PATTERSON and CRAFT DECOR PTY LTD (ACN 008 759 206) - [2021] WASAT 89

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION:   PATTERSON and CRAFT DECOR PTY LTD (ACN 008 759 206) [2021] WASAT 89
MEMBER:   DR S WILLEY, SENIOR MEMBER
HEARD:   30 JANUARY 2020, 8, 9 AND 10 SEPTEMBER 2020 AND 21 DECEMBER 2020
DELIVERED          :   25 JUNE 2021
FILE NO/S:   CC 1208 of 2019
BETWEEN:   MATTHEW DAVID PATTERSON
First Applicant
JACQUELINE ANNE ARGUS
Second Applicant
AND
CRAFT DECOR PTY LTD (ACN 008 759 206)
Respondent

FILE NO/S: CC 1670 of 2019
BETWEEN: CRAFT DECOR PTY LTD
Applicant
AND
MATTHEW DAVID PATTERSON
First Respondent
JACQUELINE ANNE ARGUS
Second Respondent

Catchwords:

Retail shop lease - Questions arising under a lease - Requirement to remove floor tiles - Landlord's fixtures - Requirement to make good - Unconscionable conduct - Failure to properly account for rent and outgoings

Legislation:

Building Act 2011 (WA)
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 9, s 11(5), s 12(1)(a), s 12(1a)(b), s 12(1a)(e), s 12(1b), s 12(1)(d), s 15C, s 15C(1), s 15D, s 15D(1), s 15D(2), s 16, s 16(1), s 16(1)(a), s 16(1)(b), s 16(2), s 26, s 26(1)(a)
Interpretation Act 1984 (WA), s 56
Property Law Act 1969 (WA), s 9(1), s 47(1), s 77, s 78

Result:

CC 1208 of 2019: Application partially successful
CC 1670 of 2019: Application successful

Category: B

Representation:

CC 1208 of 2019

Counsel:

First Applicant	:	Mr R Moss
Second Applicant	:	Mr R Moss
Respondent	:	Mr T Brickhill

Solicitors:

First Applicant	:	Origen Legal
Second Applicant	:	Origen Legal
Respondent	:	N/A

CC 1670 of 2019

Counsel:

Applicant	:	Mr T Brickhill
First Respondent	:	Mr R Moss
Second Respondent	:	Mr R Moss

Solicitors:

Applicant	:	N/A
First Respondent	:	Origen Legal
Second Respondent	:	Origen Legal

Case(s) referred to in decision(s):

Arise Joondalup Pty Ltd and Loveday Corp Pty Ltd [2015] WASAT 92
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491
Australian Securities and Investments Commission (ASIC) v Kobelt [2019] HCA 18; (2019) 368 ALR 1
Australian Securities and Investments Commission (ASIC) v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132
CA & Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
Damaro Pty Ltd and Hydrox Nominees Pty Ltd [2020] WASAT 7; (2020) 99 SR (WA) 1
Douglass v Lawton Pty Ltd [2007] NSWCA 89
Duong and Coventry Village Pty Ltd [2016] WASAT 32
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Head and Zimmerman Investments Pty Ltd [2010] WASAT 75
Holland v Hodgson (1872) LR 7 CP 328
Jetpoint Nominees Pty Ltd and Lee [2021] WASAT 10
Litigation Capital Partners LLP PTE Ltd (Registration No 200922518M) v ACN 117 641 004 Pty Ltd (in liquidation) (formerly known as Vale Cash Management Fund Pty Ltd) [2021] WASC 161
Murphy and Fremantle Markets Pty Ltd [2009] WASAT 84
New Zealand Government Corporation v H M & S Ltd [1982] QB 1145
Primewest (Lot 4 Davidson Street Kalgoorlie) Pty Ltd v Broadwater Hospitality Management Pty Ltd [2009] WASC 304
Re Seventy-Ninth Vibration Pty Ltd and Chief Executive Officer of Customs (1998) 54 ALD 139
Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350
Serventy v Commonwealth Bank of Australia [No 2] [2016] WASCA 223
Spyer v Phillipson [1931] 2 Ch 183; [1930] All ER Rep 457
Sunderland v Newton (1830) 3 Sim 450
Thirco Pty Ltd v Chief Executive Officer of Customs [2001] AATA 1015; (2001) 34 AAR 122; (2001) 66 ALD 779
Van der Feltz and Rispoli [2021] WASAT 84
Vesco Nominees Pty Ltd v Stefan Hair Fashions [2001] QSC 169; [2001] Q ConvR 54 - 555
Vopak Terminal Darwin Pty Ltd v National Fuels Darwin Pty Ltd (2009) 258 ALR 89

REASONS FOR DECISION OF THE TRIBUNAL:

Introduction

These two applications arise under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act). The two applications remain separate but arise out of the same underlying factual context. Both applications are referrals of questions arising under the retail shop lease for the purposes of s 16(1) of the Retail Shops Act.
Each application arises under a lease (Lease) in relation to premises known as Units 1 and 2, 22 Franklin Lane, Joondalup (Premises). The key events that give rise to the applications relate to the end of lease arrangements.
The first application (being CC 1208 of 2019) relates to whether Craft Décor Pty Ltd (Craft Décor) breached its end of lease obligations and whether it owes, the lessors, Mr Matthew Patterson and Ms Jaqueline Argus (together the Lessors) the cost of various works the Lessors say were required as a consequence of those breaches. I shall refer to this application as the Lessors' Application.
The other application (being CC 1670 of 2019) is made by Craft Décor against the Lessors. This application gives rise to questions as to whether the Lessors also breached their Lease obligations in relation to accounting to Craft Décor in terms of rent and outgoings. I shall refer to this application as Craft Décor's Application.
In these proceedings I will refer to the parties respectively as Craft Décor and the Lessors, although it will also be necessary to refer only to Mr Patterson at various points. Ms Argus has had no practical involvement with these proceedings.
As I will shortly come to, Craft Décor's Application has been admitted by the Lessors. The only question is whether Craft Décor should to contribute to half of the cost of the preparation of the auditor's report (allegedly) prepared pursuant to s 12(1a)(e) of the Retail Shops Act. There is also a question as to whether Craft Décor should be entitled to recover $115 in bank tracing fees.

Questions for determination

The parties consider that the following questions arise for determination as questions between the parties arising under the Lease. I agree that the threshold requirement set out in s 16(1)(a) of the Retail Shops Act is satisfied. I therefore will proceed to determine each question pursuant to s 16(1)(b) of the Retail Shops Act.
The questions for determination are as follows:

Questions arising from the Lessors' Application

The following are the questions for determination that arise pursuant to the Lessors' Application. My summary answers to these questions are in italics:
1.Whether Craft Décor , as lessee, has failed to deliver up vacant possession of the Premises to the Lessors, in such state, condition or order consistent with the due performance and observance of all of the lessee's covenants contained in the Lease, particularly the covenants of repair and to make good the leased premises.
Aside from painting the surfaces of the Premises (inside and out) which had been previously painted with two coats of paint, no. Craft Décor have not breached the Lease by not removing the floor tiles. Having regard to the evidence, I am also not satisfied that Craft Décor caused the damage to doors, tiles, toilets and vanities as claimed by the Lessors. By failing to paint the Premises as required by cl 15.2(a) of the Lease, Craft Décor has breached the make good covenants of the Lease.
2.If Craft Décor has failed to fulfil its covenants under the Lease:
(a)whether the Lessors were entitled to carry out all repairs or works which should have been carried out by Craft Décor; and
(b)whether Craft Décor is obliged to pay the Lessors upon demand the cost of such repairs or works.
Craft Décor is obliged to pay the Lessors the amount of $3,740 (GST inclusive) being the professional costs associated with painting the Premises for the purposes of cl 15.2(a) of the Lease.
3.Whether Craft Décor should pay the Lessors' legal and professional costs and disbursements on a full indemnity basis pursuant to cl 9.3 and cl 9.4 of the Lease.
Yes, but limited to the costs arising from the failure to comply with covenant set out in cl 15.2(a) of the Lease.
In the context of the three questions above, the parties agree that there are 10 primary issues that arise for determination in relation to the Lessors' Application. These issues are:
1.Whether covenants in the Lease for the benefit of the Lessors imposing on Craft Décor obligations of repair and to make good the Premises:
(a)are enforceable by the Lessors as transferee of the freehold reversion of the land the subject of the Lease against Craft Décor as lessee; and
(b)are annexed and incidental to and go with the reversionary estate in the land subject of the Lease,
pursuant to s 77 of the Property Law Act 1969 (WA) (PL Act).
2.If the benefit of the leasehold covenants referred to in Issue 1 are enforceable by the Lessors against Craft Décor, and are annexed to and go with the reversionary estate, whether Craft Décor has failed to deliver up vacant possession of the Premises to the Lessors in such state, condition or order consistent with the due performance and observance of all of Craft Décor's covenants contained in the Lease, particularly the covenants of repair and to make good the Premises.
3.With regard to the subsequent informal oral agreement referred to in paragraphs set out in paras 23 and 24 of the statement of facts contained in the Applicants' Amended Statement of Issues, Facts and Contentions (dated 24 January 2020), made around December 2012 between Craft Décor and the Lessors' predecessor in title of the reversion (as lessor) purportedly waiving the exercise of its beneficial right to enforce the covenants of repair and to make good the Premises with respect to removal of the floor tiles:
(a)whether the Lessors as transferee of the reversion are bound by its effect; and
(b)whether the informal oral agreement purporting to vary the Lease is annexed and incidental to and goes with the reversionary estate in the land subject of the Lease,
pursuant to s 78 of the PL Act.
4.Whether the express provisions of cl 15.4 of the Lease required Craft Décor to remove the floor tiles at the end of the Lease.
5.In the alternative to Issue 4 above, whether Craft Décor fulfilled its 'end of lease obligations' under cl 15.2(b) of the Lease (make good) with respect to the floor tiles when it installed the floor tiles in or around December 2012.
6.Further, or in the alternative to the issues set out above, whether the agreement to allow Craft Décor to remain in the Premises for two extra weeks was made on the basis that Craft Décor would remove the floor tiles and comply with its 'end of lease' and 'make good' covenants, is, in and of itself, an independent contractual agreement, supported by its own consideration.
7.In the alternative to Issue 6, whether Craft Décor, having agreed to that the time provided under the Termination Notice (issued on or around 23 November 2018) would be extended by two weeks to 15 January 2019 so that Craft Décor could remove the floor tiles and comply with its other end of lease and make good covenants, is precluded and equitably estopped from claiming or asserting any other right, whether under the terms of the Lease or otherwise, to refrain from removing the tiles.
8.Further, or in the alternative to the issues set out in Issue 6 and Issue 7 above, whether Craft Décor has, by failing to remove the floor tiles and complying with its 'end of lease' and 'make good' covenants as per the extension agreement, engaged in conduct that is, in all the circumstances, unconscionable pursuant to s 15D of the Retail Shops Act.
9.If Craft Décor has failed to fulfil its covenants under the Lease:
(a)whether the Lessors were entitled to carry out all repairs or works which should have been carried out by Craft Décor; and
(b)whether Craft Décor is obliged to pay the Lessors upon demand the cost of such repairs or works,
pursuant to cl 15.3 of the Lease.
10.Whether Craft Décor is obliged to pay the Lessors' legal and professional costs and disbursements on a full indemnity basis pursuant to cl 9.3 and cl 9.4 of the Lease.
While Craft Décor agrees that these issues need to be determined, it expressly states that it does not accept that there was:
(a)an 'informal' oral agreement and 'waiver' as described in Issue 3;
(b)the 'agreement' referred to in Issue 6 and 8; and
(c)the 'agreement' referred to in Issue 7.
I will refer to issues identified at [10] above collectively as the Issues.

Questions arising under Craft Décor's Application

As I set out at [6], the Lessors have admitted the Craft Décor's Application. Those questions were, essentially:
(a)whether Craft Décor overpaid strata levies in the amount of $2,063.23 for the period between 1 July 2018 and 30 September 2018; and
(b)whether Craft Décor overpaid rent, water rates, council rates and strata levies in the amount of $1,397.40 between 1 January 2019 and 15 January 2019.
Because the Lessors have admitted Craft Décor's Application, it is not necessary for me to engage in these issues in any substantive sense other than, as I indicated at [6], to determine whether Craft Décor is required to contribute to the cost of the report that was prepared by an auditor on instructions from Mr Patterson.
Craft Décor also requests that I also determine whether it should be reimbursed for the $115 it paid in bank tracing fees to meet a 'set off claim' by the Lessors that Craft Décor owed them $10,511.00 arising from the Lease. The Lessors' 'set off claim' was abandoned in February 2020. As I will come to, the 'set off claim' should never have been made. It was factually wrong and wholly unmeritorious. However, as I will also come to, I do not consider the question of the bank tracing fees is a question that arises under the Lease.

Summary of conclusions

In broad terms, for the reasons that follow, I find that:
(a)Craft Décor was not required under the Lease to remove the floor tiles at the time it vacated the Premises. This is because the floor tiles that Craft Décor replaced in 2013 were a landlord's fixture;
(b)the Lease governed the relationship between the parties through to the time that Craft Décor vacated the Premises on 15 January 2019. That is, the Lease was extended in December 2018 rather than a separate new agreement made;
(c)while I accept the Lessors' photographs do evince some damage at the Premises as at 15 January 2019, I am not satisfied on the evidence, that Craft Décor damaged doors, toilets, tiles and vanities as claimed by the Lessors. Firstly, the Lessors' evidence does not show the extent of the damage that is claimed. Secondly, the evidence of damage in the Premises in the areas that the Lessors were demolishing structures as part of their fitout of the Premises means that I am not satisfied that Craft Décor is responsible for the damage claimed. In relation to these items, I find that Craft Décor has not breached its Lease covenants;
(d)I am satisfied that Craft Décor breached cl 15.2(a) of the Lease in failing to paint the previously painted surfaces of the Premises, inside and external, before vacating. Craft Décor is required to pay the Lessors the costs of this work (being $3,740); and
(e)under the Lease, the Lessors are entitled to full indemnity costs for its legal and professional costs and disbursements on account of Craft Décor's failure to paint the Premises before vacating.
I also find that the Lessors have failed to properly account for rent and Outgoings under the Lease. They owe Craft Décor $2,675 in this regard.

The final hearing

The final hearing for this matter commenced on 30 January 2020, was continued between 8 and 10 September 2020 and concluded on 21 December 2020. The conduct of the proceedings was delayed as a result of the Covid-19 pandemic.
The following witnesses gave evidence:
(a)Mr Davide Espositio (Director of Espo Construction Pty Ltd);
(b)Mr Patterson (one of the Lessors);
(c)Mr Sammy Ricciardo (Director of Specialized Plumbing and Gas);
(d)Mr Giovanni D'Amico (Hamilton Hill Painting Contractor);
(e)Mr Steven Bristow (Bristow Professional Tiling Service);
(f)Mrs Mary Nadilo (General Manager of Craft Décor);
(g)Mr Tony Nadilo (Director of Craft Décor);
(h)Mr Daniel Papaphotis (Partner, Francis A Jones Pty Ltd - Accountants). Mr Papaphotis was not required to give oral evidence; and
(i)Ms Tania Anderson (Administration Manager at Craft Décor).

Background

The Premises and the Lease

On 14 November 2007, Robin and Jean Pyle (the then registered proprietors of the Premises) entered into a lease with Craft Décor as lessee (the Lease).
At the time the Lease was entered into, the Premises contained maroon tiles in the main showroom. The maroon tiles were installed by Robin and Jean Pyle in or around September 2007.
The Lease provided for:
(a)an initial term of five years commencing on 1 December 2007 and expiring on 30 November 2012; and
(b)an extended term of five years commencing on 1 December 2012 and expiring on 30 November 2017.
Craft Décor used the Premises for the carrying on of a retail business, namely the sale and supply of floor and wall tiles.

Craft Décor replaces the tiles

In or about January 2013, Craft Décor replaced the maroon tiles at its expense. The consent of Robin and Jean Pyle to remove and replace the tiles was obtained. It was agreed that Craft Décor would not have to remove the tiles at the end of the Lease. However, that agreement was not recorded in writing.

Holding over

Pursuant to cl 14 of the Lease (holding over), Craft Décor remained in possession of the Premises on a monthly tenancy from 1 December 2017 to 15 January 2019. I note here this fact is agreed between the parties. The significance of that will be explained later in these reasons.

The Premises are transferred to the Lessors

On 20 April 2018, the Premises were transferred to the Lessors.
Pursuant to s 77 of the PL Act, covenants in the Lease for the benefit of the Lessors imposing obligations on Craft Décor obligations of repair and to make good the Premises (being covenants which touch and concern the land):
(a)were enforceable by the Lessors as transferees as the freehold reversion of the land the subject of the Lease as against Craft Décor; and
(b)are annexed and incidental to and go with the reversionary estate the subject of the Lease.

Payments made to the Lessors

By reason of s 47(1) of the PL Act, Craft Décor was required to meet its obligations under the Lease to the Lessors including the obligation to pay rent (cl 2.1 of the Lease) and to meet outgoings (cl 3.1 of the Lease) (Outgoings).
The Outgoings include strata levies, water and council rates for the Premises.
Clause 3.3 of the Lease required Craft Décor to provide the Lessors with written notice (Notice) of an estimate for the Outgoings for the 2018/19 financial year.
Craft Décor did not issue the Lessors with the Notice.
On or about 20 July 2018, the Lessors sent Craft Décor the strata levy notices for a total of $2,024.95 for the period 1 July 2018 to 30 September 2018. Craft Décor paid the Lessors this amount on 24 July 2018.
On or about 9 October 2018, Craft Décor received strata levies (sent by the Strata Managers) for the Premises of $1,965.00 for the period 1 October 2018 to 31 December 2018 and payment in arrears in the amount of $2,063.23 (including interest of $38.28) for the period of 1 July 2018 to 30 September 2018.
Craft Décor paid the Strata Managers the full amount of $4,028.23 on 10 October 2018.
It is accepted that Craft Décor paid the strata levies twice for the period 1 July 2018 to 30 September 2018. The Lessors did not account to Craft Décor for the amount of $2,063.23 that it, in effect, overpaid the strata levies.

On 20 December 2018, Craft Décor received an invoice from the Lessors in the amount of $4,620 for rent, water, council rates and strata levies for the Premises for the period of 1 September 2019 to 15 January 2019 (the January Period).
Despite Craft Décor's demands, the Lessors did not provide Craft Décor with a breakdown of the water council rates and strata levies for the Premises for the January Period.
Between 31 December 2018 and 2 January 2019, Craft Décor paid the Lessors' invoices for $4,620 referred to in [36] above.
The proper amount payable by Craft Décor to the Lessors for the January Period on account of the rent, water council rates and strata levels for the Premises was, $3,222.60.
Despite Craft Décor's demands, until it received an audit report (dated 20 March 2020), the Lessors failed to respond to it in relation to the sum of $1,397.40 being the overpayment it made in relation to rent, water, council rates and strata levies for the January Period.

The Lessors terminate the Lease

On or about 23 November 2018, the Lessors:
(a)provided Craft Décor with written notice of their intention to terminate the Lease (Termination Notice) within the period of five weeks of the notice, being no later than 31 December 2018 (the Termination Date); and
(b)required Craft Décor to deliver up vacant possession of the Premises, in such state, condition or order consistent with the due performance and observance of Craft Décor's covenants contained in the Lease.
The Termination Notice specified that Craft Décor was required, under the Lease, to:
(a)remove all of the floor tiles (approximately 450m²) in the main showroom of the Premises that Craft Décor had installed over five years earlier in (December 2012); and
(b)remove any of Craft Décor's signage at the front of the Premises and within the Premises.

Craft Décor request a two-week extension before vacating the Premises

As set out at [41], the Lessors terminated the Lease on 23 November 2018.
On 7 December 2018, Mr Patterson emailed Craft Décor (Sonia Tuohy) querying that he had not heard from Craft Décor in relation to vacating the Premises and that he had tradesmen starting work in the first week of January 2019.
On or about 10 December 2018 Mr Nadilo (Director of Craft Décor) telephoned Mr Patterson and requested that Craft Décor be given until 15 January 2019 to move out of the Premises.
The details of the conversation between Mr Nadilo and Mr Patterson on or about 10 December 2018 are very much in contest in these proceedings.
Mr Nadilo says that he called Mr Patterson and explained that he was shocked that the Lease had been terminated as he had understood (from discussions with the Strata Manager) that Craft Décor would be able to stay in the Premises for another 12 to 18 months. Mr Nadilo said to Mr Patterson words to the effect of:
[A]re you kidding me that you want Craft Décor moving out smack bang in the middle of the festive season. It will be impossible as staff and necessary tradespersons would not be available over Christmas to enable Craft Décor to move out.
Mr Nadilo says he requested that Craft Décor be given until 15 January 2019 to vacate. Mr Nadilo said that Mr Patterson said he needed to speak with someone about an extension but did not envisage it would be a problem.
Mr Patterson says that in that conversation Mr Nadilo explained that '[Craft Décor] cannot get all of this done in the time that you have given us to get out'. Mr Patterson says he told Mr Nadilo that he would extend the Termination Date by two weeks to 15 January 2019 so that Craft Décor could remove the floor tiles and comply with its other end of lease and make good covenants. Mr Patterson says that Mr Nadilo agreed to those terms.
One of the Lessors' arguments is that this conversation between Mr Nadilo and Mr Patterson on or about 10 December 2018 constituted a (separate) enforceable agreement supported by its own consideration.
On 17 December 2018, Mr Patterson emailed Craft Décor (Mrs Mary Nadilo, General Manager) explaining that he had called Mr Nadilo and left a message for him to call back. Mr Patterson assumed that because Mr Nadilo had not returned his phone call that the two-week extension was no longer needed.
On 17 December 2018, Mr Nadilo says that he called Mr Patterson back to confirm that Craft Décor needed the two-week extension. Mr Nadilo says this was to be confirmed in writing by Mr Patterson in an email sent at 1.14 pm on 18 December 2018.
Mr Nadilo says that during one of the telephone calls between himself and Mr Patterson in December 2018 he recalls that Mr Patterson requested Craft Décor remove the floor tiles. Mr Nadilo says he replied with words to the following effect: 'Craft Décor will vacate the Premises and hand back the keys by COB on 15 January 2019'.
Mr Nadilo says the following:
Mr Patterson did not say to me during any of my telephone conversations with him that he would extend the time provided under the termination notice so that Craft Décor could remove the floor tiles and comply with its other end of lease and make good covenants.
And:
At no time during any of my telephone conversations or discussions with Mr Patterson, or at all, did I inform Mr Patterson that Craft Décor would remove the floor tiles at the Joondalup store back to a concrete floor.
I will return to discuss these issues later in the reasons.

The events of 2 January 2019

Further to [36], on 31 December 2018 Craft Décor paid the Lessors $2,621.85 for the January Period (Craft Décor did not pay the full amount of $4,620 that the Lessors were demanding).
On 2 January 2019, Mrs Nadilo telephoned Mr Patterson.
Mrs Nadilo says that during that conversation Mr Patterson 'threatened' to change the locks and take control of the Premises if the balance of the January Period invoices were not immediately paid.
Under duress, Craft Décor paid the Lessors the balance of the invoices for the January Period in the amount of $1,998.15 on 2 January 2019.

The events of 7 January 2019

On 7 January 2019, Mr Patterson sent the following email to Craft Décor (Mrs Nadilo):
I've just gone past the store and noticed that you are still open and no work has been done to either move out or remove the tiles and grind back the concrete to a smooth service [sic]. When are you doing this? From my experience this is quite a big job and you haven't even started. Please note that the arrangement is that you need this done by the 15January 2019. Could you please email me when you are starting this work please[?]
Later that same day, Craft Décor (Mrs Nadilo) sent the following email to Mr Patterson:
We are working towards being out of the showroom as agreed.

The events of 14 January 2019

On the afternoon of 14 January 2019, Mr Patterson attended the Premises. He exchanged words with Mr Nadilo. This 'exchange' can fairly be described as a confrontation. Mr Nadilo and Mr Zuvela (the warehouse manager at Craft Décor in Fremantle) were on the roof of the Premises removing the Craft Décor signage.
Mr Patterson arrived at around 3.45 pm and asked, 'Are you Tony?' to which Mr Nadilo replied 'yes'. Mr Patterson asked, 'How come the floor tiles have not been ripped up?'. Mr Patterson says that Mr Nadilo initially said words to the effect that 'they're not here yet'. It is not in contest that Mr Nadilo as part of that exchange said words to the effect that 'there was no agreement to rip up the floor tiles' and that 'Craft Décor will not be sponsoring your business'.
Mr Nadilo says that Mr Patterson then swore at him. Mr Nadilo queried Mr Patterson as to whether he should 'call the cops'.
Mr Nadilo then says that Mr Patterson then left for around 10 minutes before returning. Mr Nadilo was still on the roof. Mr Nadilo says that Mr Patterson said words to the effect that he had spoken with three lawyers and that Craft Décor 'did not have a leg to stand on'. Mr Nadilo says, which is confirmed by Mr Zuvela, that Mr Patterson then said words to the effect that 'he was going to get the most expensive quote to remove the floor tiles and that Craft Décor was going to pay the bill'. Mr Patterson then left.
Approximately 20 minutes later Mr Patterson returned together with a male person. Mr Nadilo was still on the roof packing the signage onto a pallet. Mr Patterson and the male person walked into the Premises. They started looking around the store which, Mr Nadilo says, was basically vacant.
A Mr Treby, who worked in the store adjacent, was walking past the Premises. Mr Nadilo asked Mr Treby to wait for a little while. Mr Patterson and the male person stayed for around 15 minutes. Upon leaving Mr Patterson asked Mr Nadilo where the keys were. Mr Nadilo advised that the rent was paid through to close of business on 15 January 2019 and that he would get the keys at that time.

Craft Décor vacates the Premises

On or around 15 January 2019, Craft Décor delivered up vacant possession of the Premises to the Lessors. The state that Craft Décor left the Premises in is a central issue in these proceedings. The Lessors claim that the state of the Premises as at 15 January 2019 did not meet Craft Décor's covenants under the Lease including, but not limited to, the following matters:
(a)removing all fixtures, fittings, plant, machinery, utensils, shelving, signs and advertising material, counters, floor coverings, safes and chattels from the Premises which belonged to and were put in by Craft Décor and also to make good to the satisfaction of the Lessors all damage caused or occasioned to the Premises by such removal;
(b)paint with two coats and in a workmanlike manner the outside and inside of the Premises which has been previously been painted;
(c)remove all bolts and fixtures from walls and floors of the Premises and make good any damage caused by their removal;
(d)thoroughly clean the Premises including all windows and floor surfaces, high pressure clean any warehouse walls and floor; and
(e)replace and/or repair of all damaged Lessors fixtures and fittings.
Clause 15.2 of the Lease further provided that all of the works listed at [68] above shall be performed with materials of the best quality and to the satisfaction of the Lessors and Craft Décor shall also make good any damage done to the Premises in the carrying out of the required works.
The Lessors submit that, despite demand, Craft Décor refused to fulfil its obligations under the terms of the Lease.

The Lessors engage contractors to undertake work at the Premises

After the Premises were vacated, the Lessors engaged contractors to carry out repairs that, it says, should have been carried out by the respondent. In doing so, the Lessors spent (or undertook works to the value of) $35,942.72.
Craft Décor refused to pay the Lessors the $35,942.72.
The Lessors say the following matters were not addressed by Craft Décor upon vacating the Premises:
(a)removal and disposal of approximately 450m² of floor tiles in the main show room installed by Craft Décor in or around December 2012;
(b)removal of all Craft Décor signage;
(c)thoroughly clean the Premises including all windows, floor surfaces, high pressure clean walls and floor;
(d)paint (two coats) in colour and in a workmanlike manner inside and outside of the Premises (with a paint reasonably specified by the Lessors); and
(e)replace and/or repair all damaged Lessors' fixtures and fittings; namely:
(i)remove and replace broken vanity and toilet suite;
(ii)remove and replace four broken interior doors; and
(iii)supply and install broken tiles in the toilet.
On or around 16 January 2019, Mr Patterson says that he obtained quotes for various works required at the Premises and the total for the lowest of these quotes was $28,820 (including GST). These quotes included:
(a)$22,220 (including GST) on 21 January 2019 for the removal of the floor tiles (including disposal of the waste materials, sanding back the floor, removal of the front counter, removal and replacement of broken toilet suite, replace the broken tiles in the toilet, replace four damaged interior doors. This quote was from Espo Construction Pty Ltd (Mr Esposito); and
(b)$6,600 (including GST) from Ascent Painting and Decorating on 23 January 2019 to complete painting at the Premises (inside and out). This quote was the lowest painting quote Mr Patterson received.
Ultimately:
(a)Espo completed works between 17 and 25 January 2019 and invoiced the Lessors $27,170.00 (including GST);
(b)Mr Patterson (who runs a painting business) painted the Premises himself and invoiced Craft Décor the equivalent of the lowest quote he had received (being the quote for $6,600 from Ascent Painting and Decorating); and
(c)Mr Patterson also engaged, at a cost of $2,172.72 (including GST), Specialized Plumbing and Gas to supply and install a new vanity and toilet suite for the Premises. These works were undertaken on or around 7 March 2019.

Mr Patterson writes to Craft Décor

On 1 February 2019, Origen Legal (acting on behalf of Mr Patterson) wrote to Craft Décor and:
(a)included the quotes referred to at [74] above;
(b)set out Craft Décor's covenants under the Lease and the fact that these ran with the land (such that they were owed to the Lessors);
(c)advised that to settle the matter the Lessors would accept the lowest of the quoted figures (being the amount of $28,820 (including GST); and
(d)noted that, pursuant to cl 9.3 and cl 9.4 of the Lease, all legal and professional costs and disbursements are recoverable on a full indemnity basis.
On 8 February 2019, Craft Décor replied to the letter from Origen Legal and:
(a)refused the Lessors' offer of settlement; and
(b)stated that it had been agreed with the previous registered proprietors of the Premises that Craft Décor could install the porcelain tiles in lieu of the previous red tiles, without being obliged to remove them when Craft Décor vacated the Premises.
Included in that reply from Craft Décor was a statutory declaration sworn by Robin Pyle which outlined the agreement with Craft Décor regarding the porcelain tiles (Statutory Declaration). The Statutory Declaration was dated 6 February 2019.

The Lessors refurbish the Premises

One of the complicating factors in this matter is the fact that the Lessors did not simply move into the Premises. They, almost immediately, undertook significant renovation and fit-out works in the 'warehouse' establishing a new trades area (termed as the 'S&T area'), a new kitchen and shower as well as a mezzanine level above. In the main showroom area, a new office has been created.
The works involved in this refurbishment are not insignificant. They involve demolition of five rooms, constructing four new rooms as well as a new mezzanine level. However, there is no evidence of any permits being granted under the Building Act 2011 (WA). There are not even any plans. There is only one invoice available for the entirety of the fit-out works. That invoice is from EBCO Pty Ltd (EBCO) for $5,164.50 (GST inclusive). This is despite the fact that it is an agreed fact that Mr Esposito (from Espo) did some tiling work as part of the new fit-out.
While, of course, the Lessors are entitled to use and fit-out the Premises as they see fit, in circumstances where they are claiming that Craft Décor has not met its covenants under the Lease, it is important that the Lessors are able to verify (and indeed demonstrate) what works were done as a result of Craft Décor's alleged failings under the Lease, as opposed to the works undertaken for the separate fit-out works for the Premises (for which Craft Décor are not responsible).

The Retail Shops Act

Section 16 of the Retail Shops Act provides (subject to s 11(5) in relation to the rent payable) that a party to a retail shop lease may refer to the Tribunal any question between the parties which they believe to be a question arising under the lease.
Section 16(1)(a) of the Retail Shops Act then provides that the Tribunal shall determine whether or not the question referred to the Tribunal is a question arising under the lease, and if it is such a question, hear and determine it.
Section 16(2) of the Retail Shops Act provides that the matter for determination referred to in s 16(1)(a) may be determined by the Tribunal in such manner as it thinks fit, subject to each party being given an opportunity to make a written submission.
Section 15D(1) of the Retail Shops Act provides that a tenant is not to engage in conduct which is unconscionable conduct in connection with the lease. Section 15D(2) of the Retail Shops Act states:
Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a tenant has contravened subsection (1), the Tribunal may have regard to -
(a)the relative strengths of the bargaining positions of the landlord and tenant; and
(b)whether, as a result of conduct engaged in by the tenant, the landlord was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the tenant; and
(c)whether the landlord was able to understand any documents relating to the lease; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the landlord (or a person acting on behalf of the landlord) by the tenant or a person acting on behalf of the tenant in relation to the lease; and
(e)the amount for which, and the circumstances under which, the landlord could have granted an identical or equivalent lease to a person other than the tenant; and
(f)the extent to which the tenant's conduct towards the landlord was consistent with the tenant's conduct in similar transactions between the tenant and other similar landlords; and
(g)the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the landlord acted on the reasonable belief that the tenant would comply with that code; and
(i)the extent to which the tenant unreasonably failed to disclose to the landlord -
(i)any intended conduct of the tenant that might affect the interests of the landlord; and
(ii)any risks to the landlord arising from the tenant's intended conduct that are risks that the tenant should have foreseen would not be apparent to the landlord;
and
(j)the extent to which the tenant was willing to negotiate the terms and conditions of any lease with the landlord; and
(k)the extent to which the tenant acted in good faith; and
(l)the extent to which the tenant was not reasonably willing to negotiate the rent under the lease; and
(m)the extent to which the tenant unreasonably used information about the turnover of the tenant's or a previous tenant's business to negotiate the rent; and
(n)the extent to which the tenant was willing to incur reasonable refurbishment or fit out costs.
Section 26 of the Retail Shops Act provides the Tribunal with the discretionary powers to make orders as follows:
(1)Without limiting any power to make an order that is conferred by the State Administrative Tribunal Act 2004 but subject to this Act the Tribunal may make -
(a)an order that requires a party to any matter before it to pay money to a person specified in the order; or
(b)an order for a party to any matter before it to do, or refrain from doing, anything specified in the order; or
(c)an order dismissing any matter before it. (1a) The power in subsection (1)(b) includes power for the Tribunal to order the parties to enter into an agreement varying a retail shop lease as specified in the order where the Tribunal has found that the tenant under the lease was before entering into the lease misled by the landlord as to the meaning or effect of a term or condition of the lease.
(1aa)The Tribunal may, where it considers it appropriate to do so to resolve the matter concerned, make an order terminating a retail shop lease.
(2)In considering whether to make an order under the State Administrative Tribunal Act 2004 section 87(2) in a proceeding, the Tribunal may have regard to a certificate issued under section 25C that relates to the proceeding.
(3)An order of the Tribunal requiring anything to be done or discontinued may fix the time within which that thing is to be done or discontinued, as the case may be.
(4)The Tribunal may allow any equitable claim or defence, and give any equitable remedy, in a matter before it that the Supreme Court may allow or give.

Relevant legal principles

Principles of construction

In Damaro Pty Ltd and Hydrox Nominees Pty Ltd [2020] WASAT 7; (2020) 99 SR (WA) 1 the Tribunal, at [16] - [23], summarised the relevant legal principles relating to lease disputes arising under the Retail Shops Act. I will broadly set out that summary, together with some more recent case law, below.
In Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 Buss JA (with whom Martin CJ agreed) summarised the proper approach to construction of written contracts (in that instance a lease) at [84] - [86] as follows:
84The general principles to be applied in the construction of written contracts are set out in the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Re Alma Spinning Co (Bottomley's Case) ((1880) 16 Ch D 681, at p 686). Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd (1932) 147 LT 503, at p 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd ((1968) 118 CLR 429 at 437)) (109-110).
85The construction of a written contract involves ascertaining what a reasonable person would have understood the parties to mean. Consideration should ordinarily be given not only to the language of the document, but also to the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:
This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 [22]).
Also see Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 82 ALJR 419 at [8], [53]; Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757, 773 - 774.
86The preponderance of Australian authority supports the proposition that post-contractual conduct is not admissible in determining what a contract means, as distinct from determining whether it was formed. See Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [26] (Heydon JA). Also see County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [161]; Bowesco Pty Ltd (receiver and manager appointed) v Zohar [2007] FCAFC 1; (2007) 156 FCR 129 [79].
The above principles were reaffirmed by the High Court in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 (Electricity Generation v Woodside Energy) where French CJ, Hayne, Crennan, and Kiefel JJ stated, at [35], as follows:
… [T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (footnotes omitted)
These observations from the plurality in Electricity Generation v Woodside Energy were recently endorsed by the Court of Appeal in CA & Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31 at [51] (Buss P and Vaughan JA) (CA & Associates v Fini) and more recently by Hill J in Litigation Capital Partners LLP PTE Ltd (Registration No 200922518M) v ACN 117 641 004 Pty Ltd (in liquidation) (formerly known as Vale Cash Management Fund PtyLtd) [2021] WASC 161 at [73]
In CA & Associates v Fini, the plurality in Court of Appeal set out, at [51], the following general principles that are to apply in construing a commercial contract:
…
1.The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract) and purpose.
2.In determining the meaning of the terms of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
3.The court approaches the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result, ie a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
4.Ordinarily the process of construction is possible by reference to the contract alone.
5.However, sometimes recourse to external events, circumstances or things is necessary; for example, to identify the commercial purpose or objects of the contract (by reference to the genesis of the transaction, the background, the context and the market in which the parties are operating) or to determine the proper construction where there is a constructional choice due to ambiguity.

Unconscionable conduct

Sections 15C and 15D of the Retail Shops Act provides that landlords and tenants shall not, in connection with a lease, engage in conduct that is, in all of the circumstances, unconscionable. Section 15D applies to the conduct of tenants. The long title of the Retail Shops Act includes the prohibition of unconscionable conduct. In this regard see the discussion in Arise Joondalup Pty Ltd and Loveday Corp Pty Ltd [2015] WASAT 92 at [101] - [104].
The Retail Shops Act does not define 'unconscionable conduct' but it is accepted by the Tribunal that conduct would be unconscionable if the conduct was well outside the expected conduct that characterises commercial relationships: see Head and Zimmerman Investments Pty Ltd [2010] WASAT 75 (Head and Zimmermann) at [37]; Duong and Coventry Village Pty Ltd [2016] WASAT 32 at [18].
The concept of unconscionability is grounded in equity which has, as its fundamental tenet, intervention in circumstances where it is not consistent with equity or good conscience for a stronger party to enforce, or retain the benefit of, a dealing with a person under a special disability or disadvantage: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 461, 467 and 474.
However, it has been held that a statutory prohibition against unconscionable conduct is not confined to the equitable doctrine of unconscionability: see Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491 (Berbatis) at [24] and Australian Securities and Investments Commission (ASIC) v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 (National Exchange Pty Ltd) at [30].
This broader concept of unconscionable conduct has been accepted by the Tribunal as applying to the Retail Shops Act: Murphy and Fremantle Markets Pty Ltd [2009] WASAT 84 at [78] - [85].
In Head and Zimmermann at [37], the Tribunal found that to establish unconscionable conduct under, relevantly, s 15C(1) of the Retail Shops Act requires:
… a standard of behaviour which, in all the circumstances, is well outside what might be expected in relations between parties to an arm's length commercial relationship and therefore unacceptable.
In this way, the term 'unconscionable' must be understood as bearing its ordinary meaning: Australian Securities and Investments Commission (ASIC) v Kobelt [2019] HCA 18; (2019) 368 ALR 1 (Kobelt) at [14].
That is, unconscionable conduct is conduct that is something done not in good conscience: Kobelt at [14], National Exchange Pty Ltd at [33]. It is conduct that is irreconcilable with what is right or reasonable: Berbatis at [13], Serventy v Commonwealth Bank of Australia[No 2] [2016] WASCA 223 at [23])

Relevant Lease provisions

The Lease provisions lie at the heart of this dispute. The Lease includes the following provisions:
…
1.CONSTRUCTION & DEFINITIONS
1.1…
(r)'Lease Premises' means the premises and/or car parking facilities so described in the Schedule and includes:
(i)all landlord's fixtures and fittings thereon and therein;
(ii)all alterations or additions made thereto or to the landlord's fixtures and fittings, or any replacement thereof, and
(iii)the electrical, water, gas and other installations and fittings thereon and therein.
In the case of such premises, the Leased Premises extend vertically from the upper surface of the floor slab on each floor level of the Building to the under surface of the ceiling above the floor slab on each floor level of the Building and extend horizontally to the centre line of inter-tenancy walls and to (but not including) the outer face of external walls and of shop fronts and to (but not including) the outer face or line of all other boundaries of the Leased Premises.
In the case of car parking facilities, the Leased Premises are limited to a height of 3 metres above the surface of such facilities:
…
2.RENT
2.1Payment
(a)The Lessee shall pay the Rent to the Lessor without demand, deduction or right of set-off by equal monthly instalments in advance on the first day of each month, if an instalment is for a period of less than a calendar month that instalment is the Rent for a calendar month then payable divided by the number of days in that calendar month and multiplied by the number of days in that period.
(b)The first instalment of Rent shall be paid on the Commencement Date.
(c)All instalments of Rent shall be paid in the manner and at the place as the Lessor directs.
…
4.REPAIR AND MAINTENANCE
4.1General Repair Obligations
The Lessee shall keep the Leased Premises and the Lessor's fixtures and chattels situated in the Leased premises in good repair and working condition throughout the Term and shall on expiry or termination of the Term yield up the Leased Premises to the Lessor in a good state of repair and condition as is required by this Clause 4.
4.2Additional Specific Repair Obligations
In addition to the Lessee's obligations under Clause 4.1 the Lessee shall throughout the Term carry out the following repairs and maintenance:
(a)promptly repair or replace all broken, cracked or damaged glass in the Leased Premises, with glass of at least the same or similar gauge and quality;
(b)promptly repair or replace all damaged, broken or faulty light globes, fluorescent lights, power points, light switches, heating, lighting and electrical appliances, services and wiring in the Leased Premises;
(c)promptly repair or remove any graffiti upon the Leased Premises;
(d)promptly repair and keep in proper working order and free from blockage plumbing fittings, drains, water pipes, sewerage pipes, toilets and sinks, to the extent to which they are situated in or under the Leased Premises and provide services or Facilities to the Leased Premises;
(e)maintain and repair all door and window locks and fittings in the Leased Premises;
(f)repair any damage or breakage to the Leased Premises, including the Lessor's fixtures, services and Facilities in the Leased Premises, caused by lack of care or misuse by the Lessee or by its employees or agents;
(g)maintain, water and keep all gardens and lawns in good condition;
(h)When carrying out any repair in accordance with this clause, the Lessee shall ensure that:
(i)the work is carried out by appropriately licensed and qualified tradespersons;
(ii)the work is carried out promptly;
(iii)the work is completed in high class workmanship and with good quality materials;
(iv)fittings and materials of similar style and quality are used to the items being repaired or replaced;
(v)the required consent or approval of any Local or Public Authority is obtained to carry out the work and the conditions of approval are observed;
(vi)the work is carried out without creating undue noise, nuisance or interference with the use and enjoyment of adjoining or nearby tenants of the Lessor.
…
5.ALTERATIONS, ADDITIONS
5.1No Alteration
The Lessee shall not without the prior written consent of the Lessor on each occasion:
(a)make any alterations or addition whatsoever to the Leased Premises or cut maim break disfigure or injure any part thereof or commit any other waste thereof;
(b)suspend or permit or suffer to be suspended from the interior roof or ceiling of the Leased Premises or any part thereof any article whatsoever other than normal or usual electric light fittings and apparatus or overload the floors of the Leased Premises or permit or suffer the same to be overloaded.
5.2Approved Alterations
The Lessor shall not unreasonably withhold its consent to any alterations or additions to the Leased Premises required by any order or requisition made by any Local or Public Authority PROVIDED THAT such alterations or additions shall at the election of the Lessor either be carried out by the Lessor pursuant to Clause 5.3 or by the Lessee under supervision of the Lessor or its agent (in which case all costs incurred by the Lessor shall be paid by the Lessee to the Lessor on demand). At the expiration or sooner determination of the Term the Lessee (if so required by the-Lessor) at the cost of the Lessee shall reinstate the Leased Premises to their condition prior to such alterations or additions.
5.3Right of inspection and Entry
(a)The Lessor shall have power by its agents and workmen with all necessary appliances to enter into and upon the Leased Premise sat all reasonable times to view the state of repair thereof and to serve upon the Lessee a notice in writing of any defect requiring it to repair the same in accordance with any covenant herein contained. In default of the Lessee repairing any defect according to such notice within 21 days of the date of such notice the Lessor by its agents and workmen and/or any person authorised by the Lessor with all necessary materials and appliances may enter the Leased Premises and execute all or any of the required repairs as the Lessor shall think fit and the Lessee on demand shall pay to the Lessor the costs of remedying such default and the Lessor may recover such costs by action or otherwise as for Rent in arrear.
(b)The Lessor shall have power by its agents and workmen with all necessary materials and appliances to enter upon the Leased Premises at all reasonable times and without previous notice and to carry out any repairs or other works which in the reasonable opinion of the Lessor are of an emergency nature. In the event that the Lessor shall pursuant to this power carry out any works or repairs which should be carried out by the Lessee in accordance with the covenants to be observed by the Lessee herein contained then the Lessee shall on demand pay to the Lessor the costs of such works or repairs and the Lessor may recover such costs by action or otherwise as for Rent in arrear.
(c)In the event of the early determination of the Term (or of any extension or renewal thereof) the Lessor shall have power by its agents and workmen with all necessary materials and appliances to enter upon the Leased Premises at all reasonable times and without previous notice and to carry out any painting or repairs which the Lessee has failed to undertake in accordance with the covenants set forth herein. In the event that the Lessor shall pursuant to this power carry out any painting or repairs which should be carried out by the Lessee in accordance with the covenants to be observed by the Lessee herein contained then the cost of such repairs shall be paid by the Lessee to the Lessor upon demand being made for payment of the same.
(d)The Lessor shall have power by its agents and workmen with all necessary materials and appliances to enter upon the Leased Premises after having given the Lessee 14 days written notice of its intention so to do, to carry out any repairs or other works for which the Lessor is liable and which the Lessor considers it necessary or desirable to carry out. In pursuing such activities the Lessor shall endeavour to minimise the nuisance and irritation caused to the Lessee, but the Lessee shall gratuitously be obliged to suffer such activities and shall not impede or obstruct the carrying out of such repairs or other works.
…
9.3Consents, Transactions and Default
The Lessee agrees to pay the Lessor's costs, charges, and expenses which are incurred reasonably and properly in connection with:
(a)the obtaining of any consent from the Lessor, mortgagee or other person, which is required by the Lessee under this Lease;
(b)the negotiation and preparation of all documents relating to any consent required by the Lessee, and all costs incurred by the Lessor, and by any other party whose consent is required, whether a consent is given, refused, or the application for consent is withdrawn;
(c)any breach or default by the Lessee under this Lease; or
(d)the exercise or attempted exercise by the Lessor of any right, power, privilege, authority or remedy, against the Lessee or against the Covenantor, to enforce the Lessee's obligations under this Lease, or to terminate the Lease for the Lessee's breach or default (including for the purpose of or incidental to the compliance by the Lessor with the provisions of Section 81 of the Property Law Act 1969, solicitor's, architect's, surveyor's and valuer's costs and fees).
9.4Costs on an Indemnity Basis
The Lessor's legal and professional costs and disbursements under Clause 9.3 shall be charged and allowed on a full indemnity basis to the Lessor for costs charges and expenses.
…
11.DEFAULT OR REPUDIATION BY LESSEE
11.4Lessor Obliged to Mitigate
In the event of the Lessee vacating the Leased Premises, whether with or without the Lessor's consent, the Lessor shall be obliged to take reasonable steps to mitigate its damages and to endeavour to lease the Leased Premises at a reasonable Rent and on reasonable terms. The Lessor's entitlement to damages shall be assessed on the basis that the Lessor should have observed the obligation to mitigate damages contained in this Clause. The Lessor's conduct taken in pursuance of the duty to mitigate damages shall not by itself constitute acceptance of the Lessee's breach or repudiation or a surrender by operation of law.
…
14.HOLDING OVER
If the Lessee, without having duly exercised any option for renewal herein contained but with the consent of the Lessor, shall remain in possession of the Leased Premises after the expiration of the Term or any extension thereof, the Lessee shall so remain as tenant from month to month at the Rent being 110% of the Rent payable immediately prior to the expiration of the Term and upon all the covenants and conditions contained in this Lease with such modifications or variations as are necessary to make them applicable to a tenancy from month to month.
15.PROVISIONS ON EXPIRY OF TERM
15.1Notice to Let
During the period of 3 months preceding the end of the Term the Lessee shall permit intending tenants and others with authority from the Lessor at all reasonable times to enter and view the Leased Premises and shall permit the Lessor to affix to the exterior of the Leased Premises a sign indicating that the Leased Premises are to be re-let, and shall not tamper with same.
15.2Make Good
During the last 3 months of the Term the Lessee shall:
(a)paint with 2 coats of colour and in a workmanlike manner the outside and inside which has been previously painted with paint of a standard reasonably specified by the Lessor;
(b)where the Lessor at any time has installed floor coverings in the Leased Premises replace all floor coverings in the Leased Premises with new floor coverings of at least equal standard;
(c)service the air conditioning equipment, complete repairs, replace filters and provide a written report regarding the servicing and repairs from a reputable air- conditioning company;
(d)replace all lamps and tubes, relamp exit signs and hibay lights in the Leased Premises;
(e)remove computer, telephone and data cabling and makegood of damaged surfaces including skirtings of the Leased Premises;
(f)thoroughly clean the Leased Premises including all windows and floor surfaces, high pressure clean any warehouse walls and floor;
(g)service any roller doors and complete all repairs including replacement of damaged panels and provide a copy of a report from the firm completing the servicing to the Lessor;
(h)remove all bolts and fixtures from walls and floors of the Leased Premises and make good any damage caused by their removal;
(i)service fire hydrant and fire hose reels and sprinkler systems within the Leased Premises and complete all necessary maintenance and provide a copy of the report from the reputable firm completing the repairs and maintenance;
(j)repair any damaged bitumen and concrete in the Leased Premises or licenced parking bays;
(k)all reticulation to be serviced and any necessary repairs to be completed;
(l)mow lawns and tidy gardens;
(m)replace any damaged ceiling tiles;
(n)pump out of separator facilities or other waste storage tanks including septic systems;
(o)replace and/or repair of all damaged lessor's fixtures and fittings;
(p)remove all signage from the Leased Premises;
(q)an inspection of the roof is to be completed by a qualified industrial roofer and all recommended maintenance is to be completed and a report by the qualified industrial roofer stating the repairs are completed is to be provided to the Lessor;
(r)all gutters and down pipes to be cleaned;
(s)light diffusers in ceilings to be cleaned; and
(t)plumbing service of plumbing systems including all taps and toilet systems in the Leased Premises.
All such works shall be performed with materials of the best quality and to the satisfaction of the Lessor or its agent and the Lessee shall make good any damage done to the Leased Premises in the carrying out of the required works.
15.3Delivery of Possession
At the expiration or sooner determination of the Term the Lessee shall quietly deliver up to the Lessor possession of the Leased Premises in such state condition and order as shall be consistent with the due performance and observance of the covenants by the Lessee herein contained and shall surrender all keys for the Leased Premises to the Lessor and shall inform the Lessor of all combinations on locks safes and vaults (if any) in the Leased Premises. If the Lessee fails to do so then the Lessor at its option may carry out all repairs or works which should have been carried out by the Lessee in accordance with the covenants of the Lessee herein contained, and if the Lessor carries out any such repairs or works the Lessee shall pay to the Lessor upon demand the cost of such repairs or works.
15.4Removal of Fixtures and Fittings
All fixtures, fittings, plant, machinery, utensils, shelving, signs and advertising material, counters, floor coverings, safes and chattels (but excluding ceilings, toilet and sanitary accommodation, wall finishes, shop fronts, doors and grills, lighting and electrical fixtures or fittings, electrical wiring, hydraulic and drainage and gas services, lifts, escalators and air conditioning) belonging to and erected or put in by the Lessee whether before or after the Commencement Date shall be trade or tenant's fixtures and the Lessee shall at the expiration or sooner determination of the Term remove the same from the Leased Premises (but so as not in any way to injure the land and/or buildings leased by the Lessor) and the Lessee shall immediately thereupon make good to the satisfaction of the Lessor all damage caused or occasioned to the Leased Premises by such removal.
15.5Occupation Fee
Without prejudice to any other rights of the Lessor hereunder, during the period from the date of expiry or sooner determination of this Lease (including any extension or renewal hereof or period of holding over) until such date as the Lessee has complied with its obligations under Clauses 15.2 - 15.4, the Lessee shall pay to the Lessor from time to time forthwith upon demand an occupation fee (calculated on a daily basis) at a rate equal to the rate of the aggregate of the Rent, Outgoings and other monies payable immediately prior to the date of expiry or sooner determination of this Lease and all other obligations on the part of the Lessee hereunder (other than the obligation to pay Rent and Outgoings for such period) shall apply mutatis mutandis.
15.6Lessor's Right to Remove
If the Lessee fails to comply with its obligations pursuant to Clause 15.4, then in addition to its other rights hereunder and at law and otherwise resulting out of such breach the Lessor may:
(a)by notice in writing to the Lessee deem such of the items referred to in the notice to be abandoned by the Lessee, in which case such items upon delivery of such notice shall be and become the property of the Lessor absolutely and the Lessor shall be at liberty either to retain the same in the Leased Premises or to remove the same or any portion thereof from the Leased Premises in which case the costs of such removal and costs of making good those parts of the Leased Premises occasioned by such removal shall be borne by the Lessee and payable to the Lessor upon demand;
(b)remove such items or any part thereof to the Lessee's last known abode or place of business, and there or as near thereto as possible to leave the same at the risk in every respect of the Lessee in which case the costs of such removal and the costs of making good those parts of the Leased Premises occasioned by such removal shall be borne by the Lessee and payable to the Lessor upon demand; and
(c)at public auction or by private treaty sell or otherwise dispose of the same or any part thereof at such price and on such terms as the Lessor in the Lessor's absolute discretion may think fit, and out of the proceeds thereof to reimburse the Lessor in respect of any costs and expenses thereby incurred in which case the costs of such removal and the costs of making good those parts of the Leased Premises occasioned by such removal shall be borne by the Lessee and payable to the Lessor upon demand.

Issue 7: In the alternative to Issue 6, whether Craft Décor, having agreed to that the time provided under the Termination Notice (issued on or around 23 November 2018) would be extended by two weeks to 15 January 2019 so the Craft Décor could remove the floor tiles and comply with its other end of lease and make good covenants, is precluded and equitably estopped from claiming or asserting any other right, whether under the terms of the Lease or otherwise, to refrain from removing the tiles.

I note here that Craft Décor do not accept that there was an 'agreement' for the purposes of Issue 7. Craft Décor says it did not agree that it promised the Lessors that it would, in exchange for the holding over period being extended by two weeks, remove the floor tiles.
I have found in the context of Issue 3 and Issue 6 that Craft Décor said that it would 'give up vacant possession' and 'be out'. I have found that Craft Décor did not promise to remove the floor tiles as part of those discussions.
It follows that the question of equitable estoppel does not arise.

Issue 8: Further, or in the alternative to the issues set out in Issue 6 and Issue 7 above, whether Craft Décor has, by failing to remove the floor tiles and complying with its 'end of lease' and 'make good' covenants as per the Extension Agreement, engaged in conduct that is, in all the circumstances, unconscionable pursuant to s 15D of the Retail Shops Act.

As was explained in Head and Zimmermann at [37], at the core of the question of unconscionable conduct, for the purposes of the Retail Shops Act, is conduct or behaviour:
which, in all the circumstances, is well outside what might be expected in relations between parties to an arm's length commercial relationship and therefore unacceptable.
Having regard to the narrative of events leading up to 15 January 2019, I can see nothing in the conduct of Craft Décor that could be regarded as unconscionable. In short, Craft Décor was issued with the Termination Notice in November 2018 which required it vacate the Premises on 31 December 2018.
While the Lessors were entitled to terminate the Lease in the manner it did, it seems to me that it would be a particularly difficult time to vacate the Premises. This is because, as at late November 2018, it is likely that many of the staff from Craft Décor had planned leave for the end of the year period. Indeed, Mr Nadilo's evidence confirmed that to be the case.
Mr Nadilo contacted in December 2018 Mr Patterson and explained that Craft Décor could not vacate the Premises by the end of year and needed two extra weeks to vacate. At some point in these discussions Mr Patterson again referred to the need for the floor tiles to be removed. Mr Nadilo did not directly address Mr Patterson's requests and said that Craft Décor would provide 'vacant possession' and 'be out' by 15 January 2019.
To the extent that Mr Nadilo failed to expressly respond to Mr Patterson's requirement that the floor tiles be removed as part of vacating the Premises, in my view, Mr Nadilo was entitled to respond that Craft Décor would provide 'vacant possession'. By saying that, I find what Mr Nadilo was saying was that Craft Décor would comply with its requirements of the Lease. Mr Nadilo did not consider that Craft Décor was obliged to remove the floor tiles under the Lease. In this regard, for the reasons I have explained, I agree with Mr Nadilo.
While the Lessors have made much of Mr Nadilo's failure to say to Mr Patterson that while Craft Décor needed an extra two weeks, it would not remove the floor tiles, Craft Décor were entitled to rely on the Lease as the touchstone which determines its obligations.
There was nothing unconscionable in Mr Nadilo responding to Mr Patterson's requirements to remove the floor tiles, which I have found was not required by the Lease, with a general comment that Craft Décor would provide 'vacant possession' and 'be out'. There is also nothing 'unconscionable' in Mrs Nadilo advising Mr Patterson that Craft Décor was working on getting out 'as agreed'.

Issue 9: If Craft Décor has failed to fulfil its covenants under the Lease:

(a) whether the Lessors were entitled to carry out all repairs or works which should have been carried out by Craft Décor; and
(b) whether the respondent is obliged to pay the Applicants upon demand the cost of such repairs or works,
pursuant to cl 15.3 of the Lease.

For the reasons I have explained, Craft Décor has failed to comply with cl 15.2(a) of the Lease. The Lessors were entitled to carry out the painting which should have been done by Craft Décor. By reason of cl 15.3 of the Lease, Craft Décor owe the Lessors the cost of the painting (which I have found to be a total of $3,740).

Issue 10: Whether the Craft Décor is obliged to pay the Lessors' legal and professional costs and disbursements on a full indemnity basis pursuant to cl 9.3 and cl 9.4 of the Lease.

The terms of cl 9.3 and cl 9.4 of the Lease are clear. To the extent that Craft Décor has breached the Lease, it is required to pay the Lessors' 'costs[,] charges and expenses' on 'a full indemnity basis'.
Craft Décor have breached the Lease by failing to paint the Premises as required by cl 15.2(a) of the Lease. It is therefore liable to pay the Lessors' legal and professional costs in this regard. The professional costs of painting are $3,740 and its legal costs are to be determined.
The quantification of those costs arising under the Lease is not a matter for the Tribunal.

Craft Décor's Application

As I explained at [6] and [13] to [15], the Lessors have conceded Craft Décor's Application. That is, the Lessors admit that they breached the Lease in the manner in which they accounted for the payment of rent and Outgoings. The updated auditor's report of 20 March 2020 outlines that Craft Décor should be paid $2,675. I find that this is the amount that Craft Décor is owed in relation to Craft Décor's Application.
However, Craft Décor's Application has not been resolved because the Lessors proposed to require Craft Décor pay half of the auditor's fee of $3,201 (Craft Décor's share being $1,600.50). The Lessors submit, by reason of s 12(1b) of the Retail Shops Act, the cost of preparing the 'audit' referred to in s 12(1a)(e) 'shall' be split between the landlord and the tenant.
The use of the word 'shall' in a written law is imperative: s 56 Interpretation Act 1984 (WA).
Section 12(1a)(e) provides that an operating expenses statement is be accompanied:
[B]y a report on the statement prepared by a registered company auditor within the meaning of the Corporations Act 2001 of the Commonwealth which includes a … statement by the auditor as to whether or not the operating expenses statement correctly states expenditure by the landlord during the accounting period concerned in respect of operating expenses to which the tenant is required to contribute, and as to whether or not the total amount of estimated operating expenses for that period (as shown in the estimate of operating expenses given to the tenant) exceeded the total actual expenditure by the landlord in respect of those operating expenses during that period.
To my mind, based on the evidence in this matter, it would be a triumph of form over substance for the materials that were provided by the Lessors for the purpose of the report prepared by Mr Daniel Papaphotis on 15 January 2020 to be regarded as an 'audit' that falls within the terms of that required by s 12(1a)(e) of the Retail Shops Act.
The premise that underlies the preparation of an 'audit' for the purpose of the Retail Shops Act is that the information provided to an auditor is correct and that it is also complete. In this case, the evidence establishes that Mr Patterson was indifferent to whether the materials he initially gave the auditor was complete or correct.
The evidence also demonstrates that the information provided to the auditor was not accurate, nor complete. It did not include the bank details which evidence two months' worth of payments made to one of Mr Patterson's nominated bank accounts. All that had happened is that Mr Patterson did not realise that Craft Décor had been directed by the Lessors' agent to pay its rent and Outgoings into. On the basis he requested Mr Papaphotis prepare a report (but he did not give Mr Papaphotis all of the necessary information).
To my mind, what was provided to the auditor, and what the auditor prepared based on that limited information, was not an 'audit' for the purposes of s 12(1a)(b) of the Retail Shops Act. In my view, the cost of the 'audit' process should lie where it falls. That is, on the Lessors.
The cost of the bank tracing fees is a cost that Craft Décor incurred in proving that the Lessors' 'set off claim' was false. I am not satisfied that is a question arising under a Lease that I may address.

Conclusions

In summary, I conclude and find as follows:

CC 1208 of 2019 (Lessors' Application)

(a)Craft Décor was not responsible for removing the floor tiles under the Lease.
(b)At all times, the Lease governed the relationship between the parties. The holding over period was extended to 15 January 2019 by consent. The agreement to allow Craft Décor to stay an additional two weeks was an extension of holding over. It was not a new and separate agreement.
(c)On the evidence, I am not satisfied Craft Décor damaged the doors, tiles vanities and toilets as claimed by the Lessors. Accordingly, I am not satisfied that Craft Décor did not comply with its covenants under cl 4.2 and cl 15.2 of the Lease in relation to these items.
(d)No claim of equitable estoppel arises against Craft Décor under the Lease.
(e)No claim of unconscionable conduct arises against Craft Décor under the Lease.
(f)Craft Décor has breached cl 15.2(a) of the Lease in relation to the painting of the Premises. As a result, pursuant to cl 15.3 of the Lease it is required to pay to the Lessors the cost of the painting fixed at $3,740 (GST inclusive).
(g)Pursuant to cl 9.3 and cl 9.4 of the Lease, the Lessors are entitled to their legal and professional costs and disbursements on a full indemnity basis in relation to Craft Décor's failure to paint the Premises. However, the quantification (and recovery) of those costs under the Lease is not a matter for the Tribunal.

CC 1670 of 2019 (Craft Décor's Application)

(a)The Lessors have breached cl 2 and cl 3 of the Lease in failing to properly account for the payment of rent, water rates, council rates and strata levies.
(b)Craft Décor have overpaid the requirements of the Lease by $2,675. It follows that the Lessors are required to pay $2,675 to Craft Décor.

Orders

The orders that I propose to make are as follows, but I will first hear from the parties as to the precise form and content of the orders necessary to give effect to these reasons.
The Tribunal's proposed orders are as follows:
CC 1208 of 2019
1.Craft Décor Pty Ltd (ACN 008 759 206) is, within 28 days of the date of these orders, required to pay Mr David Patterson and Ms Jacqueline Anne Argus (the Lessors) the amount of $3,740 on account of the failure to paint the Premises pursuant to its make good covenants set out at cl 15.2(a) of the Lease.
2.Craft Décor Pty Ltd (ACN 008 759 206) is obliged to pay the Lessors' costs and fees in relation to painting the Premises on account of its breach of cl 15.2(a) of the Lease in accordance with cl 9.3 and clؘ 9.4 of the Lease.
3.The Lessors' application is otherwise dismissed.
CC 1670 of 2019
1.The application is allowed.
2.Mr David Patterson and Ms Jacqueline Anne Argus (the Lessors) are to, within 28 days of the date of these orders, pay Craft Décor Pty Ltd (ACN 008 759 206) the amount of $2,675 on account of their failure to properly account for rent and outgoings under cl 2 and cl 3 of the Lease.

I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
DR S WILLEY, SENIOR MEMBER
25 JUNE 2021