Jain Gao & Hui Yuan Gao v Leo Siam Pty Ltd
[2013] NSWADT 58
•12 March 2013
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: JAIN GAO & HUI YUAN GAO v LEO SIAM PTY LTD [2013] NSWADT 58 Hearing dates: 22 November 2012 and 17 December 2012. (Submissions by 14 January 2013.) Decision date: 12 March 2013 Jurisdiction: Retail Leases Division Before: Hon G Mullane, Judicial Member
Mr B Harrison, Non-Judicial Member
Mr M Foldi, Non-Judicial MemberDecision: (1)The Applicant s Jian Gao and Hui Yuan Gao must pay to the Respondent Leo Siam Pty Ltd by way of compensation and damages a sum of $58,280.95.
(2)The Applicants Jian Gao and Hui Yuan Gao must do all acts and execute all documents submitted by the Respondent Leo Siam Pty Ltd to release any bond under the Lease of the ground floor shop at 437-439 Elizabeth Street, Sydney, between the Applicants (as Lessors) and the Respondent (as Lessee) and to cause payment of the bond to the Respondent as part payment of the amount in Order (1) above.
(3)The Applicants Jian Gao and Hui Yuan Gao must pay to the Respondent Leo Siam Pty Ltd a sum of $8,000.00 towards the legal costs of Leo Siam Pty Ltd of and incidental to the proceedings.
(4)Otherwise the Application of the Applicants in File 125060 and the Application of the Respondent in File 125106 are dismissed.
Catchwords: Retail Lease:
- Lease to individual as lessee replaced by lease to company of which the individual is sole director. Failure to give Lessors' Disclosure Statement in respect of lease to company.- Rescission of Lease by Lessee as of right - Lessor's claim for loss of rental refused.
- Clause in Lease requiring Lessors to install flooring of the premises at the Lessor's cost - legal requirements. Breach of implied and legal requirements.
- Unconscionable conduct and misleading or deceptive conduct - Lessors reject opinions of Lessee's builder and a civil engineer consultant, refuse to accept engineer's report, falsely allege requirements for floor have been met - Lessee rescinds - damages/compensation to Lessee.Legislation Cited: Retail Leases Act 1994
Food Standards Australia and New Zealand Act 1991 (Cth);
Australia/ New Zealand Food Standards Code;
Food Act 2003 (NSW);
Food Regulation 2010;
Environmental Planning and Assessment Act 1979 (NSW);
Environmental Planning and Assessment Regulation 2000 (NSW);
Building Code of Australia;
Australian Standard AS4674-2004 "Design, Construction and Fit-out of Food Premises";
Australian Standard AS3740-2004 "Waterproofing of Wet Areas within Residential Buildings.Cases Cited: N/A Texts Cited: N/A Category: Principal judgment Parties: JAIN GAO Applicant in File 125060
JAIN GAO & HUI YUAN GAO Respondents in File 125106
LEO SIAM PTY LTD Respondent in File 125060 and Applicant in File 125106Representation: None
Mr L E Tang, Equiton, 1st Floor, 162 Beamish Street, Campsie (for the Lessors)
Ms A Sullivan, Edrison Lawyers, Level 6, Suite 31, 591 George Street, Sydney (for the Lessee)
File Number(s): 125060 & 125106 Publication restriction: Nil
reasons for decision
INTRODUCTION
This was a defended hearing of the Application by the Lessors filed 4 May 2012 (File No. 125060) and the Application by the Lessee filed 8 August 2012 (File No. 125106).
The dispute is in respect of a written retail shop lease dated 5 October 2011 by the Lessors to the Lessee for four years from 25 August 2011 (with an option to renew for another 5 years) of a ground floor shop at Elizabeth Street, Sydney.
The Lease provided that the permitted use of the premises is as a restaurant.
Attached to the Lease document is 12 pages headed "Additional Covenants". Clause 19.1 of those Additional Covenants provides:
"The Lessor shall install the ceilings and flooring of the premises at the Lessor's costs and expense prior to the Rent Commencement Date."
Pursuant to Clause 19.2 of the Additional Covenants, the Rent Commencement Date is two months after the Commencement Date, so the Rent Commencement Date is 25 October 2011.
On 25 November 2011 the solicitors for the Lessee wrote to the solicitors for the Lessors giving notice to terminate the Lease. The reason given was that the Lessors had failed to comply with legal requirements for a waterproof membrane in the floor of the premises, although Lessors had contended that they had complied.
The Lessors claim in their Application that the Lessee wrongly repudiated the Lease. The Lessors claim:
Loss of rental of $54,749.99 for the period the premises were vacant until another tenant was secured;
Solicitor's fees of $1,428.00 for the Lease to the replacement Lessee;
Real Estate Agent's commission for finding a new tenant $7,436.00;
Costs of rectifying damage to the floor and walls by the Lessee's builder $2,420.00;
Engineer's fees;
Costs of removing equipment wrongly installed by the Lessee;
An Order for release of the security bond of $13,383.32 provided by the Lessee (as part satisfaction of the Lessors' claims).
At the Hearing the Lessors withdrew the claim for any cost of removing wrongly installed equipment and offered no evidence of any engineer's fees having been incurred or paid. Accordingly, Claims 5 and 6 were abandoned.
The Lessors placed in evidence a quotation from their builder, Mr Chan in December 2011 for claim 4. At the time of the hearing concluding in December 2012 the premises had been occupied by another tenant for nearly 7 months. There was no evidence that the builder or any other person was engaged to do the work, of the work being done or of any payment being made for the work. The tribunal was not satisfied that the Lessors incurred any expense for the rectification. It appears the new tenant and/or the lessors personally may have done this work.
Accordingly claims 4, 5 and 6 of the Lessor could not succeed.
The Lessee's Application sought relief for both unconscionable conduct and misleading or deceptive conduct by the Lessors and also for breach of fundamental requirements of the lease. The Lessee sought:
1. Payment of $58,280.63 including:
$35,000.00 for expenses paid to the Lessee's builder for work on the leased premises and materials and equipment installed;
$6,691.61 for rent paid to the Lessors; and
$13,383.32 for the Bond paid by the Lessee.
2. General damages;
3. Costs;
4. Orders for the release of the Bond to the Lessee in part satisfaction for the amounts awarded.
The Lessee's claim was based on the failure of the Lessors to properly waterproof the flooring installed by the Lessors including provision of a waterproof membrane which the Lessee alleged was a requirement for the floor. The Lessee alleged that as a result, the Lessee's builder had to delay installation of equipment for the restaurant. The lessors deny that they did not comply with their obligations to provide waterproofing of the floor.
In addition, the Lessee relies upon allegations that the Lessors engaged in unconscionable conduct and misleading or deceptive conduct. Although the grounds set out in the Application for Original decision filed by the Lessee were somewhat garbled, it appears that the relevant unconscionable, misleading or deceptive conduct alleged is that the Lessors:
(1) Rejected the Lessee's builder's advice that there was no waterproof membrane installed;
(2) Produced to the lessee a certificate dated 11 October 2011 by a person "Mick" purporting that a waterproof membrane had been installed, when it had not;
(3) Produced a certificate dated 16 October 2011 by the Lessors' builder, Mr W Chan, falsely certifying that a waterproofing membrane system had been installed in the kitchen's wet area in accordance with "Australian Standard AS3740-1994 (Amended 1995)", when no such membrane system had been installed, the Lessor's builder knew that and the lessor's builder was not licensed to so certify;
(4) Rejected the opinion of a well-qualified and well experienced consultant civil engineer instructed by the Lessee who inspected the premises in the presence of Mr Gao, one of the lessors, and told him that there was no waterproof membrane installed;
(5) Rejected the written report and opinion of the same civil engineer that there was no waterproof membrane installed;
(6) Did not arrange for an inspection of the floor by a suitably qualified expert to advise whether the floor was well waterproofed;
(7) Refused the request of the Lessee's solicitors of 19 October 2011 to "redo the tiling and waterproof it in accordance to Standards"; and
(8) Persisted in their refusal to admit that the floor did not include a waterproof membrane;
As the Lessee relies upon a claim of unconscionable conduct , the Tribunal is therefore constituted by a Judicial Member ,who is a member of the Retail Leases Division, assisted by 2 other appropriately qualified members acting in an advisory capacity only (per clauses 1 & 4 of Part 3B of Schedule2 to the Administrative Decisions Tribunal Act 1997 ).
THE EVIDENCE
The evidence comprised:
(1) Application for original decision filed by the Lessors on 4 May 2012;
(2) Affidavit of Jian Gao sworn 20 June 2012;
(3) Affidavit of Weng Yoon Chan sworn 21 June 2012;
(4) Affidavit of Porn Pan Jundee sworn 26 July 2012;
(5) Application for original decision (125106) filed by the Lessee on 8 August 2012;
(6) Affidavit of Jian Gao sworn 19 September 2012;
(7) Affidavit of Dr John Kwang Lee Hii sworn 30 August 2012;
(8) Affidavit of Weng Yoon Chan sworn 19 September 2012;
(9) Exhibit A1 - Australia Standard AS3740;
(10) Exhibit A2 - Lease;
(11) Exhibit A3 - original report of Dr John Kwang Lee Hii;
(12) Exhibit A4 - figures 10b and 10C of typical membrane termination options from Master Builders Waterproofing Technical Committee;
(13) Exhibit A5 - Lessee's disclosure statement;
(14) Exhibit A6 - letter from Thai-Oz, Solicitor and Migration Services, of 23 August 2011 with heads of agreement for lease, Lessee's disclosure statement of 19 August 2011 and Lessors' disclosure statement dated 29 August 2011;
(15) Exhibit A7 - Australian Standard AS4674-2004 - "Design, Construction and Fit Out of Food Premises";
(16) Oral evidence of Dr Hii;
(17) Oral evidence of Pornpan Jundee;
(18) Oral evidence of Jian Gao; and
(19) Oral evidence of Weng Yoon Chan.
The preparation of each of the parties' cases left much to be desired. At the first day of the Hearing the Tribunal raised with the parties the following issues about the evidence filed:
(1) There was no evidence the Lessor had executed the Lease (this was later rectified).
(2) In the hearing the documents did not disclose, and the lawyers for the parties could not tell the Tribunal, by what legislation any waterproofing standard was prescribed for the floor(s) in any part of the leased property. In the affidavits and during the hearing reference was made by witnesses to the Australian Building Code and to Australian Standards AS3740 and AS4674. The Australian standards were tendered in evidence. AS3740 is expressed to apply to "wet areas within residential buildings", whereas AS4674 is expressed to apply to "design, construction and fit-out of food premises". Neither party nor their legal representatives identified the legislation that applies either the Australian Building Code or an Australian Standard to the leased premises.
(3) It was only in submissions after the hearing that the Lessor's solicitor provided some submissions as to that issue. The submissions for the Lessee did not address the issue.
THE LESSORS' DISCLOSURE STATEMENT
Subsection 11(1) of the Retail Leases Act 1994 ("the Act") requires the Lessor to give the Lessee a Disclosure Statement at least seven days prior to the Lease being entered into.
There were 2 leases involved. The first was a lease to Pornpan Jundee.
The term of the Lease commenced on 25 August 2011. The Lease was prepared by the Lessors' solicitors and submitted to Pornpan Jundee or her solicitors. Exhibit A6 shows that the Lease was executed by Pornpan Jundee on or before 23 August 2011 and sent to the Lessors' solicitors on that date with the Lessors' Disclosure Statement, the Lessee's Disclosure Statement, a bank cheque for the balance of the $13,383.33 security bond, and a cheque for the fees for the registration of the Lease.
In cross examination Ms Pornpan Jundee testified that the Lessors' solicitor produced the Lessee's Disclosure Document to her in his office, before she had seen the lease, and had her sign it. It is dated 19 August 2011; 6 days before the lease commenced. She said that she signed the lease on 25 August at her solicitor's office, but she must have signed it on 23 August or sooner, because her solicitors sent the lease executed by her with their letter of 23 August to the Lessors' solicitor.
The finding is that the submission of the Lease to the Lessee was a written offer of a Lease and that Lease was accepted by the Lessee when the document was executed by Pornpan Jundee and returned to the Lessors' solicitors with the letter of 23 August 2011. That is consistent with the Lessors permitting the Pornpan Jundee to take possession of the premises on 25 August 2011.
In the letter by Pornpan Jundee's solicitors to the Lessors' solicitors of 23 August 2011, the Lessee's solicitors said they were enclosing the Lease in duplicate executed by the Lessee and also enclosed "Lessors' Disclosure Statement and executed Lessee's Disclosure Statement". It is not clear from that whether the Lessors' Disclosure Statement had been completed, apart from signing and dating. But it is clear that the Lessee's solicitors referred to the Lessee's Disclosure Statement being "executed" but did not describe the Lessors' Disclosure Statement as "executed". In addition, the Lessors' Disclosure Statement is dated (beside the signatures) "29 August 2011". That is 4 days after the lease commenced and the Lessee took possession of the premises.
When the Lessors' Disclosure Statement was admitted into evidence as part of Exhibit A6, the solicitor for the Lessors sought to dispute the date of 29 August on his clients' Disclosure Statement. He submitted that the date was not the date that the document was signed, but a date after the document had been signed by his clients, as it was, he said, a common practice to not date such Disclosure Statements submitted to a Lessee until after the Lease had been executed.
The Lessors' solicitor did not purport to have any recollection of what happened with this particular document. His version was not sworn and not evidence, but if it had been sworn evidence, it still would have been reconstruction, rather than recollection.
There was no evidence referred to at the hearing to support any argument that the document was signed and dated before 29 August 2011. The Tribunal was not given any acceptable explanation as to why a Lessor would chose to give an undated Disclosure Statement, particularly for the purpose of later inserting a later date than the date on which the Disclosure Statement was given to the Lessee.
However, in written submissions filed on 4 January 2013 the lessors' solicitor relied upon the Affidavit of Popran Jundee sworn 27 July 2012. It includes an email of 11 August 2011 from the Lessor's solicitors at Campsie to the then solicitors for the Lessee at North Sydney enclosing an amended Lessor's Disclosure Statement and also a letter of the same date enclosing a "Lessor/Lessee's Disclosure Statement". The copy of the letter does not show any date of receipt by the Lessee's solicitor. 11 August 2011 was a Thursday, so it would be assumed that the letter would have been posted on 11 August and received by the Lessee's solicitors on 12 or 15 August. That was not less than 7 days before the lease was entered into.
A question that arises is whether the document satisfied the requirement of a Lessor's Disclosure Statement. "Lessor's disclosure statement" is defined in Section 3 as "a statement referred to in section 11". In section 11 it says it is "a statement in writing that contains the information, and is accompanied by the material, that is contained in or required to complete or accompany the form of disclosure statement set out in the prescribed form (but only to the extent that is relevant to the lease concerned)."
There are issues about whether the Lessors' Disclosure statement included various information required by the prescribed form, particularly Key Disclosure Item 8, paras 1.3,1.4 and 1,5 of Part 1 of the form, item 16 of Part 6 ( interest of 13 % payable on money payable to the lessor if not paid within 14 days of due date) and "deposit" of $1,540 paid to Lessors for them to obtain for the lessee development approval documents from their solicitors ), clause 17 of Part 7 (details of alteration works to the building planned by the lessors), clause 28 of Part 10 ( representations by Lessors) Lessor acknowledgments in clause 29 of Part 11 of the prescribed form, the signatures of the Lessors or their agent and the date.
The Lessors' Disclosure Statement was incomplete. But it is not necessary to consider the consequences of that under section 11 of the Retail Leases Act 1994 ("the Act"), because that document was not given in respect of the subject lease. The subject lease is to a company, Leo Siam Pty Ltd, which had not been incorporated at that time.
The evidence of Ms Jundee, which is not disputed, is that after the lease was entered into and commenced, she had advice from an accountant and formed a company, the Lessee in these proceedings. She requested of the Lessors a lease to the company in lieu of the lease already entered into and the Lessors agreed, subject to Ms Jundee being a party to the new lease as guarantor for the Lessee. Although she was advised that the Lessors could not charge the tenant the lessors' costs of the lease, the Lessors required the lessee to pay the lessors' solicitors costs of $1,226.00, and the Lessee paid those costs.
The lease to the company is dated 5 October 2011 and its commencement date is 25 August 2011. Ms Jundee is a party to the lease as guarantor for the lessor. Otherwise the terms are those in the earlier lease.
It is clear from the evidence that there was no Lessors' Disclosure Statement given to the company in respect of the subject lease. Under Subsection 11(2) of the Act, a consequence of that default is that the Lessee was entitled to rescind the lease within six months after the Lease was entered into.
Accordingly, whether or not there was a breach of the Lease by the Lessors (or unconscionable conduct by the Lessors) that might have entitled the Lessee to rescind, the Lessee was, as at 25 November 2011 entitled to rescind the Lease without reliance on any conduct or omission on the part of the Lessors.
It follows that the rescission of the lease by the Lessee was valid and the Lessee did not repudiate the Lease.
THE LESSORS' CLAIM FOR LOSS OF RENTAL, AGENT'S COMMISSION FOR LOCATING A NEW TENANT, AND SOLICITOR'S COSTS FOR THE LEASE TO THE NEW TENANT
Because under the Lease the Lessee had a right to terminate the Lease, the Lessor's claims (1), (2) and (3) for loss of rental, Agent's commission for finding a replacement tenant, and Lessors' solicitor's fees for the Lease to the new tenant cannot succeed.
Given that claims 4 to 6 of the Lessor could not succeed for the reasons set out in paras 8 to 10 earlier, the Lessors have not succeeded on any of claims 1 to 6 and their remaining claim, claim (7), for release of the bond to be released to them, should be refused.
The Lessor's application should be refused and dismissed. The Tribunal turns now to the issues in relation to the application of the Lessee.
STATUTORY AND OTHER BUILDING STANDARDS FOR THE FLOOR FOR WATER RESISTANCE AND WATERPROOFING
Annexure B to the Lease includes "Clause 7 Condition and Repairs". Subclause 7.1 states:
"7.1 The Lessor must -
7.1.1 maintain in state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects;
7.1.2 maintain the property in a structurally sound condition; and
7.1.3 maintain essential services."
Australian Standard AS4674-2004 "Design, Construction and Fit-out of Food Premises", says that the objective of the Standard is:
"To provide criteria ... to co-operatively ensure that buildings used by food businesses are designed, constructed and fitted out in compliance with the requirements of the Australian Food Standards Code, Standard 3.2.3 Food Premises and Equipment, which will assist food businesses to provide safe food."
The Australia New Zealand Food Standards Code is defined in the Food Standards Australia and New Zealand Act 1991 (Cth) and recognised in NSW legislation by the Food Act 2003 and the Food Regulation 2010. Food Safety Standard 3.2.3 of that Code is titled "Food Premises and Equipment" and food businesses are required to comply with its requirements. The Australian Standard AS 4674-2004 provides guidance in design, construction, and fit out criteria for new food premises and for the renovation or alteration of existing food premises in accordance with the requirements of Food Safety Standard 3.2.3.
The Lessor concedes in its submissions that AS4674 -2004 is adopted as part of the Building Code of Australia, which is part of the National Construction Code produced by the Australian Building Codes Board.
The Building Code of Australia has some other recognition in NSW statutes, such as the Environmental Planning and Assessment Act 1979 (see Secs 85, 109C, and 109(H) and the Environmental Planning and Assessment Regulation 2000 (see clauses 7 and 136A).
In particular, para 136A (1)(a) of the Regulation provides:
Compliance with Building Code of Australia and insurance requirements under the Home Building Act 1989
(1) A complying developing certificate for development that involves any building work must be issued subject to the following conditions:
(a) That the work must be carried out in accordance with the requirements of the Building Code of Australia.
Section 3.1 of Australian Standard AS4674-2004 deals with requirements for floors in food premises, including restaurants, and provides:
"SECTION 3 FLOORS, WALLS AND CEILINGS
3.1 FLOORS
3.1.1 General Requirements
Floors shall be-
(a) appropriate for the area;
(b) able to be effectively cleaned;
(c) non-absorbent; and
(d) laid according to the relevant Standards (see AS 3958.1) for ceramic tiles) so that there is no ponding of water and harbouring of pests.
3.1.2 Suitability of floor finishes for food premises area
Floors shall be finished with surfaces as specified in Table 3.1.
3.1.3 Food preparation area
Floors in food preparation areas shall be finished with one or a combination of the following materials:
(a) Sealed quarry tiles or ceramic tiles.
(b) Stainless steel.
(c) Laminated thermosetting plastic sheeting.
(d) Polyvinyl sheeting with welded seams.
(e) Epoxy resin.
(f) Steel trowel case hardened concrete.
(g) Similar impervious material.
NOTE: The above is to allow the floors to be effectively cleaned.
TABLE 3.1
SUITABILITY OF FLOOR FINISHES FOR FOOD PREMISES AREAS
Finish
Wet washbed areas
Food preparation
Vegetable preparation
Servery
Store room
Chillers\freezers
Bin Store
Eating areas
Comments
Stainless steel non-slip profile
*
*
*
*
*
*
*
*
Welded joints
Ceramic tiles
*
*
*
*
*
*
*
*
Epoxy grout
Quarry tiles
*
*
*
*
*
*
*
*
sealed
Steel trowel case hardened concrete
*
*
*
*
*
Smooth-sealed finish, no joints
Carpet/carpet tiles
*
Wooden flooring
*
Sealed
Polyvinyl sheet
*
*
*
*
*
*
*
*
Heat-welded joints (not suitable adjacent hot fat appliances)
Vinyl tiles
*
*
Plastic matting
*
*
Should be used for safety reasons only
It shall be easily cleaned and laid in sections that can be removable for cleaning
Cork tiles
*
Sealed
Epoxy resins
*
*
*
*
*
*
*
*
Complying with AS 3554
Ceramic floor tiles shall be epoxy grouted and laid in accordance with the requirements of AS 3958.1.
Floors draining to a floor waste shall be evenly graded (at least 1:100) so that the water falls to the floor waste.
The intersection of floors with walls and plinths shall meet the coving requirements as given in Figure 3.1.
3.1.4 Food storage areas
Storage areas for unpackaged food, including temperature-controlled storage (coolrooms), shall have floors that comply with requirements for food preparation areas.
Floors of rooms used for the storage of food enclosed in hermetically sealed containers, dry packaged goods, vegetables, and equipment shall be finished with a non-absorbent surface.
Where floors are cleaned with hose and water (or otherwise flushed with water) the intersection of floors with walls and plinths shall meet the coving requirements as given in Figure 3.1.
3.1.5 Coving
Where coving is installed at the intersection of floors with walls/plinths shall be integral to the surface finish of both floor and wall in such a manner as to form a continuous uninterrupted surface.
'Feather edge skirting' is not permitted.
Coving shall be installed in accordance with the examples in the diagrams or other method that achieves the same outcome (see Figures 3.1 and 3.2).
NOTE: Coving is required to assist with cleaning to ensure that accumulations of dirt, grease, etc, does not occur at the wall/floor junctions.
Where vinyl or similar sheeting is installed, and the sheeting turned up to form a cove, a solid preformed coving fillet shall be used to support the sheeting."
The floor surface installed by the Lessors was ceramic tiles throughout. It is clear that the requirement for a surface of ceramic tiles in a restaurant is that they be epoxy grouted throughout and laid in accordance with the requirements of Australian Standard AS 3958.1. Unfortunately that Standard is not part of the evidence.
Annexure "A" to the affidavit of Mr Chan is an extract from the Building Code of Australia which is general requirements for wet areas in buildings.
It is acknowledged by both parties that the premises are class 6 premises.
The relevant part of the code requires for class 6 premises:
Any bathroom, shower room, slop hopper, sink compartment, laundry or sanitary compartment must be water resistant and waterproof in accordance with AS 3740 as if they were in a residential building;
For floor substrate the following materials used in a waterproofing system (in conjunction with water resistant surface materials such as ceramic tiles) are deemed to be water resistant: concrete, compressed fibre cement sheeting, flooring grade particle board , and structural plywood.
It is important to observe that there is a difference between the requirements for the surface of the floor and for what supports the floor surface in the subject premises between the substrate and the ceramic tiles.
EVIDENCE ABOUT WHAT WAS DONE ABOUT WATERPROOFING AND WATER RESISTANCE WITH THE FLOOR
The Lessee's builder commenced his work on 26 September 2011, with the plumbing and the installation of the cool room and started work on the electrical circuit for the lighting. The Lessor then asked the Lessee's builder to stop work for two weeks so that the tiling of the floor could be done. The Lessee's builder expressed an opinion that he could not complete the fit out of the restaurant in time if he had to stop work for two weeks. Eventually an agreement was made that the Lessee's builder would not work for one week to enable the floor to be done.
Mr Gao gave sworn evidence in his Affidavit of 20 June 2012 that the Lease commenced from 25 August 2011, the Lessee had three months in which to complete the fit out as a restaurant, the Lessor was required to install the ceiling and flooring in that time, but the Lessor's Builder (Mr Weng Yoon Chan) did not commence any work on the site until "early October". It is clear that this caused some considerable friction between the Lessee's builder and the Lessor's builder. The Lessee's builder complained that he needed the floor done in order to undertake the installation of equipment and the fit out. It is noted that the Lessee's equipment, included a cold room and kitchen equipment.
The first week day in October 2011 was Monday 3 October. If the Lessee's builder was off the site for a week he returned Monday 10 October or later. When he returned to the site, he observed the tiling. He informed the Lessee that the tiles had been placed without proper waterproofing, and this needed to be fixed before he could continue with the installation of the fixtures. Mr Gao testified that Ms Jundee complained that "the waterproofing work had not been done properly and as a result, the respondent [Lessee] could not proceed with its fit out work".
The Lessee's builder did not give evidence. When Ms Jundee had already paid her builder $35,000.00 in relation to the supply of the equipment and fit out, Ms Jundee had also been told that other persons had been overcharged by her builder. On 17 October 2011 her builder required an additional payment of $2,582.00 to complete the work because of problems arising from conflict with, and a lack of co-ordination by, the Lessor's builder and damage to the cold-room door that had been caused, and inadequately fixed, by the lessor's builder. Ms Jundee and her builder parted company on bad terms.
When the Lessee's builder raised the objection about waterproofing, The Lessor's builder then provided Ms Jundee with a copy of a Certificate of Compliance of installation of a waterproof membrane. It is dated 11 October 2011. It is a "Waterproofing Compliance Certificate" signed in a space next to "Signature of Licence Holder" by "Mick [surname indecipherable]". It appears to be an official form because of the complicated layout and provision for considerable information, including the address, mobile and telephone numbers, ABN, insurer and licence number of the waterproofing contractor. It also has the name of the builder, the supervisor, and the address phone numbers, ABN and licence number of the builder. It includes details of the job site including the name of the client. It at the top in print is "Certificate Number 07429". It is dated 11 October 2011 and says that the work was "sealing of the shop, kitchen and wet areas (class 6 building)". It purports that a Waterproof membrane system was applied. But it describes the membrane type as a "penetration sealer" called "Sure Seal".
"Mick" gave no evidence in the proceedings. But there is evidence that Sure Seal is not used below the floor surface, it is a sealant applied on top of ceramic tile floors or other floor surfaces. The application of Sure Seal by "Mick" would not satisfy any requirement for a waterproof membrane below the tiles in any area. Apparently Mick's work was done after the tiles had been laid and according to the certificate if was applied to the ceramic tile floor of the "shop, kitchen and wet areas". It did not describe any waterproofing work by way of epoxy grouting of the tiles, installation of any waterproof membrane below the ceramic tiles, coving at any wall/floor intersection or flanging of any membrane into any floor waste.
At that stage there was a major disagreement between the Lessor's builder and the Lessee's builder about whether the floor had been properly waterproofed. The Lessee's builder then left the site. He told the Lessee that he would not return to the site until the floor was properly waterproofed.
On 12 October 2011 the solicitor for the Lessee company wrote to the solicitor for the Lessors and in that letter sent by facsimile said:
Your client Mr Gao is currently carrying out building work of installing the ceiling, the air conditioning system and the floor tiles. Our client's Architect required Mr Gao's licence number in carrying out those works at the premises. Our client advised our client that if your client cannot provide his licence to carry out those works then he'll stop all the works until such a time that your client can provide his trade licence number. It is about safety and works are to be done by qualified trades men. Furthermore our client's architect is required to sign off all new works done at the premises and if your client has no licence then it cannot be signed off and all works, including our client's works cannot be certified by the architect.
Please supply your client's trade licence number so our client's work can resume without delays.
The response of the same date the lessor's solicitors said: "The ceiling and tiling works were carried out by Weng Yoon Chan, licence no. 143954C." This was not true. Mr Chan's oral evidence before the Tribunal was that the tiling was done by someone else and his affidavit evidence was that the application of "Sure Seal" to the tile surface was also done by someone else.
Mr Gao said in his Affidavit that the Lessee requested to inspect the Compliance Certificate in respect of the waterproofing, and that: "This was given to the Respondent in early October 2011". The certificate he is referring to is the certificate of 11 October 2011. In a subsequent conversation with Ms Jundee, the Lessor produced a further certificate, being the certificate issued by her builder, Mr Chan, purporting to certify installation of a waterproof membrane under the tiles.
It is a "Certificate of Compliance" by "Chan's Waterproofing". It is dated 16 October 2011 and certifies that a waterproofing membrane has been installed in the premises and
The system has been installed in accordance with the conditions stated in Australian Standards AS3740 - 1994 (amended 1995);
There is a 10 year guarantee on the waterproofing; and
The work completed was "waterproof of the kitchen wet area".
By comparison with the previous certificate signed by "Mick", the document does not appear to be an official document. It is a document with artwork for the major writing "Chan's Waterproofing". In two places it refers to Australian Standard "AS3740-1994", but that standard was superseded by AS3740-2004, seven years before. In addition, the document has very few details. For example, it does not include any details of the client. It is not signed by anyone. It is not a numbered certificate. Ms Jundee asked Mr Gao for a copy of the certificate, but she was only allowed to sight the certificate and her requests for a copy were refused.
In his Affidavit of 20 June 2012, Mr Gao did not testify that he did any of the waterproofing work or observed anyone else do any of it. He said that the flooring was completed by 16 October 2011. But clearly the tiles were already laid and "Sure Seal" applied to the tiles before "Mick" signed and dated his certificate of 11 October. It appears that any channel in the floor by the Lessee's builder was done after the tiles were laid.
The Lessors' solicitor, on 20 October 2011, sent an e-mail to the solicitor for the Lessee in which it was stated that the floor tiling and the sealing were, "done by a qualified builder". On 21 October the Lessor's solicitor informed the Lessee's solicitor that the Lessor's builder, "does not wish to speak to your client's builder".
In her affidavit of 26 July 2012, Ms Jundee testified that when her solicitor carried out a search of the Building Licences held by Mr Chan, the Lessor's builder who signed the second certificate, it was discovered that he is not a person registered to provide certification in respect of waterproofing. A copy of the search is Annexure E to her Affidavit. Mr Chan was licenced as a contractor under Section 120 of the Home Building Act 1989. He was not registered as a supervisor, although the certificate of 11 October 2011, nominated him as the supervisor of the waterproofing work done by "Mick", the search result did not show that Mr Chan had any associated licences at all. It showed that Mr Chan was first registered as a contractor in September 2003, eight years before his work on the premises commenced.
Ms Jundee on behalf of the company employed the services of an accredited contractor supervisor, Dr J L Hii. He inspected the premises on 12 November 2011. Mr Gao was present and told of the result. In cross examination Mr Gao said he couldn't remember Dr Hii telling him the result. Dr Hii concluded that there had been no waterproof membrane installed below the floor tiles. The Tribunal does not accept that Mr Gao does not remember being told that on site. Dr Hii prepared and provided a written report. A copy was given to Mr Gao, but he did not accept the conclusions in the report.
Mr Chan, the Lessors' builder, swore an Affidavit on 21 June 2012, well after the report of Dr Hii was provided to the lessors. In that Affidavit he claimed that in early October:
"I painted a waterproof material called EPOXY on the floor in the kitchen area. This was part of the process to install the waterproof".
His evidence then is:
"7 About a week later I noticed the Respondent 's builder had cut a channel on the floor in the kitchen area, which caused damage to the waterproof work.
8 Because after the original waterproof work was damaged a different technique is required to repair the damage, I then engaged another waterproof trade person to make good the damage. As a result of this rectification work, a new waterproof compliance certificate was issued. Annexed hereto and marked "A" is a copy of the waterproof compliance certificate.
Annexure "A" is a copy of the certificate of 11 October 2011, which does not relate to work done under the floor tiles, but to application of Sure Seal to the tiles. This also does not relate to work after repair of damage caused when the Lessee's builder cut a channel in the floor, because the Lessor's expert engineer, Mr Mitsopoulos inspected that damage on 24 October 2011, nearly 2 weeks after "Mick" issued his certificate. Mr Mitsopoulos reported that as at 24 October 2011 the damage had not been repaired.
The solicitor for the lessee company wrote to the solicitor for the Lessors on 18 October 2011 complaining that "the Lessor promised to installed (sic) the floor and ceiling and air conditioning systems in 2 days and yet nothing is perfected". The response of the same date says among other things that the floor has been installed. The email from the Lessee's solicitors the next day states: "The tiling of the floor is required to be water proofed. The tiling is not water proofed. The Lessor is required to redo the tiling. The matter of the Certificate of Mr Chan W of having carried out water proofing has been referred to the Council for investigation."
The response of the Lessor's solicitor was in an email of 20 October and regarding the floor said: " In respect of the floor tiling and ceiling, since it was done by a qualified builder, it was presumed that the work would comply unless you are able to produce the council's report to prove the contrary."
The solicitors for the Lessee company replied the same day and asked for either confirmation that the waterproofing certificate [of 16 October 2011] was issued by the builder or details of its source. The response of the Lesors' solicitor of 21 October said "our client will rely on the certificates issued by their builder" and that the Lessors "understand that they are responsible for the work of their builder. "
The reply of the same date requested copies of the certificates.
Dr Hii swore an Affidavit on 30 August 2012 annexing his report. He is a chartered professional Engineer. His qualifications include bachelor of Engineering with Honours and a PhD. He is a member of the Civil College of Engineers Australia, and a licenced builder. He is qualified to certify waterproofing for commercial premises and has been doing building supervision work for more than 10 years. He inspected the flooring of the premises on 12 November 2011 for the purpose of identifying whether the floor in the commercial kitchen and wet areas of the proposed restaurant had a waterproof membrane installed in accordance with the relevant Australian Standard, which he says was AS3740 Waterproofing of Wet Areas.
He reported:
5 Two tiles in the kitchen wet areas in the premises known as Ground Floor, 437-439 Elizabeth Street, Surry Hills, NSW, 2010, had been previously removed and investigation had absolute evidences that in both kitchen wet areas no waterproofing membrane had been installed in accordance with AS3740 Waterproofing of Wet Areas.
6 AS 3740 calls for the use of bond breaker to create a coved corner details goes either Ablrod for example, 50mm bond breaker tape or does Davsil silicone sealant. Application primer - the Australian Standard (AS3740 Waterproofing of Wet Areas) calls for the membrane to be applied under the screed to receive tiles. However, it is recommended that the membrane be applied over the screed laid to falls.
7 Sand and cement screed to ensure that a minimum of 1.804 fall to the waste is created which equates to a 12.5mm fall over 1M. A slurry coat of Davelastic for example mixed 1:1 with neat cement should be used to improve the adhesive of the screed if being applied over the membrane.
8 Application of the tile adhesive. Application of grout. Use a flexible sealant either Davsil or Color Caulk, for example, in all wall and floor or wall and wall joints. Ceramic tiles - drain flange - ensure application of membrane is turned down into the drain flange."
Dr Hii has been a licenced builder since 2001. He has been a member of the College of Civil Engineers, Institution of Engineers Australia since 1990 and a chartered professional engineer since 1990. He attended an accredited supervisor program at the University of Technology, Sydney in 2004. He has conducted nearly 4,000 pre-purchase visual building inspections. He has practiced as a builder and building consultant with various building businesses since 2001 when he was first licenced as a builder in Queensland. He has been a practising civil engineer for more than 20 years.
In addition to inspecting the area under the two broken tiles in the premises, Dr Hii also inspected the area in and around a floor waste in each of the kitchen and toilet areas. He said in his report:
"As 3740 calls for the use of bond breaker to create a coved corner details goes either Ablrod for example, 50mm bond breaker tape or Davsil silicone sealant. Application primer - the Australian Standard (AS3740 Waterproofing of Wet Areas) calls for the membrane to be applied under the screed to receive tiles. However, it is recommended that the membrane be applied over the screed laid to falls.
Sand and cement screed to ensure that a minimum of 1.804 fall to the waste is created which equates to a 12.5mm fall over 1M."
He could find in the kitchen no evidence of coving at the floor/wall intersections and at the floor wastes in the kitchen and toilet area could find no evidence of any membrane. Exhibit A4, Figures 10.B and 10.C provided by the Master Builders Waterproofing Technical Committee show how the waterproofing membrane should terminate into a waste outlet. Both involve the membrane folding down into the waste outlet and over-lapping (or "flanging") the drainage fitting on the inside. Dr Hii inspected the two floor wastes with a torch and photographed them. He found no waterproofing membrane on the inside the drainage fittings. There was no flanging.
Dr Hii also said in his oral evidence that the requirement of the floor below the tiles is a screed of cement and sand, and below that a waterproof membrane sitting on the floor substrate. It appears this evidence was in relation to the "wet areas" of the restaurant, such as the kitchen, food storage, toilet and washing-up areas. He said the area where the two tiles had been removed, the material below the tile had been opened up and he could find no evidence of any waterproofing. He said he could find no evidence of any membrane in the floor below where the two tiles had been. He said that there was a similar situation with the surrounds to the two floor wastes.
He said he has supervised the laying of waterproof membranes in wet areas and usually that is done by laying Epoxy and then following with Bondcrete. He said at the Epoxy stage it dries as grey or grey to opaque, but is not clear. He said that Bondcrete is grey or green, and that he has never seen it clear. He said that Bondcrete dries as a grey and that when both have been applied the membrane is about 1mm thick, but usually the application is done three times. That would mean the membrane could be up to 3mm thick. He said that when you inspect, you can physically see the membrane and when it is broken up it does not crumble, but breaks into pieces.
He said of the areas where the tiles had been removed, there were crumbled bits, some pieces of tile, and other pieces of concrete, and the deepest bit was the slab below. He said that the membrane would have permeated adjacent screed and held it together, rather than crumbling. He said he had expected to see the waterproofing membrane forming a flange down in the waste pipes, but there was no such flange. He said that the Lessor was at the site when he carried out the inspection on 12 November 2011, and he told the Lessor what he saw. He said he told him that he could find no evidence of any membrane in those four areas. He said the Lessor "didn't say much to me".
Dr Hii provided photographs of the two floor wastes and the two areas where tiles had been removed and they were attached to his report. The photos of the floor wastes were not clear.
Mr Chan swore a second Affidavit in the proceedings, being his Affidavit of 19 September 2012. It was in that affidavit that he first suggested that a membrane was installed in the floor of the premises before the tiles were laid. He said in his Affidavit of 21 June 2012 when he was referring to applying Epoxy to the floor, he meant to the "substrate, rather than the floor surface". He testified in that Affidavit:
"6 My method of performing the waterproof work was as follows:
i)Epoxy was applied over the substrate. Epoxy was a grey colour similar to the natural colour of the substrate;
ii)After a day or so when the Epoxy was dried and sucked into the substrate, the tiler applied the Bondcrete over the substrate. Bondcrete is white liquid material but when it is dry, it becomes transparent;
iii)After Bondcrete was applied, the tiler laid the screed over the Bondcrete;
iv)The tiler then laid tiles over it to complete the flooring."
The evidence of Dr Hii is that a ceramic tile floor in wet areas in restaurant premises is laid on a screed of sand and cement and below that a waterproof membrane on the substrate. It is noted that Mr Chan did not say that he was present when the tiler applied Bondcrete or saw after that it had been done. The Tribunal notes that what Mr Chan set out in paragraph 6 of his Affidavit was not evidence that he observed that work being carried out, but evidence as to how he would normally have performed the work. There was no evidence from the tiler that he did apply a layer of Bondcrete. There was no evidence from Mr Gao that he saw the work done or observed after that it had been done.
Neither Mr Chan nor Mr Gao provided any photographs showing the evidence of the waterproof membrane. Mr Chan said in his second affidavit: "Visual inspection, without more, would not detect the presence of EPOXY or Bondcrete". The Lessors did not provide any evidence by any person who had observed either the installation of the waterproof membrane or observed it from an inspection.
But in paragraph 8 of Mr Chan's Affidavit, he sheds some light on his attitude to the need for a membrane. In describing what he called the rectification work of the membrane. He said:
"After the damaged caused to the above waterproof work as set out in paragraph 7 of the June Affidavit, I instructed a licenced waterproof contractor to make good the damage by applying Sure Seal (waterproof material) over the files. Sure Seal is a transparent liquid."
Similarly in his most recent Affidavit, Mr Chan argues that:
"Wet areas must either be water resistant or waterproof ... that is to say water resistant is sufficient. ...Tiles over concrete floors are complying as being water resistant."
It appears that he is arguing that there was no need for a membrane if there were a complying layer of ceramic tiles on the top as the floor surface. But overall, the Tribunal is satisfied that there are separate requirements for waterproofing/ water resistance for the subject premises, being requirements for the floor surface and requirements for below the floor surface.
Mr Chan interpreted the expressions "water resistant" and "waterproof" as having the same meaning. However, Annexure "A" to his Affidavit (an extract from the Building Code of Australia) makes it clear that it is not so when it requires certain spaces to be "water resistant and waterproof". Mr Chan also appeared to believe that a surface of ceramic tiles to which Sure Seal is applied can avoid the need for a waterproof membrane below the tiles. That is not so.
Unfortunately Mr Chan was present in the hearing room for the whole of the evidence of the other witnesses, including Mr Gao, on 22 November. Mr Chan was called on 17 December. In cross examination Mr Chan insisted "there's no problem with my waterproofing" and "No one told me there was". When asked when he became aware that there was an issue about the floor, he avoided the question. When it was repeated he replied "I can't remember." But he recalled Mr Gao telling him he needed a certificate (about the waterproofing of the floor) so he gave him one.
In answer to questions from a tribunal member, Mr Chan said he applied Epoxy to the subfloor and then Sure Seal. This was different to his evidence in his first affidavit (epoxy only) and to his second affidavit about what is required for a waterproof membrane (epoxy then Bondcrete). When this was drawn to his attention he said he couldn't recall what he said in his affidavit . When shown the document, he agreed. But later in his cross examination he said that the coat of epoxy would comply with the membrane requirement " because it had epoxy".
His evidence was that the channel in the floor made by the Lessee's builder was filled before the floor was tiled and then "Mick" applied the Sure Seal coating to the tiles. But the Lessor's Engineer, Mr Mitsopoulos inspected the channel in the floor on 24 October 2011, after Mick had applied Sure Seal to the tile floor (on or before 11 October 2011). Then in further cross examination Mr Chan said that a membrane of epoxy and Bondcrete was installed only in the "wet areas of kitchen" and Bondcrete "is all over the shop and epoxy is only in the kitchen area". Again there was no evidence that Mr Chen applied any Bondcrete at all or witnessed anyone else apply it, or saw afterwards that it had been applied.
Taking into account Mr Chan's personal interest in the issue, namely his reputation and also risks for his licence if it was found by the authorities that he had not properly waterproofed the floor, the Tribunal finds that Dr Hii had greater independence from the issues than Mr Chan. Dr Hii has also a longer and more extensive experience in building work and as a licenced builder. He also has far superior qualifications than Mr Chan in relation technical requirements. In addition, Mr Chan appeared to be unaware that seven years ago AS3740-1994 was superseded by AS3740-2004, which was the year after Mr Chan became a licenced contractor, and his views of what was good practice in relation to the installation of a membrane below the tiles and where it was required (e.g. he did not recognise a need for it in the toilet area) was cause for concern. Also Mr Chan's evidence involved some inconsistencies.
WHAT WERE THE LESSORS' OBLIGATIONS FOR THE FLOOR?
In the absence of Australian Standard 3958.1, the Tribunal has looked at other evidence to shed light on what is a reasonable requirement for the floor below the ceramic tiles.
The Tribunal finds on the evidence that the agreement that the Lessor would provide the floor itself inferred that the floor would meet any legal requirements and would be of a reasonable standard.
Clause 7.1 of the lease requires the lessor to maintain the floor in a "state of good condition". Dr Hii's evidence is that there should have been a waterproof membrane with the screed between the membrane and the ceramic tiles. An inference arises from Mr Chan's evidence of what he did that he too considered there should have been such a membrane.
The tribunal therefore finds that there were inferences arising from the agreement for the Lessor to provide the floor, the lease condition that the floor would be in a "state of good condition", and the provision of the lease that the premises would be used as a restaurant, (which would include areas for a kitchen, toilet, washing up, other food preparation, food storage, and food service and dining).
The inference was that the floor to be constructed would be of good quality for such premises, including as regards water resistance and waterproofing, and both in relation to the floor surface and what was below the surface. There are clear inferences to be drawn from the provisions of the lease requiring the lessor to provide the flooring, that both the floor surface and what supports the surface will comply with any legal standards and will be of good quality for a restaurant.
The tribunal finds that the consequent requirements for the floor were:
The ceramic tiles had to be grouted with epoxy grouting;
The ceramic tiles had to be laid in accordance with AS 3958.1;
Below the surface tiles and the screed supporting the tiles there should have been a waterproof membrane throughout any wet areas including kitchen, food preparation areas, sink or washing up areas and toilet areas;
The membrane should have comprised a coat of epoxy followed by a coat of Bondcrete or like with the process being repeated in that order so that in all there were 6 coats to the membrane; 3 of each of epoxy and Bondcrete;
There had to be coving of floor/wall intersections in the wet areas; and
The membrane had to be flanged into floor wastes.
DID THE LESSORS COMPLY WITH THOSE OBLIGATIONS?
The tribunal accepts the evidence of Dr Hii that there was on his inspection no coving at wall/floor intersections, no flanging of a membrane into the 2 floor wastes and no evidence of a waterproof membrane in the floor. It is also noted that the Lessor has offered no evidence that as regards the floor surface, epoxy grouting was used with the tiling or that the tiles were laid in accordance with the requirements of AS3958.1.
Even if there was a waterproof membrane provided as Mr Chan alleges, at best it comprised only one coat of epoxy possibly followed by one coat of Bondcrete. Dr Hii's opinion is that that process should be carried out three times to provide a reasonable membrane. The Tribunal prefers Dr Hii's opinion as to what should constitute the membrane.
There is no evidence in the Lessor's case that anyone in fact did, after the trench and the floor was filled, apply a layer of epoxy over that. Nor is there any evidence that anyone applied a layer of Bondcrete as Mr Chan says would have been his usual practice. The Tribunal also finds in relation to the requirement for epoxy grouting for the ceramic tiles, that given the proof of non-compliance by the Lessor's builder in relation to other requirements and the failing to offer evidence at all on this requirement or whether it was met, it is more likely than not that that requirement was not complied with.
The Tribunal concludes:
there was no waterproof membrane installed beneath the floor surface;
there was no coving of the floor/wall intersections in the wet areas;
there was no membrane flanged into the 2 floor wastes;
there was no epoxy grouting of the ceramic tiles; and
the evidence does not establish whether or not the ceramic tiles were laid in accordance with AS 3958.1
BREACH OF THE LEASE
Those breaches of the obligations of the Lessor to provide the floor were very serious. The work did not comply with the Building Code of Australia and AS 4674-2004. Consequently a complying development Certificate could not be obtained (clause 136A of the Environmental Planning and Assessment Regulation 2000). The condition of the floor would also not comply with any existing development approval of the premises for use as a restaurant. The use of the premises as a restaurant would be in breach of Food Safety Standard 3.2.3 and section 21 of the Food Act 2003 (NSW).
The breaches would frustrate the lessee's purpose of entering the lease - to use the premises for a restaurant. The lessor has demonstrated no intention whatsoever to recognise, never mind rectify, the deficiencies of the floor.
UNCONSCIONABLE, MISLEADING OR DECEPTIVE CONDUCT
Sections 62B, 62C, 62D and 62E of the Retail Leases Act 1994 provide:
62B Unconscionable conduct in retail shop lease transactions
(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
(2) A lessee must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
(3) 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
(b) whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and
(c) whether the lessee was able to understand any documents relating to the lease, 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
(e) the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and
(f) the extent to which the lessor's conduct towards the lessee was consistent with the lessor's conduct in similar transactions between the lessor and other like lessees, and
(g) the requirements of any applicable industry code, and
(h) the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, 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
(j) the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and
(k) the extent to which the lessor and the lessee acted in good faith.
(4) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessee has contravened subsection (2) in connection with a retail shop lease, the Tribunal may have regard to:
(a) the relative strengths of the bargaining positions of the lessee and the lessor, and
(b) whether, as a result of conduct engaged in by the lessee, the lessor was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessee, and
(c) whether the lessor was able to understand any documents relating to the lease, and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessor or a person acting on behalf of the lessor by the lessee or a person acting on behalf of the lessee in relation to the lease, and
(e) the amount for which, and the circumstances under which, the lessor could have granted an identical or equivalent lease to a person other than the lessee, and
(f) the extent to which the lessee's conduct towards the lessor was consistent with the lessee's conduct in similar transactions between the lessee and other like lessors, and
(g) the requirements of any applicable industry code, and
(h) the requirements of any other industry code, if the lessor acted on the reasonable belief that the lessee would comply with that code, and
(i) the extent to which the lessee unreasonably failed to disclose to the lessor:
(i) any intended conduct of the lessee that might affect the interests of the lessor, and
(ii) any risks to the lessor arising from the lessee's intended conduct (being risks that the lessee should have foreseen would not be apparent to the lessor), and
(j) the extent to which the lessee was willing to negotiate the terms and conditions of any lease with the lessor, and
(k) the extent to which the lessee and the lessor acted in good faith.
(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person institutes legal proceedings in relation to that lease or refers to arbitration a dispute or claim in relation to that lease.
(6) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person fails to renew the lease or issue a new lease.
(7) For the purpose of determining whether a lessor has contravened subsection (1) or whether a lessee has contravened subsection (2):
(a) the Tribunal must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and
(b) the Tribunal may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.
(8) A lessor or lessee, or former lessor or lessee, who suffers loss or damage by reason of unconscionable conduct of another person that is in contravention of this section may recover the amount of the loss or damage by lodging a claim against the other person under section 71A.
(9) If the matter of such loss or damage arises in connection with a matter the subject of proceedings in the Tribunal, the Tribunal may proceed to decide it, and in so doing may award such sum as it thinks fit.
(10) In this section: "lessee" or "former lessee" includes a person who is a guarantor or covenantor under a lease or former lease.
62C Interpretation and application of Division
(1) In this Division: "misleading or deceptive conduct" means conduct to which section 62D applies. "party or former party" to a retail shop lease or former retail shop lease includes a person who is a guarantor or covenantor under a lease or former lease.
(2) Nothing in this Division affects the operation of Division 1.
62D Misleading or deceptive conduct in connection with retail leases
A party to a retail shop lease must not, in connection with the lease, engage in conduct that it is misleading or deceptive to another party to the lease or that it is likely to mislead or deceive another party to the lease.
62E Right to compensation
A party or former party to a retail shop lease who suffers loss or damage by reason of misleading or deceptive conduct of another party may recover the amount of the loss or damage by lodging a claim against the other party under section 71.
Relevant to the issue of unconscionable, misleading or deceptive conduct, the evidence establishes that the Lessors:
(1) Rejected the Lessee's builder's advice that there was no waterproof membrane installed;
(2) Produced to the lessee's director a certificate dated 11 October 2011 by a person "Mick" certifying that a waterproof membrane had been installed, when it had not;
(3) Showed the lessee's director a certificate dated 16 October 2011 by the Lessors' builder, Mr W Chan, falsely certifying that a waterproofing membrane system had been installed in the kitchen's wet area in accordance with "Australian Standard AS3740-1994 (Amended 1995)", when no such membrane system had been installed, the Lessor's builder knew that and the lessor's builder was not licensed to so certify;
(4) Rejected the opinion of a well-qualified and well experienced consultant engineer instructed by the Lessee who inspected the premises in the presence of Mr Gao, one of the lessors, and told him that there was no waterproof membrane installed;
(5) Rejected the written report and opinion of the civil engineer that there was no waterproof membrane installed;
(6) Refused the request of the Lessee's solicitors of 19 October 2011 to "redo the tiling and waterproof it in accordance to Standards" and continued that refusal until the Lessee rescinded the lease on 25 November 2011: and
(7) Failed to have the premises inspected by an independent person qualified to investigate whether their waterproof membrane had been installed;
(8) Persisted in their refusal to admit that the floor did not include a waterproof membrane;
The reliance on the Certificate of 11 October 2011 was misleading. The reliance on the Certificate of Mr Chan of 16 October 2011 was deceptive. Mr Chan knew that a proper waterproofing membrane had not been installed, but certified that one had. He also purported to be licenced to issue the Certificate, when he was not. Mr Gao in cross examination said he didn't obtain an opinion by someone independent and qualified to say whether the floor was properly waterproofed "because I'm satisfied with his work so far". He said he himself purchased the material for waterproofing. There were 5 boxes of it and he paid about $500.00 for it "and gave it to them". He did not identify what the material was and who he gave it to. He said he paid a separate amount of $500.00 for the sealing of the tiles by Mick.
Together, all of the conduct under Items 1 to 8 comprised a pattern of unreasonable and unconscionable behaviour by the Lessors in refusing to entertain the possibility that proper waterproofing had not been provided for the floor. The lessors' position became of rejecting the Lessee's complaints about the floor and failing to obtain an independent and expert opinion became unconscionable once he was told by Dr Hii his opinion that no membrane had been installed.
The Lessors knew that if the floor did not comply with the waterproofing and water resistance requirements, the use of the premises as a restaurant would be put at risk and might be stopped by authorities such as the Sydney City Council. The Lessors also knew that if the Lessee proceeded to complete the fit-out and installation of the equipment that the Lessee had acquired, the Lessee would have expended more than $60,000.00 before trading commenced.
The Lessors were in a stronger bargaining position than the Lessee, as the Lessee was more vulnerable financially. The Lessors did not act in good faith. Their refusal to accept the opinions of Dr Hii and the Lessee's builder, and their failure to engage an independent expert to inspect and advise on whether the floor complied with the requirements for waterproofing and water resistance were unreasonable, and, given the Lessee's vulnerability, unconscionable.
In all the circumstances, the above eight findings establish that the Lessors engaged in conduct that was unconscionable.
DAMAGE SUFFERED BY THE LESSEE
As a result of the Lessors' breach of the lease in failing to provide a floor with good waterproofing in accordance with the legal requirements and implied requirements of the Lease, and the Lessor's refusal to admit that and to rectify the problem, the Lessee was forced to terminate the Lease, as the premises were unsuitable for use as a restaurant.
The Lessee lost the benefit of the following amounts expended in relation to the premises, the equipment he purchased, which has remained in the premises and is apparently used by the present tenant, the rent paid for the first month of rental, the bond money paid, other amounts paid to his builder in relation to work done for the fit-out, legal costs paid to Lessors' solicitors for the Lessors' legal costs for the Lease and money paid to the Lessors for them to obtain a copy of the existing Development Approval for the premises.
These expenses are quantified as follows:
Rent paid $ 6,691.66
Bond paid $13,383.32
Amount paid to Lessors' solicitors for Lessors'
legal costs on Lease $ 1,226.00
Registration fees for Lease $ 99.50
Amount paid to Lessors as "deposit" so that
Lessors would provide the Lessee with a copy
of the Development Approval for the premises
(but which was not supplied) $ 1,540.00
Business insurance for September $ 160.24
Business insurance for October $ 180.23
Amount paid to Advanced Commercial Kitchens Pty
Ltd on 30.9.11 manufacturing stainless steel kitchen
benches and sinks, cool-room and stainless steel bar
top for subject premises $20,000.00
Amount paid to Advanced Commercial Kitchens Pty
Ltd for commencement of works, including plumbing,
electrical, exhaust ventilation, roughings, and
excavation work $15,000.00
Total $58,280.95
Unfortunately, by letter dated 2 December 2011 when the solicitors for the Lessee provided the name of the building firm that did the building work for the Lessee, they described it as "Advance Commercial Kitchens" instead of "Advanced Commercial Kitchens Pty Ltd".
The solicitors for the Lessors then searched against the name "Advance Commercial Kitchens", and that search showed that that registered business name had been cancelled in August 1995. The search also showed a company "Advance Commercial Kitchens Pty Ltd" that had been deregistered in March 1997. However, no search was done against the name "Advanced Commercial Kitchens Pty Ltd". Accordingly, the searches do not relate to that company.
There was an opinion expressed by the Lessors' builder, Mr Chan, that work done by the Lessee's builder was not "in accordance with the acceptable building practices and relevant standards". However, given the history of conflict between Mr Chan and the Lessee's builder, and also Mr Chan's interest in the proceedings, his opinion could not be considered as independent. Also, given the other Findings made regarding Mr Chan's evidence, his evidence about this point is not considered reliable.
Mr Gao told Ms Jundee (after the Lessee's builder had complained that the floor had not been properly waterproofed) that the Lessee's builder was "no good" and she should engage another builder. But Mr Gao had no qualification to give such an opinion of the professional competence of a builder. It appears he relied merely on what Mr Chan told him.
The relevance of this is that there was some suggestion raised by Mr Gao or Mr Chan that the Lessee's builder over-charged the Lessee. However, there was no evidence offered on this point to the Tribunal to establish that the amounts paid by the Lessee to the builder were more than a reasonable price for the work done and materials and equipment provided.
The funds listed above were thrown away because the Lessee was forced to abandon the Lease as a result of the Lessors breaching their obligations under the Lease regarding the waterproofing of the floor.
CONCLUSION
The conclusion is that the Lessors should pay the Lessee an amount of $58,280.95 by way of damages for breach of a fundamental condition of the Lease and for unconscionable, misleading and deceptive conduct.
COSTS
The Lessee seeks an order for costs.
The combined effect of Section 77A of the Retail Leases Act and section 88 of the Administrative Decisions Tribunal Act 1997 is that the Tribunal may make an order that a party pay the costs of another party.
But under section 88 the general rule is that each party pay the party's own costs. An order for costs can only be made where the Tribunal is satisfied it is fair to make it having regard to the factors listed in subsection 88(1A).
The relevant matters under that subsection in this case are:
The findings that the Lessors breached a fundamental requirement in the lease;
The findings that the Lessors engaged in unconscionable, misleading and deceptive conduct;
The persistence of the Lessors in refusing to accept the opinion of the expert or to engage an independent expert;
The fact that the Lessors were aware of the considerable investment the Lessee was making in the premises in the fit-out and the fixtures and equipment;
The fact that the Lessee was financially vulnerable, and its proposed business and considerable funds invested would be at risk if the Lessor did not properly perform its obligations in relation to the floor;
The fact that the Lessors persisted in their assertion that the requirements for water resistance and waterproofing in the floor had been satisfied;
The fact that the Lessors retained in the premises the Lessee's equipment and fixtures; and
The fact that these proceedings were for monetary compensation and to deny the Lessee a costs order would deprive the lessee of a significant part of the compensation to which they have been found entitled.
The proceedings were listed for a 2 day hearing but were completed in one day. The Lessee had costs in connection with its application and its opposition to the application of the applicant Lessors, an affidavit of its expert Dr Hii, 2 affidavits by Ms Jundee, legal representation throughout, including direction hearings and a day and a half of hearing, witnesses expenses for Ms Jundee and Dr Hii, and legal costs for preparation of the written submissions. On a solicitor/client basis the Respondent's costs are probably about $10,000.00.
The Tribunal finds that it is fair for the applicants to be ordered to contribute $8,000.00 towards the Respondent's costs.
Accordingly, the Orders of the Tribunal are:
(1) The Applicant s Jian Gao and Hui Yuan Gao must pay to the Respondent Leo Siam Pty Ltd by way of compensation and damages a sum of $58,280.95.
(2) The Applicants Jian Gao and Hui Yuan Gao must do all acts and execute all documents submitted by the Respondent Leo Siam Pty Ltd to release any bond under the Lease of the ground floor shop at 437-439 Elizabeth Street, Sydney between the Applicants (as Lessors) and the Respondent (as Lessee) and to cause payment of the bond to the Respondent as part payment of the amount in Order (1) above.
(3) The Applicants Jian Gao and Hui Yuan Gao must pay to the Respondent Leo Siam Pty Ltd a sum of $8,000.00 towards the legal costs of Leo Siam Pty Ltd of and incidental to the proceedings.
(4) Otherwise the Application of the Applicants in File 125060 and the Application of the Respondent in File 125106 are dismissed.
Decision last updated: 12 March 2013
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