Omoso Holdings Pty Ltd v Capsanis

[2007] NSWADT 124

CITATION:	Omoso Holdings Pty Ltd v Capsanis [2007] NSWADT 124
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Omoso Holdings Pty Ltd RESPONDENT John Peter Capsanis
FILE NUMBER:	065120
HEARING DATES:	2 February 2007
SUBMISSIONS CLOSED:	5 March 2007
DATE OF DECISION:	13 June 2007
BEFORE:	Chesterman M - ADCJ (Deputy President); Fairweather R - (Advisory) Non Judicial Member ; Wilson L - (Advisory) Non Judicial Member
CATCHWORDS:	Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Adam v Newbigging (1888) 13 App Cas 308 Alati v Kruger (1955) 94 CLR 216 Jones v Dunkel (1959) 101 CLR 298 Kadner v Brune Holdings Pty Ltd [1973] 1 NSWLR 498 Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC 1151
REPRESENTATION:	APPLICANT D Bernie, barrister RESPONDENT In person
ORDERS:	1. The Respondent is to pay to the Applicant the sum of $2,580.58.; 2. There will be no order as to costs.

Introduction

1 In this case, the principal questions to be resolved were these: (a) whether a lease arose between the parties in circumstances where either the existence or the continuance of any lease was dependent upon local authority approval of a development application, and such approval was not forthcoming; (b) whether any lease created was governed by the Retail Leases Act 1994 (‘the Act’), so as to confer jurisdiction on the Tribunal to hear disputes arising out of it; (c) whether, and if so when, any lease created was validly rescinded or otherwise terminated by the lessee; and (d) whether, and if so to what extent, there was any waiver by the lessor of rent due under the terms of the alleged lease.

2 The lessee, or intending lessee, was the Applicant, Omoso Holdings Pty Ltd (‘Omoso’). The lessor, or intending lessor, was the Respondent, Mr John Capsanis. The premises involved (‘the Premises’) comprised the ground and first floors of a terrace house situated at 178 Liverpool Street, Darlinghurst.

3 Since the application lodged by Omoso included a claim of unconscionable conduct, the Tribunal is constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

4 The hearing of the evidence took place on 2 February 2007. The arguments based on this evidence were put to the Tribunal subsequently in written submissions.

Outline of the evidence

5 The only witnesses in the case were Mr Tom Pappadimitriou and Mr Capsanis. Mr Pappadimitriou, who is an electrician, was the sole director of Omoso, a holding company. Both of these witnesses were cross-examined.

6 During June 2004, Mr Pappadimitriou, together with his daughter, Ms Vala Pappadimitriou, tried to find premises in which she could carry on a proposed retail business as a beauty therapist under the business name ‘Blush Beauty’. They saw a placard in the shopfront window of City Commercial Property (‘City Commercial’), who were estate agents, advertising the Premises for rent. City Commercial described itself in promotional literature as ‘Sydney’s commercial, retail and development site specialists’.

7 Mr Pappadimitriou alleged in his affidavit that the placard described the Premises as ‘retail premises’. In examination in chief, he said however that the description was ‘commercial premises’. He claimed to have told a representative of City Commercial that he was looking for retail premises and to have received the reply that these were commercial premises. Mr Capsanis testified that he had instructed City Commercial to describe the Premises as a ‘commercial terrace’.

8 At this time Mr Capsanis was a joint owner of the Premises. At some time between June and October 2004, a prior agreement by him to buy out the shares of his co-owners was completed and he became the sole owner.

9 At all relevant times, the Premises were within Zone 2(b) – Residential (medium density) of the South Sydney Local Environment Plan 1998. The principal objectives of this zone included enhancing the amenity of existing medium density residential areas, providing ‘limited opportunities for non-residential development’ and facilitating ‘opportunities for small scale local business activity which is compatible with existing residential areas’. The relevant zoning controls, which were administered by the Council of the City of Sydney (‘the Council’), required development consent for, amongst other uses, ‘local businesses’ and ‘local shops’.

10 Mr Capsanis stated in his affidavit, however, that when he became a co-owner of the Premises, they were ‘occupied as a shop and natural therapies upstairs and downstairs’. For a time, he carried on business as a solicitor on the ground floor while the natural therapy business continued on the first floor. Subsequently, he used the first floor in his practice or leased it on a residential tenancy. At the time when negotiation for the proposed lease took place, this floor was occupied as a residence while the ground floor was occupied for commercial purposes.

11 Mr Capsanis claimed that during these negotiations he conveyed this information to Mr Pappadimitriou, to Ms Vala Pappadimitriou, to Ms Stacey Pappadimitriou (another daughter of Mr Pappadimitriou – hereafter ‘Ms Pappadimitriou’), whom Omoso had engaged as its architect, and to Ms Helene Pappas, whom Omoso had retained as its solicitor. Mr Capsanis said that he made it clear to all these representatives of Omoso that the zoning provision allowed for some commercial use of the Premises if development consent was granted, that there were existing use rights which would provide a basis for a development application and that it was essential that Omoso should obtain development consent for the usage that it envisaged.

12 Mr Capsanis also said in his affidavit that on or about 14 September 2004 he asked Ms Pappas whether Omoso really wanted to go ahead with the lease while it did not have development consent. He said that her reply was to the effect that Mr Pappadimitriou had taken plans prepared by Omoso to the Council and had been told that, with one minor exception, they presented ‘no problem’.

13 According to Mr Pappadimitriou, it was not until 19 October 2004 that he became aware, in circumstances described below, that the Premises were zoned as residential. Until then, he relied on a representation by City Commercial that the Premises were a commercial property and he assumed that they could be leased for commercial and/or retail purposes.

14 Towards the end of June 2004, City Commercial drafted ‘Heads of Agreement’ which were then signed by Mr Pappadimitriou, on behalf of Omoso, as lessee and by Mr Capsanis as lessor. This document provided for a five-year lease of the Premises (with an option to renew for five years) at an annual rental of $33,800 including GST. It identified the ‘usage’ as ‘Beauty Salon/naturopathy centre’. It stipulated that Omoso should pay a deposit equal to one month’s rent on signing the Heads of Agreement (which Omoso duly paid) and should furnish a bank guarantee equivalent to three months’ rent. It provided also that the ‘rent-free period’ should be ‘six months on half rental’. Alongside the heading ‘Rent & Lease Commencement Date’, it stated: ‘The lease is to commence on signing of the lease subject to council approval.’

15 Between early July and 8 October 2004, correspondence passed between Ms Pappas, acting for Omoso, and Mr Capsanis regarding the terms of the proposed lease. In addition, Omoso prepared a development application for submission to the Council. Mr Capsanis’s evidence included an assertion, which Mr Pappadimitriou did not dispute, that City Commercial allowed one or more agents of Omoso (including, it would seem, Ms Pappadimitriou) to have access to the Premises for the purposes of preparing this application.

16 In the course of this correspondence, Ms Pappas, in a letter to Mr Capsanis dated 31 August 2004, stated: ‘As I have previously indicated, our client has signed the lease previously issued subject to the insertion of the agreed amendments to the lease.’ She also asked for a copy of ‘the disclosure statement which should have been signed by our client prior to entering into the lease’.

17 In a further letter dated 14 September 2004, Ms Pappas enclosed both the development application, for signature by Mr Capsanis as owner, and the required bank guarantee. She also raised in the following terms the question of what should occur if development consent was not granted:-

Our client has requested that the lease be conditional upon Council’s consent issuing within 6 – 8 weeks. That is, our client would like to terminate the lease where development consent is not granted by the Council in that time. As we previously have discussed, it is highly likely that Council will approve the application, however, our client would like to safeguard his position by having a clause in the lease which states the lease can be terminated upon 7 days’ notice where Council does not issue the required consent to our client.

18 On 18 September 2004, Mr Capsanis signed the development application and returned it to Ms Pappas.

19 In a letter dated 6 October 2004 to Mr Capsanis, Ms Pappas enclosed what she described as ‘our form of disclosure statement (completed for the most part)’, a ‘blank disclosure statement’ (taking the form of a photocopy of Schedule 2 of the Act) and two draft clauses to be added the proposed lease. She requested that Mr Capsanis should sign and return ‘the disclosure statement’. She stated that her client had agreed to her initialling agreed changes to the lease on his behalf, that she would like to exchange leases on 8 October 2004 and that Omoso would like to take possession on 9 October.

20 In the partly completed lessor’s disclosure statement (which was not signed by either party), the permitted use was stated to be ‘Beauty salon and/or naturopathy centre’. Under the heading ‘Details as to agreements or representations’, the ‘other agreements between the lessor or representations made by the lessor or lessee’ were to the effect that (a) the lessee would provide a bank guarantee equivalent to three months’ rent and (b) that the lessee would pay legal costs and disbursements. In the lessee’s disclosure statement, which replicated the terms of Part 2 of Schedule 2 of the Act, the sections (clauses 5 and 6) where the lessee is invited to set out any lessor’s representations that have been relied upon were left blank.

21 One of the enclosed draft clauses for inclusion in the lease was as follows:-

PART 23 – LEASE CONDITIONAL ON PLANNING CONSENT

23.1 The parties agree that this lease is subject to and conditional upon the lessee obtaining planning approval in accordance with the Development Application lodged with City of Sydney (“planning consent”).

23.2 Where planning consent is not granted, the lessee shall be at liberty to terminate the lease by giving the lessor one (1) months’ notice in writing to this effect.

23.3 During the period from commencement date of this lease to the date of the expiry of the lessee’s notice in accordance with clause 23.2, the lessee shall be obliged to pay the agreed monthly rental.

22 On 8 October 2004, Mr Capsanis attended at Ms Pappas’ office and signed a copy of the lease. It showed a commencement date of 9 October 2004 and identified the permitted use as ‘beauty salon and/or naturopathy centre’. It stipulated that the rent should be $33,800 per annum payable by monthly instalments, with the qualification that the first six months should be ‘at half rent’. It contained in clause 13.2 an acknowledgment by the lessee that ‘no promises representation warranty or undertaking’ had been given ‘by or on behalf of the Lessor in respect of the suitability of the Premises for any business carried on therein…’ It provided in clause 21.8 that the lessee would furnish a bank guarantee equivalent to three months’ rent ‘on execution of this lease’ and it included clause 23 in the form that Ms Pappas had proposed.

23 According to Mr Capsanis, while in Ms Pappas’s office he proposed to her that he should meet Mr Pappadimitriou at the Premises the next morning in order to give him the keys. She confirmed this arrangement by telephone with Mr Pappadimitriou.

24 According to Mr Capsanis, on 9 October 2004 he met Mr Pappadimitriou at the Premises as arranged, and gave him the keys. Mr Pappadimitriou said nothing about returning the keys to him subsequently.

25 Mr Pappadimitriou said in cross-examination that he did receive the keys from Mr Capsanis at the Premises on a date that was ‘possibly’ 9 October 2004. He claimed to have used them to obtain access to the Premises on one or more occasions thereafter, but to have returned them to City Commercial about ten days later. Mr Capsanis said that City Commercial did not mention having received them back from Mr Pappadimitriou and that he did not become aware that they had been returned until February or March 2005.

26 Mr Pappadimitriou testified that at some time after 8 October 2004 he executed a copy of the lease on behalf of Omoso. This executed copy was not, however, sent to Mr Capsanis.

27 Mr Pappadimitriou testified that at the same time he provided the bank guarantee to Ms Pappas in order to show ‘good faith’. This statement was, however, at odds with the indication in Ms Pappas’s letter of 14 September 2004 that the guarantee was annexed to the letter. In cross-examination, Mr Capsanis made the observation that the guarantee was ‘organised independently of me’, in the sense that he did not specifically require it. He assumed that Ms Pappas had ‘set it up’ for him.

28 On 11 October 2004, Omoso lodged the development application with the Council. It described the existing use of the site as ‘ground floor retail, first floor residential’ and the proposed development as follows:-

Change of use to new beauty salon/day spa. No external works. New internal plasterboard partitioning.

29 The application was accompanied by plans, dated 28 September 2004, which showed the use of the two principal rooms on the ground floor as ‘reception/retail’ and ‘treatment room’ and the uses of the three first floor rooms as ‘treatment room’, ‘herbal dispensary/treatment room’ and ‘spa & treatment room’.

30 Mr Pappadimitriou said in cross-examination that the products intended to be sold in the ‘reception/retail room’ were beauty products and the treatment to be provided in each ‘treatment room’ was beauty therapy. He said also that a ‘day spa’ was a high-pressure shower commonly used in a beauty salon.

31 In a letter dated 19 October 2004 to Omoso, the Council referred to the location of the Premises within a residential (medium density) zone, the objectives of which were to maintain the predominant residential nature of the area, with limited opportunity for non-residential uses. The letter stated that since the development application proposed to change the use of the whole building to a non-residential use, this failed to meet the objectives of the residential zone. It then said: ‘I advise you to withdraw the application’.

32 Mr Capsanis testified that shortly afterwards, having been told about this letter, he met Ms Pappadimitriou at the Premises in order to assist her in preparing a response to these objections by the Council. He told her that he had tried unsuccessfully on the telephone to persuade the relevant Council officer to reconsider the Council’s decision. He said that during this meeting she pointed to what he called some ‘celebration rubbish’ (including a champagne bottle) and said that Mr Pappadimitriou and his daughters (including her) had had a ‘celebration’ in the Premises on 9 October 2004 in order to ‘mark the commencement of the lease’. In cross-examination, Mr Pappadimitriou denied having attended any such ‘celebration’, but admitted that such an event could have occurred without him.

33 Annexed to Mr Capsanis’s affidavit was a copy of a letter to the Council that he claimed to have drafted, but not sent. It contained a number of objections, forcefully expressed, to the contents of the Council’s letter of 19 October 2004. In a fax dated 23 October 2004 to Ms Pappas he expressed the opinion that the Council’s letter did not accurately explain the zoning provisions and potentially prejudged the application. He also suggested that Ms Pappadimitriou should seek a one-week extension to the time allowed by the Council for submitting further material in support of the application.

34 This extension was duly sought and obtained. On 15 November 2004, however, Ms Pappadimitriou notified the Council by email that Omoso would not be submitting any further material

35 Mr Capsanis testified also that, in order to assist in persuading the Council to change its mind, (a) he offered to Ms Pappadimitriou to conduct research into the prior uses of the Premises, but that she did not respond to later requests on his part to hold further discussions and (b) he sent a detailed fax to Mr Pappadimitriou suggesting ideas for inclusion in a submission, but received no response. Documents annexed to his affidavit provided support for these assertions.

36 In letters dated 27 October and 8 November 2004 to Mr Capsanis, Ms Pappas referred to a rent-free period under the lease that he had allegedly promised and claimed that such a period should last until the question of development approval had been resolved. She also asserted that he and City Commercial, by incorrectly representing that the zoning for the areas would permit the conduct of a beauty salon/naturopathy business, had induced Omoso to enter into the lease before obtaining development consent.

37 In a further letter dated 16 November 2004, dealing principally with the steps being taken to make a further submission to the Council, Ms Pappas stated: ‘In the meantime, I note you have agreed that my client will not be under any obligation to pay rent until midnight 8 December 2004.’ In cross-examination, Mr Capsanis conceded that he might have agreed to waive rent until that date.

38 Early in December 2004, City Commercial returned to Omoso the deposit of one month’s rent that Omoso had paid after signing the Heads of Agreement in June 2004.

39 On 21 January 2005, the Council published a Notice of Determination refusing consent to the development application. The reasons given were (1) that the proposed commercial use, by reason of its type and scale, failed to comply with the objectives of the zoning controls for residential zone 2(b); (2) that this use would detract from the amenity enjoyed by nearby residents, contrary to these aims and objectives; and (3) that the proposal was not considered to be in the public interest.

40 In a letter dated 7 February 2005 to Mr Capsanis, Ms Pappas referred to a fax received from him on 25 January 2005 (a copy of which was not tendered), then went on to say that due to the Council’s refusal of development consent, Omoso considered that the lease could not proceed. She claimed that Omoso had never taken possession of the Premises and had indeed returned the keys following receipt of the Council’s letter of 19 October 2004. She asserted that both Mr Capsanis and City Commercial had wrongly advised Omoso that the planning controls for the Premises permitted commercial use and that on the ground of this misrepresentation regarding the zoning Omoso now rescinded the lease ab initio. She argued that clause 23 of the lease was inapplicable because Omoso had never taken possession of the Premises. She referred also to statements on the telephone by Mr Capsanis to the effect that he would not demand rent while Omoso could not carry on business in the Premises and that he considered himself at liberty to re-advertise the Premises for lease. She added that Omoso was happy for him to do this and that it had not received any tax invoices for rent from him. Finally, she asked him to confirm that the lease had been rescinded ab initio and that he would return Omoso’ bank guarantee forthwith.

41 In a further letter to Mr Capsanis dated 4 March 2005, Ms Pappas noted that he had not replied to her earlier letter and that in a recent telephone conversation he had alleged that Omoso had caused some damage to a door frame and skirting board in the Premises. She claimed that there was no damage to any skirting board and that a small section of the door frame had fallen off because it was in a decaying state. She reiterated Omoso’s request for a return of its bank guarantee.

42 On or about 17 May 2005, Mr Pappadimitriou received from Mr Capsanis an undated tax invoice for a total sum of $7,017.85. This comprised (a) $6,267.85, representing half the annual rent of $33,800 for the period of 135 days between 9 October 2004 and 21 February 2005, and (b) $750 for legal costs.

43 In response to questions as to why no rent was demanded until this date, more than six months after the lease was claimed to have commenced, Mr Capsanis gave as his reasons (a) his attempts to assist Omoso to obtain development consent; (b) ‘procrastination’; and (c) the probability that he was ‘too busy’.

44 On 23 May 2005, Mr Capsanis drew down Omoso’s bank guarantee for its full amount of $7,075.58.

45 In a letter dated 27 May 2005 to Mr Capsanis, Omoso returned the tax invoice and requested the return of its bank guarantee on the ground that Mr Capsanis had made a pre-lease misrepresentation relating to the zoning, which fell within s. 10 of the Act.

Assessment of the evidence

46 In the Tribunal’s opinion, both Mr Pappadimitriou and Mr Capsanis appeared to be truthful witnesses. But there were a couple of matters – notably, the date on which keys to the Premises were handed over – on which Mr Pappadimitriou’s testimony was distinctly tentative. The affidavits of both witnesses omitted some significant events, in relation to which the annexed correspondence provided the only evidence.

47 In addition, the evidence for Omoso was deficient in one significant respect. This was that two persons who played significant roles on its behalf in the lease negotiations and in preparing and submitting the development application were not called as witnesses. They were Ms Pappas, its solicitor, and Ms Pappadimitriou, its architect. When questioned on this matter, Mr Pappadimitriou did not indicate that there was any obstacle to their appearing.

48 The Tribunal notes also that with two exceptions the copies of letters written by Ms Pappas to Mr Capsanis between July and 8 October 2004 were admitted into evidence as annexures to Mr Capsanis’s affidavit. They did not form part of the evidence tendered by Omoso.

The competing arguments advanced by the parties

49 As finally formulated, the claim put forward by Omoso was that Mr Capsanis should pay (a) the amount of $7,075.58 by way of restitution or refund of the amount drawn on the bank guarantee and (b) Omoso’s costs of the proceedings, comprising $2,200 for counsel’s fees and $1,980 for the fees of a tenancy advocate. In its final written submission, Omoso abandoned a claim that it had previously made for damages for misrepresentation.

50 The four grounds on which Omoso claimed repayment of the amount drawn down on the guarantee were as follows: (1) that no binding lease had been entered into; (2) that if contrary to this assertion an agreement for lease had been concluded, it had validly rescinded this lease ab initio and was therefore entitled to be restored to the position in which it had been before the agreement; (3) that Mr Capsanis could not rely on the terms of the alleged lease to draw down on the guarantee because it had been, to quote his own words in cross-examination, ‘organised independently’ of the lease; and (4) that it was ‘unconscionable’ for Mr Capsanis to have drawn down on the guarantee when he had no contractual or other right to do so.

51 As a fall-back position, Omoso argued that since Mr Capsanis, in the course of his dealings with Ms Pappas, had waived liability for rent until 8 December 2004 and in his invoice of May 2005 had limited his claim for rent to a period ending on 22 February 2005, the maximum sum that he was entitled to draw down from the guarantee would be approximately $3,520, representing 2.5 months at the monthly half-rent of $1,408.33.

52 Mr Capsanis sought to rebut all of these grounds, maintaining that the notice of termination of the lease by Omoso on 7 February 2005 had been in accordance with clause 23.2 of the lease and that under clause 23.3 he was entitled to claim payment of rent for a further period of one month.

53 Mr Capsanis also raised two preliminary arguments, putting in issue the Tribunal’s jurisdiction in the case and Omoso’s standing to bring proceedings relating to the lease. It is convenient to deal first with these two arguments.

The issue of jurisdiction

54 Mr Capsanis submitted that the Tribunal lacked jurisdiction to grant the relief claimed by Omoso because the lease concluded between the parties was not a ‘retail shop lease’ as defined in s. 3 of the Act. The relevant parts of this section are as follows:-

retail shop means premises that:

(a) are used wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1 (whether or not in a retail shopping centre), or…

retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:…

55 Mr Capsanis pointed out that the permitted or proposed uses shown in the Heads of Agreement, the lease and the development application were, respectively, ‘beauty salon/naturopathy centre’, ‘beauty salon and/or naturopathy centre’ and ‘beauty salon/day spa’. The plans accompanying the application showed rooms described as follows: ‘reception/retail’, and ‘treatment room’ (two rooms), ‘herbal dispensary/treatment room’ and ‘spa & treatment room’. While the use of premises for a beauty salon fell within the list of types of businesses in Schedule 1 of the Act (this list actually includes ‘beauticians’, beauty shops’ and ‘beauty therapists’), neither a naturopathy business nor a day spa falls within Schedule 1. It followed, Mr Capsanis argued, that Omoso had failed to establish that the use proposed for the Premises under the lease was ‘wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1’.

56 In the Tribunal’s opinion, however, the evidence given by Mr Pappadimitriou regarding the intended use of the five rooms in the Premises as shown on the plans submitted to the Council is sufficient to rebut this argument. As outlined above at [30], this evidence showed that only one of these rooms – i.e. the ‘herbal dispensary/treatment room’ – would not be devoted wholly to one or more of the relevant categories within Schedule 1. It was not contradicted.

57 Taking account of the authorities governing the interpretation of the relevant provisions of s. 3 (see in particular Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC 1151), the Tribunal is satisfied that the use proposed for the Premises under the lease was ‘predominantly for the carrying on of one or more of the businesses specified in Schedule 1’. It accordingly rejects this objection to jurisdiction by Mr Capsanis.

The standing of Omoso to bring these proceedings

58 Mr Capsanis submitted that Omoso lacked standing to bring these proceedings because (a) Mr Pappadimitriou, its sole director, was an electrician, (b) Omoso itself was only a holding company and (c) the retail businesses envisaged for the Premises were of a wholly different nature (beauty therapy and/or naturopathy) and were to be carried on by a different person (Mr Pappadimitriou’s daughter Vala) under a separate business name (Blush Beauty).

59 The Tribunal rejects this submission. As the lessee under the lease which Mr Capsanis himself claims to have come into existence on 8 October 2004, Omoso had the right to occupy the Premises for the purpose of carrying on one or more businesses within the permitted range in accordance with whatever further arrangements it chose to establish. If the arrangements that ultimately came into being were in conflict with some express or implied term of the lease, that might have entitled Mr Capsanis, as lessor, to pursue appropriate remedies. But that is an entirely different matter from saying that Omoso could not exercise the rights, or pursue the remedies, to which it became entitled as lessee once an agreement for lease was concluded.

The question whether a lease came into being

60 In arguing that in fact no binding lease was concluded, Omoso relied on five matters. First, Mr Capsanis never received an executed copy of the lease document from Omoso, and indeed seemed to make no effort to obtain one. Secondly, both the deposit and the bank guarantee (which Mr Capsanis himself described as ‘organised independently’ from the lease) were provided before the date (8 October 2004) on which the lease was alleged to have been created, and therefore could not be regarded as ‘referable to a binding lease’. Thirdly, when Mr Pappadimitriou received the keys from Mr Capsanis on 9 October 2004, it was only in order that he could have access in order to obtain information in support of the development application. This explained why Mr Pappadimitriou returned the keys to City Commercial a mere ten days later. Fourthly, Mr Capsanis had kept a set of keys, which he used in order to enter the Premises in February or March 2005. Fifthly, Mr Capsanis did not make any demand for rent until May 2005, and the reasons that he gave for this delay of more than six months were unconvincing.

61 In the Tribunal’s opinion, however, the following elements in the evidence provide an ample foundation for the conclusion that a binding lease came into being. First, a formal lease document was prepared before 8 October 2004 incorporating amendments proposed by Ms Pappas on Omoso’s behalf. Secondly, she was authorised by Omoso to approve the final form of the lease at a meeting to settle the transaction on that day. Thirdly, at this meeting, Mr Capsanis signed a copy of the lease, and subsequently Mr Pappadimitriou executed a copy on behalf of Omoso. Fourthly, Mr Capsanis handed keys to the Premises to Mr Pappadimitriou on the following day, and although Mr Pappadimitriou asserted that this was solely to allow him access for the purposes of the development application, his evidence regarding the keys was tentative and unconvincing. Fifthly, Mr Capsanis’s evidence that Ms Pappadimitriou spoke of a ‘celebration’ having taken place in the Premises could not be contradicted by Omoso because Ms Pappas was not called as a witness. (This evidence is, however, of limited weight because it was hearsay only.) Sixthly, since both the incomplete lessor’s disclosure statement, which was prepared by Ms Pappas, and the lease itself provided for the lessee to furnish a bank guarantee in the terms in which a guarantee was actually given, it cannot be argued convincingly that this guarantee was in some sense ‘independent’ of the lease.

62 The Tribunal therefore rejects Omoso’s argument that no binding lease was created. An agreement for lease, at least, came into being on 8 October 2004, at the meeting between Mr Capsanis and Ms Pappas. A lease clearly came into on or soon after 9 October (the day on which Mr Omoso gave the keys to Mr Pappadimitriou). This follows from s. 8(1) of the Act, which states that ‘a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease…’.

The implications of City Commercial’s description of the Premises as ‘commercial’

63 In support of its claim to an entitlement to rescind, Omoso maintained that the placard displayed by City Commercial, acting as an agent of Mr Capsanis, contained a misrepresentation to the effect that the Premises were retail premises, that the status of the Premises in this regard was important to Omoso in its decision whether to lease the Premises, that it relied on this representation in all its dealings with respect to the Premises and that it did not become aware of the incorrectness of this representation until the Council’s letter dated ‘19 December 2003’. (The submission here appeared to be referring actually to the Council’s letter to Omoso dated 19 October 2004.)

64 In consequence of these matters, Omoso argued, its purported rescission of the lease ab initio in Ms Pappas’s letter dated 7 February 2005 should be held valid and effective, with the consequence that Mr Capsanis should be ordered under s. 72(1)(a) of the Act to restore Omoso to the position that it occupied before entering into the lease. Specifically, this would involve full reimbursement of the sum drawn down under the bank guarantee.

65 Omoso relied on three cases as authority for the proposition that its purported rescission ab initio should be confirmed by the Tribunal as valid even though the misrepresentation was not fraudulent, but was merely negligent or innocent, and was made by Mr Capsanis’s agent, not by him personally. These cases were Adam v Newbigging (1888) 13 App Cas 308, Alati v Kruger (1955) 94 CLR 216 and Kadner v Brune Holdings Pty Ltd [1973] 1 NSWLR 498.

66 As an additional ground, Omoso submitted that since there was no contractual or other basis on which Mr Capsanis could claim entitlement to the money drawn down on the guarantee, his retaining of this money was unconscionable. As formulated in the submissions filed after the hearing, this argument did not refer expressly to the Act’s provisions regarding unconscionable conduct (the provisions dealing specifically with unconscionable conduct by a lessor are s. 62B(1) and (3)). But reference was made to these provisions in a submission filed before the hearing.

67 In the Tribunal’s opinion, the evidence does not support Omoso’s claim that City Commercial advertised the Premises as ‘retail premises’. In cross-examination, Mr Pappadimitriou accepted that the phrase used in the placard, and by an employee of City Commercial replying to a question by him, was ‘commercial premises’. Mr Capsanis said that he had instructed City Commercial to describe the Premises as a ‘commercial terrace’. Despite a submission by Omoso to the contrary, the fact that City Commercial described itself in promotional literature as ‘Sydney’s commercial, retail and development site specialists’ has no direct bearing upon the way in which it characterised the Premises in advertising for a tenant.

68 Nevertheless, a description of the Premises as ‘commercial premises’ or as a ‘commercial terrace’ was, in the Tribunal’s judgment, a material misrepresentation, in the light of their zoning as within ‘Zone 2(b) - Residential (medium density)’. As indicated above at [9], the objectives of this zone included the provision of only ‘limited opportunities’ for non-residential development and any small scale business activity for which development consent might be granted had to be ‘compatible with existing residential areas’.

69 The Tribunal accordingly accepts Omoso’s submission that this misrepresentation by City Commercial, in its capacity as agent for Mr Capsanis, was of a material nature and was treated as important by Mr Pappadimitriou in deciding to seek a lease of the Premises for the purposes of its proposed business.

70 In order, however, to establish an entitlement to rescind the lease, Omoso must show that it relied on this misrepresentation at the time when it reached its decision to enter into a binding lease. The Tribunal has found that a binding lease was created on 8 or 9 October 2004. It follows that Omoso’s reliance on City Commercial’s description of the Premises must be shown to have subsisted through the three-month period of negotiations until shortly before these dates in early October.

71 After careful consideration, the Tribunal has concluded that Omoso has failed to establish on the balance of probabilities that it still relied on City Commercial’s misrepresentation at this late stage of the negotiations. It bases this conclusion on a number of matters suggesting that either or both of Ms Pappas (Omoso’s solicitor) and Ms Pappadimitriou (its architect) came to realise that the planning controls to which the Premises were subject did not in fact provide free rein for commercial uses.

72 These matters are as follows: (a) Mr Capsanis testified that he advised both these representatives of Omoso that the applicable zoning provision allowed for some commercial use of the Premises if development consent was granted and that there were existing use rights which would provide a basis for a development application; (b) the development application prepared for Omoso, which Ms Pappas sent to Mr Capsanis for signature on 14 September 2004, expressly stated that the first floor of the Premises was currently used for residential purposes; (c) on the same day, Ms Pappas sent to Mr Capsanis a draft clause for the lease which expressly provided for the possibility that the Council might not grant development consent; (d) also on the same day, Ms Pappas sent a disclosure statement in which appropriate references were made to the bank guarantee and the payment of legal costs, but the space in which any lessor’s representations on which the lessee relied were to be entered was left blank; and (e) it seems unlikely that neither Ms Pappas nor Ms Pappadimitriou, having regard to their professional roles in the matter, would have made no inquiry at all as to the zoning controls applying to the Premises.

73 If Ms Pappas and Ms Pappadimitriou had given evidence, they might well have rebutted the inference that the Tribunal is inclined to draw from these matters. But neither of them did so. It was not suggested that they were unable to provide a statement or (if required) attend the hearing. Having regard to the well-known rule in Jones v Dunkel (1959) 101 CLR 298, the Tribunal is entitled to infer, and does infer, that their evidence would not have assisted Omoso.

74 For these reasons, the Tribunal concludes that, although a material misrepresentation was made to Omoso on Mr Capsanis’s behalf, Omoso was not entitled to rescind the lease ab initio, as it purported to do in Ms Pappas’s letter of 7 February 2005.

75 This conclusion by the Tribunal obviates the need to consider a further reason why Omoso’s claim to be entitled to rescind the lease ab initio might not be supportable. This is that clause 13.2 of the lease contained an acknowledgment by the lessee that ‘no promises representation warranty or undertaking’ had been given ‘by or on behalf of the Lessor in respect of the suitability of the Premises for any business carried on therein…’ Neither party dealt in submissions with the question whether this clause would in fact have precluded Omoso – as appears to have been its intention – from claiming entitlement to rescind by virtue of the representation made by City Commercial that the Premises were ‘commercial premises’. In these circumstances, the Tribunal prefers not to rule on this question.

The period for which rent was chargeable

76 As indicated above at [51], Omoso pointed out in its submissions that in the course of his dealings with Ms Pappas Mr Capsanis had waived liability for rent until midnight on 8 December 2004. Furthermore, in his tax invoice of May 2005 he had limited his claim for rent to a period ending on 22 February 2005. It followed, Omoso submitted, that if its principal arguments were rejected, the maximum sum that Mr Capsanis would entitled to draw down from the guarantee would be approximately $3,520, representing 2.5 months at the monthly half-rent of $1,408.33.

77 In response, Mr Capsanis submitted that there was no demonstrated consideration in return for any waiver of rent that he gave in corresponding with Ms Pappas and that any such waiver was accordingly unenforceable. He submitted also that since there was no provision in the lease that entitlement to rent should be conditional on a prior demand, the terms of the tax invoice did not preclude him from subsequently requiring payment of rent under clause 23.3 of the lease for a period of one month following a notice of termination given by Omoso pursuant to clause 23.2.

78 The Tribunal accepts the second, but not the first, of these arguments put by Mr Capsanis. In the light of the evidence noted above at [37], it finds that Mr Capsanis did indeed agree to waive liability for rent until 8 December 2004. It considers that Omoso was entitled to rely, and did rely, on this assurance in determining its course of action during the period following receipt of the Council’s letter of 19 October 2004 foreshadowing rejection of the development application. But for this assurance, it might have sought to terminate the lease earlier. It follows that Mr Capsanis should not be permitted to withdraw this assurance. On the other hand, the fact that in his tax invoice he demanded rent limited to the period ending 22 February 2005 does not prevent him relying on the terms of the lease (notably clause 23.3) to claim entitlement to rent for one month following Omoso’s termination of the lease on 7 February 2005.

79 The upshot is that Omoso’s liability for rent related to the period between 9 December 2004 and 7 March 2005. Since rent was payable on a monthly basis, it is appropriate to treat this as three months’ worth of rent. It was not disputed that during this period, only half the annual rent stipulated in the lease ($33,800) was payable.

80 The amount that Mr Capsanis was entitled to draw down from the bank guarantee on account of rent was accordingly $4,225. This represents $2,850.58 less than the amount that he actually did draw down.

The Tribunal’s conclusions

81 Although in his tax invoice Mr Capsanis also claimed entitlement to $750 on account of legal costs associated with the lease, he did not press this claim before the Tribunal. It will therefore be left of account.

82 For the foregoing reasons, Omoso’s claim for a refund of the amount of $7,075.58 drawn down on its bank guarantee succeeds in part. It is entitled to a refund of $2,580.58.

83 Both of the two grounds in Omoso’s application for costs were predicated upon it being held by the Tribunal that Mr Capsanis had no contractual or other right to draw down upon the bank guarantee. The Tribunal has however held otherwise. Moreover it is open to question whether, even if Omoso had succeeded wholly in its claim, its arguments on costs would have been sufficient to persuade the Tribunal that there were ‘special circumstances warranting an award of costs’ (see s. 77A of the Act and s. 88 of the Administrative Decisions Tribunal Act 1997). The Tribunal accordingly rejects both grounds.

84 Although in the manner just outlined Omoso raised the issue of costs, Mr Capsanis made no application for costs in the event of his being wholly or partly successful.

85 For the foregoing reasons, and because the amount at stake in this case was small (so small, indeed, that it is particularly regrettable that the parties did not manage to settle their dispute), the Tribunal makes no order as to costs.