Pizza Man Australia Pty Ltd v Montesano

[2013] NSWADT 208

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:

Pizza Man Australia Pty Ltd v Montesano [2013] NSWADT 208

Hearing dates:

24 July 2013

Decision date:

20 September 2013

Jurisdiction:

Retail Leases Division

Before:

Deputy President D Patten
T Tyler, Non-judicial member
M Foldi, Non-judicial member

Decision:

1. Application dismissed.

2. Applicant to pay Respondents' costs as agreed or assessed.

Catchwords:

Alleged false and misleading representations and unconscionable conduct - not proved

Legislation Cited:

Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994

Category:

Principal judgment

Parties:

Pizza Man Australia Pty Ltd (Applicant)
Sebastiano Montesano (First Respondent)
Ninetta Montesano (Second Respondent)

Representation:

Counsel
M McMahon (Respondents)
Leverage Australia Pty Ltd (Applicant)
Norton Law Group (Respondents)

File Number(s):

135008

reasons for decision

1. These proceedings relate to premises being a lock up shop at the rear of 153-155 Alison Road Randwick (the lock up shop is hereafter "the premises"). By its Amended Application for Original Decision the Applicant seeks damages under three heads viz alleged pre lease misrepresentations in relation to an internal doorway between the premises and the shop at the front of 153-155 Alison Road Randwick (hereafter the front shop), alleged pre lease misrepresentations and/or breach of contractual obligations in respect of signage on the exterior of the building 153-155 Alison Road Randwick (hereafter the building) and for alleged unconscionable conduct.

1. In relation to the alleged misrepresentations regarding the doorway, it is difficult to extract from the Amended Application the precise terms of those said to be false. During the course of his final submissions, Mr Compton who appeared for the Applicant, accepted as I understand it that the only representations alleged to be false were that the Respondents, as owners of the building, would permit an internal doorway to be opened between the front shop and the premises and would ensure that such doorway would remain open to traffic between the two shops during the duration of any lease to the Applicant. The representations in these terms need only to be stated for their difficulties to become apparent.

1. The situation in relation to the exterior signs is more straightforward. The Applicant relies on a representation or collateral contractual obligation to the effect that the Respondents would permit the Applicant to display signs advertising its business on the building and would permit those signs to remain during the currency of any lease.

1. As to the claim of damages for unconscionable conduct the particulars furnished in the amended application were:

Ground 2 Unconscionable Conduct by Lessors

Particulars 2.1

30. In asserting paragraphs 31-34 the Lessee re-asserts paragraphs 1-9 above.

31. The Lessors deferred (sic) from their original pre-lease representations and from the representations made in the Letter. The Lessors did not advise the Lessee that they would be diverting from their original pre-lease representations until after the Lessee had already incurred a substantial expense in the fit out of the Shop. Additionally the Lessors did not provide the Lessee with a copy of the lease which stated "The lessee shall in a reasonable and workman like manner and upon request by the Lessors remove the connecting doorway and reinstate the wall opening" until after the Lessee had already spent a large sum in the fit out of the premises.

32. The Lessor's unreasonably failed to inform the Lessee, prior to the Lessee fitting out the pizza shop that the Lessors intended to close the door between the Shop and the video store. The Lessee sustained monetary loss as a result of the door between the Shop and the video store being closed/

33. The abovementioned acts of the lessors are unconscionable conduct pursuant to s.62B of the Retail Leases Act 1994.

1. Evidence in the Applicant's case was given by its director Mr Simon Fazio who swore an affidavit on 2 May 2013 upon which he was cross examined by Ms McMahon, counsel for the Respondents.

1. Mr Fazio in about 2007 formed the intention to open a Pizza Shop in conjunction or association with a Video Store. He went to the front shop in which the business of a video store was being conducted and spoke to the proprietor Ms Elaine Patterson. His affidavit explains his conversations and dealings with her:

I said words to effect of "I want to prove the concept of the delivery of a DVD with a pizza."

Elaine then said words to the effect of "I love the idea."

Emails were also sent between Elaine and me in June 2007 discussing the concept. On or around this same day I discussed with Elaine the idea of dividing Video Ezy into two (2) shops to provide me with a location to open Pizza Man.

I said words to the effect of "What do you think about the idea of dividing this space into two shops?"

Elaine then said words to the effect of "I am trying to reduce my rent and would be interested in dividing the shop." "How much space would you need" I then looked around the shop and was trying to picture what the Shop would look like.

I then said words to the effect of "how about we put a wall here and another wall dividing the space here."

Elaine then said words to the effect of "We can also use the same phone number so that we look like the same business." Elaine then said words to the effect of "how about you look at the work involved in dividing the store and introduce the idea to the Lessor and then back to me."

I then said "ok."

1. Sometime after this Mr Fazio met Mr Sebastiano Montesano, the first Respondent. Mr Fazio relates the conversation:

I said words to the effect of "I have met with Elaine from Video Ezy and she has provided her consent to divide the video store in two shops. Will you provide me with your consent to divide Video Ezy?"

The Lessor then said words to effect of "You can divide the store but when the video store decides to leave you must also close the Shop and leave when the video store goes."

I then said words to the effect of "I do not like those terms, so I cannot agree to that."

The Lessor then said words to the effect of "I have a garage located at 2 Elizabeth Street Randwick, located at the back of Video Ezy I can show you if you are interested? You can do a fit out of the garage space and turn it into a pizza shop."

1. Following this conversation with Mr Montesano, Mr Fazio inspected the unused garage at the rear of the building. He later had a further conversation with Mr Montesano:

I told the Lessor words to the effect of "I am not interested in the location, as a lot of work will have to go into the fit out in order to turn it into a pizza shop."

The Lessor then said words to the effect of "I am willing to construct an awning above the entrance of the garage which will become the entrance of the Pizza Shop located at the back of the building on Elizabeth Street, so that you can advertise the business."

I then told the Lessor words to the effect of "I need to go away and think about it."

The lessor then said words to the effect of "Well I can give you this location for a total of $15,000 yearly and I will install a roller shutter."

I then said words to the effect of I won't need a roller shutter what if you put a shop front?"

The Lessor then said words to effect of "how about we pay half each for the shop front?"

I then said "ok."

1. Subsequently according to Mr Fazio he had negotiations with Mr Montesano regarding the terms of a lease and conversion of the garage into a Pizza Shop. In one conversation the subject of signs was discussed:

"During these negotiations I said words to the effect of: the video store gave me their sign located at the front of their building, on the corner of Alison Road and Elizabeth Street."

The Lessor than said words to the effect of, "that's good that she gave you the signs".

The signs located at the corner of Alison Road and Elizabeth Street at the front of the building where Video Ezy was located under Video Ezy's lease at the time, the Lessor's statement "that is good that she gave the signs" made me believe that the signs located at the corner of Alison Road and Elizabeth Street would become mine under my lease for the Shop.

1. There was also a discussion about opening a doorway between the front shop and the premises:

I said words to the effect of "I would like to open a door between Pizza Man and Video Ezy."

The Lessor then said words to the effect of "why don't you make a window instead"

The Lessor then said "think about it."

I then said words to the effect of "no it has to be a door so that people can easily walk in and order a pizza and pop back into the video store to select a movie."

1. At about the same time Mr Fazio said that he had a discussion with Mr Montesano at the premises about the structural work involved in the project:

I said words to the effect of "Elaine has given up a portion of her video store space so that I may operate the pizza shop as the garage space is too small."

"The structural work that needs to be conducted in order to get the pizza shop up and running is create wall openings, wall closings, and foundations for the new floor."

The Lessor then said words to the effect of "I know of all the construction you intend to do and I approve all of the construction."

The Lessor also stated "why don't you raise the floor to meet the levels of the video store."

I then said "I will take your suggestion as the level of the garage is a sloped driveway."

The Lessor then said words to the effect of "Where exactly will the door opening be into the video store?"

I then showed the Lessor where the door opening would be.

The Lessor then said words to the effect of "I am concerned about the door opening being a little too close to the corner of the wall."

The door opening was then moved a little more away from the corner. While discussing with the landlord the layout and type of construction involved we also marked the floor with chalk and I showed him a mud map of the works I intended to do for his opinion and consent.

1. Mr Fazio deposed to the fact that he entered into a lease of the premises in reliance upon his conversations with Mr Fazio regarding the doorway and the advertising space. As to the latter, Annexure "D" to Mr Fazio's affidavit depicts three signs advertising the Applicant's business. One sign is on the front of the front shop, facing Alison Road, the other two are on the side wall of the front shop facing Elizabeth Street. The larger of these two signs which appears to be painted on the exterior wall contains an arrow pointing towards the entrance of the premises.

1. In August or September 2007 Mr Fazio instructed Mr Gino Russo Solicitor to act for him. He also consulted an architect Mr Tom Cox and asked him to prepare documents for a Development Approval application: Mr Montesano attended meetings with the architect.

1. On or about 8 October 2007 Mr Russo received from Norton Law Group, solicitors acting for the Respondents, a letter (omitting formal parts):

We advise that we act on behalf of the Lessors, Mr and Mrs Montesano.

We understand that a lease is to be offered of part of the abovementioned premises namely that area referred to in the enclosed plan and being "cross hatched".

The terms of the proposed lease are as follows:-

1. Rent: Year 1 $350 per week plus GST.

Year 2 $450 per week plus GST.

Year 3 $500 per week plus GST.

The rent will otherwise be increased by current

market rent review on commencement of any new term following the exercise of any option to renew.

2. Term: 3x3x3 years

3. Lessor will pay 50% of architects bill if rejected by council provided architects fees are disclosed to the Lessor and approved by the Lessor before engagement.

4. Lessee will pay for all fitout, including closing of existing doorway where marked on plan and opening a doorway where marked on plan.

5. Lessor will pay for works incidental to installing toilet facilities, awning and roller shutter to the front of the shop.

6. Outgoings - Lessee to pay for water usage.

Kindly advise if these terms are agreeable to yourself and details of your solicitor whereafter we will forward draft leases and relevant disclosure statement.

1. Mr Fazio said that he contacted Mr Montesano regarding the terms of the letter:

I said words to the effect of "the Letter that was drawn up does not have everything we had discussed, it does not mention that I can have the sign space, also the Letter does not say that the rent free period is to start when the store opens."

"the Letter also does not state that I will only take on the back location and sign the lease when the video store signs their new lease this way I ensure they will be in that location for 3 more years."

The Lessor then said "It cost me $50 each time I approached my solicitor to adjust the Letter"

I then said "ok, well I will take your word that all of the things we discussed will be incorporated into the lease."

1. According to the evidence an application for Development Approval was lodged with Randwick Council on 19 December 2007.

1. Relevantly to the matters at issue in these proceedings the application which bore the Respondents' consent contained these paragraphs:

DETAILS OF APPROVAL

It is proposed to convert a space originally used as part of a hardware store to a pizza shop. The proposal includes a cool room, preparation room, kitchen, a toilet and a passage way that provides a connection to the adjoining video store tenancy in the same property.

...........

SITE SUITABILITY

The subject site (Lot 11 Sec 1 in DP3496) is located on the eastern corner of Alison Road and Elizabeth Street. It is an rectangular site with a primary frontage to Alison Road of 10.365 metres, a secondary street frontage to Elizabeth Street of 40.285 metres, and a total site area of 417.6 sq m. The site is approximately level.

...........

The proposed pizza shop conversion is located on Elizabeth Street. The new shop front intervention is a small portion of the whole of the subject site's street elevation. The sliding door and awning have been designed to be sympathetic to the existing building and the character of the area, and are in keeping with the scale of the existing façade articulations. Some changes to existing signage are proposed on the corner of Elizabeth Street and Alison Road. The majority of the proposed work is wholly contained within the existing building envelope; except for the new awning, which is permissible under Randwick DCP and DCP-Outdoor Advertising, the proposal will not adversely affect the character of the area.

...........

OUTDOOR ADVERTISING

The proposal includes signage on the awning, on the blank wall adjoining the shopfront.

1. The Council granted the Development Approval Application in March 2008. Following this Mr Fazio said that he became concerned about delays in receiving a lease. Upon his solicitors advice he called upon Mr Montesano about 8 May 2008 and procured his signature on the letter of 8 October 2007 reproduced above. This was done in the context according to Mr Fazio of the following conversation:

I then told the Lessor words to effect of "can you sign the Letter your solicitor has drafted and sent me?"

He hesitated and said words to the effect of "don't worry you won't lose with me."

I then said can you please just sign the Letter as my solicitor has advised that I get your signature."

The Lessor then signed the letter.

1. Mr Fazio said that the construction works commenced about 17 June 2008 and were completed by about October. In the meantime on about 17 June 2008 the Applicant received a lease for execution. It provided for a term of three (3) years from 1 July 2008 with an option for renewal. Relevant provisions included:

LESSEES WORKS

1. The lessee shall in a reasonable and workman like manner and as soon as possible undertake at its own costs the following works:

a. Open doorway and install door between the lease premises and the adjoining leased premises (the connecting doorway);

b. Open doorway and install door between main leased area and the smaller leased areas as directed by the lessor (the internal doorways)

...

3. The lessee shall in a reasonable and workman like manner and upon request by the lessor remove the connecting doorway and reinstate the wall opening.

1. The lease was altogether silent on the subject of advertising space.

1. Although Mr Fazio acknowledges in Paragraph 22 of his affidavit that he was aware from the outset that the lease as submitted did not accurately reflect what he regarded as the agreement of the parties, the letter his solicitor wrote back on 17 June 2008 mentioned only one matter of present interest:

In respect of the Lessee's Works described on page 3 of Annexure A - we understand that the request to return the premises to their pre-lease condition should only be made by your client if either the video store ceases to be used as a video store or our premises cease to be used as a pizzeria.

1. The Respondents' solicitors replied on 27 June 2008. That letter enclosed the Disclosure Statement as required by section 11 of the Retail Leases Act (the Act) and in relation to the doorway said:

Insofar as the Lessee's works are concerned, the reinstatement of the opening between the video store and the pizza shop is to be reinstated on the Lessor's request. The reason for that the request to reinstate may come from the Lessee of the video shop and, as such, the opening would need to be closed.

1. Despite his concern that the lease did not reflect his agreement with Mr Montesano, Mr Fazio said that he signed the lease in effect because he had already incurred considerable expense which would be lost to the applicant if it did not proceed.

1. Mr Fazio testified that he opened for business on 14 October 2008 and at that time there was an open door between his shop and the front shop. He was happy with the business he attracted and said "The opening of the door between the two businesses caused a lot of movement into the Pizza Shop and attracted a large flow of clients."

1. However about two months later when Mr Fazio came to the premises he noticed that the internal door between the two shops had been locked. Although he was able to unlock it the same thing happened the following day. He spoke to Ms Patterson about the matter:

I said words to the effect of "Why has the door between our shops been closed?"

Elaine then said words to the effect of "I have had dvds go missing, this weekend my staff witnessed one of our customers run out of the store with movies."

I then said words to effect of "what can we do about it?" "the security bars maybe like the Lessor suggested."

Elaine said "let me have a few weeks to sort something out."

1. Mr Fazio claims that there was an immediate downturn in his business and early in 2009 he telephoned Mr Montesano:

I said words to the effect of "the door between the Shop and the video store has been locked. The Lessor then said words to the effect of "you should discuss this with the video store to reopen the doors"

He also said "the terms of your lease say that the door can be closed at anytime upon the Lessor's request."

1. Following this conversation Mr Fazio took legal advice but no other action. A month or so later he had another conversation with Mr Montesano:

I said words to the effect of "I have lost a lot of clients due to the door being closed." "I can take you to court for closing the door, but I am not in a position to do so." "We should make a new deal to resolve this problem." "I have thought about the loss and the deal I am proposing benefits you because I don't even think that the rent I am paying now even covers what I am losing in profits due to the door being closed."

He said "you would have to prove that."

I then said to the Lessor "I propose that you do not increase my rent for the entire lease period."

The Lessor then said "the door had nothing to do with me"

I said "the agreement was between you and me."

The Lessor then replied "I only gave you permission for the door opening".

I then said "this is not what we agreed".

1. In about April 2009 Mr Fazio had a further conversation with Ms Patterson in an attempt to find a way whereby her stock could be secured whilst the door remained open. The only solution seemed to be the installation of "security bars" on her stock which she regarded as too expensive. The problem remained unresolved, particularly after Mr Fazio discovered that the lease from the Respondents to Ms Patterson did not require her to keep the internal door open at all times.

1. Further conversations between Mr Fazio and Mr Montesano regarding what Mr Fazio claimed was a loss of business arising from the closure of the door led to Mr Montesano agreeing to modest rent relief. In the event the Applicant did not exercise the option for renewal of the lease although it held over under the lease for some time after it expired at the end of June 2011.

1. In or about November 2011 Mr Montesano told Mr Fazio that Ms Patterson's Video Ezy store was closing and a new tenant, a pharmacist, was to take occupation. This occurred early in 2012 and the pharmacist effectively ended the doorway dispute by constructing shelving on his side of the door.

1. In relation to the advertising space Mr Fazio deposed:

39. On or about February 2012, the Lessor said words to the effect of "you will have to take down the signs." I was in shock and said words to the effect of "the signs are mine and they cannot be given away".

On or about 1st March 2012 I organised a meeting with the Lessor to resolve the problem. The Lessor at the meeting said words to the effect of "I can offer you the higher wall part above your existing wall sign." I then told the Lessor words to the effect of "this does not suit Pizza Man as the sign will be about 5 metres higher than the wall and this means that the sign will not be visible from the main road as the tree across the road hides the visibility of the sign as you drive up Alison Road."

40. On or about 3 March 2012 the Lessor called me and said words to the effect of "I am giving you 48 hours to remove your signs."

"If the signs are not removed within 48 hours I will kick you out of your shop."

"The new tenant, the chemist, under the lease will charge me money if I don't take down the signs."

41. On or about 5 March 2012 I noticed that the light box attached to the awning located on corner of Alison Road and Elizabeth Street had been removed. I then contacted the Lessor and said words to the effect of "what happened to my light box, why was it removed?"

The Lessor then said words to the effect of "the light box was taken down and is in the spare garage next to the pizza store for whenever you want to retrieve it, it belongs to you." "a new awning is going to be constructed." I said "ok, when will my sign go back up?"

The Lessor then said words to effect of "it won't."

I then said words to the effect of "that space belongs to me" the Lessor said "that sign space has always belonged to the major tenant on the property."

42. On or about 3 April 2012, I noticed that the second sign located on the wall had also been removed. On or about 5 April 2012, I noticed that the sign space previously belonging to Pizza Man was now being used by the new tenant of the adjoining shop. Pizza Man was left with no sign space upon which to advertise the business. This caused Pizza Man to lose a substantial amount of profits.

1. Towards the end of 2012 the Applicant, according to Mr Fazio's testimony, notified the Respondents that it intended to terminate the periodic tenancy then continuing and it was so terminated as from 20 December.

1. These proceedings were commenced on 23 January 2013.

1. There was not a great deal of dispute as to the relevant facts. The principal witness for the Respondents was Mr Montesano but it is not necessary for me to deal with his evidence in detail. Where his version of events and conversations differs from that of Mr Fazio for the most part the differences are immaterial. However Mr Montesano's version of a conversation with Mr Fazio in July 2007 regarding advertising signs is important. It is recounted in paragraph 13 of his affidavit:

Fazio: "I have been thinking about your proposal. I also have had further discussions with Elaine, and she has said to me that I could use, part of her building to advertise my business. Elaine says I could put my signs up here". (Indicating the big Video Ezy sign on the Elizabeth Street, side of the building).

Montesano: "That sounds good. If Elaine is happy to do that, I will leave it to you and Elaine. But as I said, last time, when the video store goes, then everything goes. You can still run your pizza shop at the back, but the signs can't stay, as the new tenant will want this area for his business."

Fazio: No, I understand that, I am sure I can work something out if that ever happens".

1. That piece of the conversation rings true to my mind. It seems consistent with other evidence including the evidence of Mr Fazio himself that Mr Montesano in general terms was willing to agree, with appropriate safeguards, to anything within reason agreed between Mr Fazio and Ms Patterson. I accept Mr Montesano's evidence of the conversation, which was not challenged in cross examination. That conversation on any basis seems to put an end to any claims arising out of Mr Montesano's requirement that the advertising be removed for the new tenant of the front shop.

1. I also record Mr Montesano's unchallenged version of the termination of the Applicant's tenancy:

50. The Lessee continued in occupation of the premises on a month to month basis, until on or about 21 December 2012. I was given no notice that he was to vacate the property. The keys were never returned to me, nor was the property made good, pursuant to the terms of the Lease.

1. Mr Montesano's evidence was supplemented by a short affidavit from Ms Patterson sworn 23 July 2013. She confirmed that the reason she insisted on the internal door being permanently closed was to prevent theft of her stock from the rear of the shop through the Pizza Shop.

1. Section 10 of the Act provides for the recovery of compensation by persons who have entered into a lease as a result of false or misleading representations. A claim under s.10 falls within the definition of "retail tenancy claim" in s.70 (s.70(a)(xi)). However by virtue of s.71 "a claim may not be lodged more than 3 years after the liability or obligation that is the subject of the claim arose."

1. In relation to the internal door as it seems to me the claim arose no later than the occasion when Ms Patterson locked the door and indicated that she intended to keep it locked. This occurred no later than June 2009 and thus these proceedings were commenced out of time, so far as they relate to a claim based on a false or misleading representation and must be dismissed.

1. However even if this were not so, I reject the notion that there was a false or misleading representation. In my opinion the evidence is overwhelming that Mr Montesano promised no more than that the wall could be opened and a dividing door installed. He did not promise and Mr Fazio did not ask him to promise that he would ensure that the door be left open. Such an obligation would obviously have required a contractual obligation entered into by Ms Patterson. Such an obligation was not contained in her lease, nor rather significantly in the lease to the Applicant.

1. In relation to the alleged false and misleading representations regarding advertising space, in my opinion the evidence as I have indicated establishes no more than that Mr Montesano was happy for the Applicant and Ms Patterson to make an arrangement which suited themselves. Such an arrangement would obviously end with the lease to Ms Patterson, by which time incidentally the Applicant's own lease had ended in favour of a periodic tenancy from month to month.

1. There remains the claim for unconscionable conduct. In so far as it relates to the internal door the claim is made out of time (s.71A of the Act). But even if it were not for reasons already given nothing the Respondents did amounted to unconscionable conduct. They did no more than exercise their legal rights in what I regards as a wholly reasonable way.

1. In addition for the same reasons the conduct of the Respondents in relation to advertising space did not constitute unconscionable conduct.

1. The Respondents sought an order for costs in the event the Applicant was unsuccessful. In my view this is a case where an order for costs under s.88A of the Administrative Decisions Tribunal Act 1997 should follow the event. The claim in my view was extremely unmeritorious bordering on vexatious. Moreover, the parties were both businessmen engaged in what was essentially a commercial dispute.

1. In this matter I as a Deputy President constituted the Tribunal. However I was assisted by Mr Terry Tyler and Mr Matt Foldi in an advisory capacity in accordance with Schedule 2 Part 3B Division 3 Section 4 of the Administrative Decisions Tribunal Act. I gratefully acknowledge the assistance I derived from their knowledge and experience.

Orders

1. Application dismissed.

2. Applicant to pay Respondents' costs as agreed or assessed.

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Decision last updated: 20 September 2013