Parallel Lines International Pty Limited v Video-Drama Pty Limited
[2007] NSWADT 84
•12 April 2007
CITATION: Parallel Lines International Pty Limited v Video-Drama Pty Limited [2007] NSWADT 84 DIVISION: Retail Leases Division PARTIES: APPLICANT/CROSS RESPONDENT
Parallel Lines International Pty Limited
RESPONDENT/CROSS APPLICANT
Video-Drama Pty LimitedFILE NUMBER: 035138; 045009 HEARING DATES: 20-21 March 2006, 11-12 October 2006 SUBMISSIONS CLOSED: 8 March 2007
DATE OF DECISION:
12 April 2007BEFORE: Chesterman M - ADCJ (Deputy President); Fagg N - (Advisory) Non Judicial Member ; Griffiths G - (Advisory) Non Judicial Member CATCHWORDS: Claim for payment of money - Damages - Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Leases Act 1994 CASES CITED: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
GPT Management Ltd & Anor v Spa Heaven Pty Ltd & Ors [2005] NSWSC 1043
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council & Ors [2006] NSWCA 291
Shevill v Builders Licensing Board (1982) 149 CLR 620
Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333REPRESENTATION: APPLICANT/CROSS RESPONDENT
RESPONDENT/CROSS APPLICANT
A Vatner, agent (20 and 21 March, 11 and 12 October 2006)N Obrart, barrister (written submissions)
G Sirtes, barristerORDERS: 1. The Applicant/Cross Respondent (‘the Applicant’) is entitled to damages, to be assessed, from the Respondent/Cross Applicant (‘the Respondent’), representing (a) the value of its goods seized by the Respondent on 5 October 2002 and (b) the amount of the security deposit paid by it pursuant to the former lease between the parties; 2. The Respondent is entitled to damages from the Applicant representing the rent due and unpaid under the lease as at 5 October 2002; 3. Within 28 days of the date of these reasons, the Applicant is to file and serve any further evidence and submissions relating to the identity and value of its goods seized by the Respondent on 5 October 2002; 4. Within a further 28 days, the Respondent is to serve any evidence and submissions in reply on this matter; 5. On being given reasonable notice, the Respondent is to permit agents of the Applicant to inspect at a reasonable time any goods of the Applicant held at premises owned or controlled by the Respondent or by any director of the Respondent; 6. The matter is set down for further directions at 9.30 a.m. on Wednesday 6 June 2007.
REASONS FOR DECISION
Introduction
1 In this case, the lessor of retail shop premises locked the lessee out of the premises on the ground of non-payment of rent and took possession of items of stock and other goods of the lessee that were held on the premises. The principal issues in dispute were whether the failure of the lessee to meet its rent obligations was sufficient under the terms of the lease to entitle the lessor to conduct the lockout and whether the lessee should receive damages for the loss of future profits of its business and/or for the value of the goods taken from the premises.
2 Both parties lodged applications in the Tribunal. The lessee claimed damages on the grounds of breach of the terms of the lease, conversion of its goods and unconscionable conduct as defined in s. 62B of the Retail Leases Act 1994 (‘the RL Act’). In a cross application, the lessor claimed damages for breach of the covenant to pay rent and as reimbursement for expenses incurred in terminating the lease and reletting the premises.
3 Since the lessee’s application 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 Regrettably, the resolution of these proceedings has been delayed by a number of factors. These include the absence from Australia of the director of the lessee company for significant periods and the postponement of the hearing due to the illness of a Panel member. After the hearing concluded, it was necessary to leave a significant period of time for the filing of written submissions by both parties.
Chronological outline of evidence relating to liability
5 The lessee in the case was the Applicant/Cross Respondent, Parallel Lines International Pty Ltd (‘Parallel Lines’). Its sole director was Mr Geoffrey Hill. Mr Hill is a citizen of the United Kingdom. On 4 June 1999, he was granted a business visa for Australia, subject to certain conditions. This visa ceased on 28 March 2004.
6 In or about March 2000, Mr Hill came to Sydney from England in order to assist a friend, Mr Zachary St James, in the operation of a retail clothing shop called Union Clothing in leased premises at 94A Oxford Street, Paddington. During the second half of 2001, Mr Hill purchased this business from Mr St James for a total sum of $30,000. In November 2001, when the lease for these premises was shortly to expire, Mr Hill decided to look for new and larger premises.
7 In December 2001, Union Clothing opened a second shop at 34/277 Crown Street, Surry Hills (‘the Premises’). The owner of the Premises, which are held on strata title, was the Hayson Group of Companies Pty Ltd (‘Haysons’). While a lease was being negotiated, Union Clothing paid weekly rent of $1,184.68 in advance, with the payments being made each Monday.
8 On or about 31 December 2001, Mr Hill purchased a registered company, which on 10 January 2002 changed its name to Parallel Lines International Pty Limited.
9 During May 2002, Haysons and Parallel Lines executed a lease of the Premises (‘the Lease’). It was for a term of three years from 30 March 2002, with an option to renew for a further three years. It was governed by the RL Act. The permitted use stipulated was ‘fashion and accessories’. The rent was expressed to be $56,000.00 per annum exclusive of GST, payable in advance by monthly instalments of $4,666.66. Parallel Lines was not required to contribute to outgoings or to provide a guarantee, but it paid $9,450.95 as security deposit.
10 According to Mr Hill’s testimony, Parallel Lines executed the Lease in the form proposed by Haysons, in return for oral undertakings by Haysons that it would waive all outstanding rent then due and rent would be payable weekly.
11 Near the end of Video-Drama’s presentation of its evidence, Mr Sirtes, its counsel, tendered copies of two typed memoranda, addressed to ‘Anthea’ at a company called ‘Sweet Art’ and purporting to have been written by ‘Geoff’. The earlier of them, dated 17 June 2002, was headed ‘Union’ and displayed the address of Union Clothing’s shop in Paddington (i.e., 94A Oxford Street). It had no signature. The later, dated 12 August 2002, was headed ‘Union Menswear’. In addition to the typed name ‘Geoff’ at the bottom, it was signed ‘Geoff’. Mr Sirtes advised the Tribunal that these documents formed part of the business records of ‘Union Menswear’.
12 Mr Sirtes invited the Tribunal to infer that ‘Geoff’, the writer of these two memoranda, was Mr Hill and that ‘Anthea’ or ‘Sweet Art’ was Union Clothing’s landlord at 94A Oxford Street, Paddington. Mr Vatner, who appeared as agent for Parallel Lines in these proceedings, neither admitted nor disputed these propositions. In written submissions prepared for Parallel Lines after the hearing by Ms Obrart of counsel, neither memorandum was mentioned.
13 Over objections by Mr Vatner, the Tribunal admitted these documents into evidence. In so ruling, the Tribunal took account of the fact that though Mr Vatner said that he had not perused them, copies of them had previously been sent to him by those representing Video-Drama. It also indicated that it was prepared to receive further testimony from Mr Hill regarding their authenticity and their contents. Mr Hill, who was present at the hearing, indicated through Mr Vatner that he did not wish to return to the witness box.
14 In the earlier of these memoranda, dated 17 June 2002, the writer stated that ‘unfortunately’ he was going to have to give notice, since ‘business is the worst it has been since we opened’ and there was ‘barely enough coming in to pay wages’. The memorandum continued in similar vein, including a statement that the writer was ‘completely stressed out by owing money constantly and having to avoid calls’.
15 The contents of the later memorandum are outlined below.
16 On Thursday 4 July 2002, Haysons sold the premises to the Respondent/Cross Applicant, Video-Drama Pty Ltd (‘Video-Drama’). Its principal director, Mr Leigh Jennings, testified that in deciding to make this purchase Video-Drama took account of a brochure prepared by City Commercial Property Pty Ltd (‘CCP’), which was the managing agent for Haysons. The brochure contained a statement that the Premises had a ‘secure longterm tenant’.
17 On 5 July 2002, a letter to Parallel Lines written by Mr Warren Duncan, an employee of CCP, advised Parallel Lines that the sale to Video-Drama had taken place on 4 July 2002, that payment of ‘all outstanding rent plus sundry items up to date of settlement’ was required and that it had transferred ‘your deposit of $10,266.65’ to Video-Drama. The letter identified the outstanding rent as four weekly instalments of $1,184.62 (including GST), covering the period from Saturday 1 June to Friday 28 June, plus a further payment of $846.16 to cover the period from Saturday 29 June to Wednesday 3 July. It also identified the ‘sundry items’.
18 Mr Jennings testified that on or about 4 July 2002 Mr Duncan told him of the arrangement whereby, at Parallel Lines’ request, it paid rent weekly, not monthly as required by the Lease. It was not, however, until December 2003 that Mr Jennings received from CCP a copy of its letter of 5 July to Parallel Lines, referring to unpaid rent.
19 Mr Hill said in evidence that he did not recall receiving a letter to Union Clothing from CCP, dated 3 July 2002. This letter, also written by Mr Duncan, advised him of the purchase by Video-Drama, asked him to ‘phone urgently for new payment details and to discuss your rental arrears’ and added: ‘I am finding it quite rude that you continue to ignore me.’ Mr Hill testified that he did not think that Parallel Lines owed any rent to Haysons at this time. He pointed out also that the letter was sent by fax to the telephone number of Union Clothing at its former premises in Paddington, not to the Premises in Surry Hills.
20 Mr Hill also said that he did not recall receiving a letter dated 4 July 2002 from the solicitors for Haysons, advising of the purchase by Video-Drama. This letter was sent to Parallel Lines at the Premises.
21 Mr Hill did, however, recall receiving a typed letter from Mr Jennings and a co-director of Video-Drama, Mr Gerard Reinhardt. Mr Jennings said that he hand-delivered this letter to a man called Derek, whom he believed to be Union Clothing’s manager, at its shop in Oxford Street, Paddington. Neither Mr Hill nor any other witness could tell the Tribunal what Derek’s surname was.
22 The address shown on the letter for Video-Drama was a business address in Oxford Street, Darlinghurst. The letter referred to Video-Drama’s purchase of the Premises ‘as of yesterday, Thursday 4th July’, stated that Video-Drama was prepared to accept weekly rent payments as long as they were made by direct debit, provided the bank account details for Video-Drama, indicated that Mr Jennings and Mr Reinhardt looked forward to meeting Mr Hill personally and gave a phone number on which he could contact them.
23 This letter bore a handwritten date, ‘5/7/02’. In evidence, Mr Hill said that he thought he had received it shortly before 22 July 2002, since it was on or about this day that he claimed to have had a telephone conversation with Mr Jennings. He added the following comment:-
24 Mr Jennings testified that between 5 and 22 July 2002 he called at the Premises or at Union Clothing’s shop in Paddington ‘almost daily’. He asked Derek and other employees to request Mr Hill to make contact with him or with Mr Reinhardt. He said that it was easy for him to make these visits as his own place of work was in the neighbourhood. Mr Jennings said that he also expressed to Mr Duncan his concern about not receiving rent from Parallel Lines and his frustration at not being able to meet Mr Hill.
Well, because I didn’t have any contact with him until the 22nd and so I assume maybe the letter – the date had been handwritten on the letter afterwards to try and give the impression that I had received it earlier. I don’t know.
25 During cross-examination, Mr Hill’s explanation for not making contact with Mr Jennings or Mr Reinhardt until about 22 July 2002 was that Parallel Lines was still in dispute with Haysons. He said that he believed that until this dispute was resolved ‘there didn’t seem any point to contact them straightaway’. He denied that the reason why he made no contact with Mr Jennings and Mr Reinhardt and paid no rent to Video-Drama was that Parallel Lines could not afford the rent.
26 According to Mr Hill, on or shortly before 22 July 2002 he telephoned Mr Jennings. During their conversation, Mr Jennings confirmed that rent could be paid weekly and asked Mr Hill to deliver four rent cheques to his residence in Glenmore Road, Paddington. One of these cheques, he said, should be for $4,738.48, representing the rent for ‘the first four weeks’, and each of the other three should be for the weekly amount of $1,184.68. Mr Jennings then said that the rent thereafter should be paid directly into his account. Mr Hill agreed to this, saying that he was setting up a bank account for Parallel Lines and could make payments via the internet.
27 According to Mr Hill, on the same day or shortly thereafter, he hand-delivered four cheques as requested to Mr Jennings’ address in Glenmore Road, Paddington. The cheques, he said, were drawn on a personal cheque account of Mr St James, which he controlled while he was incorporating Parallel Lines and setting up a company cheque account.
28 Mr Jennings denied that this conversation with Mr Hill ever took place. Instead, he said, on or about 22 July 2002 he found a handwritten note and four cheques under the front door of his home. One of the cheques, dated 22 July 2002, was for $4,872.76. Each of the other three cheques, which were dated 1, 8 and 16 August 2002 respectively, was for $1,184.68. According to Mr Jennings’ recollection of the handwritten note (which he thought he had thrown out at the time), Mr Hill apologised for the delay (adding that he had lost Mr Jennings’ address), advised that he could not yet pay by direct debit as he was changing banks and referred to the cheques, saying that one of them paid the rent up to date and the others were post-dated for future rent.
29 Mr Jennings testified that he had not given his home address to Mr Hill, that he never gave this address to business contacts and that he did not know how Mr Hill ascertained it.
30 Both Mr Jennings and Mr Hill said that around the end of July 2002 they agreed on a time and place to meet. Mr Hill said that he failed to keep this appointment because he had ‘car troubles’. Mr Jennings said that this reason was passed on to him by an employee at the Premises after he and Mr Reinhardt had waited for about an hour. Mr Jennings said further that on a second occasion Mr Hill had agreed to meet him but had failed to keep this appointment. Mr Hill said that there was only one arrangement for a meeting.
31 According to Mr Hill’s affidavit, in the telephone conversation with Mr Jennings (which he said was on or about 28 July 2002) in which they arranged to meet, he told Mr Jennings that he would soon be going to London as ‘a relative’ was ill, that he therefore needed the details of Video-Drama’s bank account as soon as possible and that rent payments would be handled by Ms Sophie Kotrotsios.
32 Elsewhere in his affidavit, Mr Hill said that on or about 30 July 2002 he became aware that his mother, who lived in London, was ill. In a fax dated 11 September 2002 to agents who by then had been appointed by Video-Drama to manage the Premises, he said however that he had returned to England due to a ‘personal family problem’. In a fax to the same agents on 2 November 2002 he said that he was in England because of his father’s illness. In cross-examination, he maintained that during this period both his parents had indeed had health problems.
33 Mr Hill deposed that he then asked a friend, Mr Anthony Vatner, to manage payments of rent and expenses for him while he was away. Mr Vatner, who was the owner and manager of a firm of brokers, agreed to do so, saying that he would ask Ms Kotrotsios, who was employed by this firm as its administrative manager, to attend to these matters. (As already mentioned, Mr Vatner also appeared as agent for Parallel Lines at the hearing of this case.)
34 Mr Hill said that he then provided the details of Parallel Lines’ bank account and internet passwords to Ms Kotrotsios, whom he already knew. He told her that he was awaiting internet banking details from Video-Drama. He requested that, as soon as she received these, she should start making rent payments by the internet each Monday, once the last rent cheque, which was dated 15 August 2002, had run out. He said that he had entrusted the management of the business to employees of Parallel Lines and told her how she would be able to contact him in England. In her affidavit, Ms Kotrotsios gave a similar account of this conversation with Mr Hill.
35 Mr Jennings said that he had never been told by Mr Hill, either during a telephone conversation or in any other way, about Mr Hill’s impending departure, about Parallel Lines’ need to obtain Video-Drama’s bank account details or about a delegation of tasks to Ms Kotrotsios. He pointed out in his affidavit that his letter of 5 July 2002 to Parallel Lines had already conveyed Video-Drama’s bank account details to Mr Hill. He said that he found out about Mr Hill’s journey to England from Derek, some time between 25 July and 12 August 2002, and that he did not hear about rent payments being made by Ms Kotrotsios until some weeks later.
36 Mr Hill’s account of this telephone conversation with Mr Jennings was at variance with the contents of the fax (already mentioned) that he sent from England to agents of Video-Drama on 2 November 2002. In this fax, he said that it was in a letter dated 22 July 2002 that he told Mr Jennings that he would be in the UK until mid-October. He made no mention of passing on this information in a telephone conversation.
37 As mentioned above, the evidence tendered by Video-Drama included a copy of a memorandum dated 12 August 2002 from ‘Geoff’ to ‘Anthea’ at ‘Sweet Art’. This memorandum commenced with the sentence ‘Please find enclosed the keys fro the store and the display cabinets’. After then setting out the codes for an alarm, it concluded as follows: -
38 Mr Sirtes invited the Tribunal to infer that ‘the other store’ to which this memorandum referred was Parallel Lines’ shop at the Premises. Mr Vatner contended that this inference should not be drawn. As previously indicated, the memorandum was not mentioned in the written submissions filed by Parallel Lines after the hearing.
I am leaving tomorrow for England as I have found someone to take over the other store. I could not unfortunately keep it, as after seeing an accountant again he informed me it was in too much debt and was therefore actually bankrupt.
Good luck with the new tenants I hope it all goes well.
39 On 12 August 2002, Mr Jennings retained EMC Asset Management Pty Ltd (‘EMC’) as Video-Drama’s agent to manage the Premises. He told Mr David Watson, an employee of EMC, that he was concerned about the difficulties that he had experienced in making contact with Mr Hill and about having been told that Mr Hill was about to go overseas. He asked Mr Watson to ‘chase’ Mr Hill for the rent.
40 On 14 August 2002, Mr Hill travelled to England. He did not return to Australia until 30 March 2003.
41 Ms Kotrotsios deposed that after Mr Hill’s departure any letters to Parallel Lines that were received at the Premises were promptly delivered to her.
42 She recalled receiving a letter from EMC to Parallel Lines dated 15 August 2002. This letter was signed by Mr Mario Fraietta, who was employed by EMC as a property manager. It notified Parallel Lines of EMC’s appointment as Video-Drama’s agents to manage the premises, noted that rent had been paid up to 22 August 2002, confirmed that the rent could be paid ‘on a weekly, fortnightly or monthly basis depending on your preference’ and directed that all payments should be paid by electronic funds transfer to a bank account maintained by EMC. It provided details of this account, including a ‘payee code’. It also attached a tax invoice for future rent.
43 This letter of 15 August also asked Parallel Lines to provide within fourteen days a certificate of currency confirming that insurance as required by the Lease was in place. It noted that the amount of public liability insurance was to be $10,000,000 and that the name of the owner of the building was to be shown as an interested party on the policy. In a letter dated 21 August 2002 to ‘Ms Sofie’ at Parallel Lines (written by someone other than Mr Fraietta), EMC reiterated its request for a certificate of currency.
44 It is not clear when Ms Kotrotsios received EMC’s letter of 15 August. Mr Fraietta said that after he ascertained from Derek, on or about 20 August, that she was attending to rent payments, he telephoned her to introduce himself, then faxed to her a copy of the letter. Her evidence did not mention this phone conversation.
45 Ms Kotrotsios said that she either faxed EMC’s letters of 15 and 21 August 2002 or relayed their contents by telephone to Mr Hill in England. He said that (a) on or about 21 August, he transferred the insurance on the former shop of Union Clothing in Oxford Street, Paddington to the Premises; (b) he did not receive any further communication about insurance from EMC or Video-Drama. He was not cross-examined on this matter.
46 On or about 29 August 2002, Mr Fraietta received from Mr Reinhardt a letter from the strata managers of the building in which the Premises are situated, claiming that grills had been installed on the facade of the premises, in breach of bylaws governing the building. Mr Fraietta sent a letter to Ms Kotrotsios requiring that the grills be removed. She told Mr Hill about this in a telephone conversation. His evidence was that he installed a security grill to protect the Premises against burglars and that he intended to deal with this matter when he returned to Australia. On 13 September, EMC wrote to Parallel Lines indicating that the grill was not removed within seven days, EMC would have them removed and would add the cost to the next rent invoice. Some time before 21 September 2002, the grill was removed and the façade repaired by a contractor acting on instructions from EMC.
47 On 3 September 2002, Mr Hill sent a handwritten letter to a person named Rock. He confirmed in cross-examination that, as appeared from the terms of the letter, Rock had supplied goods for sale by Parallel Lines. The relevant passage in the letter was as follows:-
48 As mentioned above, it was recognised in EMC’s letter of 15 August 2002 to Parallel Lines that the payment of $1,184.68 made in the latest of the cheques delivered by Mr Hill to Mr Jennings covered the rent up to 22 August. By implication, EMC, on behalf of Video-Drama, treated these cheques as paying the rent by weekly instalments starting from 4 July, the date of the transfer of the Premises from Haysons to Video-Drama. In the letter of 15 August, EMC enclosed a tax invoice for rent for the period from 23 to 31 August 2002 (a period of nine days), stipulating $1,518.90 as the amount payable.
We are unable to keep up our weekly payments at the present time as after seeing an accountant I have been advised that if we do not start investing in new stock we will not survive any longer than the next two months. As it is we are returning stock to reduce debts…
49 Between 22 August and 5 October 2002, the date on which Parallel Lines was locked out of the Premises, Ms Kotrotsios made several rent payments on its behalf. But Parallel Lines was consistently in arrears, irrespective of whether rent was payable weekly or monthly. It appeared from the evidence of Ms Kotrotsios that the principal reason for this was that the takings of the business were unduly low.
50 During this period, EMC posted two tax invoices to Parallel Lines, faxing copies of them to Ms Kotrotsios. The first, posted and faxed on or about 25 August, claimed rent of $5,133.34 for September 2002, plus the instalment of $1,1518.90 required in the earlier invoice, which had not yet been paid. The second, posted and faxed on or about 25 September, claimed rent of $5,133.34 for October 2002, plus unpaid rent for September (allegedly amounting to $3,948.73) and sundry amounts for interest on overdue rent, municipal rates and the cost of removing the security grill and repairing the façade.
51 Within the same period, EMC also hand-delivered two letters of demand to the Premises, faxing copies of them to Ms Kotrotsios. They were dated 9 and 13 September 2002 respectively. They were both signed by Mr Fraietta and addressed to Mr Hill as representing Parallel Lines. Accompanying each of them was a memorandum to Ms Kotrotsios, asking her to ensure that the letter reached Mr Hill. Their text was as follows: -
52 According to both Mr Fraietta and Ms Kotrotsios, Mr Fraietta telephoned her several times during this period to point out that Parallel Lines’ rent was in arrears. He also asked her more than once when Mr Hill was likely to return to Australia. She put it to him that the invoices for September and October required payment of rent on a monthly basis, whereas it had been previously agreed that weekly payments could be made. According to her, he eventually seemed to concede that this was correct. She said that she would pay the weekly instalments that were due as soon as there was sufficient income from the business. She testified that his manner was aggressive and unpleasant, but he denied this.
On behalf of our clients, we serve you with a letter of demand requiring all rental arrears in relation to the above premises to be brought up to date as per the lease document signed by yourself, as director of Parallel Lines International Pty Limited within fourteen (14) days.
The lessor reserves their (sic) right to charge interest on these overdue monies. Your failure to comply with this demand will result in the lessors instruction of their solicitors to pursue both the company and directors as provided by the lease.
53 Ms Kotrotsios testified that on or about Friday 27 September 2002, Mr Fraietta told her on the telephone that if she did not pay all rental arrears the lease would be terminated and the locks changed. She said that she would pay a week’s rent within the next day or two, that she would contact Mr Hill, that she was expecting him to return in a week’s time and that she would try to get more money and make regular deposits if he did not take these steps. He said: ‘OK.’ A file note of this conversation made by Mr MX was consistent with this account, except that it did not mention the possibility that the lease would be terminated and the locks changed. As a result of this conversation, Ms Kotrotsios believed that once she made a payment of one week’s rent (which she did the following Monday), there was no immediate danger of a lockout.
54 On or about 3 October 2002, Mr Fraietta telephoned Ms Kotrotsios and asked when Mr Hill would be returning to Australia. She said that she now believed it would be in a week or two’s time. According to him, she said that she would make a further rent payment on that day and asked if that would ‘be OK’, but he said that in view of Mr Hill’s delayed return it would be up to his clients to decide whether the lease should be terminated. In cross-examination, she said that she did not remember any suggestion by Mr Fraietta that it was up to his clients to decide whether a lockout should occur.
55 During this period between 22 August 2002 and the lockout, Ms Kotrotsios had a number of telephone conversations with Mr Hill. She told him about the rent invoices and the letters of demand and also faxed to him a copy of the first letter of demand. It would appear that she tried to fax the second letter to him, but he did not receive it because he was travelling around the United Kingdom.
56 In the course of these conversations, Mr Hill told her that Video-Drama had agreed to accept weekly payments of rent and that he would raise this matter with Mr Fraietta. He also said that she should pay as much of the rent due as she could from the income of the business.
57 On 11 September 2002, Mr Hill sent a fax (already mentioned) to Mr Fraietta. Among other things, he said in it that he now had EMC’s bank account details, he would make the requested payments of weekly rent and he could not understand why the amount had ‘changed’. The fax concluded as follows:-
58 When asked in cross-examination why he had made this false statement regarding Ms Kotrotsios’s responsibilities, Mr Hill replied that it was ‘basically’ because EMC were giving her ‘such a hard time’ and were being ‘aggressive’ to her, and she was ‘only doing the job as a favour’.
… there is no point in contacting Sophie as she is doing the books and checking incoming paper work and I am the only person with authority to make payments so please fax any correspondence to me directly.
59 Ms Kotrotsios also consulted Mr Vatner on three occasions, on or about 13 September, 30 September and 3 October 2002. The gist of his advice to her was that she should pay as much of the rent due as was feasible and should keep in contact with him. In his own evidence, Mr Vatner said that she at no stage gave him the impression that she believed a lockout to be imminent. He added that if she had done so, he would have told her that he could provide the necessary funds himself.
60 As stated earlier, Ms Kotrotsios made a number of rent payments between 22 August and 5 October 2002. They were as follows: -
61 Each of these payments was made by deposit into the stipulated account of EMC. The first, second and fourth came directly from the bank account that had been set up for Parallel Lines. But the third payment, made on 30 September 2002, came from a ‘Streamline Account’ held at the Commonwealth Bank by Ms Kotrotsios personally.
9 September $1,518.90
13 September $1,184.61
30 September $1,184.61
3 October $1,184.61
62 Mr Kotrotsios gave the following account of the circumstances surrounding this payment. On 20 September, she transferred $1,184.00 from Parallel Lines’ account to her ‘Savings Maximiser’ Account at the Commonwealth Bank. As she stated in her affidavit, she did this in order to ensure that sufficient funds would be available to pay one week’s rent. In cross-examination, she explained that from time to time Mr Hill, using automatic teller machines in England, was making withdrawals of cash from Parallel Lines’ account. (Bank statements for this account, annexed to her affidavit, confirmed this to be true.) She believed that in the United Kingdom he would not be able to ascertain how much money was in the account. She had not been able to contact him for some time. She therefore decided that she should put the amount required for rent into another account to which he would not have access, thereby ensuring that it would be available for transfer to EMC. On Friday 27 September, she transferred $1,184.00 from her Savings Maximiser account into her Streamline Account, and on the following Monday, 30 September, she deposited $1,184.61 drawn on this account into EMC’s account.
63 This use of a different mode of payment had a material effect on the way in which the deposit was recorded in EMC’s bank statements. Whereas the payments of 9 and 13 September and 3 October were designated in these statements as made by Parallel Lines, the payment of 30 September was simply described as a ‘deposit’.
64 In cross-examination, Mr Fraietta stated that because of this different description for the payment of $1,184.61 received on 30 September 2002, EMC did not realise that it had been made on behalf of Parallel Lines. He said that a payment like this, made without attribution, would not be allocated to the correct rent account until EMC’s financial records had been examined and reconciled by a book-keeper. This, he said, occurred about once a month. As far as he was aware, the payment on 30 September was not attributed to Parallel Lines until some time after the lockout.
65 At a meeting on Friday 4 October 2002 attended by Mr Jennings, Mr Reinhardt, Mr Watson and Mr Fraietta, Video-Drama instructed EMC to terminate the Lease on its behalf, take possession of the Premises, move the stock and other goods of Parallel Lines into storage and relet the Premises as soon as possible.
66 Commencing at or before 8 a.m. the next day, Mr Watson, Mr Fraietta and four removalists engaged by EMC entered the Premises, moved into storage a quantity of goods (including furniture, equipment and items of stock) that they found there, changed the locks and posted a Lease Termination Notice dated 4 October 2002 on the front door.
67 This Notice was written on the letterhead of EMC, signed by Mr Watson and addressed to Parallel Lines. It contained statements to the effect that Video-Drama had ‘today’ terminated the Lease and taken possession of the Premises, that this action was taken under clause 12 of the Lease due to Parallel Lines’ failure to comply with clause 5 and its failure to respond to the letter of demand of 13 September and that Video-Drama had taken possession of all stock, which would be held for 30 days prior to being auctioned in order to recover Video-Drama’s costs.
68 Ms Joanne Russo, the manager employed by Parallel Lines at the Premises, arrived there about 8 a.m. She tried unsuccessfully to prevent the removal of the stock. She then used her mobile phone to contact Mr Vatner, who was out of Sydney. He asked to be put on to speak with the person in charge of the operations at the shop. He said to a man who did not identify himself that he could come to the shop immediately or arrange for someone else to come, in order to pay the outstanding rent. The gist of the reply was ‘too late, bad luck’.
69 In cross-examination, Mr Fraietta stated that he and those with him ‘briefly looked through’ a number of lever arch folders that were in the Premises. They gained the impression that these folders principally contained magazines and catalogues. They left the folders in the Premises. About one month later, however, cleaners acting on EMC’s instructions removed the folders and their contents, which were then ‘thrown out’.
70 Mr Hill alleged that these folders had in fact contained stock reports, sales sheets, bank statements and other financial records of Parallel Lines. Mr Fraietta admitted that this could have been the case.
71 During the weeks following the lockout, a number of unpaid suppliers of stock to Parallel Lines presented statements identifying their stock to EMC and collected it from storage.
72 About one month after the lockout, EMC relet the Premises on behalf of Video-Drama.
73 On being informed of the lockout, Mr Hill first telephoned Mr Watson from the United Kingdom. He then sent a fax dated 9 October 2002 asking for details of the alleged arrears, drawing attention to the rent payment of 3 October, pointing out that some of the stock removed belonged to suppliers who had not been paid and seeking confirmation that the items removed included $550.00 in cash.
74 According to Mr Hill’s affidavit, he was due to return to Australia on 10 October 2002, but had to cancel the flight because he could not afford to return with no income from Parallel Lines’ business.
75 In a reply dated 10 October, Mr Watson sent a reconciliation of Parallel Lines’ account as at 4 October, showing the rent arrears. He said that a full photographic and written inventory had been made of all the stock, fixtures and fittings removed from the Premises and that only $22.15 in cash had been removed.
76 In a fax (already mentioned) to Mr Watson dated 2 November 2002, Mr Hill contended that when all the rent payments were taken into account it became clear that under the Lease Video-Drama was not entitled to repossess the Premises and remove Parallel Lines’ goods. He also made certain assertions, outlined below, regarding the value of the stock that had been removed and the rights of suppliers who had not been paid for stock.
77 During April 2003, Mr Hill, having returned to Australia on 30 March, inspected the stock, fixtures and fittings that had been removed at the warehouse where they were stored on the instructions of EMC. He was accompanied by Mr Brendon Lee, a solicitor then retained by him. Mr Lee deposed in an affidavit that he was shown 30 numbered boxes. He deposed also that after the inspection he endeavoured to obtain permission from EMC for his client to take back these goods. But Mr Fraietta said that Video-Drama was not prepared to release them, since that they were being retained as security for the expenses that Video-Drama had incurred in conducting the lockout and removing the goods. Mr Lee also deposed that, according to Mr Fraietta, Video-Drama would only release the goods if Parallel Lines withdrew all claims against it. Mr Lee was not cross-examined.
78 About 18 months after the lockout, these goods were taken from the warehouse to a garage at Mr Jennings’ residence. At the hearing on 11 October 2007, he testified that they were still in this garage.
The credibility of the principal witnesses
79 In the Tribunal’s opinion, the evidence given by Ms Kotrotsios, Mr Jennings and Mr Fraietta appeared to be truthful and, generally speaking, reliable.
80 On the other hand, the Tribunal was not impressed by Mr Hills’ testimony, for a number of reasons.
81 First, when statements made by him during the weeks preceding and following the lockout are considered in conjunction with his written and oral evidence, a number of internal contradictions are apparent. None of them was explained satisfactorily. They include the following: (a) his references at different times to the illness of ‘a relative’, of his mother and of his father as the reason why he returned to England in August 2002; (b) his claims in different contexts to have advised Mr Jennings of his impending departure by a letter dated 22 July 2002 (this being about eight days before the date on which, according to his affidavit, he became aware of his mother’s illness) and in a telephone conversation some days later; and (c) his allegation in his fax of 11 September 2002 to Mr Fraietta that Ms Kotrotsios had no authority to make rent payments, which was directly contradicted both by his affidavit and by the evidence of Mr Vatner and Ms Kotrotsios herself.
82 Secondly, Mr Hill made several unconvincing assertions. He claimed, for instance, that (a) more than one letter sent to him never reached him (without giving any reason why this might have been the case) and (b) during most of July 2002 he saw no point in making contact with his new landlord, Mr Jennings, until he had resolved an existing dispute with his former landlord, Haysons.
83 Thirdly, Mr Hill attempted implausibly to explain his refusal or failure to contact Mr Jennings until late in July 2002 by suggesting that Mr Jennings had dishonestly added the handwritten date to the letter of 5 July on a later day ‘to try and give the impression that I had received it earlier’. Beyond the fact that the date was handwritten, there was no foundation whatsoever for this allegation. Significantly, the typewritten text of the letter included the phrase ‘yesterday the 4th July’. It is likely that if Mr Jennings had in fact written the letter significantly later than 5 July, but had wanted to give the impression that it was written on that day, he would have used typescript, not handwriting, to indicate the date.
84 For these reasons, the Tribunal is not inclined to give credence to Mr Hill’s testimony on those issues in which it was in conflict with the testimony of other witnesses or with the documentary evidence.
The lawfulness of the lockout
85 As indicated at [48] above, EMC, on behalf of Video-Drama, indicated to Parallel Lines in its letter of 15 August and its tax invoice for September 2002 that once the payment of $1,518.90 requested in the letter had been made, the rent would be paid up to the end of August. On this footing the three payments, each of $1,184.61, made on 13 and 30 September and 3 October respectively, accounted for the rent up to and including Saturday 21 September 2002.
86 The Lease Termination Notice was dated 4 October 2002 (a Friday) and purported to terminate the Lease ‘today’. Repossession of the Premises took place on the morning of Saturday 5 October. According to EMC’s own version of the state of affairs with regard to rent, Video-Drama had therefore both terminated the Lease and repossessed the Premises before the number of days during which Parallel Lines was in arrears of rent had reached fourteen.
87 In cross-examination, Mr Fraietta conceded that this was how he himself came to understand the matter once he realised that the decision to terminate and repossess had been taken in ignorance of the payment of rent received by EMC on 30 September.
88 The Tribunal is satisfied that, although EMC’s failure to take this payment into account appears to have resulted from Ms Kotrotsios’s decision to remit it from her own bank account, not that of Parallel Lines, it nonetheless constituted a legitimate payment of rent that EMC, on behalf of Video-Drama, had received and accepted. Since the amount shown in EMC’s bank account statement – $1,184.61 – was the agreed amount for rent paid weekly by Parallel Lines and was entirely distinctive, even a casual glance at the statement would have been enough to suggest that it might have represented a payment on behalf of Parallel Lines. Neither Mr Fraietta nor Mr Sirtes sought to argue otherwise.
89 This calculation of the period of default by Parallel Lines is of considerable significance because, in common with many other leases of retail premises, the entitlement conferred by the Lease on Video-Drama, as lessor, to enter and take possession of the Premises on the ground of non-payment of rent, thereby terminating the Lease, did not arise until rent was in arrears for fourteen days.
90 The provisions of the Lease relating to these matters and to the disposition of Parallel Lines’ goods following repossession were the following passages within clauses 5 and 12:-
91 In her written submissions filed on behalf of Parallel Lines, Ms Obrart submitted that Video-Drama accordingly had no contractual right to demand possession, enter into possession or terminate the Lease. She focused on the date of the decision to repossess, 4 October 2002, pointing out that at this stage rent had been in arrears for only 12 days.
5.1 The tenant must pay to the landlord or as the landlord directs -
12.1 This lease ends - …
5.1.1 the rent stated in item 12 in the schedule;…
12.2 The landlord can enter and take possession of the property or demand possession of the property if -
12.1.2 if the landlord lawfully enters and takes possession of any part of the property; or
12.1.3 if the landlord lawfully demands possession of the property.
12.2.1 the tenant has repudiated this lease; or
12.3 When this lease ends… the tenant must -
12.2.2 rent or any other money due under this lease is 14 days overdue for payment;…
12.5 The essential terms of this lease include:-
12.3.1 return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and
12.3.2 have removed any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal
Anything not removed becomes the property of the landlord who can keep it or remove and dispose of it and charge to the tenant the cost of removal making good and disposal.
12.5.1 the obligation to pay rent not later than 14 days after the due date for payment of each periodic instalment (and this obligation stays essential even if the landlord, from time to time, accepted late payment);…
92 In response, Mr Sirtes, in his written submissions, contended that on two alternative ‘scenarios’ the rent was in arrears on 4 October by more than 14 days. These ‘scenarios’ were, respectively, if the rent was taken to be payable each Monday, weekly in advance, and if the rent was payable monthly in advance.
93 In the Tribunal’s opinion, however, the mode of calculation of rent due that EMC adopted in its communications with Parallel Lines from 15 August 2002 onwards is the correct one for present purposes. It accorded with the terms of the Lease, as varied by the agreement between the parties for weekly rather than monthly payments. It also formed the content of a representation that was made by EMC, as Video-Drama’s authorised agent, to Parallel Lines and was relied on by Parallel Lines.
94 The Tribunal considers that in this connection the relevant conduct on Video-Drama’s behalf was its repossession of the Premises on 5 October, not its decision on the previous day to take this step. But this act of repossession occurred before the period of 14 days stipulated in clause 12.2.2 of the Lease had expired.
95 For these reasons, the Tribunal concludes that the repossession of the Premises on 5 October 2002 was not authorised by clause 12.2.2 of the Lease.
96 Mr Sirtes put forward an alternative ground of justification for the repossession. This was that Parallel Lines, by its conduct in repeatedly failing to pay the rent on the due date and in failing to maintain public liability and plate glass insurance as required by clause 8.1.1 of the Lease, had repudiated the Lease, with the consequence that Video-Drama became entitled under common law principles to terminate the Lease, independently of any rights that it enjoyed under clause 12.2.2.
97 In advancing this argument, Mr Sirtes referred to a number of statements of principle contained in leading judgments of the High Court. It is sufficient here to quote two of them:-
98 Mr Sirtes cited also the discussion of repudiation by Giles JA in the recent Court of Appeal decision in Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council & Ors [2006] NSWCA 291 at [100 – 109].
… a contract may be repudiated if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract… or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way. ( Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626 per Gibbs CJ)
There is a difference between evincing an intention to carry out a contract only if and when it suits the party to do so and evincing an intention to carry out a contract only as and when it suits the party to do so. In the first case the party intends not to carry out the contract at all in the event that it does not suit him. In the second case the party intends to carry out the contract, but only to carry it out as and when it suits him. It is much easier to say of the first than of the second case that the party has evinced an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. But the outcome in the second case will depend on its particular circumstances, including the terms of the contract. In some situations the intention to carry out the contract as and when it suits the party may be taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with the party’s obligations and not in any other way. (Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634 per Mason CJ)
99 In Mr Sirtes’ submission, as from the commencement of Video-Drama’s ownership of the Premises, Parallel Lines showed by its conduct that it did not intend to perform its contractual obligations under the Lease other than when it suited it and only in a manner inconsistent with its obligations. As Mr Sirtes pointed out, Mr Hill, who was ‘the principal and controlling mind’ of Parallel Lines, admitted the following in his evidence: (a) that he understood Parallel Lines’ obligations under the Lease; (b) that he knew that the obligation to pay rent within 14 days was an essential term; (c) that he had all the necessary banking details to make the payments; (d) that he considered that the onus lay on EMC to make contact with Ms Kotrotsios and advise her of Parallel Lines’ rent obligations; and (e) that he tried to mislead EMC by saying, in his fax of 11 September 2002 to Mr Fraietta, that Ms Kotrotsios was not handling rent payments. Furthermore, Mr Hill ignored two letters from EMC requiring Parallel Lines to fulfil its insurance obligations, he treated the Lease as one which permitted routinely delayed payments of rent for up to 14 days after their due date, thereby committing a series of fundamental breaches, and he abandoned both Parallel Lines’ business and the Lease in mid-August 2002.
100 Mr Sirtes contended that, when all these matters were taken into account, ‘a reasonable person in the position of the Respondent could hardly draw any inference other than that the Applicant did not intend to take the lease seriously’. This case, he said, could not be ‘marginalised’ as simply an instance of a lessee being in arrears of rent.
101 In responding to these contentions on Parallel Lines’ behalf, Ms Obrart placed emphasis on the following four matters: (a) both Mr Jennings and Mr Fraietta testified that in their understanding of the matter the ground of termination was Parallel Lines’ failure to pay rent as required by the Lease; (b) this same ground was stated in the Lease Termination Notice that EMC fixed to the front window of the Premises; (c) the evidence regarding insurance (comprising only the letters written by EMC on 15 and 21 August 2002, some correspondence between Ms Kotrotsios and Mr Hill and some testimony by Ms Kotrotsios) was clearly insufficient to show that Parallel Lines remained in breach of its obligations to insure; and (d) at no stage prior to its written submissions had Video-Drama claimed, either in correspondence with Parallel Lines or in these proceedings, that Parallel Lines had repudiated the Lease and that Video-Drama had accepted the repudiation.
102 In the Tribunal’s opinion, Video-Drama has failed to show that Parallel Lines’ conduct during the period of three months between 4 July 2002 (the date when Video-Drama purchased the premises) and 5 October 2002 (the date of the lockout) constituted repudiation of the Lease.
103 In so concluding, the Tribunal accepts the four specific contentions advanced by Ms Obrart. It takes account also of three further considerations, which are as follows.
104 First, far from evincing an intention not to fulfil the obligation to pay rent instalments, Ms Kotrotsios – who was the relevant agent of Parallel Lines between 15 August 2002 and the date of the lockout – appears to have done all that she reasonably could to prevent the arrears becoming excessive. As noted above and explored more fully below, the principal reason why rent was consistently in arrears was that the takings of the business were unduly low. While Mr Hill’s withdrawals from Parallel Lines’ bank account were a contributing factor, there is no evidence to suggest that Parallel Lines was in a financial situation where it could have maintained punctual rent payments but deliberately chose not to do so.
105 Secondly, while the Tribunal believes (for reasons set out below) that at the time of the lockout Parallel Lines’ business was more likely than not to fail wholly and that Mr Hill, being fully aware of this, may well have intended to stay in England and simply let it collapse, the shop was nonetheless open for business until the day before the lockout. Even if Mr Hill had by then decided that, unless an unexpected turnaround in the fortunes of the business occurred, he would soon abandon it, he had not communicated any such intention to Video-Drama.
106 Thirdly, to hold that the matters relied on by Mr Sirtes were sufficient to establish repudiation would, in the Tribunal’s opinion, involve adopting a very different attitude to rent defaults to that adopted in one of the High Court cases on which he relied, namely, Shevill v Builders Licensing Board (1982) 149 CLR 620.
107 In that case, the tenant under a lease of commercial premises was ‘constantly late’ with rent payments over a period of some eight months. The landlord ‘pressed for prompt payments but accepted late and sometimes partial payments’ (see Gibbs CJ at 624). Ultimately, the landlord sued for possession when two months’ rent remained unpaid. As in the present case, the lease contained a clause entitling the landlord to terminate the lease and repossess the premises if rent was due and unpaid for 14 days.
108 In the course of allowing an appeal against a decision of the Court of Appeal of New South Wales awarding damages to the landlord including the loss of future rent under the lease, the High Court rejected the contention that the tenant had repudiated the lease. Wilson J, noting that the tenant had made ‘serious and consistent effort’ to make rent payments but that there were nonetheless many instances of late payment, said at 634:-
109 In Shevill , it may be noted, the actual period of default at the time when the landlord sought possession significantly exceeded the period stipulated in the clause of the lease permitting termination. In the present case, the stipulated period had not yet elapsed. Furthermore, because this period had not elapsed, Parallel Lines’ rent default did not amount to a breach of an ‘essential term’ of the Lease as defined in clause 12.5.
However, I know of no authority or of any principle of law which requires me to hold that consistently late payment of rent without more is sufficient to establish repudiation of a lease. It would indeed be a harsh doctrine.
110 While recognising, therefore, that the argument put by Mr Sirtes is based on more than just ‘consistently late payment of rent’ by Parallel Lines, the Tribunal believes that to characterise Parallel Lines’ behaviour as conduct amounting to repudiation would be to ignore the principal factors that prompted the High Court in Shevill to refuse to apply that characterisation to a significantly more serious case of rent default.
111 A further matter canvassed in both the evidence and the submissions in the present case was whether Video-Drama gave any or adequate notice to Parallel Lines of its intention to terminate the Lease and repossess the Premises. This matter need not, however, be resolved here.
112 The Tribunal has found that Video-Drama’s conduct in terminating the Lease and repossessing the Premises on 5 October 2002 was not authorised by the Lease and cannot be justified on the ground that Parallel Lines had by its conduct repudiated the Lease. No other ground of justification was put forward or appears to be available to Video-Drama. It follows that Video-Drama acted in breach of its obligation under clause 11.1 of the Lease ‘to allow the tenant to possess and use the property in any way permitted under this lease without interference from the landlord…’. Parallel Lines is therefore entitled to compensation, assessed according to the accepted principles governing damages for breach of contract.
113 Ms Obrart submitted that Video-Drama’s conduct also amounted to unconscionable conduct under s. 62B of the RL Act. With reference to the factors listed in s. 62B(3) as relevant in determining whether conduct by a lessor is unconscionable, she claimed that the lockout involved an ‘unfair tactic’ (see s. 62B(3)(d)), a failure to disclose intended conduct that might affect the lessee’s interests (s. 62B(3)(i)(i)), a failure to disclose risks that might arise from the lessor’s intended conduct (s. 62B(3)(i)(ii)) and a lack of good faith (s. 62B(3)(k)).
114 Since the remedies by way of final order available to a lessee who establishes unconscionable conduct by a lessor are limited to awards of damages and orders extinguishing monetary liabilities that might otherwise exist (see s. 72AA(1)), it is unnecessary for the Tribunal to decide whether Video-Drama’s conduct was in fact unconscionable. It does, however, offer the observation that since the decision to effect the lockout was attributable to a mistake (for which Video-Drama itself was not to blame) regarding the amount of rent owing at the time, Parallel Lines’ case on this ground seems weak.
115 In addition to seeking an award of interest, Parallel Lines claimed damages under three broad heads: (a) loss of the profits of the business carried on at the Premises, and also of the ‘value’ of the business; (b) loss of the value of its stock, fixtures, fittings and cash removed from the Premises on or after the day of the lockout; and (c) and the loss of the security bond of $10,266.65. It is convenient to consider these three categories separately.
Loss of profits and of the value of the business
116 Evidence and submissions. Ms Obrart submitted that one direct result of the lockout was to destroy the business. She referred in this context to the failure by Video-Drama and EMC to notify Parallel Lines of the impending lockout, their failure to keep proper records of the items of stock that were removed and the destruction of Parallel Lines’ business records.
117 It followed, she asserted, that Video-Drama should be held liable in damages for the profits of the business that Parallel Lines would have been able to conduct at the Premises until March 2008, that is, during both the term of the Lease and the three-year option period. She also claimed damages representing the ‘value’ of the business, to be assessed at two to three times the expected annual profit.
118 In his submissions, Mr Sirtes did not appear to dispute the proposition that, if the lockout was indeed unlawful and if also it could be shown that losses of profit had actually been sustained, the amount of these losses would be recoverable.
119 The parties were however in direct conflict on the questions whether at the time of the lockout there was any prospect of the business generating future profits.
120 In his affidavit, Mr Hill stated that the projected net profit for Parallel Lines at the Premises was $40,000 per quarter. This estimate was based on his past experience in running the business of Union Clothing in Oxford Street, a projected increase caused by a larger number and range of products and the inclusion of Union Clothing’s own label.
121 He stated also that the average turnover for Union Clothing was about $29,000 per month and that this amount would increase to about $40,000 per month during the spring and summer seasons. In cross-examination, he conceded however that, according to the bank statements relating to the business, its average monthly takings during July, August and September 2002 were only slightly above $16,000. But he maintained that his stock was popular within the gay community in Sydney and that a number of events during spring and summer, commencing with the Sleaze Ball (held in October) and culminating with the Mardi Gras (held in March), could be relied on to bring about a substantial increase in sales.
122 On this matter, Mr Hill’s evidence received support from Ms Russo, the manager whom he employed at the Premises, and from Ms Heather Bain, who managed a business in Darlinghurst similar to that of Union Clothing. Ms Bain pointed out also that in November 2002 the Gay Games, held as a one-off event in Sydney, had attracted many international visitors who could be expected to have bought fashion clothing of the sort sold at the Premises.
123 In his affidavit Mr Hill said also that stock other than the Union Clothing label was sold at a mark-up of 230% of ‘the cost value’ and that the Union Clothing label was sold at a mark-up of 450%. In cross-examination, he clarified this by saying that a mark-up of 230% meant that an item of clothing purchased from a supplier for $100 would be retailed at $230, i.e., with a profit margin of 130%. His statements regarding the scale of the mark-up were corroborated in general terms by evidence from Ms Russo.
124 Parallel Lines tendered no expert report, however, relating either to the amount of profit that the business would have earned if the lockout had occurred or to the overall value of the business. Video-Drama tendered a report on these matters prepared by Mr Michael Potter, a forensic accountant. This report contained a number of critical comments on a report that had been prepared for Parallel Lines by one Desmond Lee (‘the Lee Report’). The Lee Report had been made available to Mr Potter, but was not tendered at the hearing.
125 At the commencement of his report, Mr Potter drew attention to the fact that the only financial records for Parallel Lines that he could consult were its bank statements for two accounts, one of which appeared to be incomplete. He pointed out that Parallel Lines appeared not to have prepared Business Activity Statements or to have engaged external accounts. As already indicated, Parallel Lines’ explanation for the absence of other forms of financial record was that they had been thrown out by cleaners on the instructions of EMC.
126 From Mr Potter’s report, it was apparent that in the Lee Report Mr Hill’s account of the mark-up used by Parallel Lines had been accepted without question. Mr Potter reformulated this mark-up as meaning that the cost of sales was only 24.24% of sale prices. This reflected a different interpretation of a ‘mark-up of 230%’ than that given by Mr Hill himself in cross-examination. When this was pointed out to him in cross-examination, Mr Potter substituted 45% for 24.24% as the ratio, according to Mr Hill, of cost of sales to sale prices.
127 Mr Potter’s own opinion, based on his examination of Parallel Lines’ bank accounts, his estimate of its expenditures and a number of industry benchmarks for small clothing businesses, was that the average cost of sales would be of the order of 55% of sale prices. He put this forward as an average figure, pointing out that at the beginning of a season the mark-up might well be higher but that at later stages of the season items of clothing would be sold at discounted prices.
128 It is apparent, as Mr Potter acknowledged in cross-examination, that his opinion on this issue was based in part on information given to him that was open to question. He had assumed, for instance, that the purchase price of $30,000 paid in the latter half of 2001 by Mr Hill to Mr St James for Union Clothing’s business (see [6] above) reflected the true value of the stock at that time. There was evidence from Mr Hill, however, that since he and Mr St James had had a personal relationship in the period before the purchase, Mr St James had been prepared to accept less than the true value. In addition, he had not taken into account evidence from Mr Hill and Ms Russo that cash salaries were paid out of the till.
129 Mr Potter had also assumed, on instructions, that the amount owing to suppliers for unpaid stock at the time of the lockout was of the order of $34,000. This figure came from the fax dated 2 November 2002 from Mr Hill to Mr Watson (see [76] above). But it was open to doubt because, as Mr Hill acknowledged, he was then in England and had no access to his business records. Copies of a number of claims, some made on oath, that suppliers had submitted to EMC in order to retrieve their stock following the lockout, suggested that it might have been too low.
130 Using the bank statements, Mr Potter prepared a graph of what he understood to be the monthly sales figures for Parallel Lines between December 2001 and September 2002. Between December 2001 and July 2002, these ranged from about $42,000 (in February) to about $25,000 (in May). They rose to about $28,000 in July, but fell to about $17,000 in August and about $6,000 in September 2002. Mr Potter considered that the decline between April and July was consistent with the seasonal nature of retail clothing sales and that the steeper decline in August and September may have been attributable to Mr Hill’s absence.
131 During cross-examination Mr Vatner pointed out, however, that since salaries were drawn in cash from the till, Mr Potter’s figures understated the amount of sales achieved. According to evidence from Ms Russo, $6,933 was withdrawn for salaries each month from December 2001 to July 2002, and during each of August and September 2002 (when Mr Hill was in England), $3,900 was withdrawn.
132 According to relatively detailed calculations set out by Mr Potter in his report, if the average cost of sales was taken to be 55% and the sharp decline in sales during August and September 2002 was treated as anomalous, then even after allowing for a significant increase from October onwards, it was to be expected that Parallel Lines’ business would trade at a loss.
133 Mr Potter also drew attention to a number of other aspects of Parallel Lines’ situation at the time of the lockout which suggested that its business was unprofitable. These included the following: (a) that it had not lodged any Business Activity Statements (the first of which was due during April 2002) and therefore would be unlikely to have made any payments of GST, employee deductions (‘PAYG’) or income tax (if relevant); (b) that the bank statements showed a daily account balance which fluctuated between nil and about $12,000 and was usually small; and (c) that between December 2001 and August 2002, sixteen cheques that it had drawn, for amounts totalling more than $30,000, had been dishonoured. With regard to the dishonoured cheques, he said in cross-examination that it was significant that some of them were for relatively small amounts (the smallest amount was in fact $474.10).
134 In cross-examining Mr Potter, Mr Vatner asked him to consider a spreadsheet that he (Mr Vatner) had prepared employing Mr Potter’s methodology. In this spreadsheet, the withdrawals from the till for salaries were taken into account. Mr Potter agreed with its indication that if the ratio of cost of sales to sale prices was estimated at 55%, Parallel Lines sustained a loss of about $3,000 during the period from December 2001 to September 2002. He agreed also that if this ratio was taken to be 50%, the spreadsheet suggested a profit of about $14,000.
135 In her submissions, Ms Obrart provided a version of this spreadsheet, with the figures calculated on the basis of a ratio of 44% and carried forward through October and November 2002. This showed a projected profit of $68,620 for the twelve months from December 2001 to November 2002.
136 Mr Sirtes contended that the opinions expressed by the only expert witness called, Mr Potter, were well reasoned and convincing and should be accepted by the Tribunal. He also placed emphasis on the evidence which showed that Mr Hill acknowledged before his departure that Parallel Lines’ business was insolvent and which strongly suggested that he had in fact abandoned the business. In this connection, he referred particularly to Mr Hill’s communications with ‘Anthea’ and with ‘Rock’ and to the inconsistent explanations given for Mr Hill’s return to England.
137 Mr Sirtes further submitted that if Mr Hill had believed that the business was viable at the time of the lockout, he would have returned to Australia in order to seek relief against the forfeiture of the Lease. He would also have made stronger attempts to retrieve the seized goods from storage after he did finally return to Australia in March 2003.
138 The Tribunal’s conclusions. The Tribunal accepts Ms Obrart’s submission that the destruction of Parallel Lines’ business at the Premises was a direct consequence of the lockout effected by EMC on the instructions of Video-Drama. An additional factor which supports this conclusion is that the Lease Termination Notice, which EMC posted on the front door of the Premises where it was clearly visible to passers-by, referred to Parallel Lines’ failure to meet its obligations under the Lease and to the seizure of its stock.
139 The Tribunal also accepts the submission that damages reflecting any future profits that Parallel Lines should be expected to have derived from its business at the Premises should therefore be recoverable from Parallel Lines.
140 The Tribunal is of the opinion, however, that Parallel Lines, which bears the onus on this issue, has not established on the balance of probabilities that if the lockout had not occurred it would have escaped from the precarious financial situation into which it had fallen by the end of September 2002 and would have become both solvent and profitable. It arrives at this conclusion by taking account particularly of the following four aspects of the evidence.
141 First, there appears no doubt that Parallel Lines’ financial situation had deteriorated to the stage where it was struggling not only to pay its rent on a weekly basis within fourteen days after each instalment fell due, but also to make sufficient payments to suppliers to enable an adequate supply of stock to be held within its shop. Not only the sharp decline in its takings during August and September 2002 but also its record of dishonoured cheques and Mr Hill’s admissions both to a prior lessor (‘Anthea’) and a current supplier (‘Rock’) illustrate this graphically. Mr Hill in fact acknowledged to ‘Rock’ in his letter dated 3 September that ‘we are returning stock to reduce debts’ (see [47] above).
142 Secondly, the Tribunal, by virtue of its concerns about Mr Hill’s credibility, cannot accept at face value his claim that but for the lockout he would have returned to Australia on 10 October 2002. As Ms Kotrotsios’s evidence showed, during the preceding weeks he had given her more than one date for his intended return. While not finding, as submitted by Mr Sirtes, that Mr Hill had wholly abandoned any plan of returning, the Tribunal considers that Mr Hill intended to leave open the option of staying in England if the business did not recover of its own accord.
143 When account is also taken of Mr Potter’s suggestion that the business’s sharp decline in sales during August and September 2002 was attributable, in part, to Mr Hill’s absence, this finding with regard to Mr Hill’s intentions further increases the likelihood that, even allowing for the onset of the spring season, sales would have remained at an insufficient level to keep the business afloat.
144 Thirdly, even if Mr Potter’s calculation of past and likely future losses was based on an unduly conservative estimate of the mark-up employed in the business, Parallel Lines’ evident failure to provide in any way for its GST and income tax liabilities goes some way at least towards redressing any inaccuracies in his estimated figures.
145 Fourthly, the Tribunal considered that Mr Potter’s report reached sound and compelling conclusions on the information with which he was provided. Nothing put to him in cross-examination cast significant doubt on his methodology.
Loss of the value of Parallel Lines’ stock, fixtures, fittings and cash
146 Issues of liability. It is common ground that a significant quantity of goods and an amount of cash claimed to be owned by Parallel Lines were removed from the Premises on 5 October 2002 and that some days later a number of Parallel Lines’ documents were thrown out by cleaners engaged at the Premises by EMC. It was also common ground that the stock removed included a number of items of clothing that belonged to unpaid suppliers, pursuant to retention of title clauses.
147 Ms Obrart argued that the removal of Parallel Lines’ goods by agents of Video-Drama amounted to unlawful seizure and conversion of them, entitling Parallel Lines to damages representing their value at the time of the lockout.
148 Mr Sirtes contested this claim for damages on three grounds, which were as follows.
149 He argued first that the Tribunal had no jurisdiction to award damages at common law for conversion, because a claim of this nature did not fall within the definition of a ‘retail tenancy claim’ in s. 70 of the RL Act. It was not sufficient, he submitted, that the goods allegedly converted were removed from premises that were the subject of a retail shop lease governed by this Act.
150 Within s. 70, the provisions of relevance to this issue are as follows:-
151 The phrase ‘retail tenancy dispute’ is defined as follows in s. 63:-
In this Division:
retail tenancy claim means any of the following:
(a) a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being:
(i) a claim for payment of money (whether or not stated to be by way of debt, damages, restitution or refund),…
152 In the Tribunal’s opinion, the broad phraseology of this definition in s. 63 (to which Mr Sirtes did not refer) is sufficient to cover the liability in conversion that Parallel Lines asserts against Video-Drama by virtue of the removal of its goods from the Premises. This liability clearly arose ‘in connection with the use or occupation’ of premises which were subject to a retail lease. Furthermore, the ground on which Video-Drama sought to justify removing the goods stemmed from a contractual provision of this lease (i.e., clause 12.3, which is quoted above at [90]).
retail tenancy dispute means any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to a retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease or former lease relates.
153 It has indeed been emphasised more than once that the definition of ‘retail tenancy dispute’ should not be construed narrowly. In GPT Management Ltd & Anor v Spa Heaven Pty Ltd & Ors [2005] NSWSC 1043, for instance, Palmer J said at [14] that it was ‘exceedingly broad and, clearly enough,… intentionally so’. He held at [16] that it was not confined to disputes about legal issues only, but could extend, for instance, to disputes concerning ‘broader questions of fairness as to how an admitted legal liability may, or should, be enforced’.
154 The second ground put forward by Mr Sirtes was that Parallel Lines had not established that it had title to, or an immediate right to possess, the goods in question. But except in relation to the stock that was still owned by unpaid suppliers under a retention of title clause, the Tribunal does not see why the affidavit evidence of Mr Hill and Ms Russo on this matter should be thought insufficient. This evidence was not challenged in cross-examination. The issue of whether the stock not owned by Parallel Lines has been sufficiently distinguished in the evidence from the remainder of the stock is considered below.
155 Thirdly, Mr Sirtes submitted that since many of the goods seized had been stored, to the knowledge of Parallel Lines, in a warehouse or in Mr Jennings’ garage since their removal from the Premises, but Parallel Lines had never shown any genuine interest in retrieving them, it could not be said that Video-Drama had committed any act constituting a denial of Parallel Lines’ title to them. In the Tribunal’s opinion, however, this submission is not borne out by the evidence. According to the testimony of Mr Brendon Lee, who was not cross-examined (see [77] above), his efforts on Parallel Lines’ behalf to secure the release of the goods from storage met with a refusal from Mr Fraietta. Mr Fraietta told him that Video-Drama would not release them unless Parallel Lines withdrew all claims against it.
156 For these reasons, the Tribunal’s conclusion is that Parallel Lines is entitled in these proceedings to obtain damages from Video-Drama for conversion of the goods owned by Parallel Lines that were removed from the Premises by EMC during or after the lockout.
157 Assessment of damages. The evidence before the Tribunal indicating what items of stock were removed from the Premises comprised the majority of a series of 79 photographs taken by those carrying out the removal (these were annexed to Mr Fraietta’s affidavit) and a list of a number of items of clothing (plus also a few items of equipment) that formed part of Video-Drama’s business records.
158 The first page of this list was headed ‘Inventory List: 34/277 Crown Street Darlinghurst’. The second and third pages were in the same format and typescript as the first page. These three pages purported to classify the stock by reference to various locations, such as a numbered rack, a counter or a storeroom. A fourth page was headed ‘Inventory List – 7/11/02: 34/277 Crown Street Darlinghurst’. It was in a different format and typescript and it classified items of stock by reference to numbered boxes.
159 All four pages of this inventory were admitted on the tender of Parallel Lines, though with an acknowledgment by the Tribunal of an objection by Mr Sirtes to the fourth page, on the ground that it appeared to have been created separately from the first three pages.
160 The principal evidence before the Tribunal indicating what fixtures and fittings were removed was a list containing 19 items in Mr Hill’s affidavit. In addition, two photographs annexed to Ms Russo’s affidavit and a few of the 79 photographs annexed to Mr Fraietta’s affidavit showed pieces of equipment apparently used in the shop, four pieces of equipment were included on pages 2 and 4 of the Inventory List and Mr Jennings referred in cross-examination to various such items that were stored in his garage.
161 Although, as mentioned above, Mr Hill inspected the seized goods at a warehouse where they were stored during April 2003, no documentary record based on this inspection was tendered.
162 Ms Russo’s evidence included an allegation that the photographs annexed to Mr Fraietta’s affidavit did not show a significant quantity of stock that had been in an area behind the door of the storeroom.
163 The admitted evidence relating to the value of the stock, fixtures, fittings and cash that were removed was of limited scope. It comprised (a) a claim by Mr Hill, in his fax of 2 November 2002 to Mr Watson, that the total value of all these goods was $47,500, of which about $34,000 related to stock for which the suppliers had not been paid; (b) an assertion by him in a fax of 9 October 2002 (see [73] above) that $550 in cash had been taken; (c) a claim by him in his affidavit that at the time of the lockout ‘there would have been approximately $50,000 worth of trading stock’ in the shop and (d) the inclusion of estimated values, totalling $53,390, in the 19-item list of fittings and fixtures in this affidavit.
164 Mr Hill asserted in his affidavit and in cross-examination that Parallel Lines was unable to provide any further details regarding either the identity or the value of the goods that were owned by Parallel Lines (not by an unpaid supplier) and were removed by EMC from the Premises. The reason, he said, was that Parallel Lines’ business records had been thrown out by cleaners acting on the instructions of EMC.
165 In a number of spreadsheets (with accompanying photographs and commentary) that were annexed to the written submissions filed on Parallel Lines’ behalf after the hearing, particulars were however supplied to the Tribunal of (a) the identity and the alleged value of all the stock, fixtures and fittings claimed to have been removed from the Premises and (b) the amounts allegedly owed to suppliers at the time of the lockout.
166 On the basis of this material, Ms Obrart submitted that damages should be awarded under this head to Parallel Lines as follows: value of stock removed, $150,017.92; value of fixtures and fittings, $66,115.60; amount of cash removed, $600.00.
167 Ms Obrart also relied on two principles established in the case law on assessment of damages. These were (a) that the mere fact that assessment may be difficult does not relieve a court from the responsibility of making the best estimate that it can (see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 (per Mason CJ and Dawson J) and (b) a court assessing damages is entitled to draw inferences against a party whose conduct has made accurate determination problematic (see Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333 at [96]).
168 The Tribunal acknowledges, as it must, the importance of these two principles. But it is nonetheless of the firm opinion that it is not in a position to assess damages under this head along the lines advocated by Ms Obrart.
169 The reason for this is that, as Mr Sirtes pointed out, the particulars annexed to the submissions filed on Parallel Lines’ behalf after the hearing do not constitute evidence. While on some matters they refer to statements made in written and oral evidence, on other matters of prime importance – namely, the values that should be attributed to individual fixtures and fittings and to different categories of stock – they simply make assertions by way of ‘reconstruction’. This material is inadequate not merely because it fails in many instances to indicate the evidentiary basis on which individual valuations are claimed. It is inadequate also because it has not been tendered as evidence during the hearing of this case. No opportunity has been provided to Video-Drama to frame objections to its being admitted or to cross-examine any witness called to testify as to its provenance or as to how the valuations contained in it have been calculated.
170 If Parallel Lines had had legal representation throughout the hearing, the Tribunal might well be inclined to rule that it had failed to make use of its opportunity to tender appropriate evidence regarding its losses under this head of damages and that, at most, damages that were established by the limited evidence outlined above should be awarded. But Parallel Lines did not have legal representation until after the hearing. Furthermore, it did not discover until the second last day of the hearing that the goods were still in Video-Drama’s hands, being held in storage in Mr Jennings’ garage. An entitlement to damages under this particular head represents the only substantial part of its case that has succeeded.
171 For these reasons, the Tribunal’s conclusion, based on considerations of natural justice, is that Parallel Lines should have a further opportunity to tender, in proper form, evidence designed to show the value of the goods that were converted by Video-Drama by virtue of their removal from the Premises and subsequent storage. Video-Drama should then have the opportunity to tender evidence in reply.
172 It is clear, in the Tribunal’s opinion, that in any ruling that it makes on damages the value attributed to the items of stock that were removed could not exceed their cost price. Equally, the value attributed to fixtures and fittings should be their depreciated value, not their replacement value. These propositions stem from the failure of Parallel Lines to show that the business that it carried on at the Premises would, but for the lockout, have been both solvent and profitable.
173 The Tribunal’s decision to permit further evidence to be tendered on this aspect of the assessment of damages may well cause a further hearing to be necessary in order to conclude this case. As the reason for these measures is Parallel Lines’ failure to have supplied such evidence at the proper time, the Tribunal would be sympathetic to any application made by Video-Drama (irrespective of the outcome of the proceedings) for costs incurred in tendering any evidence in response and in appearing at a further hearing, if such proves necessary.
174 Under s. 74 of the RL Act, the Tribunal is required to use its best endeavours to bring the parties to proceedings to an acceptable settlement. It may adjourn proceedings with a view to achieving this result. In the present instance, the Tribunal is not acting pursuant to s. 74. But in conformity with the policy underlying this section, it reminds the parties that, since its decision has resolved the other matters of dispute between them, they should consider carefully the possibility that the costs of continuing to litigate, rather than settle, the issue of what damages should be awarded under this head will outweigh any benefit that either of them is likely to derive.
175 Directions forming part of the Tribunal’s orders will give effect to its ruling on this aspect of the case.
Loss of the security bond
176 The principal ground on which Video-Drama has retained the security bond of $10,266.65 is in order to meet its costs incurred in terminating the Lease. The Tribunal has held, however, that this termination was unlawful. Retention on this ground is accordingly not warranted.
177 Video-Drama can fairly claim, however, that it has never received the full rent due to it. At the time of the lockout, the rent was thirteen days in arrears.
178 In the final assessment of damages in this matter, therefore, both the retained security deposit and the unpaid rent must be brought into account.
179 Further claims made in Video-Drama’s application to the Tribunal were not pressed in submissions. In the Tribunal’s opinion, they were all dependent on the lockout being found to be lawful. As this condition was not satisfied, these claims must fail.
The Tribunal’s orders
1. The Applicant/Cross Respondent (‘the Applicant’) is entitled to damages, to be assessed, from the Respondent/Cross Applicant (‘the Respondent’), representing (a) the value of its goods seized by the Respondent on 5 October 2002 and (b) the amount of the security deposit paid by it pursuant to the former lease between the parties.
2. The Respondent is entitled to damages from the Applicant representing the rent due and unpaid under the lease as at 5 October 2002.
3. Within 28 days of the date of these reasons, the Applicant is to file and serve any further evidence and submissions relating to the identity and value of its goods seized by the Respondent on 5 October 2002.
4. Within a further 28 days, the Respondent is to serve any evidence and submissions in reply on this matter.
5. On being given reasonable notice, the Respondent is to permit agents of the Applicant to inspect at a reasonable time any goods of the Applicant held at premises owned or controlled by the Respondent or by any director of the Respondent.
6. The matter is set down for further directions at 9.30 a.m. on Wednesday 6 June 2007.
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