Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3)

[2004] NSWADT 94

Set aside by Appeal:

CITATION:	Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94 revised - 8/06/2004
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Skiwing Pty Ltd trading as Cafe Tiffany's RESPONDENT Trust Co of Australia Ltd (Stockland Property Management Ltd)
FILE NUMBER:	035036, 035053, 035066
HEARING DATES:	1, 3-4/03/2004
SUBMISSIONS CLOSED:	04/23/2004
DATE OF DECISION:	05/20/2004
BEFORE:	Donald BG - Judicial Member
APPLICATION:	Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Australian Constitution Conveyancing Act 1919 Fair Trading Act 1987 Retail Leases Act 1994 Trade Practices Act 1974 (Cth)
CASES CITED:	Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd [2003] NSWSC 460 Crawford Fitting Co v Sydney Valve & Fitting Co (1988) 14 NSWLR 438 Eddie Azzi Australia Pty Limited -v- Citadin Pty Ltd [2001] NSWADT 79 Goldsworthy Mining Ltd v Federal Commissioner of Taxation [(1973) 128 CLR 199] Gordon v. Lidcombe Developments Pty Ltd (1966) 2 NSWR Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185 Kollias v. Monzo Pty Ltd [2003] NSWADT 275 New York Boutique Pty Ltd -v- Lend Lease Property Management (Australia) Pty Ltd [2001] NSWADT 55 Nordern v Blueport Enterprises Ltd (1996) 3 NZLR O'Keefe & McKenna v Williams (1910) 11 CLR 171 R v. Trade Practices Tribunal; ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361; Brandy v. Human Rights and Equal Opportunity Commission (1995) 127 ALR 1 Sellars and Poseidon Ltd v. Adelaide Petroleum NL (1994) 120 ALR 16 Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT 278 Skiwing Pty Ltd v Trust Co of Australia Ltd [2003] NSWADT 190 Skiwing Pty Ltd v Trust Company of Australia (025117) (No 2) [2003] NSWADT 199 State Rail Authority NSW v. Consumer Claims Tribunal (1988) NSWLR 473 Taylor Farms (Aust) Pty Ltd v. A Calkos Pty Ltd [1999] NSWC 186 Telex (Australasia) Pty Ltd v. Thomas Cook (Australasia) Pty Ltd (1970) 2 NSWR 257 Wilcox v Richardson (1997) 43 NSWLR 4
REPRESENTATION:	APPLICANT A Tonking, barrister RESPONDENT M Allars, barrister
ORDERS:	1.Relocation or Disturbance of Trading Claim (reformulated from Applications 035063/66): a) Respondent to pay the Applicant $269, 628.00 plus interest from 23 June 2003 at the rate applicable under the District Court Rules ; b) On a sale by the Applicant of its business during the term of the Lease, the Applicant to pay to the Respondent any amount of the purchase price properly attributable to goodwill up to the amount of $116,000.00; 2. Balcony Claim (reformulated from Application 035036); Respondent to pay the Applicant $53,000.00 plus interest from 23 June 2003 at the rate applicable under the District Court Rules ; 3. Costs reserved. Written submission by the parties to be filed within 30 days as to whether there are special circumstances within s. 88 of the Administrative Decisions Tribunal Act 1997.

Background

1 These three applications have been managed and heard together as they involve common or related facts. The first of them, 035036 was commenced on 30 April 2003 and is a claim concerning a balcony, the second 035053 on 27 May 2003 being claims concerning relocation and certain tables and chairs, and the third 035066 on 23 June 2003 again being compensation claims relating to relocation and vacancy issues framed in terms of s.34 of the Retail Leases Act 1994 NSW, plus a rectification claim. In rejecting a strike out application by the Respondent Lessor, the Tribunal on 28 August 2003 ordered the applications to be amended; Skiwing Pty Ltd v Trust Co of Australia Ltd [2003] NSWADT 190. The claims have been reformulated and fall into two categories, which will be dealt with separately even though some facts are common.

2 Since 1993 Skiwing Pty Ltd had leased from Trust Company of Australia Ltd as trustee of the Stockland Trust, which trades as Stockland Property Management Limited, the Café Tiffany in the Imperial Arcade. This Arcade is one of the Sydney CBD’s major and longest established arcades adjoining the Pitt St Mall, in turn one of the nation’s busiest shopping precincts. Café Tiffany has been a café since 1965 and Mr Stojanoski, now a proprietor of Skiwing, had previously worked there since 1985.

3 The leased premises are Shop C19 on the Castlereagh St level in the Arcade (154 sq m) bounded by windows looking over the awning out to the Mall and by an interior shop front to the Arcade. Escalators down to and up from the Pitt St. level of the Arcade and the Mall are immediately adjacent to the Café.

4 During 1999 Skiwing negotiated with Stockland through the Centre Manager, Mr Aaron, to take a new Lease from May 2000. The circumstances of that negotiation and Lease and the conduct of the parties in the first 2 ½ years of the new Lease, have produced extensive and intensive disputes between them, the subject of these proceedings, of the previous matter of Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT 278, of the above interlocutory proceedings and of further proceedings yet to be heard.

Preliminary Jurisdictional Issue

5 These matters include claims under s.52, Part V of the Trade Practices Act 1974 (Cth) for damages for misleading and deceptive conduct. In light of Taylor Farms (Aust) Pty Ltd v. A Calkos Pty Ltd [1999] NSWC 186, which decided that the Commercial Tribunal (predecessor to this Tribunal) had limited jurisdiction which did not include claims for damages under the Fair Trading Act 1987 NSW, the parties were requested prior to the hearing to address whether the Tribunal has jurisdiction in s.52 claims.

6 This Tribunal has also determined in Kollias v. Monzo Pty Ltd [2003] NSWADT 275 that it lacks jurisdiction to entertain any claim under the Trade Practices Act. And in New York Boutique Pty Ltd -v- Lend Lease Property Management (Australia) Pty Ltd [2001] NSWADT 55 the Tribunal held that unconscionability claims could only be brought here when the express provisions of the Retail Leases Act in that regard, Part 7A, were proclaimed and not under s. 51AC of the Trade Practices Act.

7 Mr Tonking for the Applicant Lessee argued that the correct position is that the Tribunal does have jurisdiction and that it is directly conferred, pursuant to s.71 of the Australian Constitution, by s.86 (2) of the Trade Practices Act: -

The several courts of the States are invested with federal jurisdiction within the limits of their several jurisdictions, whether those limits are as to locality, subject-matter or otherwise, … with respect to any matter arising under …Division 1, 1A or 1AA of Part V in respect of which a civil proceeding is instituted by a person other than the Minister or the Commission.

8 He says Taylor Farms does not apply because it dealt with jurisdiction under a State Act. Federal Acts override State law.

9 He argued that this Tribunal, as constituted for Retail Leases Act claims by a judicial member, is a ‘court of the State’, despite certain informal aspects of its procedures, because it must act on the evidence before it to determine issues in dispute in a judicial manner; State Rail Authority NSW v. Consumer Claims Tribunal (1988) NSWLR 473. And it is the type of court, when so constituted and acting, upon which the judicial power of the Commonwealth can be invested under s.71 of the Australian Constitution (not being subject to the conditions of s.72 of the Constitution as it is not a court created by the Federal Parliament).

10 He further contended that there is no relevant limit on the subject matter of the Tribunal’s jurisdiction in terms of s. 86. Under s.37 Administrative Decisions Tribunal Act 1997: -

The Tribunal has jurisdiction under an enactment to act as the primary decision-maker if the enactment provides that applications may be made to it for decisions made in the exercise of functions conferred or imposed on the Tribunal by or under that enactment.

11 Section 71(1) of the Retail Leases Act provides for the application: -

A party or former party to a retail shop Lease or former retail shop Lease may lodge a retail tenancy claim in respect of the Lease with the Tribunal for determination of the claim.

12 And a ‘retail tenancy claim’ by s.70 is a claim, including for payments and declarations of rights, in connection with a liability or obligation with which a retail tenancy dispute is concerned, such disputes being under s.63: -

any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to a retail shop Lease or former Lease, being liabilities or obligations which arose under the Lease or former Lease or which arose in connection with the use or occupation of the retail shop to which the Lease or former Lease relates.

13 Nothing in that conferral of jurisdiction limits the sources of law, common law, equitable or statutory, to be applied in determining the nature and extent of the ‘liabilities or obligations’.

14 Ms Allars for the Respondent Lessor argued that this Tribunal is not a court, it is not called a ‘court’ but is an administrative tribunal whose powers, particularly within its merits jurisdiction, include a range of discretionary policy powers to create future rights rather than simply to rule on existing rights and obligations according to law. It has no power to enforce its orders. Such bodies in the federal sphere have always, at least for the purposes of determining whether they can exercise the judicial power of the Commonwealth, been held not to be so entitled, eg., R v. Trade Practices Tribunal; ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361; Brandy v. Human Rights and Equal Opportunity Commission (1995) 127 ALR 1.

15 In my opinion, this Tribunal, as constituted for purposes of the Retail Leases Act jurisdiction is a court within the principles of State Rail Authority NSW and the long line of cases applying that case to similar tribunals. However I consider it is a court for retail leases claims with only a limited and defined jurisdiction that does not at present include a general statutory jurisdiction in respect of misleading and deceptive conduct arising under the Trade Practices Act. The Retail Leases Act contains its own regime relating to misrepresentations under ss.10, 11, the Disclosure Statement system and other provisions. It contains in Part 7A its own specific enactment of the unconscionability regime also found in the federal Trade Practices Act but the NSW Parliament has not included the general misleading and deceptive claims causes of action from the same Act. Its jurisdiction under s.17 of the ADT Act contemplates express conferral of authority directly on the Tribunal by other enactments rather than general investiture of the kind in s. 86.

16 Neither counsel could find any case before the Commercial Tribunal or this Tribunal since the commencement of the Retail Leases Act in 1984 in which a claim under s.52 of the Trade Practices Act had been determined.

17 It is not necessary to rule on the constitutional issue of whether Chapter III of the Australian Constitution prevents the Federal Parliament under s.71 conferring judicial power on a State court such as this, not being a court established by the Federal Parliament itself and so not expressly subject to s.72.

18 Nor do I purport to rule generally on the extent to which equitable considerations may apply in the course of the Tribunal’s determinations.

19 Having concluded that the Trade Practices Act claims are beyond the jurisdiction of the Tribunal, the parties and the Tribunal agreed amendments to the Applicant’s Amended Grounds of Claim as marked on the file. As a consequence, this having occurred on the first day of the hearing, the Applicant in submissions seeks to add causes of action derived from the Retail Leases Act partly in place of those removed. That application will be dealt with in the course of this decision.

Claim One:- Tables and Chairs Claim and Balcony Claim

Factual Findings- Tables and Chairs and Balcony

20 The evidence establishes the following. (Transcript references to the three days of the hearing are T/1-T/3 as the page numbers for each day start at 1.)

21 In late 1998, before negotiations for the current Lease began, Skiwing proposed to Mr Aaron, the Centre Manager, the possibility of an extension of the Café beyond the current leased premises out onto a balcony on the adjacent awning over the Pitt St Mall. Mr Aaron advised him that Stockland would be agreeable.

22 Stockland then included a ‘trafficable awning’ proposal i.e., balcony, in its initial DA to the City Council, (see reference in Ex F.) It is not clear whether Skiwing was then informed that Stockland had included this balcony proposal in the initial DA, but Mr Stojanoski understood Stockland would be proceeding with this proposal.

23 In January 1999 the Council advised Stockland that ‘trafficable awnings were very contentious’ but that ‘a case could be made for this use given its location in Pitt St. Mall’ if major structural and design issues were addressed (Ex F.). Stockland however decided to remove this aspect of the proposal in the interests of getting approval for its overall renovation. It did not discuss this decision with Skiwing and no specific advice of that decision was given to Skiwing at that time.

24 The City Council later issued an awning policy, Ex 3, 5 June 2000, which while stating that balcony conversions are generally not permitted, said at p.19:-

‘Balconies may also be appropriate in some specific pedestrianised areas such as Pitt Street Mall where the balcony can provide additional pedestrian interest and focus, but only subject to…[a detailed set of criteria].’

25 In mid-1999, Stockland had notified all tenants it would be refurbishing the Arcade and plans were presented, the intention being for completion by October 1999. The renovation works began in mid 1999. Skiwing co-operated with the renovation providing regular night and day access through the premises for aspects of the work.

26 At that time Skiwing secured the agreement of Stockland to place tables and chairs in the common areas of the Arcade on the Pitt St. level visible from the Mall. Mr Stojanoski gave evidence which was not contradicted that, believing that some tenants had been give rent concessions to compensate for the disruption during the renovations, he said to Mr Aaron:

While I am waiting for the balcony to be constructed, instead of giving me a rent reduction, would you consider allowing me to place tables and chairs downstairs in the common area on the Pitt Street level at night. That won’t cost Stockland anything.”

27 Mr Aaron replied, “It’s OK as long as it doesn’t disturb late night shopping on Thursday.”

28 Pursuant to this agreement, tables and chairs were placed from October-December 1999 when the renovation works permitted (and then not again until October 2000-March 2001).

29 Under the previous Lease, Skiwing had also been permitted to place an A frame advertising sign at certain times at the entrances to the Arcade, a practice that had applied in some form since 1965. The facts concerning this are set out in the Tribunal’s decision on the subsequent dispute over this sign in Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT278.

30 A new draft Lease was presented to Skiwing in September 1999 together with a Lessor’s and Lessee’s Disclosure Statement. The new Lease is for the same delineated premises described as Shop C19 and neither the Lease nor the Disclosure Statements contain any reference to the proposal to extend onto the balcony. The Lease (Ex A, ex 1) provides in cl. 22 for Skiwing to refurbish the Café at commencement.

31 Neither Disclosure Statement lists in the relevant spaces any representations on which either party asserts it relies. The Tribunal has already ruled as a finding of fact as between these parties as to the status of alleged representations made and relied on prior to entry into the Lease; Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT 278.

9. A lessor's Disclosure Statement pursuant to s.11 of the Retail Leases Act was provided on 17th September 1999. This did not list any agreements or representations made by the lessor. A lessee's Disclosure Statement pursuant to s.11A was executed by the Lessee on 24 September 1999 at the office of the Lessee's lawyer. A version of that Disclosure Statement is held on the files of the Lessor with the section relating to "representations relied upon" showing the "No" column ticked in respect of all categories of representations listed including the category "Any other representation upon which you are relying". The version of the Lessee's Disclosure Statement produced by the Lessee and examined by the Tribunal contained no ticks in the "No" column. While there was a dispute as to which was the valid version, the Tribunal ruled that either way, the only possible conclusion on the facts was that no agreements or representations were asserted to be relied on by the Lessee other than in the Lease.

32 No mention was made in the Lease or the Lessor’s Disclosure Statement of the then occurring 1999 Arcade renovation or that Skiwing could not later rely on it in any claim for disturbance under s.34. (Nor was there any mention of a second renovation that would later be proposed for 2002.)

33 Skiwing took legal advice and signed the Lease in December 1999. The Arcade renovation was not yet complete and would not in fact be completed until the following August 2000. The new Lease was signed by Stockland in March 2000 and commenced in May 2000. Skiwing carried out its required refurbishment to the Café with no comment from Stockland, which can be taken to have been satisfied with the standard. As noted, chairs and tables were again placed from October 2000-March 2001.

34 In August 2000, Skiwing secured a restaurant liquor licence. Mr Stojanoski says he deferred the expense of applying for a ‘drink or dine’ licence, which allows 30% of patrons to be served liquor without food, until the balcony was there.

35 It was not until August 2000 that Skiwing was informed that Stockland was not pursuing a balcony proposal with the Council so Skiwing proposed to the Development Manager, Mr Corbett for Stockland pursue the matter itself. In a hand-written memo faxed on 12 January 2001 (Ex “A”, p11) Mr Corbett wrote:

“Further to our discussions, I confirm that Stockland have no objection to you pursuing Sydney City Council to obtain approval to utilize the awning outside your shop for open air catering. The restrictions we place on you pursuing this approval are:
1) The same consultants we used for the refurbishment program are to be used…

2) All plans are to be approved by Stockland prior to submission to Council.

3) All costs are to be at your expense.

4) It may be possible to arrange a Lease structure for the new floor area incorporating the costs however this should be discussed when it is established the project is viable.

Please keep Centre Management informed of your progress through this development…” (“the Corbett letter”)

36 Mr Stojanoski gave his understanding of the effect of this letter in evidence: T/2 19.50-20.50, which was that when approval was obtained he would discuss the cost of building the balcony with Stockland and meet that cost himself if they did not agree to contribute.

37 Skiwing approached the specified consultants but was unable to get them to draw plans without significant delay. It received a quote from B & N Retail Group (Ex A, pp 12-14) but did not proceed with B & N who said they were very busy at the time. Mr Stojanoski explained the difficulties he encountered in getting the plans drawn up: T/2 22.28-27.52. He asked Mr Corbett to suggest another draftsman, T/2 26. He then approached a further drafting firm, Victor Burysek, who took some time to produce plans which were made available to Skiwing on 1 October 2001: Ex D Annexure 10.3. Skiwing also engaged a structural engineer.

38 Mr Aaron had retired as Centre Manager in December 2000 and Mr Doherty had been appointed in April 2001. There do not appear to be any significant dealings between Mr Doherty and Skiwing from April until August 2001 when they discussed a number of matters (not including any relocation). The sign dispute began then and in response to Skiwing raising the right to place tables and chairs, Mr Doherty required a written application for consent. He initially refused consent on 14 September 2001 but later, by letter of 26 October 2001, allowed the tables and chairs from 3 November-22 December 2001.

39 Stockland through Mr Doherty remained aware as at August 2001 that Skiwing was pursuing its balcony application (Ex A p.16) and remained willing to give consideration to it, T/2 139.40

40 By October 2001 Skiwing was ready to have the balcony plans lodged with Council and instructed Mr Burysek to begin that process: T/2 27.45. Then on 23 October 2001, Stockland served on Skiwing a document intended to operate as a notice requiring it to relocate its business (‘the first relocation notice’).

41 The events of the relocation notices, discussed in detail below in relation to the Relocation Notices or Disturbance of Trading Claim, now took over and displaced all other issues.

42 No tables and chairs were in fact put out; by letter of 4 April 2002, Stockland had advised it would no longer consent (Ex A p.18).

43 Fighting to oppose being relocated, Skiwing did not pursue its application with Council for the balcony for obvious reasons. Despite Stockland on 27 March 2002 abandoning its endeavour to relocate the Skiwing business (Ex A p.57), by letter of 4 April 2002 Mr Doherty wrote to Skiwing stating: “… we will not consider the extension of the premises to include the construction of a balcony over the Pitt Street Mall.” (Ex A p.18). The balcony proposal has not progressed further.

Claims-Tables and Chairs and Balcony

44 Skiwing claims these facts establish breaches of its legal rights in relation to Stockland and entitle it to orders against, or compensation from, Stockland.

Tables and Chairs

45 In its reformulated and amended Grounds of Application, Claim One, Skiwing claims that there was an agreement permitting it to place the tables and chairs that could only be terminated on reasonable notice and that the Tribunal should order Stockland to permit placement of tables and chairs under s. 72(1)(c)(iv) of the Retail Leases Act. Its submission states:-

The consent to place tables and chairs in the common area was given for valuable consideration in that the Respondent agreed to give it in lieu of a rent reduction which (it is not denied) had been given to a number of other tenants. It was not a consent given as a mere incident of day-to-day dealings between landlord and tenant. The Respondent had permitted the activity in the common area for a considerable period, first, in the period from October to the end of December 1999 and then from October 2000 to March 2001, when it was peremptorily brought to an end and renewal of the consent was refused until October 2001, only to be again withdrawn peremptorily in April 2002. No express period having been agreed to for the consent, it must be taken to have been terminable only on reasonable notice: Crawford Fitting Co v Sydney Valve & Fitting Co (1988) 14 NSWLR 438; see also Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT 278. It was permitted in two successive years, so a substantial period of notice would have been required.

46 Skiwing contends the Tribunal should order Stockland to permit placement of tables and chairs under s. 72(1)(c)(iv) of the Retail Leases Act or order damages for lost revenue in lieu.

47 Stockland replies that the only current agreement for placing the tables and chairs was the consent given on 26 October which was not used and which simply expired.

48 In my opinion the various agreements by Stockland permitting placement of tables and chairs, first through Mr Aaron and later Mr Doherty were not intended by either party to be permanent arrangements. The initial agreement was intended by Skiwing to be an interim arrangement during the first renovation in lieu of possible rent reduction. It was only availed of when the renovation work permitted. It was acknowledged not to be used during winter (T/1 64.35). Unlike the evidence of the intention of the parties relating to the advertising sign as determined by the Tribunal in Skiwing Pty Ltd v Trust Co of Australia [2002] NSWADT 278, there is no evidence here that the consent was intended to operate for the duration of the Lease. Indeed it is acknowledged by Skiwing at best to be terminable on reasonable notice.

49 In my view the continuation of the consent from 26 October 2001gave clear notice that the consent would not necessarily continue beyond the December date which, followed by the 4 April 2002 letter, is sufficient evidence of termination of the consent.

50 It was obviously a commercially surprising decision by Stockland and one that was tough on Skiwing as the arrangement appears to have worked without difficulty from time to time. Throughout the city the placing of restaurant furniture on adjacent pavements has become a commonplace, manageable and attractive feature, enhancing retail trading areas and attracting custom. As will be discussed below, the decision of Stockland by April permanently to terminate its consent may be seen in the commercial context of its desire to relocate Skiwing. However in my opinion there is no basis for a claim of breach of agreement relating to the placement of tables and chairs entitling Skiwing to a remedy.

Balcony

51 The claim concerning the balcony is put on four bases:-

1. Stockland has agreed to the construction of the balcony, if approved by the City Council, and has breached that agreement.

2. Under s. 133B(2) of the Conveyancing Act 1919 NSW, Stockland could not deny consent to the balcony, being an improvement to the premises, except on reasonable grounds.

3. Stockland is estopped from preventing Skiwing proceeding with the balcony.

4. Stockland is liable under s.10 of the Retail Leases Act for misrepresentation concerning the balcony. (This claim is sought to be added at submission stage and after the evidence).

52 Stockland opposes adding grounds for claim late in the matter. Skiwing says no further evidence could be relevant to a s.10 claim and there is no prejudice. I propose to consider s.10 in dealing with the balcony claim but as will be seen there is no need for further delay in the matter to permit a response.

53 The evidence is clear that Stockland seriously proposed a balcony in the initial DA and that while the Council had concerns, and quite significant concerns, consent by Council to such a proposal addressing those concerns is by no means unlikely having regard to the nature of the Pitt St. Mall. There is a balcony development over the Mall at 135 Pitt St. in the Glasshouse building as part of a restaurant (T/2 2.10). There is no reason to believe that a properly designed and complying balcony could not enhance the Imperial Arcade and connect it further with the Mall. Council’s own policy specifically contemplates balconies in Pitt St. Mall.

54 In my view the evidence establishes that there was an agreement for commercially valuable consideration that, following the decision of Stockland not to have kept a balcony in the original development application, Skiwing had the approval of Stockland to pursue such an application itself including informing the Council that it had the consent of the building owner to the application. The value to Stockland was having its tenant incur the time and cost in seeking an approval which could be of long term value to the Arcade. That agreement was not subject to termination by Stockland and Skiwing remained entitled to seek development approval if it chose.

55 However Stockland had equally clearly not yet finally agreed to proceed with a balcony if approval was granted or to the terms on which it would agree to extend the Skiwing Lease beyond the currently delineated premises to incorporate what would be an adjacent area if constructed. Any expectation Skiwing may have had covering the ultimate construction and use of a balcony has no basis in law or in equity but remains a commercial expectation only. There would be significant matters to consider, including engineering of structural support, cost and safety. As noted, the Corbett letter had stated:-

It may be possible to arrange a Lease structure for the new floor area incorporating the costs however this should be discussed when it is established the project is viable.

56 There was no reference to the balcony proposal in the Disclosure Statements or the Lease either as a condition for the benefit of the Lessee or as a representation on which it relied.

57 It may be argued that s.133B(2) of the Conveyancing Act does not apply as that section concerns improvements to leased premises and any balcony would be an extension of the Lease into additional premises. Whether that argument is correct in relation to extending premises out into airspace probably not owned by the Lessor, need not be decided. In my view it is premature to decide the application of s.133B(2), or any other right the Lessee may have (eg. under Part 7A of the Retail Leases Act to prevent unconscionable conduct) concerning limits on how the Lessor in such circumstances must approach any proposed agreement for the construction and use as there is as yet no approved design capable of being fully evaluated.

58 Because I consider the only agreement and representation by Stockland is for pursuing the DA, I do not think there is a basis for an estoppel argument as alleged. I am not satisfied there was any representation relied on by the Lessee in entering into the Lease and I have already decided that issue against Skiwing. Accordingly I do not think s.10 applies.

59 Nevertheless, I consider the relocation notices from Stockland and its subsequent advice that it would not consent to a balcony, were a repudiation by Stockland of its agreement that Skiwing could proceed to obtain Council’s approval. That conduct stripped the ground from under the approval application and purported to pre-judge the outcome of the negotiation that would follow any approval. As noted above, Stockland may well have been constrained in refusing consent to an approved proposal if Skiwing bore the cost.

60 As a result of the repudiation, Skiwing ceased to pursue an important opportunity to equip its business with an approval to expand its trading area for the remaining 5 years of its Lease, including as a basis for amending its liquor licence to the more valuable ‘drink or dine’ licence process. It lost a valuable commercial opportunity.

61 It might be argued that the appropriate remedy would be to declare that the agreement has been wrongly repudiated and that Skiwing remains entitled to continue with its application but since 2 ½ years have now passed, and with the parties in continuing and bitter dispute, that is unlikely to provide a real basis for redress. Accordingly I will consider whether there is a basis for an award of damages.

Claim Two: The Relocation Notices or Disturbance of Trading Claim

Factual Findings- Relocation Notices or Disturbance of Trading

62 The Lessor’s Disclosure Statement of 17 September 1999 Ex 1 PD1 stated that:-

Planned physical or tenancy mix changes

No significant physical changes or developments are planned for the centre or surrounding roads by the lessor at this time. Attached is a floor plan showing the tenancy mix of the centre at the time of this statement. Whilst every care has been taken in its preparation, you should satisfy yourself by way of on-site inspection. Whilst no significant changes are envisaged at the time of this statement which would significantly affect the business of the lessee, the lessor reserves the right to change the tenancy mix of the centre during the term of the subject Lease and in the future.

63 The Lessee’s Disclosure Statement of 24 September 1999 stated:-

The Lessor may sometimes do things (or delay doing things) that may have a temporary or permanent adverse effect on the Lessee’s business (such as tenancy mix changes, carrying out Centre improvements, alteration, or maintenance works instigating promotional activity or casual leasing etc) and the Lessor will not be required to compensate or give notice to the Lessee unless required to do so by the Lease of Retail Leases Legislation.

64 These were signed at the time when the 1999 renovation referred to above was well under way.

65 The marketing plan for 2000/2001 (Ex “1”, PD8) for the Arcade listed a ‘Refurbishment Launch’ in the third and fourth weeks of July 2000. That did not take place as the renovation works were not completed until August. Skiwing had satisfactorily completed its own refurbishment following commencement of its new Lease in May 2000. Other renewing tenants had also been required to refurbish, Ex A par 20.

66 From the start of 2001, Stockland was reviewing the market positioning of the Imperial Arcade following detailed exit analysis, (Ex 1 PD7). It was decided to begin to reposition the Arcade, T/2 113-4, and Stockland managers including Mr Doherty, the new Centre Manager for the Arcade, began canvassing a new tenant mix for the youth market. The strategy would be to attract a major or ‘icon’ tenant who would in turn be attractive to other tenants relevant to the same market position as a new tenant mix, T/2 120. The new market position would be described as a ‘Youth-Emporium-Precinct’, Ex A p.25.

67 There had been no reference to this proposal in the Disclosure Statement for Skiwing’s new Lease.

68 A very significant number of shops in the Arcade became vacant at this time and remained so for a most of 2001, at least 9 shops (about 30%) being vacant on the Castlereagh level alone during that year, Ex 2. This was also starkly demonstrated by a video made in June 2001, Ex G, showing the many empty shops with covered windows. A high level of vacancies continued until the end of 2002.

69 Skiwing in its submission tabulated the vacancy position from the evidence of Mr Doherty and Mr Stojanoski but as Mr Doherty’s evidence from Ex 2 is more accurate, it is extracted (‘m’=’months’).

Shop No	Vacatedd	Tenanted Again	Vacant Period
Pitt St Level	[	[
P15-16	12/01	08/02	9m
P 21	01/02	09/02	8m
P41-46	11/01	10/02	11m
P50	12/01	09/02	10m
Castlereagh St Level	[	[	[
C 20	02/02	07/02	5m
[	10/02	12/02	2m
[	12/02	04/03	4m
[	07/03	08/03	1m
[	09/03	12/03	3m
[	[	[	15m
C21	01/01	10/02	22m
C28-29	01/01	11/01	11m
[	11/01	07/02	7m
[	[	[	18m
C30-31	01/01	06/02	18m
C32	01/01	10/02	22m
C33	10/01	10/02	12m
C34	01/01	08/03	32m
C38	04/01	12/01	8m
[	01/02	11/02	11m
[	[	[	19m
C40-41	09/01	05/03	20m
C2	04/02	09/02	5m
[	04/03	10/03	6m
[	[	[	11m
C11	08/02	10/02	2m
[	12/02	04/03	4m
[	04/03	09/03	5m
[	[	[	11m
Gallery Level	[	[	[
G34-37	01/01	01/03	24m
G43-45	01/01	03/02	15m
G101	01/01	03/01	28m

[

70 Negotiations with McDonalds as the icon tenant relevant to the identified demographic failed but by September/October 2001 an agreement for Lease had been reached with General Pants. This icon tenancy would require Stockland to be able to secure vacant possession of 7 tenancies, 2 of which were already vacant; T/2 118-9, T/2 121. This would enable the creation of a two level shop fronting the Mall and connecting up to the Castlereagh level. The Skiwing premises, C19, was one of the two largest tenancies required for this, the other large tenancy already being vacant. <p align="left">

71 (The proposal was very similar to that on which the Tribunal had just ruled in Eddie Azzi Australia Pty Limited -v- Citadin Pty Ltd [2001] NSWADT 79 (18 May 2001) in which General Pants and another, as sitting tenants, had successfully opposed a landlord seeking to relocate them in order to bring a new anchor tenant into the Skygarden.)

72 On 23 October 2001, Ex A p19, Stockland offered Skiwing a new Lease in a standard Lease proposal which was also understood to be a relocation notice (‘the first relocation notice’). Mr Kanellopoulos, the Stockland Leasing Executive had earlier told Mr Stojanoski he would be relocated, Ex A par 26. The alternative premises were two shops separated by a corridor towards the rear of Pitt level, totalling 66 sq m. Skiwing’s solicitors pointed out a number of fundamental deficiencies in the letter if it did purport to be a relocation notice under the Lease and the Act. Stockland now agrees this notice was invalid.

73 On 30 November 2001, Ex A p25ff, Stockland served a more detailed document titled ‘Relocation Notice’ for ‘alternative’ premises, this time 124 sq m on the floor above, shops G43-45 and G1 on the Gallery level, in the back corner, also separated by a corridor, (‘the second relocation notice’). The rent was $85 000 for a 5 year 2 month term commencing the following 1 March 2002 by which time vacant possession of C19 was required. This was also contested as invalid.

74 Curiously, although I was not informed whether this was known by Skiwing during the relocation dispute, Stockland had just leased the same premises G43-45 on 29 October 2001. This was under a 5 year lease (Ex A ex 6) from 1 March 2002 at a rent commencing at $18 000 plus 1.5% turnover rent, (which would not have exceeded $7500 even on $500 000 turnover), i.e. totalling of the order of $25 000.

75 Neither ‘alternative’ premises could be regarded as at all comparable with C19 in terms of aspect, size, commercial value or position within the Arcade in relation to passing trade. The first premises of 66 sq.m were less than half C19’s 154 sq.m, had no natural light and were bisected by a corridor.

76 The second premises of 124 sq.m. were on the third level of the Arcade, the Gallery level, in the back corner, which does have access through to Centrepoint but no through traffic as for other levels; again it was in two shops bisected by a corridor and with no natural light or view over the Mall. They were in commercial terms no way comparable to C19 as can clearly be seen from the market rent negotiated at the same time at about a quarter of Skiwing’s rent.

77 Just how Stockland would achieve vacant possession of these premises to perform its offer under the second relocation notice was not explained. The only officer of Stockland to give evidence was Mr Doherty who stated that the management of the relocation notices and process was not within his function as Centre Manager, T/3 4-5.

78 In January and February 2002, Stockland had continued its qualitative and quantitative research on repositioning, Ex 1 PD 9/10.

79 Stockland then on 1 March 2002 served a further and more complex Relocation Notice with a Disclosure Statement, Ex A 33ff (referring to a Redevelopment Schedule), for yet other Gallery level alternative premises, shops G34-37 of 120 sq m., conditional on the second relocation notice not being accepted, (‘the third relocation notice’). These premises are opposite those in the second notice and it may possibly be that Stockland was negotiating with the contracted new tenant of G43-5 to shift it across the corridor depending on Skiwing’s response. That is mere speculation but the situation is obviously very contradictory.

80 For the same reasons, the premises in the third relocation notice were in no way comparable or commercially similar to C19.

81 This third relocation notice was disputed too and following an attempted mediation before the Retail Tenancy Unit, Stockland withdrew the third relocation notice on 27 March 2002.

82 While the second and third relocation notices recited a longer term complete ‘redevelopment’ for the whole Arcade, Mr Doherty acknowledged, T/3 11, that all three relocation notices were in respect of the General Pants negotiations. When withdrawing the third relocation notice, Stockland lawyers protested its legality and stated, Ex A p.51:-

However, as a result of your client and other tenants disputing the landlord’s Relocation Notice and/or instituting proceedings, our clients have suffered irreparable delay to their redevelopment timetable.

83 They added the withdrawal was to ‘mitigate its loss’ and then Stockland on 12 April 2002, Ex A p.53, advised it would ‘not be proceeding with the redevelopment’ and added ‘ We are now seeking tenants for all vacant premises in the Arcade.’

84 Despite this, the high vacancy rate in the Arcade continued until the end of 2002 by which time the Arcade was again substantially let, a total period of significantly low occupancy of virtually two years.

85 Evidence to the Tribunal (confidential as to tenants and financial details), Ex K, showed that Stockland had agreed concessions with some other tenants on both Pitt and Castlereagh levels for substantial periods during this time of vacancy to compensate for trading difficulties including due to the vacancy rate.

86 Mr and Mrs Stojanoski of Skiwing by letter of 12 June 2002, Ex A p.59, requested a rent reduction because of the vacancy rate.

Dear Paul

Re Shop C19 Imperial Arcade

I refer to my many personal discussions with you about a rent reduction for my premises and would like a response to this letter.

My genuine reasons for asking for a rent reduction is for the past 2½ years, especially our level has been 50 percent vacant which has robbed us of many customers, also in Pitt St level and gallery level, it has been pretty much the same, so generally there has been less traffic flow coming into our arcade and it has greatly affected our business and I’m sure of many others.

As you have been aware I have been in the arcade for 17 years and business has never been this bad.

As I told you a few weeks ago that I planned to sell my business but the offers received is well below my asking price. The reason given by all the purchasers is “Look at all the empty shops”. Reluctantly I have now withdrawn my premises from sale.

One again I request that you give this matter your utmost attention for a rent reduction for the reasons mentioned above.

If I receive no reply to my request within 7 days of giving you this letter I shall have no alternative but place this matter in the hands of my lawyers.

I shall be happy to discuss this matter again with you if you so desire thank you.

Yours faithfully

Zoran and Brenda Stojanoski

87 Stockland did not formally reply but Mr Doherty later responded in a manner indicating this would not be granted.

Validity of the Relocation Notices

88 I find that all three relocation notices were invalid. The first simply did not comply at all with the Lease or the Act and Stockland has acknowledged it was invalid. The second and third were for the purpose of securing a preferred tenant in a prime location within the Arcade with a two level shop fronting the Mall and not for the permitted purposes. While they recited a formula reflecting the provisions of s,34A and cl 20 of the Lease, neither was a genuine proposal for ‘refurbishment, redevelopment or extension’. Instead, it was the attempted use of the right under those provisions to replace an existing tenant, who had only recently had its Lease renewed for a 7 year term and who had satisfactorily refurbished its shop as required under its Lease, with a preferred major tenant believed likely to be more attractive to a range of tenants for which the Arcade was being repositioned.

89 My ruling in Eddie Azzi Australia Pty Limited -v- Citadin Pty Ltd [2001] NSWADT 79 also applies here:-

95 In my opinion no Lease could be construed as being intended by both parties to operate so that, on the day following the granting of a registered proprietary interest to a lessee in premises, for which the lessee had incurred fit-out costs or had an established business with goodwill, the lessor could decide to terminate the Lease to connect those premises to adjacent units, re-configure the shop fronts and let them to another lessee who would fit them out and occupy the combined space, thereby providing the lessor with occupation of otherwise vacant premises in its building and a commercially preferable return on its building overall.

96 In my opinion the right under this clause is available in respect of premises where having regard to the condition of the building, including the condition of the Leased premises, the lessor genuinely determines to repair, renovate or reconstruct the building to a substantial degree. There would be no such genuine determination where the decision in respect of the Leased premises was to incorporate them into a parcel with other premises to achieve a preferable return as opposed to continuing the existing Lease and leasing those other premises separately or in combinations not including the Leased premises.

97 Leasehold interests are proprietary interests in land, not merely contractual rights and while the exercise of that proprietary interest is determined by the provisions of the Lease, and may indeed cease to continue as such a proprietary interest according to those provisions, the operation of any such conditions must be strictly construed.

90 Secondly, in my opinion none of the premises offered were ‘alternative’ premises. They were not at all comparable from any point of view. I do not think the proper construction of ‘alternative’ in the relocation provisions is simply to allow the offer of any ‘other’ premises at all; there must be some degree of commercial similarity such that they are appropriate for the nature and size of the business conducted by the tenant.

91 In addition, the base rent proposed in the second relocation notice was $85 000 when the then current base rent for the alternative premises under the Lease just negotiated in 2001 was about $25 000; this could not comply with s.34A(c). The third relocation notice tried to get around this by leaving the rent open in the attached Disclosure Statement, Ex A p.34, to be the same as under the existing lease ‘or adjusted to take into account the differences in the commercial values of the premises… determined independently in accordance with the’ Act. There is no process under the Act for an independent determination.

92 I am satisfied that the notices were all demonstrably invalid and that they were properly withdrawn. It was however quite inappropriate for the lawyers to suggest in withdrawing them that the tenants who disputed them were somehow the cause of loss to Stockland, Ex A p.57.

Conclusion on Factual Findings- Relocation Notices or Disturbance of Trading

93 In summary, Stockland set about a commercial course to reposition its Arcade, intending to sustain a high vacancy rate for a substantial period while it found the right icon tenant for its new market position and to use the icon tenant to attract the new tenant mix.

94 Central to this plan to attract such a major tenant, Stockland sought to use relocation rights under the Lease and the Act in what I find to be a demonstrably invalid manner. It considered that the rights of its established and generally complying tenant, Skiwing, among others, were not such as to prevent this course of action or to require any compensation. It maintained this right to relocate in legal disputation over a five month period.

95 These relocation notices seriously disrupted Skiwing in the operation of its business, diverted management effort from running the business, constituted a breach of the agreement under which it was applying for consent to develop the balcony proposal, and caused it to engage in what for it was major legal disputation.

96 The high vacancy rate associated with the process and its unwinding lasted for most of a two year period.

97 Though since withdrawn, the notices and the dispute over them have left the parties bitterly at odds such that the likelihood of them now being able to operate co-operatively as landlord and tenant is remote if not impossible.

98 Stockland has chosen not to accord to Skiwing concessions granted to other tenants who have complained of the impact of the high vacancy rates, among other matters. In the aftermath, Stockland has also exercised its acknowledged legal right to withhold consent to the placement of tables and chairs, which had previously been a satisfactory and valued activity of the tenant at appropriate times, in circumstances which may be considered commercially questionable.

99 I will consider the evidence as to any loss and causation thereof below.

Claim- Relocation Notices or Disturbance of Trading

100 The first complex issue in this case is whether those facts give rise to a legal claim by Skiwing on Stockland for the use of invalid relocation notices and the disturbance of its trade as a result of the vacancy rate and diversion of management effort.

101 The case has not been pursued as a claim for unconscionable conduct under Part 7A of the Act which lists a range of considerations that may be seen as relevant to what has occurred here. Nor was the Tribunal constituted as required for proceedings under that Part 7A so no determinations of that nature can be considered notwithstanding that the conduct of Stockland, when the whole matter is reviewed, does raise issues of harsh and discriminatory treatment.

102 The bases of the relocation and disturbance to trade claim in the Applicant Skiwing’s submissions are that the circumstances of the repositioning, relocation conduct and vacancies constitute:-

1. a breach of the Lessor’s obligation implied by cl 5.02 of the Lease to maintain the Arcade as a ‘high class shopping centre’.

2. a breach of the covenant of quiet enjoyment in cl 11.01 of the Lease.

3. a breach of the implied covenant not to derogate from the grant under the Lease.

4. a breach of the obligation of co-operation and good faith.

5. a breach of s.34 of the Retail Leases Act.

103 There was no assertion of rights flowing directly from a breach of s.34A of the Act which constitutes a provision of the Lease that ‘a lessee’s business cannot be required to be relocated’ except in compliance with that provision. However I propose to examine that issue as it so clearly pertains to the whole of the case and the evidence. There is no need to offer the parties an opportunity to address that question further as they have already made submission on whether these notices were a breach of s.34A.

Clause 5.02

104 The first part of this clause is:-

5.02 OPERATION OF BUSINESS. The Lessee shall keep the demised premises fully stocked and shall operate the business…in a…manner appropriate to a high class shopping centre

105 It goes on to entitle the lessor to liquidated damages for breach.

106 I agree with Stockland’s argument that this clause imposes no express or implied obligation on a lessor as claimed. This claim cannot be sustained.

Clause 11.02 Quiet enjoyment; non-derogation from grant

107 I combine these two grounds because as stated in Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185:-

36 … Common sense requires that a landlord not be permitted to " annul his own deed" by interfering with the possession of the tenant: Goldsworthy Mining Ltd v Federal Commissioner of Taxation [(1973) 128 CLR 199] ; O'Keefe & McKenna v Williams (1910) 11 CLR 171 at 192, 200-201 and 211. So put, the covenant for quiet enjoyment intersects with the covenant which is also to be implied in every Lease that the lessor not do anything which would derogate from the grant. The covenant for quiet enjoyment and the implied covenant not to derogate from the grant are, to the extent that they differ, both instances of the general rule in any contract, implied if not expressed that:
"neither party shall do anything to destroy the efficiency of the bargain which he has made." (per Griffiths CJ in O'Keefe v Williams at 191).

108 The Court went on to state the principle as :-

37… there will be a breach of the covenant for quiet enjoyment where the ordinary and lawful enjoyment of the demised premises is substantially interfered with by the acts of the lessor…, whether or not the title to the land or the possession of the land is otherwise affected. Whether what is complained of amounts to a substantial interference will be a question of fact. A breach may result either from acts of commission or omission by the landlord.

109 The cases tend to involve allegations of physical interference with possession. In Hawkesbury Nominees the lessor had interfered with the air conditioning so as to substantially reduce the efficiency of the kitchen of premises. However the principle is about substantial interference with the ordinary enjoyment of the premises which make it less fit for the purpose of the Lease. As observed by the NSW Full Court in Telex(Australasia)Pty Ltd v. Thomas Cook (Australasia) Pty Ltd (1970) 2 NSWR 257 at 266:-

Whether or not actual physical interference with occupation is necessary in order to commit a breach of a covenant for quiet enjoyment, no such actual physical interference is necessary in the case of a covenant not to derogate from the grant.

110 And as stated by Street J in Gordon v. Lidcombe Developments Pty Ltd (1966) 2 NSWR 9 at 14-16:

The principle compendiously summarized in the maxim that a grantor may not derogate from his grant gives rise to obligations on the grantor that may be ‘infinitely varied in kind’.

111 In my opinion, the circumstances of this case are well within those various statements concerning the principle of these covenants. The Lessor here developed a plan not forewarned when the Lease had been entered into less than a year before, to base the change of its tenant mix on the relocation of a sitting tenant in a manner which was an invalid use of and in breach of the provisions of the Lease entitling relocation. In pursuance of that plan it accepted a high level of shop vacancy in the shops within the immediate vicinity of the subject premises and then sought to remove the tenant from possession of its shop in an unlawful manner. It permitted that level of vacancy to continue while the legal dispute over the endeavour to shift or remove the tenant continued and only set about filling the vacant shops on a long term basis after it had withdrawn the invalid relocation notices some five months later. In total the high vacancy rate applied for most of a two year period.

112 In my view that is a clear case of a lessor taking a decision on a course of action likely to have a serious impact on the ordinary enjoyment of the shop and to render it substantially less fit as a profitable restaurant business. The notices served and the sustained vacancy rate were the antithesis of the bargain in the lease; while they were being pressed and during their aftermath, they destroyed ‘the efficiency of the bargain’. They sought to remove a tenant from its established business premises and replace the grant with something completely different. The process of issuing the notices, seeking to enforce them and sustaining a high vacancy rate as part of that were a derogation from the grant.

113 Stockland cited Nordern v Blueport Enterprises Ltd (1996) 3 NZLR 450 in the High Court of New Zealand for the proposition that derogation from grant is established only in rare cases:

To amount to derogation from the grant the interference with a use for which the premises were let, must be substantial…

…Mere interference with convenience or amenities such as privacy or tranquillity in the absence of a use known to be particularly susceptible to such interference will not be sufficient to constitute a derogation from the grant.

114 In my view the interference here was clearly substantial within that enunciation of the principle.

115 Reference was also made to Wilcox v Richardson (1997) 43 NSWLR 4 where Handley JA made the observation that a claim of derogation from grant “has rarely succeeded and only in extreme circumstances” citing Nordern as one of the few modern authorities in which a lessor has been found to have derogated from the grant of a lease of retail premises.

116 In Wilcox the principle was raised as one of a number of complex arguments seeking to entitle a tenant to restrain use of the rest of the premises for a competing business. However this was in a case where there did not appear to have been an exclusive use covenant and the principle was sought to be used in lieu of that. I do not think the comment changes the principle to be applied or informs how it should be applied on the facts before me.

117 Stockland also argued that because of the express terms of this Lease entitling relocation, cl 20, and stating that the Lease and Disclosure Statements embody the ‘entire agreement’ with ‘any other written or oral agreement…having ceased to have effect…’, cl 17.05, the non-derogation obligation is excluded. It cited Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd [2003] NSWSC 460. However that was not a case where the Court had found the lessor to have acted, as here, in breach of its rights under the Lease. Nor do I think that the proper construction of cl 17.05 can exclude an obligation that is inherent in the very nature of the Lease as a contract, as explained in the principles above.

118 In any event Stockland acknowledges the presence of cl 2.02 in the Lease which provides that covenants implied by law are deemed to have been modified (where so permitted) to the extent of any inconsistency with the provisions of the Lease. This means that the Lease does not necessarily intend to exclude implied covenants and there can be no inconsistency where the covenant is applied in circumstances where the notices are invalid and so not authorised by the provisions of the Lease.

119 Nor do I think the terms of the Disclosure Statements set out above which reserve to the Lessor the right to vary the tenant mix operate to protect a lessor in circumstances where it sustains a high vacancy rate while implementing a strategy over more than a year to change that mix. Those were disclosures of change of occupancy, not sustained vacancy and removal of the tenant from its long established premises.

Breach of s.34A of the Retail Leases Act

120 In my view an equally correct and perhaps simpler way to analyse these events is as a fundamental breach of the provision of the Lease constituted by s.34A. Central to the evidence and submissions in this case was whether the Lessor had complied with s.34A or whether it sought to relocate the business of the lessee in breach of that clause, as part of a plan which involved sustaining the high rate of shop vacancy in the Arcade.

121 I have found that the relocation notices were demonstrably invalid and so to seek to rely on them to relocate the business of the Lessee is a straightforward breach of the provisions of the Lease. A breach of lease entitles a claim for redress. There is in my view no protection against such a claim in the disclosures in the Disclosure Statements.

Obligation of good faith

122 The authorities on the circumstances in which an implied term of fair dealing or a duty of good faith both in performing obligations and exercising rights may by implication be imposed upon parties as part of a contract, are collected by the Court of Appeal in Alcatel Australia Limited v Scarcella & Ors [1998] NSWSC 483. I have not in the time available for this case reviewed these in detail and they were not the subject of detailed analysis by the Lessee in its submission. Although not well explained in that case or the authorities cited, central to the term or duty is the obligation not to act unconscionably but to act fairly, a theme running through the law on estoppel and unconscientious conduct.

123 This Tribunal would need to consider whether in light of the Part 7A structure for unconscionability claims before it, such a claim can be considered in these proceedings, see New York Boutique Pty Ltd -v- Lend Lease Property Management (Australia) Pty Ltd [2001] NSWADT 55. Whether the law of commercial dealings ever matures to remove the complex categories and procedural limits now applying to unconscientious conduct is well beyond the task in this matter.

124 As there are other bases for disposing of this case I do not propose to rule on the availability of this ground of claim.

Breach of s.34 of the Retail Leases Act

125 Skiwing seeks to add a claim under s.34 in its final submissions after the evidence had closed on the basis that such a head of claim was originally the basis on which the very first version of Application 035066 filed 23 June 2003 was expressly framed. Skiwing argues in the process of reformulation pursuant to the Tribunal’s direction, the s.34 claim was subsumed in the Trade Practices Act claims; it did not have a proper opportunity to consider whether it wished to amend by reinstating s.34 when at the start of the hearing the Trade Practices Act claims were struck out.

126 Section 34(1)(b), (c) and (d) of the Retail Leases Act provide:

A retail shop Lease is taken to provide that if the Lessor:

(b) takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop, or

(c) unreasonably takes any action that causes significant disruptions of, or has a significant adverse effect on, trading of the lessee in the shop, or

(d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor’s control,…

and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence.

127 Skiwing argues that without the need for any further evidence, the Tribunal is in a position to determine this claim.

128 Stockland replies that this addition should be refused, that it would be unreasonable and prejudicial as it had not led evidence or cross-examined witnesses having regard to the elements of this section.

129 I am concerned to conclude this case which has taken a long time and, as noted, has diverted Mr Stojanoski from managing his business and embroiled him in the legal process. I have agreed he has a basis for claim on other grounds and will now proceed to determine the extent to which measurable loss has been caused on those bases. But should I also consider this s.34 claim?

130 While on the face of it, the evidence set out above may justify a finding of the elements within pars (b)-(d) of s.34, there are also difficulties facing such a claim; the section has an express requirement of a written request to rectify those matters and the only such written request relied on is a letter of 12 June 2002, Ex A p.59, set out above, well after Stockland had withdrawn its notices and set about trying to let the vacant shops. It may be that properly analysed, the written dispute of the relocation notices in November/December 2001 could also constitute such a request, but that is not clear cut at all and should really be subject to an opportunity for Stockland to respond.

131 In the interests of concluding the matter, and because there are real difficulties on the evidence as to the necessary request in writing required by s.34, I have decided not to entertain the s.34 claim.

Causation and Assessment of Damage

Reliability of Skiwing Records

132 An initial issue is the reliability of the accounting records of Skiwing upon which the claims and evidence as to damage are based.

133 In the assessment of damages in the sign dispute case, Skiwing Pty Ltd v Trust Company of Australia (025117) (No 2) [2003] NSWADT 199, the Tribunal was unable to be satisfied as to the accuracy of those records as a basis for determining whether damage was proved for the month or so period there relevant.

134 In this matter the former accountant for Skiwing attended and was cross examined as well as directly questioned by the Tribunal on the detail of the records. He was Mr Paul Coggiola, until one year ago a Certified Practising Accountant, who had prepared the tax returns for Skiwing for 7 years from 1994 to 2001. He demonstrated a detailed understanding of the records of Skiwing from which he had prepared the returns and established that he and his firm had done all usual checks of the records for inaccuracies in the course of preparing them. He concluded that in his opinion:-

I would say Skiwing’s books were very accurate -not 100 percent, possibly – but what we did…[describing his verification process]… we very rarely came out more than half to one percent of the figure that was in the book. T/2 48.35

135 The Tribunal also directly questioned Mr Stojanoski on the accounting records in which he explained matters decided against him on the last occasion.

136 I am satisfied that the Tribunal and the expert witnesses can safely rely on the records of Skiwing, including those continuing beyond 2001 when Mr Coggiola ceased to act as the records have continued to be kept in the same manner.

Relocation and Disturbance to Trade Claim

137 The evidence established a high vacancy rate for the Arcade over a two year period from the beginning of 2001 until about the end of 2002. While Mr Doherty gave evidence of continued marketing of the Arcade for letting purposes during that time, (T/2 116-8,120;T/4 20), I am satisfied that this high rate was substantially contributed to by the decision of Stockland to reposition the Arcade to the youth market based on relocating Café Tiffany together with other smaller tenancies and replacing them with an icon tenant around which the Arcade would then be re-let with a new tenant mix.

138 The expert evidence for Skiwing of Mr Phillip Edmonds, Ex D, an economist practising for many years as, inter alia, a licensed business agent and registered real estate valuer, examined the business and records of Skiwing. He concluded that:-

The management of the business appears sound with the proprietor being competent and well experienced in the operations of the business.( Ex D Par 6.1.4)

139 He prepared Annexure 10.7 ‘Summary of Adjusted Financial Accounts of the Business’ which included the following turnover figures

1998/9 $ 536,543

1999/2000 $ 551,092

2000/1 $ 478,021

2001/2 $ 406,000

2002/3 $ 373,826

140 He also prepared Annexure 10.10 graphing the monthly turnovers of Café Tiffany against the trend in general retail trade figures; while Café Tiffany declined from March 2001, general retail trended up.

141 Mr Edmonds did comment, p.23:-

During the first half of this period [January 2001-April 2002] a general reduction in turnover and profitability was experienced in the industry as a consequence of the introduction of the GST and the post Olympic comedown. From my experience and analysis of other similar businesses in and around the Sydney CBD this downturn was generally in the range of a 4.0-6.0% reduction in gross turnover, significantly less than the decline in turnover represented in the accounts of the subject business during the period 2001-2003.

142 Mr Edmond’s evidence was examined by Mr Robert Smith, a Partner of Worrell’s Solvency and Forensic Accountants, Ex 5, for Stockland who concluded generally that in his opinion it should not be admitted into evidence or should be given little weight.

143 On the specific issue of turnover, Mr Smith was of the opinion that Skiwing’s business had been trending down steadily since September 1999 however his graph of monthly sales with annual trends on a calendar year basis, Ex 5 p.26, showed a marked shift downwards in the trend lines from January 2001 with trading in prior years relatively consistent.

144 I am satisfied that there has been a significant decline in Skiwing’s trade from January 2001.

145 Stockland contends that on the basis of pedestrian traffic figures for the Arcade over the whole period, Ex 6, there is no correlation between the number of people in the Arcade and the trading results of Skiwing. Ex 6 contains both a correlation analysis which shows a low correlation of .27 whereas a correlation closer to 1 would constitute a statistically significant relationship. It also contains a ‘scatter plot’ charting Skiwing sales against pedestrian numbers which shows no clear linear trend.

146 The evidence did not establish the collection points for that data. It must also be weighed against Stockland’s own acceptance that the vacancy rate had been much higher than it would have preferred and the agreement by Stockland to compensate other tenants for vacancy reasons. Not insignificant in that weighing process is Mr Stojanoski’s own sworn evidence that based on his long experience in the shop, the vacancy rate was having a major effect on his business. The Tribunal also considers it is reasonable to infer from general commercial knowledge that shopping areas with sustained high vacancy are less attractive places in which to shop.

147 Stockland also led evidence from a retail marketing specialist based on a ‘mystery buyer’ survey using herself and two other informants comparing Café Tiffany’s with a number of other nearby restaurants. She concluded that Café Tiffany’s had a number of unattractive aspects as a business that would be likely to make it less attractive to the market. Stockland relied on this in support of its case that the downturn in Skiwing’s business as not causally related to the vacancy factor.

148 That survey was not suggested to have been based on a substantial sample and was therefore a very subjective analysis. While she considered that the décor of the café had a dated and tired look, she was not aware that it had recently been refurbished to a level required by Stockland under the lease. While she considered the menu needed change, she found the food to be ‘tasty’.

149 Taking all factors into account, I am satisfied that on the balance of the evidence, the conduct of Stockland in breach of its obligations to Skiwing was likely to have been the proximate cause of the degree of reduction in the turnover of Skiwing’s business greater than any downturn due to generally prevailing factors.

150 However the evidence also established that as at April 2002, Stockland abandoned this course of action and so did not achieve the plan, filling the vacancies to a large extent by the end of that year. What then is the measurable loss of Skiwing for that period and to what extent has the cessation of the breach limited Stockland’s liability?

151 Mr Edmonds was of the opinion that this loss had two elements, loss of the value of the business and loss of profits.

Business Value

152 As to lost value of the business, he valued the business at various times on the basis of its adjusted profitability using the capitalisation of Future Maintainable Earnings (‘FME’) method with the multiple thereof also adjusted to reflect the unexpired term of the lease. Under this valuation method there is a degree of commercial judgment both as to the calculation of profitability and the appropriate multiple of that which the market would apply in a sale transaction.

153 In summary he concluded that as at August 2000 when the Lease commenced, the business had FME of $70 000 with a total value of $210 000 whereas on its position as at November 2003, the date of his report, its value was the depreciated value of equipment only, $24 000. Had turnover and profitability not been reduced, the value would have been $140 000 as at November 2003, a reduction in value of $116 000.

154 Mr Smith states the opinion that the FME valuation method is not appropriate because this is a business in long term decline. However I am satisfied that up to 2000, the year in which Mr Edmonds calculates FME for comparison purposes, the business had not been in decline. In any event, Mr Smith does not state the valuation method he does consider appropriate.

155 Mr Smith also considers that the underlying financial data used by Mr Edmonds is not reliable but I have considered all the evidence and have concluded it is safe to rely on the data.

156 Mr Smith also considers Mr Edmonds has not explained how the vacancy factor caused the reduction in value. However I am not relying on Mr Edmonds to determine causation, only the comparative values at different times.

157 Mr Smith contests the adjustment made to the profitability calculations in respect of an allowance for director’s salary. He disagrees with Mr Edmond’s assessment that in small business sales, purchasers ‘buy’ an income. While experts may have different views on this, I accept Mr Edmonds’ approach as valid and do not think his analysis should be rejected or discounted on this ground.

158 Accordingly I am satisfied that the valuation evidence of Mr Edmonds can be used in determining this issue. During questioning Mr Edmonds agreed that the net loss as at the date of his report was $116 000. On my analysis, that loss would also apply during the whole period of reduced turnover because turnover was the principal determinant of profitability. If anything the relevant multiple for FMA valuation would be higher at an earlier time because of a longer unexpired term, but as Skiwing’s claim is for that amount, I will apply this figure resulting from a lower multiple.

159 In my view Skiwing is entitled to be compensated for that loss. However that assumes no goodwill component at all remains in the business. While Mr Stojanoski gave evidence that he had been unable to sell the business at an acceptable price and that a business broker had advised it was not saleable, if he were to sell in the future and realise a value for goodwill, it would not be just, as between the parties, if having compensated Skiwing for that loss, Stockland could not recover any goodwill on sale as a condition of consenting to the assignment of the lease. Accordingly, any award will be subject to such a qualification.

Lost Profits

160 Mr Edmonds has also calculated lost profits during the period of turnover decline at pp.23-24 and Annexure 10.9 of his report. Mr Smith has not commented specifically on that calculation other than for his general criticism of the underlying data which I have addressed above.

161 This calculation however covers the period up to September 2003 whereas I have found that by end 2002 Stockland had taken action to redress the conduct complained of and it is reasonable to conclude that any flow on effect had dissipated. Accordingly I consider Mr Edmond’s calculation needs amendment in that regard. We did not raise this aspect during the hearing so it is not possible to have Mr Edmonds review the re-calculation. I am satisfied I have correctly applied his formula to the estimates and actuals for the period from January 2001 only until the end of 2002.

162 That re-calculation produces lost profits of $149 710 during the relevant period. I propose to order that Skiwing be compensated for that loss.

163 I also consider that Skiwing is entitled to its legal costs of opposing the relocation notices which I understand do not include costs before this Tribunal and are $3918.

164 However I consider that no award should be made for foregone salaries and capital costs because those items are effectively included in the lost profits and loss of value awards.

Balcony Claim

165 I have found that Skiwing lost a valuable commercial opportunity to pursue approval for a balcony which would equip it to seek an agreement with Stockland for its construction and use. While there was evidence on the basis of which it can be concluded there was some likelihood of obtaining such approval within the Council’s restrictive policy, it is more difficult to assess the likelihood of Skiwing achieving agreement with Stockland. It is premature to assess the extent to which s.133B(2) of the Conveyancing Act would limit the right of Stockland to decline to agree. It is also premature to assess the extent to which other principles such as unconscionability and the duty to act fairly might limit Stockland given that it had originally proposed a balcony itself and had kept an open mind on the issue certainly until implementing the relocation plan.

166 Mr Edmond’s report provided an FME valuation of the business as at August 2000 using the multiple of 3 with a balcony and a ‘dine and drink’ liquor licence, establishing an additional $120 000 value. However, there was no likelihood of a balcony being built until well into 2002 following completion of plans in October 2001 which were yet to be submitted to Council by which time the multiple used by Mr Edmonds in his FME valuation would have reduced. At a multiple of 2.5 the difference in the two valuations would be $100 000.

167 The guiding principles are reviewed at length by the High Court in Sellars and Poseidon Ltd v. Adelaide Petroleum NL (1994) 120 ALR 16. The essence of the principles is that where there is a real lost opportunity I am required to make an assessment of the evidence I do have of the value of ultimate success and to discount that by reference to the factors standing in the way of success being achieved. Any real lost commercial opportunity will be compensated; a mere negligible opportunity will not. The chances of success does not have to be over 50% or to be more likely than not.

168 In Adelaide Petroleum the parties had failed to conclude an agreement because of misleading conduct by one of them. The court found that, but for that conduct they would have been likely to have entered into the agreement but that the agreement in question still had at least seven conditions precedent before it became fully operative, including regulatory decisions and financial decisions by third parties. The trial judge considered there was a likelihood of those conditions being satisfied but applied a discount factor of 40% against the possibility they would not.

169 While the facts here are obviously of a different character, the approach is the same. I am satisfied there was a real and significant chance of success, not necessarily more likely than not because there were a number of difficult hurdles to leap; this suggests I should apply a larger discount. The fact that Stockland has since indicated it will not consent to a balcony should be set against the possible application of s.133B(2) and its obligation not to behave in an unconscionable manner.

170 Alternatively, the proper analysis should be to consider the likelihood of success as if the breach had not happened and Stockland had continued to conduct itself as it had done up to December 2000 on the basis that Skiwing was the continuing tenant in that location, rather than in an antagonistic manner. In that case if the Council approval had been forthcoming to a satisfactory design with engineering safety, and Skiwing had offered to meet the cost, there would have been a very good chance it would agree.

171 I therefore have decided to have reference to Mr Edmond’s opinion which is the only evidence of lost value before me but to adjust that to a multiple of 2.5 for a later time with 2 years less of the lease to run, and discounting by a factor of 50%. This results in an award of $50 000 for the balcony claim.

172 I note that Skiwing has not claimed for loss of profits in relation to the balcony claim.

173 I also consider that Skiwing is entitled to its expenses in relation to the balcony of $3000.

Summary of damages

Relocation or Disturbance of Trading Claim (reformulated from Applications 035063/66)

Loss of value $116 000

(subject to an obligation under the lease to repay any goodwill value achieved on a sale of the business during the term of the lease.)

Lost profits $149 710

Legal expenses $3 918

Total $269 628

(reformulated from Application 035036)

Lost Balcony opportunity $50 000

Balcony expenses $3 000

Total $53 000

174 In all the circumstances I think that interest on both amounts at the rate applicable under the District Court rules should apply only as from the date of the last filed application, 23 June 2003.

Costs

175 I reserve the issue of costs for written submission by the parties to be filed within 30 days as to whether there are special circumstances within s.88 of the Administrative Decisions Tribunal Act 1997.

Orders

1.Relocation or Disturbance of Trading Claim

(reformulated from Applications 035063/66)

a) Respondent to pay the Applicant $269 628 plus interest from 23 June 2003 at the rate applicable under the District Court Rules.

b) On a sale by the Applicant of its business during the term of the Lease, the Applicant to pay to the Respondent any amount of the purchase price properly attributable to goodwill up to the amount of $116 000.

2. Balcony Claim

(reformulated from Application 035036)

Respondent to pay the Applicant $53 000 plus interest from 23 June 2003 at the rate applicable under the District Court Rules.

3. Costs reserved. Written submission by the parties to be filed within 30 days as to whether there are special circumstances within s. 88 of the Administrative Decisions Tribunal Act 1997.

Decision revised 8 June 2004 - paragraph 53 - reference to Skygarden building amended to Glasshouse building