’, not to the opening words of the clause. Subparagraph (c) did not apply because there was no evidence to indicate that any part of the fitout was ‘structural work’.

60 Secondly, Mr Titterton argued that the prohibition in clause 19.7 against removal of the Lessee’s property, even if it were applicable, could not operate to transfer ownership of the fitout to Roche. It followed that there was no basis for a claim in conversion. At most, the prohibition might lead to a ruling that the property must be treated as having been abandoned.

61 Thirdly, he submitted that, even if the sale of the fitout technically constituted a breach of the lease, the only ‘loss’ suffered by Roche was the loss of the chance or opportunity to sell the fitout.

62 We are not entirely certain about the thrust of this third proposition. But we agree with the first two, and are of the opinion that taken together they are sufficient to rebut any argument on Roche’s behalf based on the wording of clause 19.7.

63 We would add only the comment that the wording of the material parts of this clause (for example, subparagraph (b)), and indeed of clauses 19.1 – 19.3, is not at all clear. This factor alone would make us reluctant to reach a conclusion, if we were at all doubtful, that Roche as lessor should be entitled to recover damages for an alleged breach of any of these clauses.

64 For these reasons, we uphold Irresistible’s argument, outlined at the beginning of this section of our judgment, that neither Sparbac nor Roche was entitled to call upon the guarantee. We are satisfied (a) that Irresistible was not bound by any express or implied term of the Lease to remove the fitout or to make any payment to Roche with regard to the cost of removing the fitout; and (b) that it was free to sell the fitout, which was its own property, to Tinine.

The issue of the assignability of the guarantee

65 Further argument put to us by Mr Titterton was that, even if Irresistible had been in breach of the lease as alleged by Roche, neither Sparbac nor Roche would have had any entitlement to call upon the guarantee at the time when Sparbac did in fact do this. This was because (a) Sparbac, having assigned to Roche its rights under the principal transaction (that is, the Lease), was no longer capable of enforcing the guarantee even if it had retained the benefit of the guarantee, and (b) any assignment of Sparbac’s rights under the guarantee to Roche was precluded by the statement in the guarantee that ‘The benefit of this guarantee is personal and not capable of assignment’.

66 In support of these propositions, Mr Titterton relied on O’Donovan, J and Phillips, J, The Modern Contract of Guarantee, 3rd edn, 1996, 325-326 and the decision of the High Court in Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367.

67 Mr Angyal responded by referring to the provision in clause 16.4(c) of the Lease permitting Roche to assign its rights under any of the Lease Documents (see [24] above) and to the provision (clause 37.7(f)) in the contract for the sale of the premises from Sparbac to Roche that if an assignment of the guarantee was not permitted or was ineffective at law or in equity, then Sparbac would after completion hold its ‘right, title, interest and benefit’ for and on behalf of Roche (see [10] above). He contended that these provisions were sufficient to override the statement in the guarantee itself that the benefit of it was personal and not assignable, or at least to create an estoppel preventing Irresistible from relying on this statement.

68 In the circumstances, we do not have to resolve these issues, which are far from straightforward. This is because we are satisfied, for reasons already given, that no breach of the lease or other ground was established against Irresistible so as to justify the guarantee being called on by Sparbac, either in its own right or for the benefit of Roche, or indeed by Roche directly.

The grounds of relief available to Irresistible

69 In its application to the Tribunal, Irresistible alleged both (a) a wrongful refusal by Sparbac and Irresistible to repay the sum of $20,085.25 obtained by them through calling on the guarantee and (b) unconscionable conduct by both these parties in procuring this outcome. It claimed from both of them the repayment of this sum under s 72(1)(a) of the Act, which authorises the Tribunal to order payments of money in retail tenancy claims, and under s 72AA(1)(a), which authorises such orders in unconscionable conduct claims. Irresistible also claimed interest, under s 72A, and costs, pursuant to s 77A of the Act and s 88 of the Administrative Decisions Tribunal Act 1997.

70 Mr Titterton and Mr Angyal made relatively limited submissions regarding the precise basis on which Sparbac or Roche might be held liable to refund to Irresistible the amount paid to them under the guarantee, if the Tribunal’s findings on the matters addressed so far in these reasons produced the conclusion that there was no justification for this payment.

71 In our judgment, the conduct of Roche in procuring the payment constituted a breach of the terms of the Lease. It was clear from the terminology of clause 26.2 (see [6] above) that no call should be made on the guarantee unless money was payable to the Lessor by virtue of a breach of the Lessee’s obligations under the Lease. There was no such breach, for the reasons that we have given. Under this line of argument, Roche was in breach of its contract with Irresistible whether or not the deed of assignment of 13 February 1998 was effective in law to transfer the benefit of the guarantee from Sparbac to Roche. If in fact the deed was effective, an additional argument, producing the same result, is that Roche was in breach of the terms of the agreement of guarantee

72 We consider that the same line of reasoning can be applied against Sparbac. It appears to us that, although in 1998 Sparbac assigned its rights under the Lease to Roche, the contract of guarantee with Irresistible, having not been formally released, remained on foot. If so, Sparbac’s conduct in calling on the guarantee amounted to a breach of the contract. This is because no act or omission by Irresistible provided grounds for this conduct, and possibly also because (as argued by Mr Titterton – see [65 – 66] above) Sparbac had ceased in law to be entitled to enforce the guarantee.

73 In his written submission, Mr Titterton contended that Roche’s conduct was unconscionable within the meaning of s 62B of the Act. Implicitly, he invoked various subparagraphs of subsection (3) of this section. Subsection (3) sets out various matters to which the Tribunal may have regard in determining whether a lessor has contravened the prohibition in subsection (1) against engaging, in connection with a retail shop lease, in ‘conduct that is, in all the circumstances, unconscionable’.

74 A matter included in subparagraph (d) is whether ‘any unfair tactics were used against the lessee’. Mr Titterton submitted that Roche used such tactics against Irresistible in asking Sparbac to call on the guarantee, without notice to Irresistible, even though the guarantee was expressed to be ‘not capable of assignment’, and also in agreeing to pay any fees incurred by Sparbac and to indemnify it against any claim brought against it by Irresistible.

75 Subparagraph (i) of s 62B(3) states that the following matter may be taken into account:

(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).

76 Mr Titterton submitted that Roche was guilty of unreasonable failure to disclose under both of these subheadings.

77 Finally, subparagraph (k) of s 62B(3) refers to ‘the extent to which the lessor and the lessee acted in good faith’. Mr Titterton submitted that the aspects of Roche’s conduct that have just been outlined were ‘consistent with a failure to act in good faith’.

78 Mr Angyal’s submissions on behalf of Roche did not specifically address the issue of unconscionable conduct.

79 We are of the opinion that Roche’s conduct was unconscionable within the meaning of s 62B(1). On any view of the matter, its entitlement to compensation from Irresistible for the cost of removing the fitout, or to damages for the alleged conversion of the fitout, was far from clear-cut. Even on its own showing, any such entitlement depended on the interpretation of distinctly unclear provisions of the Lease. As it had the right, under its lease to Tinine, to claim the costs of removal under a ‘make-good’ clause, its claim against Irresistible was not its only means of recovering this expense. Its entitlement to invoke the guarantee, directly or indirectly, was also uncertain, having regard to the express statement that the benefit of the guarantee was not assignable. The express terms of the guarantee permitted a call to be made without notice to Irresistible, but these, in our opinion, were not the circumstances in which a party acting in good faith would rely on such a provision.

80 We do not consider, however, that Irresistible’s claim against Sparbac is maintainable on the ground of unconscionable conduct. No detailed submission to this effect was in fact made.

81 For the foregoing reasons, the cross claim brought by Roche against Irresistible must be dismissed. Roche has failed to establish grounds for any of the forms of relief claimed.

82 At the conclusion of his oral submissions, Mr Titterton referred to Irresistible’s application for an order for costs and indicated that, if his client was successful on its principal application, he would wish to press the claim for costs.

The Tribunal’s orders

83 In relation to the application brought by Irresistible, we order, pursuant to s 72(1)(a) of the Act, that Sparbac is liable to pay to Irresistible the sum of $20,085.25, together with interest at 9% (the District Court rate) on this sum from 25 November 2002 to the date of publication of these reasons. The amount of interest, so calculated, is $1,733.38. The total amount for which Sparbac is liable is therefore $21,818.63.

84 In relation to the same application, we also order, pursuant to s 72(1)(a) and s 72AA(1)(a) of the Act, that Roche is liable to pay to Irresistible the same amounts by way of principal and interest. The total amount for which Roche is liable is therefore also $21,818.63.

85 The cross application brought by Roche is dismissed.

86 In the absence of agreement on the matter, each party is to file written submissions on the matter of costs within 28 days of the date of these reasons.