Orsay Holdings Pty Ltd v Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust
[2012] QCATA 264
•30 November 2012
| CITATION: | Orsay Holdings Pty Ltd v Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust and Anor [2012] QCATA 264 |
| PARTIES: | Orsay Holdings Pty Ltd t/as Whale Bay Marina (Appellant) |
| v | |
| Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust Nadmec Nominees Pty Ltd as trustee for the N & Z Mecanovic Family Trust t/as The Deck Restaurant (Respondents) |
| APPLICATION NUMBER: | APL187-12 |
| MATTER TYPE: | Appeals |
| HEARING DATE: | 15 November 2012 |
| HEARD AT: | Brisbane |
| DECISION OF: | Mr Charles Brabazon QC, Member Ms Patricia Hanly, Member |
| DELIVERED ON: | 30 November 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Dismiss the appeal. 2. Order that the Appellant pay to the Respondents $101,777.30 within 28 days of the date of this judgment. 3. It is further ordered that the Appellant’s own claim against the guarantors be dismissed. 4. No order as to costs of the appeal. |
| CATCHWORDS: | Landlord – tenant – derogation from grant – disruption Retail Shop Leases Act 1994, ss 42, 43 Aussie Traveller Pty Ltd v Markleo Pty Ltd [1997] QCA 2 |
APPEARANCES and REPRESENTATION:
| APPELLANT: | Ms P J Hay of counsel for the Appellant |
| RESPONDENT: | Mrs N Mecanovic in person for the Respondents |
REASONS FOR DECISION
The Disputes
This is a landlord and tenant dispute. There are four issues – QCAT’s jurisdiction, the amount of unpaid rent, the value of restaurant equipment taken by the landlord, and the tenants’ claim that the landlord’s boat, moored near the restaurant, damaged the restaurant’s earnings.
Mr G C Dorn is a director of Orsay Holdings Pty Ltd. The company operates a marina complex at the Urangan boat harbour, Hervey Bay. The owner of the complex is the State of Queensland. The complex is leased to Orsay, and Orsay then sub-leases various parts of the marina to different lessees. There are several shops and food establishments, and moorings for vessels in the harbour.
The tenants are two companies – Chas Staker Pty Ltd, and Nadmec Nominees Pty Ltd. Both companies are trustees. It will be convenient here to simply assume that Mr and Mrs Mecanovic are the tenants – they have played the major role in these events.
Their sublease of the restaurant was executed on 10 August 2006. The expiry date was 30 June 2009. There was an option to renew for 3 years, to 30 June 2012.
This is an appeal from QCAT’s decision of 29 March 2012. It was given by three members – Mr D Lewis, a lawyer, sitting with Ms S Kairl and Mr D McBryde, who had experience in retail shop business. Their statutory powers depended on ss 42 and 43 of the Retail Shop Leases Act 1994:
42 Compensation provisions implied in particular leases
(1) A retail shop lease is taken to include sections 43, 43A and 44.
(2) However, subsection (1) does not apply to a lease for—
(a) a periodic tenancy; or
(b) a tenancy at will, other than a tenancy at will created by the lessee holding over under the lease or with the lessor’s consent.
43 When compensation is payable by lessor
(1) The lessor is liable to pay to the lessee reasonable compensation for loss or damage suffered by the lessee because the lessor, or a person acting under the lessor’s authority—
(a) substantially restricts the lessee’s access to the leased shop; or
(b) takes action (other than action under a lawful requirement) that substantially restricts, or alters—
(i) access by customers to the leased shop; or
(ii) the flow of potential customers past the shop; or
(c) causes significant disruption to the lessee’s trading in the leased shop or does not take all reasonable steps to prevent or stop significant disruption within the lessor’s control.
The three members heard evidence and submissions over two days, 29-30 March 2012. The parties had no legal representation at the hearing. They gave a written decision of 25 pages on 21 May 2012. They ordered the landlord, Orsay Holdings, to pay $101,777.30, in effect, to Mr and Mrs Mecanovic.
Jurisdiction
At the hearing of this appeal, on 15 November, it was submitted for the first time that QCAT had no jurisdiction to deal with the appeal. It was said that the tenants had a periodic tenancy from 1 July 2009 up to their lock out on 30 May 2011, and that no compensation was payable – see s 42(2), above.
That submission is not accepted. The landlord’s solicitors wrote letters “without prejudice” on 18 June 2009, 25 May 2011, and 26 May 2011 on the basis that the lease was cotinuing. Those letters are now part of the evidence here. No other lease was entered into during that period. They indicate that the tenants had a tenancy at will, created by their holding over with the lessor’s consent. See also clause 16.8 of the lease, “Holding Over”. QCAT has juridiction.
The unpaid rent and catering
It is agreed that the tenants owe $57,073.19 for unpaid rent. It was also agreed that the tenants are owed $1,539.30 for catering supplied to Orsay.
The equipment
After the lockout of May 2011, the landlord took possession of the restaurant’s equipment. It is now common ground that the tenants were the owners of that equipment and entitled to keep it. It is necessary to quantify their loss. The equipment, or its value, has not been returned to them. Here, the Tribunal found that the equipment had been taken unlawfully, and that the landlord should pay damages for its loss to Mr and Mrs Mecanovic.
There was no professional valuation. There were few records. Mrs Mecanovic gave evidence that equipment had been bought for $36,000 and $12,500. In addition a new dishwasher was $5,000. There were also things such as tables and chairs. Mrs Mecanovic said that, overall, the equipment was worth $100,000. She said that, after their lockout, real estate agents for the landlord had asked for $90,000. Section 39(1) of the Act forbids a landlord asking for key money, or an amount for the goodwill of the lessee’s business, so that, sum of $90,000 presumably, was for the equipment.
Before us, counsel for the landlord did not make submissions about the actual value of the equipment, being content with an understandable criticism of the slim facts there were relied on by the members. The landlord did not put a figure on the equipment, but did say that “some of it” was unserviceable, and had to be scrapped. He had listed it with an agent, at the $90,000, however. The Tribunal members mentioned some negotiations involving the landlord, which would have valued the equipment in the $40,000-$60,000 range.
It was on such slim material that the members had to reach a decision. They realized that the equipment was in a functioning restaurant, and might be valued on a “going concern” basis.
They fixed the value at $57,073.19 – the amount of the rent owing. Considering the difficulties facing them, that was a reasonable decision by the members.
The Boat
Mr Dorn’s whale-watching boats Spirit I and Spirit II are at the centre of the largest dispute in this litigation. Issues of law and fact have to be understood, and dealt with.
The restaurant is on the waterfront of the Hervey Bay marina. It is separated from the water by a public walkway. Orsay owns and controls that part of the marina in front of the restaurant. When the Mecanovics started at the restaurant, they and their customers could look out of the glass walls, across the marina, towards the ocean. Small boats were moored at the edge of the walkway. Restaurant patrons looked out over these boats.
Mr Dorn wanted a boat to go whale watching. Spirit I arrived in early 2007 and left in November 2007. To make room for it, several of the finger berths were removed. It was tall enough to block the patrons’ views over the marina, except at low tide.
Mr Dorn then had built a much bigger boat, the “Grant Dorn”, also known as “Spirit”. It was 24 metres long, as was the first boat, but it was some three metres higher. It is at the centre of the most substantial dispute in this case.
Mr Dorn was probably unaware of any legal obstacle to his use of the boat. Orsay was the tenant of the enlarged berth opposite the restaurant. However, there is a substantial body of common law, which controls the extent to which a landlord may carry on an activity which has an impact on a tenant. A lease may contain covenants “for quiet enjoyment”. The general law assumes an implied promise by the landlord not to derogate from a lease to the tenant.
The modern law can be found in “Land Law” by Webb and Stephenson, Lexus Nexus Butterworths, 2009, at paras 17.24-17.29. Authoritative applications of the law are in the decided cases. For example, see Aussie Traveller Pty Ltd v Markleo Pty Ltd [1997] QCA 2, Spathics v Hanave Investments (2002) NSW SCT 304. See also a discussion in the Australian Property Law Journal (2008) 16 APLJ 157. The common law principle is shortly explained in British Leyland Motor Corp v Armstrong Patents Co Ltd, 1986 Appeal cases 577 at 641:
“If the grant or demise be made for a particular purpose, the grantor or lessor comes under an obligation not to use the land retained by him in such a way as to render the land granted or demised unfit, or materially less fit for the purpose for which the grant or demise was made.”
In this case, the members applied that principle – see paras 114-117.
It can be seen that the principle has found its way into the Retail Shop Leases Act 1994 – especially the liability to pay damages for causing significant disruption to the lessee’s trading.
The members observed at para 40 of the judgment:
“The notice of dispute did not specify if the claim was formulated as a breach of contract or a claim for compensation under s43 of the Retail Shop Leases Act and no reference was made to this in the hearing. In the event we do not think that matters to the result and will treat it as a breach of covenant claim.”
The character of the dispute may matter here. QCAT has jurisdiction to deal with a retail shop lease matter.
Between April and November 2007, Spirit I was berthed at the marina. Between December 2007 and May no boat was berthed there. Then, Spirit II was there briefly around May 2008, left to have work done, and returned permanently about mid-July 2008.
When moored in front, the boat was about twice as long as the frontage of the restaurant. It was much higher than Spirit I, so that the only view over the boat was the sky. It carried about 250 passengers. The photos show it in front of the restaurant. The boat would go out during the day and often return about sunset, to be moored for the night.
There was much competing evidence about the impact of the boat on the profitability of the restaurant. The substance of the judgment can be summarised this way:
§The tribunal members inspected the site. They found that the boat in front of the restaurant materially impacted on the diners’ views.
§It would be surprising if blocking the view did not affect trade.
§The boat also blocked the visibility of the restaurant and its signage from the harbour and nearby resort accommodation. Tourists passing on other boats would not see the restaurant.
§The docking and departure of the boat meant noise and disruption.
§Painting of the boat, over a week, produced fumes in the area.
§The boat was washed after use. That was some additional disruption, for the restaurant’s customers.
§Former staff of the restaurant supported the Mecanovics’ claims, that the boat caused a drop in customers, because of the blocked views.
§The boat was painted an unattractive bright yellow.
§The Mecanovics conducted a survey of customers’ reactions to the position of the boat. That was found to be “a significant indication of the views of the applicants’ clientele” – that is they reacted unfavourably.
§Some evidence was of little assistance. The queuing of passengers on the deck was of uncertain impact. There was some glare off the yellow paint – probably a slight annoyance.
§Much evidence was given about external factors affecting trade – visitor numbers, the local economy, whale-watching, the experience of other restaurants, customer numbers, the drop in gross sales of food.
The Tribunal members’ conclusion was this, at para 113:
There is of course no mathematical way we can assess the relative causes of the (applicants’) drop in trade, and we do not have the assistance of any expert evidence. Nonetheless we must make some assessment and after considering all of the limited material before us we find that half of the applicants’ drop in trade should be attributed to the landlord’s conduct with the boat, and half to other factors for which the landlord is not liable.
The members, showing their experience in such matters, then calculated the Mecanovics’ losses. They did so on the assumption that the Mecanovics’ evidence would be accepted, that if there had been no boat there, they would have exercised their option to extend their term to 30 June 2012 – “we find that credible, and therefore will calculate loss to that date.”
Their accounting exercise resulted in a finding that the Mecanovics were entitled to compensation of $100,238.00. Nothing was allowed for lost goodwill.
Submissions for Orsay
Counsel submitted that “In circumstances where the Tribunal concluded other factors were equally affecting the tenant’s trade it was an error of fact to conclude, on the balance of probabilities, that the tenant would have exercised the option to renew the lease in June 2009.”
Mr and Mrs Mecanovic showed considerable tenacity in resisting Orsay’s demands that they leave the restaurant. Ultimately, they were physically locked out.
It is necessary to look at the overall evidence to see if they would probably have been able to stay until June 2012.
There is the possible impact of para 16.8(4) in the lease:
“If not sooner terminated, the monthly tenancy will determine 3 months after the expiration of the terms of the lease unless the consent of Queensland Transport and the Mister for Natural Resources and Mines has been obtained in respect of any continuation thereof.”
It seems that the parties paid no attention to that provision, after it was mentioned in a letter of 5 July 2006 from Mrs Mecanovic’s solicitors. The lease continued at least up to May 2011, without any apparent impact.
In fact, occupation under the lease continued for almost two years, to May 2011. Another year would have brought it to the end of its full term, on 30 June 2012.
The members say, at paras 131, that:
“…the applicants gave evidence that but for the boat they would have exercised their option to extend to 30 June 2012. We find that credible, and therefore will calculate loss to that date.”
In other words, if the Mecanovics had not lost gross profits of $334,129.00 because of the boat, their tenancy would have continued to 30 June 2012. Instead, they suffered a loss of $100,238.00. See calculations at 132-137 of their judgment.
In our opinion, it was a proper aspect of the overall task, of assessing the losses caused by the boat’s presence. The Mecanovics had done all they could in an effort to stay at the restaurant. They had to be locked out. Orsay’s concern was about their failure to pay the rent. If the boat had not been there, their additional income would have overcome that difficulty. It was reasonable for the Tribunal to agree, that they would probably have stayed to June 2012, if there had been no boat to reduce the restauarant’s income.
It was submitted that the tenants did nothing to mitigate their alleged losses, in that they failed to move some fridges, on the right hand wall of the restaurant, as one looks towards the marina.
Those fridges are shown in the photographs. Their removal would only have achieved a slight expansion of the views out of the restaurant, and would not have mitigated the much greater impact of the boat.
Secondly, it is often said that “there is no right to view.” Generally, that is true. But is not true when it is a landlord who derogates from a grant or offends the provisions of the Retail Shop Lease Act 1994, and causes significant disruption to the lessee’s trading.
It is true that the Tribunal members did not have before them all possible financial information. It will be appreciated that the parties were unrepresented, and produced what they had, or thought necessary. It appears that the members thought they had enough information, even though it was incomplete.
In our opinion, the conclusions of the Tribunal members should be upheld. These are the appropriate findings:
1.The applicants are entitled to the sum of $100,238.00 for compensation for the respondent’s breach of s 43 of the Retail Shop Leases Act 1994.
2.That the applicants are entitled to the sum of $57,073.19, being the value their plant and equipment, that sum to be offset against the rent owing by the applicants to the respondent.
3.The applicants are entitled to the agreed sum of $1,539.30 from the respondent for goods supplied.
4.The respondent is entitled to the agreed sum of $57,073.19 from the applicants for arrears of rent and outgoings, such monies to be offset against the monies payable to the applicants under paragraph 2 above.
Orders
Dismiss the appeal.
It is ordered that the appellant pay the respondents the sum of $101,777.30 within 28 days of the date of this order.
It is further ordered that the appellant’s claim against the third parties (the guarantors) be dismissed.
There will be no order as to costs of the appeal.
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