Sprynt Pty Ltd v Campanella
[2012] NSWADT 186
•13 September 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Sprynt Pty Ltd v Campanella & anor [2012] NSWADT 186 Hearing dates: 7 August 2012 Decision date: 13 September 2012 Jurisdiction: Retail Leases Division Before: K Rickards, Judicial Member Decision: 1. The Respondents' claim for payment of the sum of $40,524 by the Applicant is dismissed.
2. The Applicant is declared to be entitled to payment of the sum of $27,000 from the Trust Account of Giuliano Cerin Solicitor.
3. The Respondents are to do all things and sign all authorities as may be reasonably required to permit payment in accordance with Order 2.
4. In the event that the sum of $27,000 is not paid from the Trust Account of Giuliano Celin Solicitor to the Applicant within 28 days of the date of these orders, the Respondents are to pay the sum of $27,000 to the Applicant and upon such payment being made shall be entitled to payment of the sum of $27,000 from the Trust Account of Giuliano Celin Solicitor.
5. The parties are to pay their own costs of the proceedings.
Catchwords: Compensation for damage, limitation period, assignment of lease, waiver Legislation Cited: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994Cases Cited: Waltons Stores (Interstate) Ltd v Maher [1988]164 CLR 387
Capsanis v Omoso Holdings Pty Ltd [2007] NSWADTAP 75Category: Principal judgment Parties: Applicant - Sprynt Pty Limited
Respondents - Angelo Campanella and Teresa CampanellaRepresentation: Applicant - Frank Angilletta (Director)
Respondent - Gioacchino Campanella, by Power of Attorney
File Number(s): 125081
REASONS FOR DECISION
Background
The Respondents are the owners and lessors of premises located at 94A, 96 and 96A Ramsey Street, Haberfield ("the premises").
The Applicant was the lessee of the premises from 12 October 2004 until 7 September 2011, during which time it operated a restaurant known as "Il Locale".
It is clearly established, and no issue is taken, that this use of the premises constitutes a "retail shop" as defined under the Retail Leases Act 1994 and that, accordingly, the Tribunal has jurisdiction to determine the subject dispute.
The Respondents had a new roof installed at the premises prior to the commencement of the Applicant's occupation in October 2004; the Applicant then undertook certain fit out works with the Respondents' approval; these works involved some penetration of the new roof with ventilation and air conditioning structures, and the tiling of another roof area which had not had new roofing material installed.
After some years of trading, the Applicant exchanged contracts to sell the restaurant business on 10 August 2011. The Respondents refused to consent to assignment of the existing lease to the incoming purchaser unless the sum of $27,000 was deposited into their solicitor's trust account, pending resolution of a dispute between the parties concerning liability for repair of the roof and related works at the premises.
In order to facilitate settlement of the sale of the business, the Applicant agreed to the above requirement. The amount of $27,000 therefore remains in the trust account of Giuliano Cerin solicitor, pending determination as to whether or not the Applicant is liable to pay for the roof repairs and related works. If this Tribunal determines that the Applicant is liable, then the Respondents expect that the funds held in trust will be released to them and that the Applicant and its director Mr Angilletta will also be ordered to pay an additional sum to them; if it is determined that the Applicant is not liable, then the Applicant expects that these funds will be returned to it.
Orders sought by the Applicant
The filed Application sets out that the Applicant "seeks a refund of $27,000 held in the Respondent Solicitor's trust account plus damages."
There is no evidence before the Tribunal of any loss or damage suffered by the Applicant arising from any action or default by or on behalf of the Respondents. Accordingly, it is convenient at this juncture to indicate that the component of the Applicant's claim seeking "damages" must be dismissed.
Orders Sought by the Respondents
Although no cross application was filed by the Respondents, an affidavit was sworn by Gioacchino (Jack) Campanella on 3 July 2012 in which, at paragraphs 13 and 14, it is stated that the Respondents seek an order for payment of the sum of $40,524 by the Applicant.
The Respondents claim that the above amount represents the cost of rectification of defects in the roof and the associated repairs for which the Applicant is responsible; accordingly, the Respondents seek release to them of the funds in the amount of $27,000 held in their solicitor's trust account together with payment of a further sum of $13,524 from the Applicant or from Mr Angilletta himself as guarantor under the lease.
Conduct of the Hearing and Admission of Evidence
The parties were self-represented. At the outset of the hearing, both parties agreed with the course suggested by the Tribunal that: a decision would be made in respect of the orders sought by each of them even though there had been no formal application filed by the Respondents; the respective affidavits and all of the other material filed by each party would be admitted into evidence and without deponents being required for cross examination, and; each of the parties would then be given an opportunity to make submissions and then submissions in reply. It was indicated to the parties that the admission of material into evidence would not imbue such material with any special probative value, but that it would be considered in the light of all of the other evidence and the submissions made.
The Applicant relies upon: the affidavit of Frank Angilletta sworn 26 June 2012 with annexures; the original lease between the parties commencing 12 October 2004, and; the subsequent lease between the parties commencing 12 October 2009.
The Respondents rely upon: the affidavit of Jack Campanella sworn 29 July 2012 with annexures; a quotation from Five Dock Painting Service dated 18 June 2007; a statement from Mr Niel Sciarrone of Five Dock Painting Service dated 4 December 2011 which relates to his attendance at the premises on 28 June 2007; a quotation dated 26 June 2007 from Legg Constructions for certain roof work, and; a tax invoice dated 3 November 2004 and its associated receipt issued by Canon Roofing to the respondent Angelo Campanella relating to the original roofing work performed at the premises in 2004.
The form of some of the material which was tendered by the parties and accepted into evidence, as well as the relevance of a proportion of this material to the real issues which need to be determined, is open to question. However, the parties were self represented throughout the proceedings and the ultimate decision to be made is whether the sum of $27,000 should be repaid to the Applicant, or whether this sum should be forfeited to the Respondents and the Applicant ordered to pay an additional amount of money to the Respondents; accordingly, it was determined that, in accordance with the provisions of section 73 of the Administrative Decisions Tribunal Act 1997, the hearing and admission of evidence should proceed with as little formality as reasonably possible, and that the proceedings could be conducted fairly by adopting the procedure described in paragraph 11 above.
Factual Issues and Considerations
It is common ground between the parties that, prior to commencement of the first lease agreement between the parties on 12 October 2004, the Respondents had a new roof installed at the premises. The Respondents then gave permission to the Applicant to undertake certain fit out works which included internal modifications, installation of a pizza oven, air conditioning, and the undertaking of other works to enable the premises to be used as a pizzeria restaurant.
There is also no dispute that: on a number of occasions over the following years water leaked into the premises during periods of rainfall; the Respondents arranged for the original roof installer to attend to inspect his work when the water ingress problems first arose, and; at various times thereafter tradesmen were called in by the Respondents to inspect the roof and other areas in order to initiate repairs.
On behalf of the Applicant, Mr Angilletta contends that the Respondents knew from about February 2010 that the Applicant was experiencing some financial difficulties because it had fallen behind with rent payments, and that the Respondents also knew that he had then placed the Applicant's restaurant business on the market. He says that it took 16 months to then secure a buyer, but the sale could not be completed until the Applicant was forced to lodge the disputed sum of $27,000 with the Respondents' solicitor.
In summary, Mr Angilletta says that the Applicant is not liable to the Respondents for two reasons: firstly, the works undertaken by the Applicant in 2004 have not been shown to be defective or to be the cause of any present problems with the roof, and; secondly, the Respondents did not properly notify the Applicant about this claimed liability over the period of seven years or more during which time the Applicant occupied the premises under the two leases and therefore the Respondents should not be able to pursue this issue after such a long period of time.
The Respondents dispute Mr Angilletta's contention that he had not been notified of the problems with the roof before seeking their consent to assignment of the lease in September 2011. In particular, they point to a letter from Mr Tony Campanella to Mr Angilletta dated 6 October 2010 which also enclosed a copy of a quote for repairs to the leaking roof. This letter is annexed to Mr Angilletta's affidavit and states:
"According to this quote, the leak closer to the kitchen is as a result of the installation of the Pizza Oven Flute Flashing which was incorrectly flashed onto the roof. Also the pizza oven flute needs to be extended at least 800 mm to 1,000 mm past the parapet wall as there is smoke stains on internal wall, which needs to be re-painted to suit existing colour to wall. The leak over the bar area is as result of the balcony tiles which fall short and do not run fully into the boxed gutter and has been incorrectly water proofed.
As both leaks are from your work to the original renovations to the restaurant we are of the opinion that the cost of the repairs is to be met by you."
The quote attached to the above letter is from a Mr Michele Tilio in the amount of $1,210 and is for the supply and fixing of flashings to "existing roof penetrations".
There is no clear evidence from either party as to what then occurred in response to the above letter from Jack Campanella claiming that the Applicant was responsible for repairs to the roof. The next relevant communication is a facsimile transmission from the Respondents' solicitor to the Applicant's solicitor dated 31 August 2011 in the following terms:
"I advise that my clients appear to be satisfied with the incoming tenant's credentials.
However an issue has arisen in relation to some works carried out to the premises by your client which has resulted in water penetration into the restaurant whenever it rains. I expect to have a report within the next day or so on remedial works which may have to be carried out before any assignment of lease can be finalised.
Once I have that report I expect to have instructions to submit the Deed of Assignment subject to conditions relating to what I have noted above."
There then followed a further facsimile communication from the Respondents' solicitor dated 5 September 2011 which stated:
"As a condition of any assignment of the lease my clients will require your client to undertake remedial works to address the problems outlined in my clients' summary. The works are to be undertaken by a professional builder or roofer and a guarantee given in relation to the works carried out.
Given the above scenario the submission of a Deed of Assignment at this stage would serve little purpose as the matter cannot proceed until the above matter is resolved."
The attached "summary" from the Respondents which is referred to in the above letter stated that:
"As we had a new roof put on the building prior to 'Il Locale' commencing their lease it is to our understanding that due to their renovations is when the problems to the roof occurred. The water penetration problems have occurred from the flute for the pizza oven and from the kitchen ducting. Also they had the top terrace re-membrane, builder's plastic, sand and cement base with new tiles.
As a result of their work according to the building regulation they have not met the standards causing it to have a water penetration problem over the years ..."
This "summary" from the Respondents then went on to outline a list of the work which would be required to be undertaken before sale of the business and advised that "once all this work has been rectified we will sign off on this sale."
The Applicant and the Respondents then initially agreed to follow the dispute resolution procedure set out in clause 42 of the second lease agreement. The Respondents have placed into evidence a letter of retainer signed on behalf of each party authorising Shavar Pty Limited to make an expert determination concerning the alleged defects in the roof.
Pursuant to this retainer, a preliminary inspection of the premises was undertaken by the director of Shavar, Mr Varoujan Bedrossian.
During the course of Mr Bedrossian's preliminary inspection and assessment, he spoke with Mr Angilletta and told him his opinion concerning the cause of the defects in the roof; as a result of this conversation, the Applicant withdrew from the engagement of Mr Bedrossian and his company. In the statement of Jack Campanella dated 27 May 2012 which is in evidence, he says that he was present when Mr Bedrossian said to Mr Angilletta words to the effect of:
"You have accepted that you installed the items on the roof but now you say that you will not accept my report if it identifies the defects that you have installed, because you installed them over 8 years ago."
Notwithstanding the above difficulty, the Respondents engaged Mr Bedrossian and his company to continue to finalise his report.
The report dated 16 March 2012 which was then prepared at the request of the Respondents by the expert Mr Bedrossian is, in the Tribunal's view, thorough and well reasoned and its conclusions are accepted. In summary, these conclusions are that: there are points of water ingress into the restaurant which have been caused by incorrect installation of air conditioning pipes and the exhaust flue system, and; the tiled area on the roof does not comply with applicable standards and in particular has not had a proper water proofing method applied at the time of installation. This report also identifies other possible sources of water ingress as being from other penetrations of the roof and insufficient flashings.
The report of Mr Bedrossian then sets out the rectification works required to be done, and notes that the Applicant has not supplied any Compliance Certificates for the subject fit out work performed in 2004 on behalf of the Applicant which he has found to be defective.
It can be concluded from all of the evidence that the fit out works conducted by or on behalf of the Applicant in 2004 when it first went into occupation of the premises may not have been carried out by a qualified tradesperson, and were not ultimately inspected or approved by any relevant authority.
During the course of the hearing, the Respondents agreed that the following chronology and detail of events was accurate:
(a) prior to October 2004 the asbestos roof at the premises was replaced by the Respondents;
(b) the lease commenced on 12 October 2004;
(c) the Applicant then had a rent-free period of 2 months, during which fit out works were undertaken;
(d) the Applicant then commenced business at the premises on 14 December 2004;
(e) during 2005, the Applicant complained about water leaking into the premises;
(f) the original contractor who had installed the roof in 2004 then attended and advised after his inspection had been completed that any leaking was not due to any fault on his part;
(g) the next period of rain of sufficient force to cause any problems at the premises did not occur until after 2005;
(h) On this occasion after 2005, and on later occasions when leaking occurred, different contractors attended to inspect and undertake repair work; the nature of this work has not been specified. The Respondents say that these various contractors advised them that the cause of the problem was the roof entry points of the equipment installed by the Applicant as part of the fit out;
(i) One of these contractors used by the Respondents was Niel Scarrone, who came out to do repairs at the premises on 28 June 2007 in response to another episode of water ingress. He told the Respondents that the problem had been caused by the original fit out works which had been undertaken by the Applicant. A statement of Mr Scarrone which is dated 4 December 2011 but which refers to the inspection carried out by him on the above date in 2007, is included within the Respondents' evidence and says:
"On inspection, I noticed that parapet walls above the shop have not been waterproofed or painted. There were flashings around the metal roof which have not been caped (sic). I told the owner that there are many problems that need attention, like exhaust vent needs to be checked to ensure it is water tight, and there is a tiled timber deck that leads to a box gutter which has no led flashing into the box gutter. Tiles are very drummy ..."
(j) after a further episode of water ingress during 2010, the Respondents wrote to the Applicant on 6 October 2010 asserting that because the problems had been caused by the Applicant's fit out works it was the Applicant which was responsible to pay for the rectification works identified at that time as being required; this letter is recited above in paragraph 19.
A contract for sale of the Applicant's business was exchanged on 10 August 2011 and then, shortly prior to the anticipated completion date, the Respondents again raised the issue of rectification of the roof with the Applicant; the Respondents advised through their solicitor that they would not consent to an assignment of lease until money was deposited into their solicitor's trust account as security against the likely cost of rectification.
Based upon the required rectification works as identified by the expert Mr Bedrossian, the Respondents have obtained a quotation of $40,524 from the building contractors Zirilli and Co Pty Ltd.
Findings and Reasons
Although the first lease gave the Applicant an option to renew for two further periods of 5 years, the second lease which commenced on 12 October 2009 after exercise of option by the Applicant is a new and different agreement.
Clause 7.3 of the first lease required the tenant to "reimburse the landlord for the cost of fixing structural damage caused by the tenant apart from fair wear and tear". What emerges from the evidence is that the Respondents were aware, at least by June 2007 if not earlier, that there was water ingress at the premises and that the cause of this problem, according to the Respondents' contractors, was defective penetration and sealing of the roof and other aspects of faulty workmanship connected with the Applicant's original fit out works.
There is no evidence that the Respondents took any steps during the term of the first lease to notify the Applicant of the assertion that it was the Applicant's own original fit out installation works which were the cause of the roof leaks.
Clause 12.5 of the first lease provided that the Applicant's obligation to reimburse the Respondents for the cost of fixing structural damage caused by the Applicant was an essential term of the lease; clause 12.6 permitted the Respondents to recover damages due to a breach of such an essential term, but required the Respondents to take reasonable steps to mitigate their loss. By virtue of the provisions of clause 12.7, the Respondents were entitled to recover damages from the Applicant for breach of an essential term regardless of whether or not the lease had ended.
As set out above in paragraph 36, the Respondents did not notify the Applicant during the term of the first lease that the Applicant bore liability for the cost of rectification of the causes of water ingress at the premises. Instead, following notification by the Applicant that it wished to renew the first lease, the Respondents entered into the second lease which was a new agreement with a number of quite different terms to those of the first lease. There was no notification or disclosure prior to the commencement of the second lease, nor any provision made within the second lease, relating to the water ingress or the responsibility for its rectification.
One major complaint of the Applicant is that it is fundamentally unfair for the Respondents to raise a claim for cost of rectification many years after the events which are claimed to have caused the subject problem. The evidence establishes that the Respondents chose to enter into the second lease without seeking to enforce or notify any right which they may have had to require the Applicant to meet the cost of rectification under the terms of the first lease.
The Applicant contends that he entered into the second lease upon the assumption that there was no issue between the parties concerning problems with the roof. As stated above, this new lease was not preceded by any notice from the Respondents that the Applicant bore responsibility for repairs to the roof and the Tribunal therefore accepts that the Applicant negotiated the new terms of the second lease in good faith upon the assumption that no such issue existed.
There is, in the circumstances as outlined in the preceding three paragraphs, a strong basis to support the proposition that the Respondents should be stopped from now pursuing their claim first made in late 2010 that the Applicant is liable to meet the cost of rectification of defects caused by works which were completed in 2004, and which had been identified to the Respondents well before the entry of the parties into the second lease in October 2009 without notice of this claim being given to the Applicant.
Support for this proposition can be obtained from the joint decision of Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd -v- Maher [1988] 164 CLR 387 where, after reviewing a number of authorities relating to the doctrine of estoppel, their Honours stated:
"(30) One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it': per Dixon J. in Grundt, at p 675; see also Thompson, at p 547."
Both the assumption of the Applicant that, as at the date of entering into the second lease, there was no outstanding liability to the Respondents arising from the first lease, and the role played by the Respondents in the Applicant adopting that assumption by offering a new lease without notification or disclosure of any claim, are clearly supported by the available evidence in these proceedings.
Alternatively, there is merit in the proposition that the Respondents had, based upon their own evidence as to the apparent cause of water ingress at the premises, a right to seek compensation from the Applicant pursuant to the terms of the first lease, but that they waived this right by not raising a claim with the Applicant and instead entering into the new second lease.
In its decision in Capsanis v Omoso Holdings Pty Ltd [2007] NSWADTAP 75, in response to a submission that consideration was required to give binding effect to a waiver and that, accordingly, a lessor could not be bound by a statement that it was giving a rent reduction, the Appeal Panel stated as follows:
"(38) As he had in his submissions to the Tribunal, the appellant argued that there was no consideration for any purported waiver, and therefore it was not binding on him. Clearly where a contracting party agrees to a reduction in the agreed price it might be said that that party receives no consideration if consideration is measured in money terms. Were the appellant's view to prevail then many seriously-made commercial bargains of this kind would not be binding.
(39) This case is not the place for a detailed discussion of the law surrounding variation to contracts of the kind that has arisen in this case. It is enough to meet the appellant's argument to cite the standard text, Carter and Harland, Contract Law in Australia (2002):
'[392] The concept of 'waiver' of a right is broad enough to embrace not only the giving up of one right in favour of another but also conduct which makes it unfair, inequitable or unconscionable for the promisee to insist on the right' "
46 The conduct of the Respondents in not seeking to agitate any claimed rights during the term of the first lease or before entering into the second lease must also be considered in the light of the delay of the Respondents in bringing their claim for compensation to the attention of the Applicant and then bringing that claim, albeit without filing a formal Application, to the attention of this Tribunal.
The Respondents' claim for the cost of rectification relates to a liability which they concede to have been aware of at least by June 2007. This claimed liability was formally notified to the Applicant in the Respondents' letter sent on 6 October 2010. The application made to this Tribunal by the Respondents for an order that the Applicant pay the claimed cost of rectification is contained within the affidavit of Gioacchino Campinella sworn 3 July 2012.
The limitation period for lodging any retail tenancy claim with this Tribunal is three years, pursuant to s71 of the Retail Leases Act 1994:
71 Lodging of retail tenancy claims with Tribunal
(1) 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.
(2) A claim may not be lodged more than 3 years after the liability or obligation that is the subject of the claim arose.
Section 71B of the Retail Leases Act permits the lodging of a retail tenancy claim more than three years but no more than six years after the liability or obligation that is the subject of the claim arose, but only upon the conditions set out within s71B(3):
(3) The Tribunal may make an order under this section:
(a) on application by the party or former party concerned, and
(b) after hearing such of the persons likely to be affected by the application as it sees fit, and
(c) if the applicant satisfies the Tribunal that it is just and reasonable to make the order.
The liability or obligation of the Applicant to pay for the cost associated with rectification of the roof at the premises and the associated works arose, according to the Respondents, at least by June 2007 when they became aware of the cause of water ingress. The Respondents' claim for this cost of rectification was later enforced in August 2011 by their refusal to consent to assignment of the second lease; however, this was not a valid ground for the withholding of consent pursuant to the provisions of Section 39 of the Retail Leases Act:
39 Grounds on which consent to assignment can be withheld
(1) The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances):
(a) if the proposed assignee proposes to change the use to which the shop is put,
(b) if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,
(c) if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),
(d) the circumstances set out in section 80E.
(2) This section does not preclude any right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the consent, so long as the lessor has substantiated those expenses to the lessee at the request of the lessee.
The Respondents did not make any application to this Tribunal for payment of rectification costs by the Applicant until July 2012. They did not apply, pursuant to s71B(3)(a) of the Retail Leases Act, to extend time to make this application, which is hardly surprising given that they were self-represented; accordingly, they should not be penalised for this failure. However, the Tribunal must be satisfied, having considered all of the evidence, that it would be just and reasonable to make an order extending time.
The Respondents, as experienced commercial property owners, have elected not to press any claim for compensation or rectification against the Applicant during the term of the first lease and have instead chosen to enter into a new lease with the Applicant; in the Tribunal's determination, they have thereby waived their right to later make any such claim for compensation or rectification.
By reason of the Respondents' conduct in not notifying the Applicant before the second lease commenced that the alleged cause of water ingress at the premises was due to the Applicant's fit out works, the Applicant was entitled to assume, in entering into the second lease, that no claim for liability for rectification existed against it; accordingly, the Respondents are estopped from later seeking to assert such liability.
Further, and in the event that an estoppel was not found to apply or there was not a finding that the Respondents had waived their right to seek the cost of rectification from the Applicant, the Tribunal is also not satisfied, in view of the lengthy period of time which has flowed since completion of the fit out works in 2004, the intervening unspecified attempts at repair undertaken by various contractors retained by the Respondents, and the conduct of the Respondents as discussed within this decision and summarised in the preceding two paragraphs, that it would be just and reasonable to extend time to permit the Respondents to seek an order that the Applicant pay for the cost of rectification of the premises.
The parties have not engaged lawyers in these proceedings. In the event that either party may have incurred any legal expense, the Tribunal does not consider that it would be fair in the circumstances of these proceedings, where the arguments of both sides had merit and the hearing was completed in an expeditious manner, to order either party to pay costs.
The Respondents' solicitor is not a party to these proceedings. It is expected that the money held within his trust account will be disbursed in accordance with the declaration made within the orders set out below, but it is also appropriate that ancillary orders are made to ensure that effect is given to the declaratory order.
ORDERS
1 The Respondents' claim for payment of the sum of $40,524 by the Applicant is dismissed.
2 The Applicant is declared to be entitled to payment of the sum of $27,000 from the Trust Account of Giuliano Cerin Solicitor.
3 The Respondents are to do all things and sign all authorities as may be reasonably required to permit payment in accordance with Order 2.
4 In the event that the sum of $27,000 is not paid from the Trust Account of Giuliano Celin Solicitor to the Applicant within 28 days of the date of these orders, the Respondents are to pay the sum of $27,000 to the Applicant and upon such payment being made shall be entitled to payment of the sum of $27,000 from the Trust Account of Giuliano Celin Solicitor.
5 The parties are to pay their own costs of the proceedings.
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Decision last updated: 13 September 2012
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