Prosha Pty Ltd v AXL Trading Pty Ltd (RLD)
[2011] NSWADTAP 36
•17 August 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Prosha Pty Ltd v AXL Trading Pty Ltd (RLD) [2011] NSWADTAP 36 Hearing dates: 12 and 13 May 2011 Decision date: 17 August 2011 Jurisdiction: Appeal Panel - Internal Before: Appeal Panel comprising:
M Chesterman, Deputy President
K Rickards, Judicial Member
B Harrison, Non-judicial MemberDecision: 1. The appeal is allowed in part.
2. Orders 1, 3 and 4 of the Tribunal made on 17 December 2010 are set aside.
3. The Appellants are jointly and severally liable to pay the sum of $60,405.00 to the Respondent by way of damages.
4. The stay of Order 2 of the Tribunal, granted on 18 February 2011 by the Appeal Panel, is discharged, with liberty to the parties to apply.
5. (a) Any party seeking an order for costs in the first instance or appellate proceedings in this matter is to file and serve its application for costs, with supporting submissions, within twenty-eight (28) days of the date of this decision.
(b) If no such application is filed and served, there will be no order relating to the costs of the proceedings.
(c) If such an application is filed and served, the opposing party must file and serve submissions in reply within a further twenty-eight (28) days.
(d) Unless reasons are advanced for a hearing to be conducted, the issue of costs will be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.
Catchwords: Retail shop lease - lockout of lessee - removal of lessee's goods by lessor causing damage and economic loss - effect of Surveillance Devices Act 2007 on admissibility of video evidence - assessment of damages Legislation Cited: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994
Surveillance Devices Act 2007Cases Cited: AXL Trading Pty Ltd v Prosha Pty Ltd [2010] NSWADT 301
Bowden v Lo (Unreported, Supreme Court of NSW, 19 May 1998, BC9802121)
Bunning v Cross (1978) 141 CLR 54
Commissioner of Corrective Services v Aldridge [2000] NSWADTAP 5
Commissioner of Corrective Services v Aldridge (No 2) [2002] NSWADTAP 6
Craig v South Australia (1995) 184 CLR 163
Ferrcom Pty Ltd v Inbush (NSW) Pty Ltd and Anor [1996] NSWCA 184
Jones v Dunkel (1959) 101 CLR 298
Leduva Pty Ltd v NM Structural Engineering Pty Ltd [2010] NSWSC 1164
Parker v Comptroller General of Customs (2009) 252 ALR 619; [2009] HCA 7
RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082
Sport Developments Pty Ltd v Del Fabbro [2009] QCA 64
Turnbull v NSW Medical Board [1976] 2 NSWLR 281Texts Cited: B Cairns, Australian Civil Procedure, 4th edition, Law Book Co, Sydney, 1996 Category: Principal judgment Parties: Prosha Pty Ltd (First Appellant)
Stateland East Pty Ltd (Second Appellant)
AXL Trading Pty Ltd (Respondent)Representation: Counsel
S Reuben (Appellants)
A Fernon (Respondent)
Fraser Clancy Lawyers (Appellants)
Peter M Wayne & Associates (Respondent)
File Number(s): 119001 Decision under appeal
- Citation:
- AXL Trading Pty Ltd v Prosha Pty Ltd [2010] NSWADT 301
- Date of Decision:
- 2010-12-17 00:00:00
- Before:
- Retail Leases Division
- File Number(s):
- 085172, 085222
REASONS FOR DECISION
(APPEAL PANEL (M CHESTERMAN (DEPUTY PRESIDENT), K RICKARDS (JUDICIAL MEMBER), B HARRISON (NON-JUDICIAL MEMBER): This is an appeal against a decision in the Retail Leases Division of the Tribunal ( AXL Trading Pty Ltd v Prosha Pty Ltd [2010] NSWADT 301), in which the Tribunal ordered that the lessors of premises in a retail shopping centre should compensate the former lessee for losses caused by removing the lessee's stock and other goods and preventing the lessee having access to them.
The principal questions raised in the case are: whether the lessors had grounds under the lease to exclude the lessee from occupation of the premises at a time when the lessee had not completed the task of taking away a substantial quantity of its stock and other goods; whether the lessors, in causing these goods of the lessee to be moved to another location, should be held liable to the lessee for any resulting economic loss (including loss occasioned by damage to the goods); and if so, how that loss should be quantified.
Outline of facts
The ensuing factual outline is principally drawn from the Tribunal's reasons for its decision. It will be supplemented in various respects at later stages of our decision.
The Applicant at first instance and Respondent to this appeal, AXL Trading Pty Ltd ('the Lessee'), was the lessee of premises at Shop 31, BKK East Lake Shopping Centre, Evans Avenue, Eastlakes ('the Centre'), pursuant to a registered Lease AD622105P ('the Lease'). It is convenient to refer to the leased premises simply as 'Shop 31'.
The Respondents at first instance and Appellants in this appeal, Prosha Pty Ltd and Stateland East Pty Ltd ('the Lessors'), were the owners of the Centre and the lessors under the Lease.
The parties had previously signed a short-term lease of Shop 31 commencing on 1 April 2007 and expiring on 31 August 2007.
The Lease itself was for a term of one year, commencing on 1 August 2007 and terminating on 31 July 2008. It contained a holding over clause (clause 2.2) granting a month-to-month tenancy to the Lessee, terminable by either party on one month's notice, following the expiry of the Lease. There was no option for renewal.
The permitted use under the Lease was 'the retail sale of footwear'. It was accepted by the parties that the Lease was governed by the Retail Leases Act 1994 ('the RL Act').
Relevant events occurring towards the end of the term of the Lease are described in the following passage (paragraphs [22] - [28]) of the Tribunal's decision:-
22 The evidence disclosed that in or about June 2008 negotiations took place between the sole director and shareholder of the Applicant (Ms Yue Ming Xie - known as "Sophie") and Mr Kham Ma (known as "Andrew Ma") an employee of Ma Consortium Pty Limited, engaged by the Respondents to manage "BKK Eastlakes Shopping Centre" (the "Centre"). Mr Ma was in fact the manager of the Centre. The Centre consisted of about 65 shops... There was a dispute between Sophie and Mr Ma as to precisely what words were spoken - there is no need for me to review or decide on whose evidence is to be preferred in this respect, simply because the result was the same.
23 Sophie wanted a new lease of the Shop 31. The Lease was about to expire on 31 July 2008. Mr Ma said to Sophie words in or to the effect: "If you want a new lease, the new monthly payment for rent and outgoings will be increased ... here is a schedule recording payment required", and he handed to Sophie a Tenancy Schedule.
24 There was also a discussion about upgrading the shop and the necessity to "spend $30,000.00 and we will give you a three year lease with three months rent free" and Sophie's evidence was that she "agreed to the increased rent because I wanted to secure the longer term lease for the Shop".
25 Her evidence was that she told Mr Ma on 27 June 2008 and she wanted Mr Ma to put the agreement in writing. He, apparently, refused and an argument ensued.
Mr Ma's evidence... was that he said to Sophie:
"I am giving you notice that you have to be out by 31 July 2008. We have a new tenant moving in".
There was then some discussion about remaining in occupation, but Mr Ma said:-
"It's too late. We have a new tenant moving in on 1 August and you will have to move out by 31 July".
Sophie's evidence was that: "a few minutes later a letter giving notice to vacate the Shop was delivered to the Shop". This letter was dated 27 June 2008, addressed to the Applicant, headed "Re: Shop 31 - Option Not to New" (sic) and was in these terms:
"As you are aware, your lease will terminate on 31 July 2008. We would like to inform you that we will not renew your lease thus would ask you to vacate by the 1st August 2008"
and was signed by Mr Ma, "Centre Management". ...
26 There were further discussions between the parties - there was a reference to another proposed tenant of the Shop who had "changed their mind" and Sophie stated, not unreasonably, "what am I going to do with all my stock and my shop fittings?" Sophie's evidence was that Mr Ma told her that "you can stay in the meantime", that she said, "I would like to stay on a long term lease" and that Mr Ma replied, "If you're the best offer you can stay".
27 Mr Ma's evidence was that Sophie approached him asking whether she could "move out by 31 August rather than by 31 July?" and that ultimately he told Sophie: "You can stay until 31 August but you must have vacated by that date. We have a new lease commencing on 1 September". And Sophie replied: "OK".
28 The Applicant continued to occupy the Shop after 31 July 2008; but the evidence disclosed that there was an "agreement" to enable the Applicant to move out of Shop 31 and into a smaller shop, being Shop 67 ("Shop 67") that is currently selling CDs. Mr Ma's evidence was that the Applicant could move to Shop 64 ("Shop 64") and use part of it "as a storage area", and into Shop 67 "temporarily" and that "the security guard will have the keys for you to gain access this weekend"; and that he had agreed with the casual lessee of Shop 67 to remove its stock "on or before Sunday" (31 August), the casual lessee stating that it would have its stock out "by Sunday".
The nature and implications of this 'agreement' between Mr Ma and Sophie are discussed at some length below.
Mr Ma testified also that the current tenant of Shop 64 advised him that on 31 August 2008 the Lessee commenced moving stock into Shop 64. The subsequent handling of this part of the Lessee's stock is not a matter of dispute in these proceedings.
Mr Ma's administrative assistant/secretary, Ms Bin Dong (also known as "Betty"), arranged for a new lessee to occupy Shop 31 as and from 1 September 2008 (which was a Monday). But the Lessee did not vacate this shop in time for the incoming lessee's builder/shopfitter to gain access and carry out the work required for the incoming tenant to commence trading.
The reason for this was that the casual lessee of Shop 67 did not fully vacate this Shop, removing all stock and fittings, until about 5 p.m. on Sunday 31 August 2008. Sophie's evidence, as summarised by the Tribunal at [33], was as follows:-
... on that day she visited Shop 67 and "observed that half the store was empty" but the remainder of the CD stock and fitout was in the process of being removed such that she thereafter commenced moving some shop fittings into Shop 67. She moved some shelves and approximately 1,000 pairs of shoes and stopped working at about 6-00pm on that day.
The Tribunal found as follows, at [40]:-
... as at 1 September 2008 the Applicant had moved about 1000 pairs of shoes and some shop fittings from Shop 31 to Shop 67, but could not move the balance simply because the casual tenant of Shop 67 had not vacated that shop.... the Applicant was unable, as a matter of sheer mechanics, to move out on or before 31 August 2008 notwithstanding whatever agreement Mr Ma may have reached with an incoming tenant of Shop 31.
On the morning of Monday 1 September 2008, both Mr Ma and Betty separately rang Sophie and asked her why the Lessee had not vacated Shop 31 by the end of the previous day. She told them that this had not been possible because Shop 67 had not been vacated until late in that day. She also said that she could not continue with removal of her goods, because she did not have a key to Shop 67. The evidence leaves some doubt as to why this was the case, but the Tribunal found (at [39]) that Mr Ma had taken steps to prevent her having one.
At about 2 p.m. on 1 September 2008, Sophie, together with her shop assistant Ms Xie Yu (known also as 'Joy'), went to Shop 67. They found it locked. They then went to Shop 31, finding that the Lessee's remaining stock and fittings (including more than 6,000 pairs of shoes) were still there.
Sophie's evidence as to what then occurred, as outlined by the Tribunal at [37] and confirmed to some extent in Betty's evidence, was as follows:-
She (Sophie) told her shop assistant "to call the customers to collect the lay-by goods and ... call the suppliers to pick up their stock". She then left her shop assistant there but returned soon after and found the shop assistant sitting outside the shop, the roller door having been pulled down and locked. The shop assistant told her: "They asked me to leave the shop. They then locked the door". Sophie then spoke to Betty, who was apparently walking past the shop, and said to her, "You have no right to lock this door. You have to give me one month's written notice" and Betty replied, "Talk to Andrew (Ma)".
Between about 5 p.m. and 11 p.m. on 1 September 2008, Mr Vitale, a warehouse manager employed by a company that Mr Ma had engaged to move the Lessee's stock from Shop 31 to Shop 67, carried out this task, using shopping trolleys. For some of this time, he was assisted by his wife and his parents.
On 2 September 2008, Mr Smith, who was the managing director of the company employed to fit out Shop 31 for the incoming lessee, continued, with assistance from some other men, to remove the stock and fittings at Mr Ma's request. They also used shopping trolleys. They finished this task at about 3.30 p.m. Mr Smith's impression was that around 90% of the shoes had already been moved out when he started work.
Also on 2 September 2008, Sophie and Joy paid visits to Shop 31, where they were permitted to look inside but not to enter. They encountered Mr Ma, who said (according to Sophie) that he did not want to discuss matters with her.
Also on this date, Peter M Wayne & Associates ('Waynes'), solicitors for the Lessee, wrote to Fraser Clancy Lawyers ('Fraser Clancy'), solicitors for the Lessors, complaining on the Lessee's behalf that it had been locked out of both Shop 31 and Shop 67 'without formal notice'. They argued that the only notice that had been given to the Lessee to vacate Shop 31 had been the letter of 27 June 2008, but that the Lessors had subsequently withdrawn this notice and agreed that the Lessee could 'stay on as a month-to-month tenant'.
On 4 September 2008, the Lessee commenced these proceedings by filing an Application for Original Decision, together with an Application for an Urgent Interim Order, in the Tribunal. A hearing of the latter Application took place on 9 September. As noted in the Tribunal's decision at [59], during this hearing the Lessors (through their counsel) denied access to Shop 67 to the Lessee. The Tribunal gave directions providing inter alia for a stock taking of all the Lessee's goods removed from Shop 31 to be conducted jointly by the parties by 24 September 2008.
In letters to Waynes dated 15 and 18 September 2008, Fraser Clancy enclosed copies of a draft licence agreement, permitting the Lessee to occupy Shop 67 until 31 October 2008, and a draft lease of Shop 64 to the Lessee, commencing on 1 November 2008 and providing for a term of three years and an option to renew for a further three years. In his principal affidavit, Mr Ma indicated that he had given instructions for this to be done.
In a further letter to Waynes dated 17 September 2008, Fraser Clancy stated as follows: (a) the Lessors did not 'accept the history' set out in Waynes' letter of 2 September; (b) as at 2 September, the Lessors had claimed a lien over the Lessee's stock and equipment 'in respect of arrears of rent, removal costs and potentially, damages payable to the incoming tenant of Shop 31; (c) they no longer sought to hold the stock and equipment on that basis; (d) Fraser Clancy had advised Waynes in a telephone discussion on 2 September that the Lessors were prepared (and remained prepared) to allow the Lessee to remove its stock and equipment; and (e) following the joint inspection the Lessors would allow the Lessee to do this 'should it not wish to accept [the Lessors'] offer of a Licence and a Lease'.
In a letter dated 7 October 2008 to Waynes, Fraser Clancy asked them to confirm in writing their advice, given by telephone on 3 October, that the Lessee did not wish to accept the Lessors' offers of a licence and a lease. It does not appear that any written response was conveyed.
A number of directions given at five directions hearings in the Tribunal, held between 25 September 2008 and 5 March 2009, are set out in its decision at [60 - 65]. For present purposes, the salient features of those directions were as follows:-
(a) They initially permitted, then required (by 16 October 2008), the Lessee to remove from Shop 67 all its fittings, furniture, equipment, stock and other goods, except for those goods which according to the Lessee had been damaged through being moved there from Shop 31 by or at the request of the Lessors.
(b) They permitted the Lessors to relocate the stock left in Shop 67 that the Lessee claimed to have been damaged by the removal.
(c) They required that expert witnesses engaged by the parties should inspect this stock in order to determine and report on its condition, the extent (if any) to which it was damaged, whether it was saleable, its original value and its present value.
(d) They required the Lessors to supply to the Lessee unedited copies of all videos taken on three days (16, 29 and 30 October 2008) during inspection by employees of the Lessee of stock remaining in Shop 67.
On various days in September and October 2008, Mr Ma and other persons instructed by him took photographs and videos of the stock in Shop 67 and of the inspections of this stock being conducted by Sophie and other staff of the Lessee. Relevant aspects of the photographs and the video footage that they obtained are discussed below.
An initial inspection and stocktaking of the Lessee's stock and other goods at Shop 67 was conducted by Sophie, Joy and Mr Nour (the Lessee's expert witness) on 7 October 2008. Stocktaking by Sophie, Joy and other employees of the Lessee continued on 16, 29 and 30 October. As required by the Tribunal's directions, they classified the shoes according to whether or not they were fit to be on-sold.
In separate instalments on 16 and 30 October, Sophie and her staff transferred 4,399 pairs of shoes that they had found to be fit for sale, along with a number of other items of stock and equipment, to a warehouse owned by the Lessee. In the parties' submissions on damages, this part of the total stock of shoes is described as 'the Removed Shoe Stock'.
Sophie and her staff left the remaining shoes (these are described, with a slight potential to mislead, as 'the Left Shoe Stock') in Shop 67, having deemed them to be unsuitable for resale.
On 14 November 2008, the Lessors arranged for the Left Shoe Stock to be moved from Shop 67 to a storage warehouse at Wetherill Park owned by RestorX.
For the purpose of preparing reports on the state of both collections of shoes, Mr Nour visited the two warehouses where they were stored. He visited the Lessee's warehouse on 5 and 7 November 2008. He visited the RestorX warehouse on 28 and 29 January 2009, 20 January 2010 and 3 February 2010. His first report was dated 16 July 2009 and he provided supplementary reports dated 28 April 2010 and 27 May 2010 respectively.
The Lessors' expert witness, Mr Rodney McHugh, paid initial visits to the RestorX warehouse on five days prior to completing his first report, which was dated 5 November 2009. He paid two further visits, together with Mr Nour, on 20 January and 3 February 2010. He then prepared two supplementary reports. The first of these, which was originally prepared as a joint report but became a report by Mr McHugh only, bore a date in April 2010 and was tendered at the Tribunal hearing on the 29 th of that month. The second was dated 19 May 2010.
Mr McHugh did not visit the Lessee's warehouse or inspect at any time the Removed Shoe Stock.
These processes of inspection and stocktaking generated a considerable quantity of correspondence between the parties' solicitors, containing numerous allegations and counter-allegations regarding the behaviour of their respective clients. Some of this correspondence, relating to the taking of video footage by agents of the Lessors, is outlined below.
Procedural history
As already stated, the Lessee instituted Tribunal proceedings on 4 September 2008, by filing an Application for Original Decision (file 085172). Relevant aspects of the accompanying Application for an Urgent Interim Order and of directions given by the Tribunal for stocktaking and inspection of the goods removed to Shop 67 have already been outlined.
In its Application for Original Decision, the Lessee claimed that following the expiry of the Lease on 31 July 2008 it remained in occupation of Shop 31 under a monthly tenancy terminable on one month's notice, that the Lessors had locked it out of this Shop and taken possession of its stock and other goods without giving such notice, that this conduct 'fundamentally breached the Lease which the Applicant accepted' and that the Lease was thereby terminated.
As summarised in the Tribunal's decision at [108], the Lessee also pleaded conversion by the Lessors, asserted that the Respondents were the 'bailee of the Applicant's stock, fittings and fixtures and documents located in the shop" and asserted that the Lessors had 'destroyed and/or damaged the Applicant's stock etc. whereby the Applicant has "suffered loss and damage" and was "entitled to possession of the stock etc"'.
In a Cross Application (file 085222), filed on 6 November 2008, the Lessors asserted that in or about early July 2008 the parties had agreed verbally to extend the terminating date of the Lease from 31 July 2008 until 31 August 2008, but that in breach of the Lease as so varied the Lessee had failed to vacate Shop 31 on 31 August 2008. They claimed damages for unpaid rent, removal costs, storage costs and the amount of a liability to the incoming lessee of Shop 31 because it had not obtained vacant possession as promised under the lease that it had entered into with the Lessors.
The hearing of the Application and Cross Application took place over ten days between 23 November 2009 and 19 June 2010. The Tribunal was constituted by Mr G Molloy, Judicial Member. Pursuant to directions, the parties filed written submissions after the hearing. The last of these was filed on 5 October 2010.
The Tribunal delivered its decision on 17 December 2010 ( AXL Trading Pty Ltd v Prosha Pty Ltd [2010] NSWADT 301). It granted the relief sought by the Lessee and, save to a limited extent, dismissed the Lessors' Cross Application. Its principal order was an award of damages to the Lessee in the sum of $108,707.47. Relevant parts of its lengthy and detailed reasons are reproduced or summarised below.
The Lessors instituted the present appeal by filing a Notice of Appeal on 10 January 2011. An application by them for an order staying the principal order of the Tribunal was heard and dismissed on 8 February 2011.
The hearing of the appeal took place before us on 12 and 13 May 2011. Mr Reuben of counsel appeared for the Lessors and Mr Fernon of counsel for the Lessee.
At the conclusion of the hearing, because time had not permitted oral argument on all the matters raised by the appeal, we directed (a) that the Lessors should file and serve within 21 days supplementary submissions, focusing on the question of assessment of damages and on matters that had not been sufficiently covered in Mr Reuben's address in reply; and (b) that the Lessee should file and serve any submissions in response within a further 21 days.
The supplementary submissions then filed by the Lessors traversed a number of matters that, according to submissions filed by the Lessee in response, went beyond the range permitted in our directions. In correspondence sent to the parties by the Registrar at our request, it was indicated that this objection by the Lessee was a valid one and that except as to one section of the Lessors' submissions we would not take account of what we will call here the 'offending passages' when reaching our decision.
The section within the 'offending passages' that we have however taken into account relates to a ruling of the Tribunal, made on grounds outlined below, that an objection by the Lessee to the Lessors' tender of video evidence during the Tribunal hearing should be upheld. Having read the Lessors' arguments about this ruling (which deal principally with questions of law) in their supplementary submissions, we determined that we were bound to take account of them and that we should therefore grant leave to the Lessee to file submissions in response. Further aspects of this part of the appeal proceedings are summarised below.
The last of the supplementary submissions in the appeal were filed on 26 July 2011.
The section 16 certificate
At the commencement of the Tribunal hearing, both parties assumed that the term of the Lease was twelve months only, commencing on 1 August 2007. As stated by the Tribunal in its decision at [10], [15] and [17], it was on this footing that both the Lessee and the Lessors pleaded their cases (in their respective Applications) and put forward their evidence and submissions at the hearing.
During the hearing, however, the Tribunal asked whether section 16 of the RL Act might have been applicable. This would have the consequence that the term of the Lease would be five years unless a certificate under section 16(3) had been given by a solicitor or licensed conveyancer who was not acting for the Lessors.
So far as relevant, section 16 states:-
16 Minimum 5 year term
(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.
(2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section.
Note:...
(3) This section does not apply to a lease if a lawyer, or a licensed conveyancer, not acting for the lessor certifies (before, or within 6 months after, the lease was entered into) in writing that:
(a) the lessee or prospective lessee requested the lawyer or conveyancer to give the certificate, and
(b) the lawyer or conveyancer has explained to the lessee or prospective lessee the effect of subsections (1) and (2) and that the giving of the certificate will result in this section not applying to the lease.
If the certificate is given within 6 months after the lease was entered into, then, without affecting the validity of the lease, subsection (2) ceases to apply to the lease and the extension of the term of the lease effected by that subsection accordingly ceases to be operative.
Because the possible application of section 16 to the Lease was not addressed in the evidence or in the written submissions filed after the hearing, the Tribunal directed the parties to deal with it in supplementary submissions.
In its supplementary submissions to the Tribunal, the Lessee claimed that no certificate under section 16(3) was 'ever signed by a solicitor', that the duration of the Lease was therefore five years and that accordingly the Lessors' conduct in locking the Lessee out of Shop 31 was a breach of the Lease.
In their supplementary submissions, the Lessors argued that since no evidence had been tendered on the issue of whether a certificate had been given, and since evidence that a certificate had not been given would have been favourable to the Lessee, the Tribunal should infer that a certificate had in fact been given. They relied on a passage in the judgment of Cole JA in Ferrcom Pty Ltd v Inbush (NSW) Pty Ltd and Anor [1996] NSWCA 184, in which his Honour cited and applied principles deriving from the well known decision in Jones v Dunkel (1959) 101 CLR 298.
The Lessors also conceded that if no certificate had been given, the term of the Lease would in fact have been five years and their termination of it on 31 August 2008 'may have been unlawful'.
In its decision at [12 - 13], the Tribunal dealt as follows with these submissions of the Lessors:-
12 The Respondent submitted that no evidence had been filed by the parties in relation to the s.16(3) Certificate. I reject this submission. The lease itself was in evidence, and led in chief by the Respondent. No s.16(3) Certificate appears in that document. The Respondent submitted that "as evidence that a s.16 Certificate was not given would not have been favourable to the Applicant, the Tribunal should infer that a s.16(3) Certificate was given from the Applicant's omission to file evidence to establish the contrary". This submission was based on an observation by Cole JA in Ferrcom Pty Limited v. Inbush (NSW) Pty Limited (unreported) [1996] NSWCA 184 at pp 2-3. It was perhaps a Jones v. Dunkel point; but, quite frankly, I do not see it in that light. It was part of the Respondent's own case that the lease was a 12 month lease; the lease itself was put in evidence by the Respondent; that document does not contain a s.16(3) Certificate; and it is plain to me that there is no Jones v. Dunkel point. It is not a question of any inference; rather, it is a question of the evidence that was put before the Tribunal.
13 The Respondent has, in my view, correctly, conceded that "once s.16 is applied the further consequence (is) that the (Respondent's) termination of the Shop 31 Lease on 31 August 2008 may have been unlawful. Other factors may also have been relevant to whether the (Respondent's) termination was in fact unlawful, such as the parties' agreement to (the) lease ending on 31 August 2008". I agree with that concession. Independently, I should say that I have formed the same opinion...
As Mr Reuben pointed out to us at the hearing of the appeal, the Tribunal indicated in a number of later passages in its decision that it treated the duration of the Lease as a matter of considerable importance and that it regarded the Lessors as primarily responsible for the parties' misapprehension on this matter. In the last sentence of paragraph [13], for instance, it stated that the Lessors' conduct in terminating the Lease amounted to a 'substantial breach' of the Lease. At [21], it criticised them for not being 'au fait with' the relevant provisions of the RL Act and expressed the opinion that it was incumbent on owners and managers of retail shopping centres to 'understand the terms and effect' of this Act. At [29], it described the Lessors' breach of the Lease as 'massive', adding in the next paragraph that they had 'misled and deceived' Sophie into believing that the Lessee had no right to occupy Shop 31 after 31 July 2008. At [205], the Tribunal described the Lessors' conduct as 'clearly unwarranted and, quite clearly, atrocious'. Other paragraphs to which Mr Reuben drew our attention in this context were [3], [8], [9], [18], [31] and [119].
At the appeal hearing, it was however established that a certificate under section 16(3) had been given after all. An affidavit sworn on 4 May 2011 by Mr Fraser, solicitor for the Lessors, was tendered on their behalf and admitted without objection. Annexed to it were copies of a letter dated 3 May 2011 from Waynes to Fraser Clancy and of a section 16 certificate.
The letter included the following passage:-
We advise that Counsel in the course of preparing submissions has, in some bundles of papers provided by the client, located a Section 16 Certificate. A copy is now enclosed.
It was not attached to any other document and it was simply found loose.
Conceivably it may raise issues with the appeal, points of appeal and submissions.
The accompanying certificate satisfied the requirements of section 16(3). The solicitor or licensed conveyancer providing it stated (a) that he did not act for either of the Lessors, and (b) that at the Lessee's request he had explained the effect of subsections (1) and (2) of section 16 of the RL Act and indicated that the giving of the certificate would result in this section not applying to the Lease.
A number of submissions made by Mr Reuben at the appeal hearing were based on this evidence that a section 16 certificate had been given relating to the Lease, and on the fact that it was not produced to the Lessors or the Tribunal until a few days before the hearing of the appeal.
First and most importantly, Mr Reuben argued that because the Tribunal's numerous and trenchant criticisms of the Lessors' conduct in insisting that the Lease expired on 31 August 2008 had now been shown to be unjustified, its ultimate conclusion that the Lessors were liable to pay damages to the Lessee should be held by us to be flawed and unreliable. The Tribunal's strong disapproval of the Lessors' behaviour should, he maintained, be held by us to have affected all of its findings on the matters in dispute, necessitating a review of its decision on the merits. He added that this aspect of the decision, considered in conjunction with our admission into evidence of the newly-discovered certificate, had the outcome that we were bound to grant leave under section 113(2)(b) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act') for the appeal to extend to the merits.
Mr Fernon did not oppose a grant of leave under section 113(2)(b). He relied, however, on a number of statements by the Tribunal indicating that its ultimate conclusion that the Lessee should succeed did not depend on its belief that the Lease had a term of five years. He maintained that the discovery of a section 16 certificate, with the consequence that the term of the Lease was only one year, as initially pleaded, should therefore not be held to have affected the Tribunal's decision to award damages to the Lessee. The statements by the Tribunal on which he relied were as follows.
At [21], having referred to the fact that the requirements of section 44 of the RL Act (as to which, see below) took up a considerable amount of time at the hearing, the Tribunal said:-
Even on the Respondent's case (ie that the lease was for 12 months) the Respondent did not seem to understand the provisions of the RL Act with regard to the legal requirements that apply to retail shop leases and retail shopping centres.
At [41], the Tribunal said:-
The failure to ensure vacant possession of Shop 67 was a failure, not only of the casual tenant, but also of the Respondent and the centre management. The lock-out of the Applicant from Shop 31 was, in all the circumstances, unwarranted, even on the asserted 12 month lease, let alone on the s.16 extended five year lease.
Paragraph [74] included the following observations:-
Quite frankly, and in all the circumstances, and even if one accepts (and I do not) that the lease was for a term of 12 months only, extended by one month by agreement, the plain fact is that the Applicant had been in occupation of Shop 1 since 1 April 2007 (or perhaps March 2007)... Consequently, I conclude that there was really nothing that would have caused any concern to the Respondent relating to the occupation of Shop 31 that would have encouraged the Respondent to take all the photographs and videos...
At [94 - 95], the Tribunal said:-
94 It is my clear view that there was no consent to vacate as at 31 July 2008, alternatively 31 August 2008, simply because no party, and, in particular, the Applicant, was aware that the tenancy did not expire until 31 July 2012. Therefore, there was no agreement/contract to vary that term.
95 In any event nothing much hangs upon this argument for the reasons I endeavour to express later in this decision. The real issue that occupied the bulk of the hearing time was that pertaining to the issue of damages and it is to that issue I shall now turn...
Finally in this connection, paragraph [119] included the following sentence:-
The evidence demonstrates, in my view, that the Applicant, even on the understanding that the lease was for 12 months and extended by one month to 31 August 2008, was not able to move her goods into Shop 67 simply because the casual tenant of that shop had not removed its goods.
As we indicated during the hearing of the appeal, the reception of fresh evidence on a matter given considerable prominence in the Tribunal's decision - namely, whether a section 16 certificate had or had not been provided in relation to the Lease - was enough of itself to warrant granting leave for the appeal to extend to the merits. We stated that such leave was indeed granted, with the consequence that any remitter of these proceedings for further hearing at first instance was precluded and that we were required to dispose of the appeal ourselves in accordance with section 115 of the ADT Act.
We do not accept Mr Reuben's submissions, however, that because the Tribunal mistakenly believed that there was no certificate its criticism of the Respondents' conduct was wholly unjustified and that for this reason alone we should set aside its decision. Our reasons are twofold.
First, we agree with Mr Fernon that, in view of the passages in the Tribunal's reasons to which he referred, its decision to award damages to the Lessee was not dependent on its belief that the Lease had a term of five years.
Secondly, as appears from paragraph [41], cited above, and from other passages to which we will refer below, the supposedly unlawful termination of the Lease was not the only ground on which the Tribunal disapproved of the Lessors' conduct. It also criticised their failure to provide any reasonable opportunity to the Lessee to conduct in an appropriate manner the removal of its stock into the alternative accommodation (Shop 67) that they had promised to make available.
Having said this, we would add that because the Tribunal's disapproval of the Lessors' conduct is a recurrent theme within its reasons, our examination (as required by section 115 of the ADT Act) of the findings on which its ultimate conclusion was based should be close and careful.
At this point, it is useful to refer to authorities on the nature of the inquiry that an Appeal Panel should undertake when, having granted leave for an appeal to extend to the merits, it is required by section 115 of the ADT Act to make 'the correct and preferable decision on the material... before it'.
This question was considered by the Appeal Panel in Commissioner of Corrective Services v Aldridge [2000] NSWADTAP 5. It held as follows, at [94 - 98]:
94 When an Appeal Panel decides to permit an appeal to extend to a review of the merits of the decision under review, what form should that appeal take? While we will afford the parties an opportunity to make submissions in relation to this matter it may assist the progress of this appeal if we advance a tentative opinion. In Turnbull v NSW Medical Board [1976] 2 NSWLR 281 at 297, Glass JA noted that, "Appeal is a term loosely employed to denote a number of different litigious processes which have few unifying characteristics." He then went on to identify and describe six different types of appeal. In our opinion an appeal to an Appeal Panel, which extends to a review of the merits falls within the category described by Glass JA as "appeals from a judge by way of rehearing." In such cases, according to Glass JA the following occurs:
If errors of law or wrong findings of fact have occurred below, the appellate court will try the case again on the evidence used in the court below, together with such additional evidence as it thinks fit to receive. Since it will decide the appeal in the light of the circumstances which then exist, changes in the law will be regarded." (at 297)
95 Associate Professor Bernard Cairns in Australian Civil Procedure 4th edition (Law Book Co., Sydney 1996) at 637-638 elaborates on the description given by Glass JA in Turnbull:
The court is not confined to a determination of whether the trial judge was wrong on the evidence presented at the trial. A rehearing is a new determination of the rights and liabilities of the parties rather than the correction of errors in the determination of the court below. Moreover, the rehearing is conducted on the basis of the law as at the date of the rehearing. A rehearing does not involve calling oral evidence at the appeal. The appellate court proceeds on the transcript of the evidence given at the trial. And further evidence that is allowed is admitted in documentary form such as an affidavit or deposition.
96 Subject to any submissions which counsel wish to make, this is how we believe an Appeal Panel should conduct an appeal, which extends to a review of the merits of an appealable decision. In our opinion we are not limited, as in a strict appeal, to correcting errors, which the Tribunal may have made. We are required by section 115 of the ADT Act to reach our own decision in the matter taking into consideration any relevant factual material, which was before the Tribunal, plus additional factual material, which we admit into evidence and by applying the law as it stands at the time the appeal, is heard.
97 For the sake of completeness this form of appeal should be contrasted with "a rehearing de novo." Glass JA also described this type of appeal in Turnbull v NSW Medical Board [1976] 2 NSWLR 281 at 297-8:
All the issues must be retried. The party succeeding below enjoys no advantage, and must, if he can, win the case a second time.
98 Cairns (at page 636) elaborates on this description by stating that "a rehearing de novo requires a new trial or hearing before the appellate Court . . . and evidence must be called before the appellate court." We do not believe that section 115 of the ADT Act extends this far. While the Appeal Panel is required to exercise the jurisdiction, which the Tribunal initially exercised, the Appeal Panel is not required to exercise this jurisdiction by starting the matter afresh and by conducting a hearing as it would be conducted in the Tribunal. Unless there are exceptional circumstances the appeal should be determined by considering the transcript, the documents admitted as exhibits, any additional factual material in documentary form, which we choose to take into account and the submissions by the parties or their legal representatives.
In Commissioner of Corrective Services v Aldridge (No 2) [2002] NSWADTAP 6 at [20] and [[26], the Appeal Panel stated that it now adopted what in the earlier decision had been its 'preliminary view', viz, that a 'rehearing', not a 'hearing de novo', should take place following a grant of leave for an appeal to extend to the merits.
As far as we are aware, no subsequent decision has cast doubt on this statement of principle. It should be noted that the review of evidence required of us does not include redetermining, save in exceptional circumstances, the credibility of the witnesses who gave oral evidence at the hearing at first instance.
In this discussion relating to the section 16 certificate, the next argument by the Lessors that we shall consider was set out initially in written submissions filed before they were notified of the discovery of the certificate, and was elaborated by Mr Reuben at the hearing. The gist of it was that the procedure adopted by the Tribunal in receiving the parties' submissions on the impact of section 16 unfairly denied them any opportunity to tender all relevant evidence and/or cross-examine any witnesses called by the Lessee on the question whether a certificate had been given.
Mr Reuben relied particularly on two considerations. The first of these was that because the Lessee had claimed in its Application that the term of the Lease was one year only and had presented its case in the Tribunal on this basis, the Lessors had assumed throughout the hearing that this was the case that it was required to meet. The second was that the Lessors had been given no opportunity to seek to rebut through appropriate evidence the claim in the Lessee's supplementary submissions (described by Mr Reuben in his appeal submissions as 'tenant counsel's evidence' and subsequently admitted to be incorrect) that 'no... certification' under section 16(3) was 'ever signed by a solicitor'.
Although in its Notice of Reply to Appeal the Lessee claimed that 'there was no "Tenant's counsel's evidence"' within its supplementary written submissions, we incline to the view that the Tribunal did indeed fail to give to the Lessors a sufficient opportunity to seek to rebut this 'evidence'.
In addition, even though the Tribunal indicated at [10] and [15] that the Lessee, in its Application and its conduct of the case, put forward the Lease as having a term of one year only, the Tribunal treated the opportunity given to the Lessors to file supplementary written submissions as an adequate measure to redress any disadvantage suffered by them through having, at a late stage, to respond to the Tribunal's own proposition that its term might be five years. We do not believe that it was adequate. To illustrate this, we would point out that in its decision at [12], the Tribunal treated as relevant evidence on the matter the absence of any certification in the Lease itself. But the procedure that it adopted gave no scope for the Lessors to explore - for example, through cross-examination of Sophie - the possibility that, as ultimately transpired to be the case, certification under section 16(3) was effected in a separate document.
These matters would be of considerable importance if the Tribunal's conclusion regarding certification remained open to challenge in the appeal. But this is no longer the case, because the Lessee has conceded through its counsel that the term of the Lease was only one year.
To a significant extent, Mr Reuben's oral submissions at the hearing of the appeal took appropriate account of this concession. He indicated, for instance, that two grounds stated in the Lessors' Notice of Appeal were no longer pressed. These were grounds challenging a ruling by the Tribunal (at [93]) that since the parties had not realised that by virtue of section 16 the Lease did not expire until 31 July 2012, they could not be held to have varied the Lease by consent through substituting an expiry date of 31 August 2008.
Mr Reuben argued, however, that we should infer from the circumstances of the late discovery of the certificate that Sophie had known of its existence and significance at all material times and had indeed concealed it from the Lessors and the Tribunal. He did not refer to any evidence tending specifically to support these allegations.
While it is obvious that Sophie knew of the existence of the certificate at the time when it was given, we agree with a submission by Mr Fernon that there is insufficient evidence to support the inference urged by Mr Reuben. To conclude that at the time of the Tribunal hearing Sophie recalled the provision of the certificate and, most importantly, appreciated its significance for these proceedings, but nonetheless decided not to disclose it, would be to attribute seriously dishonest conduct to her. Allegations of this grave nature must be established by affirmative evidence, not merely by inference.
If the Lessors, having received from the Lessee's solicitor a copy of the certificate only a few days before the hearing of the appeal, had applied to us for leave to have Sophie recalled for cross-examination on this question, we would have given careful consideration to their application. But they did not do so.
Finally, Mr Reuben argued that the Tribunal's mistake in assuming that no section 16 certificate had been given amounted to 'jurisdictional error' that was sufficient in itself to invalidate the Tribunal's decision. He relied here on a passage in the joint judgment of the High Court in Craig v South Australia (1995) 184 CLR 163 at 179. Having referred to constitutional limitations in Australia that 'may preclude legislative competence to confer judicial power upon an administrative tribunal', the Court said:-
If such an administrative tribunal falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal's exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the tribunal which reflects it.
Mr Fernon sought to rebut these arguments by submitting, as we have already indicated, that the Tribunal's decision to award damages to the Lessee did not depend on its belief that no section 16 certificate had been given.
In our opinion, this submission is well founded and is sufficient to dispose of Mr Reuben's claim that the Tribunal's mistaken conclusion with regard to the certificate is sufficient in itself to warrant wholly setting aside its decision on the ground of 'jurisdictional error'.
It is convenient to summarise at this point a further submission made to us by Mr Fernon regarding the impact of the Tribunal's finding that due to the absence of a section 16 certificate the term of the Lease was five years.
Mr Fernon drew our attention to a claim by Sophie (described by the Tribunal at [26]) that during a conversation with Mr Ma in the first half of July 2008, he responded to her expression of a desire to stay in Shop 31 under a long lease by saying 'If you're the best offer you can stay'. In his evidence, Mr Ma claimed not to have said this. Mr Fernon submitted to the Tribunal, however, that it should prefer Sophie's testimony on this matter and that it should find that Mr Ma, by making this statement, implicitly withdrew the Notice relating to termination of the Lease that had been served on the Lessee on or about 27 June 2008. The result of so finding, he said, would be that the Lessors would have been bound to observe the requirement in the holding over clause of the Lease that the month-to-month tenancy provided for could only be terminated on one month's notice.
The point that Mr Fernon made to us was that because the Tribunal held that the term of the Lease was five years it saw no need to rule on his submission that the Notice of 27 June 2008 had been withdrawn. In this respect, he claimed, the Tribunal's mistaken conclusion as to the duration of the Lease had operated to the disadvantage of the Lessee, not the Lessors.
In our opinion, there is merit in this submission put by Mr Fernon, but we do not believe it to be of importance in determining the outcome of the appeal.
The negotiations regarding the Lessee's departure from Shop 31
A major issue of contention in the appeal was whether the agreement whereby the Lessee was permitted to remain in occupation of Shop 31 until 31 August 2008 was linked with, or entirely independent of, the Lessors' offer to permit it to remove stock and other goods from Shop 31 to Shop 67.
As already stated, the Tribunal's principal finding on this question was at [28]:-
28 The Applicant continued to occupy the Shop after 31 July 2008; but the evidence disclosed that there was an "agreement" to enable the Applicant to move out of Shop 31 and into a smaller shop, being Shop 67 ("Shop 67") that is currently selling CDs". Mr Ma's evidence was that the Applicant could move to Shop 64 ("Shop 64") and use part of it "as a storage area", and into Shop 67 "temporarily" and that "the security guard will have the keys for you to gain access this weekend"; and that he had agreed with the casual lessee of Shop 67 to remove it's stock "on or before Sunday" (31 August), the casual lessee stating that it would have its stock out "by Sunday".
In addition, the Tribunal stated as follows at [90] and [119]:-
90 If it was argued that the failure to give the Applicant vacant possession of Shop 67 was a breach of the arrangement reached between the parties, I think there is some force in that argument simply because it would seem that the parties did in fact "agree" that the Applicant could move into Shop 67 on 31 August 2008 and that could not have taken place as a matter of practicality because the casual tenant had not vacated Shop 67.
119... There is no requirement for the Tribunal to make a determination relating to the type of quality of the occupation by the Applicant of Shop 67, simply because it was the Respondent who offered to the Applicant that Shop for the purposes of enabling the Applicant to remove its stock from Shop 31, thus enabling the Respondent to let Shop 31 to the new tenant.
Mr Reuben argued, however, that on a proper interpretation of paragraph [28] of the Tribunal's decision the 'agreement' referred to was not a binding agreement. Instead, the outcome, in his submission, of the discussions between Sophie and Mr Ma during July and August 2008 was as follows: (a) the date of expiry of the Lease was fixed at 31 August 2008, in lieu of the original expiry date of 31 July 2008, which had been stated in the Lease and confirmed by the Notice dated 27 June 2008; and (b) the Lessee was obliged to vacate Shop 31 on or before 31 August 2008, irrespective of whether the Lessors had by that date implemented their offer to make Shop 67 available to receive the Lessee's stock and other goods.
In support of this argument, Mr Reuben relied on the following evidence before the Tribunal: paragraphs 21 to 30 of Sophie's witness statement (Exhibit A); various extracts from the transcript of her answers in cross-examination (23.11.09, page 51, lines 10ff; page 52, line 35ff; and page 71, lines 40ff; also 25.11.09, page 79, lines 10ff) and of Mr Ma's answers in cross-examination (26.11.09, page 36, lines 40ff; page 37, lines 35ff); and a witness statement by Ms Caroline Parker, who was the Lessors' solicitor at the relevant time.
We have reviewed this evidence, together with other evidence (some of which was identified by Mr Fernon) that appears to us to be relevant also: namely, paragraphs 11 to 18 of Mr Ma's first witness statement and further extracts from the transcript of his answers in cross-examination (26.11.09, page 38, lines 1-10; page 95, line 46 to page 96, line 4). This leaves us in no doubt that, contrary to Mr Reuben's submission, there was indeed an agreement, as found by the Tribunal, that the Lessee would be permitted to move stock and other goods from Shop 31 into Shop 67.
Mr Ma gave the following evidence, for instance, at paragraphs 11 - 17 of his witness statement: (a) on or about 14 July 2008, he told Sophie that she could stay in Shop 31 until 31 August; (b) on or about 21 July he told her that she could move to Shop 67 'temporarily' and also use part of Shop 64 for storage; (c) on 25 August, after he taken her to view these two shops, he went to Shop 67 and 'in reliance upon this agreement with Sophie', he asked the casual tenant of this shop to move his storage stock by 31 August 'as the Shop 31 tenant is going to remove their remaining stock to store in shops 64 and 67 on or before Sunday (31 August)'; and (d) the tenant said: 'OK, I'll have it out by Sunday.'
Furthermore, the last of the passages in his cross-examination on which Mr Reuben relied includes the following exchange between him and Mr Fernon, who appeared for the Lessee at the Tribunal hearing (Transcript, 26.11.09, page 95, line 46 to page 96, line 4):-
Q. Now, on any view, would you agree with me or not agree with me that you had an agreement with her one way or the other.
A. For her to remove her stock.
Q. We can argue about the terms of it.
A. Yeah.
Q. That she could occupy Shop 67, lease it for storage?
A. Yes.
There was disagreement between the parties as to the dates on which the relevant conversations between Sophie and Mr Ma occurred, and on various aspects of what was said. But the evidence, in our view, entirely supports the Tribunal's conclusion that one matter on which they agreed was that the immediate destination of some at least of the Lessee's goods when Shop 31 was vacated was to be Shop 67.
It was not expressly stipulated by Mr Ma, nor agreed to by Sophie, that if Shop 67 was not ready to receive these goods on or before August 31, the date fixed for vacating Shop 31, the Lessee would have to move them to some other location. Instead, there was in our opinion an implied term, arising on grounds of business efficacy, that if through no fault of the Lessee Shop 67 was not sufficiently emptied of the casual tenant's goods to enable it to move its goods there on or before 31 August, it should be permitted to remain in occupation of Shop 31 for such limited period as proved necessary to permit a direct transfer of the goods from one shop to the other.
We regard this term as more readily to be implied on account of the practical considerations that underlie section 44 of the RL Act. As the Tribunal noted when discussing this provision at [86 - 93], the Lessee placed significant emphasis on its requirements, but the Tribunal held them to be irrelevant because of its belief that the term of the Lease was five years. For present purposes, the relevant parts of section 44 are subsections (1), (2) and (6), which state:-
(1) Not less than 6 months or more than 12 months before the expiry of a lease, the lessor must by written notification to the lessee either:
(a) offer the lessee a renewal or extension of the lease on terms specified in the notification (including terms as to rent), or
(b) inform the lessee that the lessor does not propose to offer the lessee a renewal or extension of the lease...
(3) If the lessor fails to give a notification to the lessee as required by this section, the term of the lease is extended until the end of 6 months after the lessor gives the notification required by this section, but only if the lessee requests that extension by notice in writing to the lessor given before the lease would otherwise have expired....
(6) If a retail shop lease is for a term of 12 months or less the periods of 12 months and 6 months in this section are shortened to 6 months and 3 months respectively."
On the basis of the parties' shared belief, both before and during part of the Tribunal hearing, that the Lease (as initially agreed) was for a term of one year expiring on 31 July 2008, the Lessors, in order to comply with subsection (1) (as modified by subsection (6)), should have notified the Lessee between 31 January and 30 April 2008 that they did not propose to offer a renewal or extension. They failed to do so, but because the Lessee did not make a written request for extension, the term was not extended by three months pursuant to subsection (2) (again as modified by subsection (6)). The Lessors' failure to give the requisite notice had the consequence, nevertheless, that the time left to the Lessee to seek alternative premises for its business, or to deal in some other way with its impending departure from Shop 31, was distinctly shorter than section 44 seeks to ensure for retail shop lessees. Instead of three months, at least, it was little more than one month. In our opinion, this consideration provides further support for ruling that a term such as we outlined in the penultimate paragraph should be implied into the oral agreement reached between Sophie and Mr Ma during July and August 2008.
As the submissions on behalf of the Lessors acknowledged, both at first instance and on appeal, the extension to the Lessee's term of occupation until 31 August 2008 was agreed upon orally by Sophie and Mr Ma and operated as a variation of the written terms of the Lease. In our judgment, an implied term such as we have just formulated, constituting a further variation of the Lease, arose similarly from the oral negotiations between these two individuals.
Accordingly, we reject Mr Reuben's submission that the agreement whereby the Lessee was permitted to remain in occupation of Shop 31 until 31 August 2008 was independent of the Lessors' offer to permit it to remove stock and other goods from Shop 31 to Shop 67.
Whether clause 11 of the Lease was applicable
Clause 11 of the Lease was in the following terms:-
REMOVAL OF TENANT'S GOODS
11.4.1 On or before the expiry or earlier termination of this Lease, the Tenant will remove the Tenant's Goods from the Premises and make good any damage caused to the Premises.
11.4.2 If the Tenant does not remove the Tenant's Goods as required under Clause 11.1, the Landlord can:
Our assessment of the damages to be paid on account of diminution in the value of the Lessee's stock of shoes . In the light of the foregoing discussion, the amount of damages ($101,702.74, before deduction of GST) that the Tribunal awarded to the Lessee on account of economic loss caused by the Lessors' removal of its shoes from Shop 31 to Shop 67 is too high. The 'correct and preferable decision' on the material before us is that a distinctly smaller sum should be awarded.
We agree with the Tribunal that the appropriate 'starting point' is the price that was paid for the shoes that were in Shop 31 on 31 August 2008, as shown on the invoices relating to them. Like the Tribunal, we prefer this aspect of Mr Nour's approach to assessing the damages.
We also consider, as did the Tribunal, that Mr Nour's valuations of the Left Shoe Stock at the times when it was inspected should be adopted in preference to those of Mr McHugh. We take account here of the Tribunal's opinion that Mr Nour possessed greater expertise in valuing the types of shoe involved in this case. Not much turns on this ruling since, as pointed out above, the two experts' valuations of the Left Shoe Stock differed by little more than $2,000.
As indicated in the above discussion, however, there are several reasons why we consider the subsequent steps taken by the Tribunal in arriving at its figure of $101,702.74 to have been unsatisfactory. In broad terms, the measures that should be adopted by way of modifying the Tribunal's approach are as follows:-
1. An amount of $20,000.00, relating to consignment stock, should be deducted from the figure of $87,369.79, put forward by Mr Nour and accepted by the Tribunal, as the value of the Removed Shoe Stock as at 31 August 2008.
2. An amount of $16,000.00, also relating to consignment stock, should be deducted from the figure of $64,744.35, put forward by Mr Nour and accepted by the Tribunal, as the value of the Left Shoe Stock as at 31 August 2008.
3. The values attributed to these two categories of the Lessee's shoe stock at 31 August 2008 should be further reduced by a factor of 15%, to take account of the likely diminution in their value in the period preceding that date.
4. A further reduction to these values should be made to take account of the following considerations: (a) if the Lessee had been able to trade without interruption from 31 August 2008 onwards, a significant proportion of its shoes would have still been in its possession at the beginning of November; and (b) those shoes would have been sold for less than the prices obtainable during September.
5. In assessing the value of the two categories of the Lessee's shoes (the Removed Shoe Stock and the Left Shoe Stock) after it had obtained access to each of them, account should be taken of the fact that the Lessee could have 'topped up' any broken size ranges through such measures as purchasing new stock or drawing on stock that it held in the two other shoe stores that it owned.
The specific adjustments to be made on account of the first three of these five matters are straightforward. Each of them calls for a reduction of the amount assessed by Mr Nour as reflecting the value of the Lessee's stock as at 31 August 2008.
It is more difficult to determine an adjustment reflecting the fourth matter. Although we have treated it as a factor bearing on the valuation of the stock as at 31 August 2008, the adjustment should instead be made to the amounts assessed for the diminution in value of the two categories of stock after that date. These should be subjected to moderate discounting only, because (a) the grounds for discounting apply to only a proportion of the Lessee's stock and (b) other important factors, such as the creation of broken size ranges and the damage done to the Left Shoe Stock, caused the value of the stock to diminish. With respect to the Removed Shoe Stock, the discount should be 10%. With respect to the Left Shoe Stock, which suffered more heavily from other factors reducing its value, the discount should be 5%.
The adjustment reflecting the fifth of the factors listed should again take the form of a discount to the amounts assessed for the diminution in value of the two categories of stock. In our judgment, a further discount of 5% is sufficient.
The Tribunal at [190] applied a 'contingency discount' of 10%, on the ground that it was 'difficult to be "certain" of the ultimate conclusions having regard to various missing and/or unconnected invoices and the understandable generality of the approach taken by both experts'. We think that this discount should be retained.
The Tribunal also made a deduction to reflect 'the GST component'. Neither side challenged this on appeal. With regard to the damages relating to both the shoes and the other stock and equipment, a further proportion (1/11) should be deducted.
As a result of making these adjustments, the substantial gap between Mr Nour's valuation of the stock at 31 August 2008 and the valuations of either or both of Mr Nour and Mr McHugh at the times of the subsequent inspections will be narrowed to a significant extent. This seems to us to be an appropriate outcome.
We would add here, with reference to Mr Nour's valuations of the Removed Shoe Stock, that the gap of $54,659.79 (between $87,369.79 and $32,710.00) seemed particularly difficult to justify at first sight. This stock was not damaged on account of the Lessors' conduct. From a practical point of view, all that happened to it was that none of it could be sold to a customer of the Lessee during the period of two months from 31 August to 30 October 2008.
When the foregoing approach to quantification of the Lessee's damages is implemented, the outcome is as follows:-
Removed Shoe Stock
Left Shoe Stock
The total of the last amounts in these tables, $18,894.55 and $28,454.26, is $47,248.81. When GST is deducted, this is reduced to $42,953.46.
We accordingly assess the damages payable by the Lessors on account of their conduct in removing the Lessee's stock of shoes from Shop 31 at $42,953.46.
Loss caused by the removal of items other than shoes
The Tribunal's approach. As stated above, the Tribunal made the following additional awards of damages: (i) $18,988.80 (before deduction of a GST component) with respect to lost or damaged equipment and stock (other than shoes) removed from Shop 31; (ii) $105.00 for loss of the amount of a daily cash float kept at the Shop; and (iii) $2,000.00 for loss of cash takings kept at the Shop. After deduction of a GST component, the first of these amounts comes down to $17,089.92.
In arriving at the amount (before deduction of the GST component) of $18,988.80 for loss of equipment and of stock other than shoes, the Tribunal listed, at [192], the types, numbers and alleged values of goods covered by the Lessee's claim. The total of the values set out in this list was $23,736.00. At [197], it stated that although the claim was 'properly made and should be allowed', it should be subject to a discount of 20% because 'the proof of loss... although clear as to items was not so clear as to quantities, and not so clear as to quantum, such that, although there was evidence it was subject to doubts.' The application of this discount reduced the initial figure to $18,988.80.
In their supplementary submissions in the appeal, the Lessors challenged the awards of damages for three categories of lost or damaged stock: t-shirts; reading glasses and sunglasses; and socks. We will deal separately with each of these.
T-shirts. In relation to the t-shirts, the Tribunal initially allowed the Lessee's claim for $2,975.00 (though it applied the 'contingency discount' of 20% to this figure). It gave the following explanation at [195]:-
... the evidence was that the Applicant's inventory record showed it holding 316 t/shirts but, upon relocation the Applicant's officers/employees could only find 37 t/shirts, all being dirty and creased. The original unit price was $10.00, the re-saleable unit price was $5.00, such that the loss claimed is $2,975.00 There was, effectively, no expert evidence regarding the value of the t./shirts, but I am unable to conclude that Sophie does not know her business and was not able to reasonably estimate the re-saleable value and the consequent loss.
The Lessors maintained that the Tribunal erred in finding that the original unit price for all of the 316 t-shirts was $10.00. They relied on the following aspects of the evidence: (a) while the Lessee's inventory showed supplies of t-shirts with a cost price of $10, the invoices relating to these purchases were never produced to the Tribunal; (b) two other invoices on which the Lessee relied, showing cost prices of $10.50 and $12.50, did not indicate clearly the nature of the goods supplied, and had indeed been brought into account in Mr Nour's determination of the value of the Lessee's shoes on 31 August 2008; (c) another invoice which clearly related to t-shirts showed a unit price of only $1.75; and (d) the Lessee's record of sales between 7 and 31 August 2008 disclosed sales of 25 t-shirts, amongst which seven were sold for $10 each, 16 for $2 and two for $0.50, producing an average price of only $4.12.
The Lessee' response was that the above-mentioned invoices of $10.50 and $12.50, along with Sophie's testimony on the matter, provided sufficient support for the Tribunal's finding. It also adverted to the Tribunal's discount of 20%.
The items of evidence on which the Lessors relied, notably the last two, indicate that while the Lessee may well have obtained t-shirts at prices in the vicinity of $10, it also purchased and indeed resold a significant number of them for amounts in the vicinity of $2. The discount of 20% applied by the Tribunal was not, in our opinion, sufficient to reflect the incidence of purchases and resales at these lower prices.
The initial figure of $2,975.00 on which, in accordance with the Lessee's claim, the Tribunal based its award under this head should for these reasons be reduced by a factor of 40%. The amount to be deducted is $1,190 and the resulting figure is $1,785.
Reading glasses and sunglasses. In accordance with the Lessee's claim, the Tribunal awarded (subject to a 20% discount) the sum of $960.00 for loss of, or damage to, 192 reading glasses and sunglasses, for which the unit price was claimed to be $5.
The Lessors maintained that this amount should be reduced for the following reasons: (a) the Lessee had not established that the ten allegedly damaged items were in good condition before their removal from Shop 31; (b) it had also not established that these ten items were of no value; and (c) between 7 and 31 August 2008, the average sale price for reading glasses and sunglasses in the Shop was only $2.76.
In our opinion, the third of these grounds justifies a reduction in the amount of the initial award. Having regard to the general discount of 20% being applied in this context, we fix the rate of this specific discount at 25%. The Tribunal's figure of $960.00 should therefore be reduced to $720.00.
Socks. In accordance with the Lessee's claim, the Tribunal awarded (subject to a 20% discount) the sum of $1,240.00 for the loss of 610 pairs of socks and damage to a further ten pairs, for which the unit price was claimed to be $2.
The Lessors maintained that the allegedly damaged socks were in fact merely dirty, that the Lessee had not shown them to have been clean while in Shop 31, that the Lessee had also not shown that they were of no value on account of the dirt on them and that the average sale price for socks during August 2008 was only $1.55.
None of these matters justifies reduction of the Tribunal's initial award, other than through applying the general discount.
Adjustment of the Tribunal's award for lost or damaged equipment and stock (other than shoes) . For the reasons just given, the figure of $23,736.00 that the Tribunal gave for the value of these goods should be reduced by amounts of $1,190.00 (in relation to the t-shirts) and $240.00 (in relation to the reading glasses and sunglasses). The resulting figure is $22,306.00.
When what we have called here the 'contingency discount' of 20% is applied, this figure comes down to $17,844.80. Deduction of GST reduces it further to $16,222.55.
Loss of the cash float and the cash takings. The Lessors, in their supplementary submissions, challenged the Tribunal's awards of $105.00 and $2,000.00 respectively under these heads. The grounds that they advanced were that they should not have been held to be bailees for reward of the Lessee's goods and that in any event they were entitled to be indemnified by the Lessee under clause 11.4.3 of the Lease.
We have already made rulings contrary to both of these grounds. The Tribunal's awards should therefore stand.
Assessment. For the foregoing reasons, the damages to be awarded for the losses caused to the Lessee by the Lessors' removal of items other than shoes from Shop 31 should be assessed at $18,327.55, representing $16,222.55 for lost or damaged equipment and stock other than shoes, $105.00 for the lost cash float and $2,000.00 for the lost cash takings.
The total amount of damages to be awarded
We have assessed the damages payable by the Lessors on account of their conduct in removing the Lessee's stock of shoes from Shop 31 at $42,953.46 and the damages payable on account of their removal of other goods at $18,327.55. The total of these two amounts, rounded down, is $61,281.00.
As indicated above at [161], the Tribunal awarded the net amount of $813.00 to the Lessors on their cross application for unpaid rent. This award was not challenged, so the amount of $813.00 must be set off against our award in favour of the Lessee.
The amount of damages to be paid by the Lessors to the Lessee, in substitution for the amount stipulated by the Tribunal in Order 1 of its decision, is accordingly $60,405.00.
Other matters
At the interlocutory hearing in the appeal on 18 February 2011, Orders 2 and 3 of the Tribunal, which related principally to the collection by the Lessee of goods still held at the RestorX warehouse, were stayed by consent pending further order of the Appeal Panel.
This matter was not mentioned at the appeal hearing or in the supplementary submissions. In these circumstances, it seems appropriate for us to discharge the stay of Order 2, but granting liberty to apply. Because this would render Order 3 redundant, it should be set aside.
At the hearing on 18 February 2011, Order 4 of the Tribunal, containing directions whereby the parties might apply for a costs order relating to the Tribunal proceedings, was also stayed by consent pending further order of the Appeal Panel. The parties agreed that any such application should be determined in due course by the Appeal Panel. We are satisfied that by virtue of section 88(4) of the ADT Act we have power to do so.
It is appropriate also that we make provision for determination of any application for costs relating to these appeal proceedings.
Our orders on the appeal accordingly include (a) an order setting aside Order 4 of the Tribunal and (b) directions as to how any application for the costs of the first instance and/or appellate proceedings is to be made and determined.
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Decision last updated: 17 August 2011
Invoice value
87,369.79
Less consignment stock
20,000.00
Adjusted invoice value
67,369.79
Discount 15% - depreciation
57,264.32
Less value on inspection
32,710.00
Diminution in value
24,554.32
Discount 10% - unsold stock
22,098.89
Discount 5% - size ranges
20,993.95
Discount 10% - uncertainty
18,894.55
Invoice value
64,744.35
Less consignment stock
16,000.00
Adjusted invoice value
48,744.35
Discount 15% - depreciation
41,432.70
Value on inspection
6,401.30
Diminution in value
35,031.40
Discount 5% - unsold stock
33,279.83
Discount 5% - size ranges
31,615.84
Discount 10% - uncertainty
28,454.26
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