Khao Thai Pty Ltd v Coles Myer Properties Holdings Limited (No.2)
[2001] NSWADT 186
•11/12/2001
CITATION: Khao Thai Pty Ltd v Coles Myer Properties Holdings Limited (No.2) [2001] NSWADT 186 DIVISION: Retail Leases Division PARTIES: APPLICANT
Khao Thai Pty Ltd
RESPONDENT
Coles Myer Properties Holdings LtdFILE NUMBER: 005024 HEARING DATES: 25/09/2001, 26/09/2001 SUBMISSIONS CLOSED: 09/26/2001 DATE OF DECISION:
11/12/2001BEFORE: Donald B - Judicial Member APPLICATION: Costs - Damages MATTER FOR DECISION: Damages; set off and costs LEGISLATION CITED: Administrative Decisions Tribunal Act 1997 CASES CITED: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705
M. Lambert Pty Ltd v Papagatos Pty Ltd (19990-1991) 5ACSR 468
Re Partnership Pacific Securities Ltd [1994] 1QdR 410
British Anzani (Felixstowe) Ltd v International Management Ltd [1980] 1 QB 137
Alessa Pty Ltd v Total and Universal Pty Ltd [2001] NSWADT 150REPRESENTATION: APPLICANT
C Leggat, barrister
RESPONDENT
J Simpkins SC, barristerORDERS: 1 Respondent to compensate Applicant in the sum of $45,310 for breach of its contractual obligations for the period November 1999 to May 2001 that it will not permit another operator of Thai and Malaysian food in the Sydney Central Plaza Food Court ; 2 Applicant may set off the amount of damages in its favour against its obligation to pay the arrears of Food Court Operating Costs, that being the sum of $47,391; 3 Applicant to pay to Respondent the balance following set off being the sum of $2,047.26 plus interest; 4 Respondent to pay the costs incurred by Applicant in retaining its financial consultant Mr Katehos to provide his report in response to the RGL surveillance and report on behalf of Respondent and to give evidence in relation thereto.
1 These reasons deal with the outstanding issues in this matter following my decision of 21 May 2001 in which I stood the matter over for further evidence and submissions on damages, costs and set off. The issue of damages flows from my determination in Order 1 that Coles Myer Properties Holdings Ltd (“Coles Myer”) had not complied with its obligation to Khao Thai Pty Ltd (“Khao Thai”) not to have more than one operator of Thai and Malaysian food in the Sydney Central Plaza Food Court, (see par 104, Decision). The issue of costs was reserved in par 140, Decision and Khao Thai has maintained its application to set-off the obligation I determined against it to pay Food Court Operating Costs (Order 2) against any damages determination.
2 The parties filed further evidence and submissions and a further hearing was held on 25-26 September 2001.
Tribunal's power to stand over damages
3 At the outset Coles Myer contends that the Tribunal has no power to consider further evidence and submissions on damages because it is functus officio, having delivered its decision.4 Coles Myer contends that the decision of 21 May 2001 was the decision in respect of the claim and that, faced with the only relevant power in s.87 of the ADT Act being limited to correcting decisions for obvious errors, there is no statutory authority for the course I proposed in par 104 of the Decision.
5 When standing over the issue of damages, I had regard to the powers of the Tribunal in s.73 of the ADT Act which confer substantial flexibility upon the Tribunal in the achievement of fairness and natural justice between the parties. I considered that I had not made a decision on the issue of damages but, on the contrary, had expressly adjourned the proceedings for further material to be placed before me in that regard. I also expressly took this course in the hope that this hotly contested matter, having the benefit of my ruling on the substantive contractual issue between the parties, might be able to be concluded by negotiation which I considered to be the far better course. See, in that regard, s.73(5)(f).
6 Having considered the submissions of Coles Myer I continue to be of the view that the course I have taken is authorised by the Act. In that event, Coles Myer then submits as a matter of discretion I should not reconsider the damages issue because the applicant had full opportunity to place evidence during its case, which was done albeit that I found that evidence to be inconclusive. Coles Myer accordingly submits that I have unfairly given Khao Thai a second chance to quantify its damages.
7 In my opinion, given the complexity of the matter and the substantial number of issues between the parties, the fact that I rejected the initial evidence for Khao Thai as providing a sound basis for the assessment of damages should not be determinative against the course I have taken. I am satisfied that given the importance of this case to both parties in the context of a very significant food court operation, it is far preferable to have sought a negotiation in light of my substantive determination and failing that to seek further assistance for the Tribunal in the assessment of damages.
8 A further reason for standing the damages issue over was to provide an opportunity for Coles Myer, if it accepted my decision on the substantive issue, to take steps to remedy the breach of the contractual obligation I had determined. I did so as I considered that would begin to circumscribe the extent of any claim for damages from the breach. In the result, because Coles Myer proposes to appeal my decision on the substantive issue, and the Appeal Panel of the Tribunal in directions has declined to entertain an appeal until the damages issue is also resolved, (a course in terms of practicality and cost saving with which I do not necessarily concur), Coles Myer does not appear to have taken significant steps in that regard.
9 Therefore the issue of damages remains for determination up to 21 May 2001. The hearing in respect of damages proceeded on the basis that I am to assess damages up to 21 May 2001, it being a matter for the parties if the breach continues after that date, including no doubt in light of any determination on appeal.
Assessment of damages
10 At par 100 of the Decision, I stated the view that the best measure of damages for breach of a condition of this nature is the measurable loss of profit based on the reduced revenue likely to flow from the breaches for the period during which they continue. Although the matter proceeded on the basis that such a measure would be the best measure, it is also clear that the Tribunal under the general law is obliged to use its best endeavours on the material available to it to determine first whether damage has occurred as a result of the breach and secondly what is the quantum of that damage. It was even suggested on the basis of the full Federal Court’s observation in Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183, that a tribunal assessing damages is entitled to do so on basis of "a degree of speculation and guesswork". In my view, this Tribunal should take such a course only as a matter of absolute last resort and should rather make an assiduous effort on the basis of all the evidence available to it, to make what it considers to be a fair assessment of the quantum of damages.11 Khao Thai placed before the Tribunal a complex report by its consultant accountant, Mr Katehos, seeking to determine the measurable loss of profit from five different perspectives or "scenarios" for each of which certain assumptions were made. Most significantly, he was asked to assume that any reduction in Khao Thai sales was solely attributable to the breach. (As noted below, this seems an unwarranted assumption because of competing sales as to which on any view of it, Khao Thai could not complain.) He had also made an assumption as to the figures representing the sales of Anytime Yum Cha, in the absence of identified data; by the hearing the correct figures had been identified.
12 In reply Coles Myer provided a report by its consultant forensic accountant, Ms Playne which critically analysed Mr Katehos' report and analysis. Coles Myer also tendered further affidavits of its solicitors recording their observations of defective recording by Khao Thai's staff of sales at the cash register on 6 days in July 2001, this evidence being submitted in addition to the similar evidence previously filed concerning the observation by Ms Playne’s staff in May to July 2000. On the basis of her critique and this evidence, Ms Playne expressed the expert opinion that it would be unsafe for the Tribunal to conclude that any loss had been suffered. She also expressed the opinion that if the Tribunal were to conclude loss had resulted from the breach, then the preferable calculation of loss of profit from November 1999 to May 2001 was of the order of $78,531. However she too made the assumption that all the downturn in Khao Thai sales was as a direct result of the breach.
13 During the hearing Mr Katehos, having now had the benefit of also reviewing Ms Playne’s report and having been questioned by the Tribunal, first accepted that Ms Playne 's gross profit percentage of 23% was to be preferred to the figure he had used in his calculations and also considered his second scenario to be the most supportable. As a result his preferred damages figure for the period in question was very similar to that calculated by Ms Playne.
14 Having carefully considered both experts reports and their evidence, and in view both of the assumptions underlying Mr. Katehos’ report and the critique in Ms Payne's report as well as the comparative data she has used, I am concerned that it is not safe to reach conclusions on the basis of their analysis.
15 Coles Myer fairly criticised Khao Thai for leading no evidence in simple terms of the number of laksa sales before each of the competing operators commenced selling a substantial range of them and the number of laksas sold after. This would have provided very cogent evidence of the direct impact of the offending trade on Khao Thai. Coles Myer contended that in the absence of such evidence, I should infer that there was no relevant impact. However in my view, the failure of Khao Thai in this regard is not fatal to its case when there is other relevant material available. I consider I am entitled, and should, look at the most complete trading figures to hand, in the absence of that specific evidence, as providing a valid basis for revealing whether it is safe for me to infer the impact of one business upon another.
16 It was submitted on behalf of Coles Myer that if the Tribunal does not have such direct evidence then it should (a) inquire what reasonably estimated sales would have been if an inferred trend occurred; (b) determine what the actual sales were and (c) inquire whether on the balance of probabilities any differences are capable of being explained by sales of infringing product. While the examination in which I now engage may not precisely comply with that formula, I consider it achieves a comparable result.
17 Importantly, confidential information was presented to the Tribunal in the form of a virtually complete schedule of Sales of Food Court Tenants right from the opening of the first stage in December 1997 through the opening of the second stage in December 1998, then up to August 2001. This had not been available to Mr Katehos initially in such a complete form but it includes, for example, precise details as to the monthly trading of Anytime Yum Cha as to which Mr Katehos had incorrectly assumed other figures had applied.
18 For some reason this particular schedule does not include the figures for an operator named Tania’s Kitchen which opened at the beginning of stage 2 and appears to have traded through to the present. Accordingly all the comparisons which I make below using this schedule exclude figures for that operator and are to that extent consistent. I do not think my comparisons are open to any charge of invalidity because of that exclusion.
19 The value of this schedule of monthly sales is not only that it is complete (except for Tania’s Kitchen) but it also permits ready comparison of stage 1 trading and stage 2 trading (i.e. from December 1998 when the Food Court was virtually doubled). Further, it clearly demonstrates the impact from the time when Anytime Yum Cha and Quizno’s began in July-August 2000, on both total trading and also on particular operators on a comparative basis.
20 Accordingly in my view, the value of this schedule is that it permits the Tribunal to make comparisons over all relevant periods including extraction of monthly averages in comparable quarters for successive years when the trading in breach of what I have determined to be the contractual obligation began and continued. Regrettably this schedule is entitled to confidentiality because it contains commercial trading information of third parties. However it will be available to any Appeal Panel for scrutiny.
21 Therefore I have carried out an exercise from that schedule of comparing monthly average sales on a quarterly basis for two groupings of traders and also for Khao Thai and Chop Chop. The results are set out in a Schedule to Reasons, the first page of which does not identify the figures of any individual trader and so can be published whereas the second page is to remain confidential except for the conclusion from it I have drawn below. I have also analysed Khao Thai's relative performance for the period from when Anytime Yum Cha commenced trading.
22 In examining the comparative figures for all traders I have excluded the figures of two traders, Crepe Expectations, which had not been a common operator, having figures only for September 1999 to December 2000, and Spuds n Crepes, which started in June 2001. Similarly, I have made allowances for the fact that Quiznos and Anytime Yum Cha did not commence trading until June and August 2000 respectively; I have excluded them from the table of All Common Operators figures. This ensures all base data is comparable.
23 On that basis, a comparison of all common operators demonstrates approximate increases in average monthly sales of 10%, 17%, 9% and 8.5% for successive quarters of 2000 over the comparable quarters of 1999 with falls of 2% and 8% for the first two quarters of 2001 over 2000.
24 From this, and also reviewing the complete figures from 1997-8, I think it is reasonable to infer a sustained growth in trade in the whole Food Court from commencement, flattening to end 2000 but that when Anytime Yum Cha and Quiznos began operating in mid-2000, the level of trade for all other traders generally remained at the same level or declined to a degree with the growth in the market being accounted for by the new operators who also took a quantity of trade away from the existing operators.
25 For the original operators who together with Khao Thai commenced in December 1997 (described by Ms Playne as the Base Operators), they too showed 8%, 13% and 10% increases in average monthly sales for the first three quarters 2000 over the comparable quarter of 1999, with virtually no change for the last quarter of 2000 over the last quarter of 1999 and for the first quarter 2001 over 2000. The second quarter 2001 showed a 10% decrease for them over 2000. Those figures in my view support the inferences I have drawn.
26 Chop Chop shows approximately 12% and 20% increases in the first two quarters of 2000 (in both of which they were an established trader in a range of breach products) over 1999 first two quarters, about 5.5% increase and 7% decrease in the last two quarters 2000 over 1999 (as Anytime Yum Cha came on stream). It showed 2% and 14% decreases for the first two quarters 2001 over 2000. (As Chop Chop only commenced trading in November 1998 a comparison of the last quarter 1999 over the last quarter 1998 is not possible). Again I consider these comparisons support the inferences I have drawn.
27 However contrary to all of these comparable trends, Khao Thai has suffered a decrease in average monthly sales in every quarter from the last quarter 1999 when Chop Chop began selling a substantial range of Malaysian and Thai dishes, right through the second quarter 2001. That rate of decrease significantly worsened when Anytime Yum Cha began trading to a peak of 46% but lessened somewhat in the first two quarters 2001 over 2000.
28 In my opinion all of this analysis justifies an inference that trading by Chop Chop as a Malaysian-Thai operator from about November 1999 was a likely cause of the decrease in Khao Thai's trading as was the commencement of Anytime Yum Cha during the last two quarters of 2000.
29 Against such an inference, Coles Myer points to its unchallenged evidence which questions Khao Thai's record keeping at the cash register. The observations of incorrect operation of the cash registers in May/July 2000 were challenged as unreliable by Khao Thai but the observation evidence for the six days during July 2001 was not contested by Khao Thai. While the unchallenged evidence does not relate to any specific period under assessment, it is rather put on the basis that it justifies inferences as to the likely management of the Khao Thai cash register during the entire period under review. Coles Myer submits that, faced with no cross-examination, the inference ought to be drawn that evidence disproving a pattern of failure to record sales at the cash register was not available.
30 I do note in this regard that Coles Myer has not conducted an audit, under the provisions of the lease, of Khao Thai's records which have since mid 2000 been kept according to the lease.
31 Even conceding in Coles Myer's favour a degree of under-reporting by Khao Thai for the period under assessment, because of the magnitude of the change in Khao Thai's monthly trading as compared with all other relevant changes in trading patterns, I remain satisfied that is reasonable to infer that the downturn in Khao Thai's sales was likely to have been significantly contributed to by the sales of a substantial range of directly competing Malaysian and Thai dishes first by Chop Chop and then later by Anytime Yum Cha, constituting them in my view as operators of those food types.
32 Next Coles Myer submits that the trading figures show Khao Thai’s results had been trending downwards since December 1998 before the infringing sales such that an inference cannot be drawn from November 1999. However that is in my view almost certainly to have been as a result of Chop Chop having come fully on stream in December 1998 selling a directly competing range of Asian food as to which Khao Thai was not entitled to complain.
33 Having satisfied myself that there is a proper basis for inferring the causation of the damage, the next task is to endeavour to assess that damage.
34 The first point to note is that the factors contributing to a downturn in Khao Thai's sales include a number of factors as to which it cannot complain, the breach I have found being limited to permitting other Malaysian/Thai operators. Accordingly the sale by Chop Chop or any other operator of one or two Thai dishes as well as other Asian foods and in particular the sale by Anytime Yum Cha of a very substantial range of Asian food other than Malaysian/Thai food, are all likely to have an impact on Khao Thai's monthly trading. This is why an assumption on which the expert witness calculations were based is not correct.
35 The average downturn in Khao Thai trading for the quarters I have compared is approximately 23% and having regard to the probable contribution to that of permissible competing sales as well as making some allowance for the unchallenged evidence of possible under-reporting by Khao Thai, I consider it is fair to discount to an average 15% per month loss of sales as a result of the breach of Khao Thai's contractual right. I readily acknowledge that the extent to which I have discounted this percentage loss of sales is not based on any precise formula but is rather a matter of judgment having regard to my assessment of all the material before me.
36 This translates into approximately $197,000 reduction in gross sales over the period November 1999 to May 2001.
37 Applying the profit margin of 23% which both experts agree was the correct figure, this produces a measurable loss of profit, in my opinion, of $45,310 for the period.
38 Accordingly I will order that Coles Myer must compensate Khao Thai in that sum for the breach of its contractual obligations during the period.
Set-off
39 Khao Thai applies to the Tribunal to set any order for damages in its favour off against its obligation to pay the arrears of Food Court Operating Costs, that being the sum of $47,391.40 However Coles Myer opposes the set-off, on the basis that equitable set-off only applies where parties have competing claims, whereas in this case I made a final declaration of Khao Thai's obligation to pay the Food Court operating costs while a claim for damages has only now been determined. In Coles Myer’s submission, Khao Thai did not properly investigate or quantify its damages claim and should not be entitled to equitable set off.
41 Khao Thai relies on AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 in which Giles J emphasised that equitable set-off arises where the equity of the case requires that it should be granted which will depend upon "how closely the respective claims are related, particularly as to time and subject-matter.” Khao Thai also cited a number of cases where a claim for rent was successfully set-off against damages due in relation to breaches of the lease (M. Lambert Pty Ltd v Papagatos Pty Ltd (1990-1991) 5ACSR 468 at 470-471; Re Partnership Pacific Securities Ltd [1994] 1QdR 410; British Anzani (Felixstowe) Ltd v International Management Ltd [1980] 1QB 137.
42 In my opinion, despite the decision that there was no arguable basis for Khao Thai to have refused to pay the Food Court Operating Costs, nevertheless they are a payment due under the same lease and during the same period in respect of which Coles Myer has been determined to be liable for damages in breach of its obligations. Accordingly, I consider it is sensible and in accordance with principle to order set off. In the result I will order that Khao Thai pay to Coles Myer the sum of $2,047.26 plus interest.
Costs
43 During the hearing on costs I referred the parties to my recent decision in Alessa Pty Ltd v Total and UniversalPty Ltd [2001] NSWADT 150. I there analysed the authorities and expressed the opinion that the test of whether "special circumstances", as required by s.88 of the ADT Act, exist, depends upon whether the circumstances of the application are seriously beyond the usual or ordinary pursuit of a claim so that it is seriously unfair to a party in proceedings before the Tribunal not to be awarded some or all of its costs where it has been successful.44 Counsel for Coles Myer challenged that as being a formulation not properly based on the authorities governing costs and referred back to formulations in other decisions in terms requiring "circumstances which take the matter out of the ordinary course" or "where the complaint lacked any conceivable merit in fact or law". I prefer my own formulation but believe the decisions I have reached accord with the more general formulations as well.
45 First in relation to my provisional view that Khao Thai is entitled to costs for the proceedings before the Deputy President in relation to surveillance (par 142 of the Decision), I accept the submission of Coles Myer that this was not sought before the Deputy President and that it was a matter properly to be determined by her in the circumstances of that application. Accordingly, I do not make an order for costs in that regard.
46 In relation to my provisional opinion that Khao Thai is entitled to its costs for retaining Mr Katehos as an expert to review the audit and financial report of RGL based on the surveillance, Coles Myer contended that because there was sufficient evidence during the hearing of the failure of Khao Thai to have kept the correct records and of the failure of Khao Thai to have properly rung up its sales as observed by the witnesses for Coles Myer, a full surveillance and major audit at large operation was not so unreasonable that costs should be awarded
47 Coles Myer also took issue with my suggestion that the withdrawal of the client's turnover rent claim was directly relevant to the costs incurred by Khao Thai in answering the surveillance and audit report which were only attributable to that claim. Coles Myer submits that this withdrawal can have nothing to do with the award of costs because regardless of whether turnover rent was claimed, or even an obligation to pay turnover rent was established by the report, the audit was necessitated by the fact that Khao Thai had breached the lease in not keeping proper records.
48 In my view the audit that was carried out was not necessitated by the breach of keeping proper records. The proper remedy for Coles Myer was to have managed its rights under the lease to ensure that such records become available which could then be the subject of a simple audit. I remain of the view that the fact the audit was out of all proportion to the likely amount to be recoverable for the breach alleged, constitutes special circumstances entitling the applicant to some of its costs.
49 Coles Myer also argued that if I were to consider an award of costs in relation to the response to the audit for the reason that the surveillance was out of all proportion, I should similarly entertain an award of costs for those claims by Khao Thai which were effectively without any real foundation and as to which I found them to have been misconceived.
50 In my view the misconceived claims of Khao Thai and the cost of responding to them were of a quite different dimension to the costs of responding to the audit.
51 Further, I think it would quite clearly be seriously unfair and out of the ordinary course, for a party who has been put to significant cost to respond to a forensic accounting report based on surveillance of its business not to be entitled to recover those costs in circumstances where the underlying claim for turnover rent which the surveillance was directed to support was ultimately withdrawn and not proceeded with.
52 I continue to be of the view provisionally reached, that Coles Myer should pay the costs of Khao Thai retaining Mr Katehos to respond to the report of RGL based on the surveillance.
Conclusion
53 For these reasons I will order that :-1. Coles Myer must compensate Khao Thai in sum of $45,310 for the breach of its contractual obligations that it will not permit another operator of Thai and Malaysian food in the Sydney central Plaza Food Court for the period November 1999 to May 2001.
2. Khao Thai may set off the order for damages in its favour against its obligation to pay the arrears of Food Court Operating Costs, that being the sum of $47,391.
3. Therefore Khao Thai must pay to Coles Myer the balance following set-off being the sum of $2,047.26 plus interest .
4. Coles Myer must pay the costs incurred by Khao Thai in retaining its financial consultant Mr Katehos to provide his report in response to the RGL surveillance and report on behalf of Coles Myer and to give evidence in relation thereto.
Khao Thai Pty Ltd -v- Coles Myer Properties Holdings Limited
SCHEDULE TO REASONS - 1January 1999 to June 2001Quarter on Quarter Average Monthly Gross Sales Comparisons
Base Tenants Quarter
$Increase/Decrease Quarter Average Monthly Gross Sales $
Decrease1st Quarter 1999 2000 2001 2nd Quarter 1999 4th Quarter 4th Quarter
0
4
1