Stefopoulos v Manikas (no.2)
[2004] NSWADT 127
•06/28/2004
CITATION: Stefopoulos v Manikas (no.2) [2004] NSWADT 127 DIVISION: Retail Leases Division PARTIES: APPLICANT
Alex Stefopoulos
RESPONDENT
Dimitri & Georgina ManikasFILE NUMBER: 035064 HEARING DATES: 10-11/03/2004, 17/06/2004 SUBMISSIONS CLOSED: 06/17/2004 DATE OF DECISION:
06/28/2004BEFORE: Montgomery S - 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: Retail Leases Act 1994 CASES CITED: Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1
Byrnes v Jokona Pty Ltd [2002] FCA 41 (31 January 2002)
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Hawkesbury Nominees Pty Lid v Battik [2000] FCA 185 (1 March 2000)
Martins Camera Corner v Hotel Mayfair Ltd [1976] 2 NSWLR 15
Nam & anor -v- Commonwealth Funds Management Limited & anor (No. 2) [2002] NSWADT 120
Prasad & Anor -v- Fairfield City Council [2001] NSWADT 28
Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94REPRESENTATION: APPLICANT
M Spry, barrister
RESPONDENT
J Pappas, barristerORDERS: 1.The Application is dismissed. ; 2. Each party is invited to file written submissions parties in relation to the issues of costs. Any submissions on behalf of the Respondents are to be filed and served within 14 days of the date of this decision. Any submissions on behalf of the Applicant are to be filed and served within a further 14 days of the date of the filing and service of the Respondents’ submissions.
REASONS FOR DECISION
1 This is an application brought by Mr. Alex Stefopoulos ("the Applicant") in relation to a retail shop lease ("the Lease") for premises located at 15 Monaro Street, Queanbeyan, ("the Premises"). The registered proprietors of the Premises are Mr. Dimitri Manikas and Ms. Georgina Manikas ("the Respondents"). The Premises were used for the business of a takeaway food shop known as Queanbeyan Takeaway (“the business”).
2 The Lease is governed by the Retail Leases Act 1994 (“the Act”). In his application to this Tribunal filed on 20 June 2003, the Applicant sought orders in the following terms:
3 Mr Spry, counsel for the Applicant, quantified the amount sought by the Applicant under proposed orders 3 and 4 at $132,503.
1. An order declaring that clauses 6(4), 6(6), 6(9) or the lease otherwise required the lessee to pay monies in respect of the capital costs of the building, the lease is void for being inconsistent with section 23 of the Act;
2. An order declaring that the lessor is and was liable to undertake the works stipulated in Notice Relating to Breaches of the Food Act 1989 and Food Regulations 1997 (Notice Number 2000038) dated 20 June 2000 issued by the Queanbeyan City Council;
3. An order that the lessor pay the lessee reasonable compensation for the lessor's breach of section 34(l)(d) of the Act;
4. An order that the lessor pay to the lessee damages for the lessee's loss of its business.
4 It is common ground that the Applicant and the Respondents entered the Lease on 24 November 1998 that the Lease is stated as commencing from 1 September 1998 for a total period of 10 years, including options. The Applicant had occupied the Premises for some 10 years prior to the entry into the Lease. It is also common ground that the Respondents re-entered the Premises on 11 September 2000.
Applicable legislation and Lease provisions
5 Clause 6 of the Lease makes provision in relation to the use of the Premises. Clause 6 provides:
6 Clause 31 of the Lease makes provision for the Landlord to re-enter the Premises under certain circumstances. Clause 31 provides:
(1) The Premises shall not be used
(2) The Premises shall not be used for any purpose other than as set out in Schedule Item 14 or any such other purpose as is consented to by the Landlord in writing. Nothing in Schedule Item 14 or in any such consent shall override or modify Subclause (1) or be construed to do so.
(a) for any purpose which in the reasonable opinion of the landlord may increase the risk of fire or decrease the capacity to extinguish or to contain the spread of any fire; or
(b) for any purpose which may be or become illegal or which does or may cause a nuisance, damage, annoyance or inconvenience to the Landlord, its tenants of neighbouring premises or others whether through noise, vibration, impact, dust, smell, smoke, escape of any substance or excessive traffic or through other means.
(3) The grant of any consent under Subclause (2) may be on such conditions as the Landlord thinks fit including the payment of a premium and the Landlord's legal and other costs and expenses in respect thereto.
(4) Notwithstanding Subclause (2) the Tenant acknowledges that no promise, representation, warranty or undertaking has been given by or on behalf of the Landlord as to the suitability of the Premises or the Land for any purpose or as to the fittings, finish, facilities and amenities of the Premises or the Land, otherwise than as contained in this Lease. The Tenant shall satisfy himself in respect to the use to which the Premises may be put and acceptance of this Lease acknowledges full knowledge of the existence and application of any prohibitions or restrictions on the use thereof including any imposed by, or by the authority of, any Act or Ordinance. Statutory Rule or Regulation or any Court. Where the permitted use of the Premises requires the consent of any authority the Tenant shall obtain that consent at his own cost.
(5) The Tenant acknowledges that no promise, representation, warranty or undertaking has been given by or on behalf of the Landlord that any other tenant has leased or will continue to lease or will lease premises on or within the vicinity of the Land or that the Tenant has any exclusive right to carry on the type of business referred to in Schedule Item 14, it being agreed that the Landlord reserves the right to lease other premises on or within the vicinity of the Land to tenants carrying on the same type of business as that permitted to be carried on by the Tenant.
(6) The Tenant shall conduct his business in a proper businesslike and reputable manner. The Tenant shall keep current all licences and permits required to carry on his business.
(7) No auction, fire or bankruptcy sale shall be conducted on the Premises without the prior consent of the Landlord.
(8) When the Premises are unoccupied the Tenant will keep all doors and other means of access fastened and secure.
(9) The Tenant will not do or omit to do or permit or suffer to be done or omitted to be done anything in or about the Premises or, where applicable any area used for the purpose of but not comprised in the Premises, whereby the Landlord may become exposed to the liability to pay any penalty, damages, compensation, costs, charges or expenses and will keep the Landlord indemnified against all such liabilities.”
7 Section 23 of the Act provides:
“DEFAULT AND RE-ENTRY
(1) Where the Tenant is in breach of any condition in this Lease the Landlord in its discretion may remedy the breach at any time and without notice to the Tenant and without limiting the rights of the Landlord as a consequence of that breach.
(2) Where
The Tenant hereby irrevocably appoints the Landlord and its nominee jointly and individually to be the lawful attorney of the Tenant to act at any time after the above power to re-enter has been exercised (sufficient proof of which shall be a statutory declaration by the Landlord or any person duly authorised for that purpose by the Landlord) to execute a transfer or a surrender of this Lease and to procure the same to be registered and for these purposes to use the name of the Tenant and generally to do, execute and perform anything relative to the foregoing as fully and effectually as the Tenant could do and the Tenant covenants to ratify and confirm whatever the said attorney lawfully does or causes to be done by virtue of this Clause 31.
(a) any instalment of the rent or other money payable hereunder by the Tenant to the Landlord is 14 days in arrears (in case of the rent whether or not demand has been made for it);
(b) a notice has been served on the Tenant by or on behalf of the Landlord specifying a breach of this Lease and, if applicable, that breach has not been remedied or compensated for in accordance with the notice; or
(c) the Tenant shall become bankrupt or insolvent or make any assignment for the benefit of creditors, or make any arrangement with creditors for liquidation of the debts of the Tenant by composition or otherwise, or the Tenant being a company shall go into liquidation either voluntarily or compulsorily, except for the purpose of reconstruction or amalgamation; the Landlord may at any time thereafter at its election without my further notice or demand re-enter the Premises or any part thereof in the name of the whole (forcibly if necessary) and thereupon this Lease shall terminate (without releasing or prejudicing any claim which the Landlord may have against the Tenant for any breach of this Lease).
(4) The Landlord may effect re-entry and terminate this Lease without the requirement for anything further by serving a written notice on the Tenant to take effect from the time of service, which notice unequivocally indicates that this Lease is thereby terminated, that immediate possession is thereby demanded and that it is the Landlord's final positive act which will not be retracted.”
8 Section 34 of the Act provides:
“23 Capital costs not recoverable from lessee
A provision in a retail shop lease is void to the extent that it requires the lessee to pay any amount in respect of the capital costs of the building in which the retail shop is located or (in the case of a retail shop in a retail shopping centre) of any building in the retail shopping centre or any areas used in association with any such building.”
9 It is not in dispute that the application before the Tribunal amounts to a retail tenancy claim. The Tribunal’s powers in relation to retail tenancy claims are found in section 72 of the Act which provides:
“34 Lessee to be compensated for disturbance
(1) A retail shop lease is taken to provide that if the lessor:
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.
(a) inhibits access of the lessee to the shop in any substantial manner, or
(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 disruption 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, or
(e) fails to rectify any breakdown of plant or equipment under the lessor's care or maintenance, or
(f) in the case of a shop within a retail shopping centre, fails to adequately clean, maintain or repair the retail shopping centre (including common areas),
(2) In determining whether a lessor has acted unreasonably for the purposes of subsection (1) (c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices.
(3) A retail shop lease may include a provision preventing or limiting a claim for compensation under the provisions implied by this section in respect of any particular occurrence if the likelihood of the occurrence was specifically drawn to the attention of the lessee in writing before the lease was entered into.
Note: A disclosure statement is an appropriate means of specifically drawing the attention of the lessee to the likelihood of an occurrence.
(4) The provisions implied by this section do not apply to any action taken by the lessor:
(a) as a reasonable response to an emergency situation, or
(b) in compliance with any duty imposed by or under an Act or resulting from a requirement imposed by a public or local authority acting under the authority of an Act.”
The Evidence
“72 Powers of Tribunal relating to retail tenancy claims
(1) In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:
(a) an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person,
(b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings,
(c) an order that a party to the proceedings:
(d) an order granting a party to the proceedings relief against forfeiture,
(i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of a lease, or
(ii) surrender possession of specified premises to another person, or
(iii) assign his or her or its rights under a lease to a specified person, or
(iv) do or perform, or refrain from doing or performing, any specified act, matter or thing,
(e) an order, by consent of the parties, requiring the parties to the proceedings to rectify a lease,
(f) an order:
(g) such other order, in the nature of an interlocutory order of a kind referred to in paragraphs (a)-(f), as the Tribunal considers proper to be made in order to resolve or assist resolution of the dispute between the parties.
(i) declaring any provision made by a lease to be void for being inconsistent with this Act or the regulations, or
(ii) declaring that a lessor is not entitled to withhold consent to an assignment of the rights of a lessee, or
(iii) declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not,
(2) The Tribunal may make such ancillary orders as it considers necessary for the purpose of enabling an order under this section to have full effect.
(3) The Tribunal may impose such conditions as it considers appropriate when making an order under this section.
(4) The Tribunal may make an interim order under this section pending final determination of a claim, if it appears to the Tribunal desirable to do so.”
10 The Applicant appeared and gave evidence in support of his application and he was subjected to cross-examination. Ms Karmen Stefopoulos is the Applicant’s wife and worked in the business with the Applicant. Ms Stefopoulos also gave evidence and was cross-examined. Neither of the Respondents gave evidence.
11 A number of documents put in evidence provide a record of the history of disputes between the parties in regard to the maintenance of the Premises and the payment of rent.
12 Counsel for each party made submissions. The written submissions prepared by Mr Pappas provided what I consider to be generally a fair summary of the evidence and the concessions made under cross-examination.
13 The evidence shows that the parties entered the Lease on 24 November 1998. The Respondents re-entered the Premises on 11 September 2000. Between November 1998 and the date of re-entry there were a number of inspections of the Premises by officers of Queanbeyan City Council (“the Council”). Notices issued following those inspections required the Applicant to undertake maintenance to the Premises. The evidence is that the Applicant undertook that maintenance to varying degrees but that several items remained outstanding at the time the Respondents re-entered the Premises.
14 The evidence also shows that from at least mid 1999 the Applicant became aware of structural problems with the Premises and approached the Respondents with a view to having rectification work done on the Premises. The structural problems extended to the roof, which leaked in wet weather, and to the floor which was said to have been sagging or collapsing in some areas resulting in damaged tiles. It is also apparent that at various times during the term of the Lease the Applicant was in default of rent payments.
15 When the Respondents re-entered the Premises the Applicant was in default of rent for the month of August 2000. The re-entry followed delivery of notices of default by the Respondents to the Applicant. The Notice of Default dated 24 August 2000 was in the following terms:
16 The Applicant also served a notice of default on the Respondents. The Notice of Default dated 29 August 2000 was in the following terms:
“TAKE NOTICE that you are in default pursuant to the terms and conditions of the above lease in that:
FURTHER TAKE NOTICE that unless:
(a) you have failed to pay rental and other monies as demanded by the Landlord and that the arrears of rental outstanding together with interest at the rate of 10.2% thereon, as at 24 August 2000 totals $3,140.51;
(b) you have not provided a bank guarantee that is valid for the term of the lease. The bank guarantee provided expired on 31 October 1999 and no replacement has been received;
(a) all arrears in rent and other monies due under the above Sublease are paid in full to the Landlord on or prior to 1 September 2000, together with $600.00 to this firm being our costs of taking instructions in relation to your default (a total payment of $3,740.51); and
(b) a replacement bank guarantee that is valid until 31 August 2008 is provided
by close of business on Friday, 1 September our client will act pursuant to the provisions of Clause 31 of the lease and determine the lease without further notice to yourself. Such determination shall be the Landlord's final and positive act and will not be retracted.”
17 It is not in dispute that each of these Notices followed a series of correspondence and discussions between the parties and their representatives. The structural repairs referred to in the Notice of Default dated 29 August 2000 were repairs required to the roof and repairs to the flooring. It is also not in dispute that there were a number of Council inspections of the Premises and as a result of those inspections there were several notices issued requiring repairs and maintenance to the Premises. A Notice issued by the Council on 20 June 2000 stated:
“TAKE NOTICE that you are in default pursuant to the terms and conditions of the above lease in that:
AND FURTHER TAKE NOTICE that unless:
(a) you have failed to carry out structural repairs required in the Premises and by so failing have caused diminution of and substantial disruption to the business of the tenant;
(b) you have failed to comply with notices served upon you by a proper authority causing substantial disruption to the business of the tenant; and
(c) despite the requests of the tenant you have failed to institute the process of mediation as required by law.
(a) All such repairs are carried out and notices complied with by close of business on Friday the 9th September, 2000 our client will seek damages and costs without further notice to yourselves.”
“NOTICE RELATING TO BREACHES OF THE FOOD ACT 1989 AND FOOD GENERAL REGULATIONS 1997.
CLAUSES 8, 9(a)(b), 10, 11(1)(2), 14(1)(b)(2)(a)(b)(d)(e) and 32(1)(2)(a)(b)(c) of the Food (General) Regulations 1997.
PREMISES: LOT 7 DP 239955, 13 MONARO STREET, QUEANBEYAN NSW 2620
DATE OF INSPECTION: 19 MAY 2000
An inspection of the above premises by authorised officers of Council on the date shown above disclosed breaches of the Food Act 1989 and Food (General) Regulations 1997.
18 The Council also issued other notices in relation to the Premises and those notices dealt with similar types of issues.
TAKE NOTICE that Queanbeyan City Council being the relevant Council for the purposes of the Food Act 1989 hereby gives warning that if you allow the food handling practices outlined in the schedule below to continue and the work specified in the schedule below are not completed within ninety (90) days from the date of this letter than you will be breaching clauses 8, 9(a)(b), 10, 11 (1)(2), 14(1)(b)(2)(a)(b)(d)(e) and 32(l)(2)(a)(b)(c) of the Food (General) Regulations 1997.
Council is concerned that the abovementioned premises is in a poor state of disrepair and that contamination of foods is most likely when the premises is difficult to maintain clean and free of vermin and is not satisfactory for maintaining the high levels of food hygiene that food business activities need to meet.
Remedial works to be undertaken to bring the premises into compliance include:
Schedule: Remedial works to be Completed
1. To permit the premises to be easily cleaned and protected from likely contamination the following general construction and conditions of the premises needs to he upgraded:
2. Protect all food handled on the premises from likely contamination by:
a) all light fittings in the food preparation areas are to be provided with diffuser covers and repaired where not working;
b) all broken window at the premises are to be replaced/repaired and adequately fly protected with f1yscreens. Windows to be rep1aced are to be easily openable for ventilation and accessible for cleaning as required by clauses 8 and 9 of the Regulations;
c) all food preparation benchtops with laminate are to be repaired or replaced so they are easily cleaned and kept clean in accordance with clauses 3 and 9 of the Regulations;
d) all floors must he properly constructed of a rigid smooth-faced impervious material and must be kept in good repair at all times so as to reduce the likelihood of contamination. This includes all cracked and missing floor and wall tiles that need to be replaced with new tiles or replacement with an equivalent impervious material that can be easily cleaned in accordance with clauses 8, 9 and 11 of the Regulations;
e) the ceiling material of the premises shall be smooth, impervious, easily cleaned and kept in good repair in accordance with clauses 8, 9 and 10 of the Regulations 1997;
f) provide a separate hot and cold water hand basin sink with handtowel dispenser and soap so that hand washing facilities are provided in every part of the premises which are likely to contaminate food in accordance with clauses 14(1)(b)(2)(a)(b)(d)(e) of the Regulations 1997;
g) the rear door is to be provided with a concrete landing to reduce mud entering the premises during wet weather conditions and so it can be easily cleaned and kept clean in accordance with clause 8, 9 of the Regulations.
The above works are requirements under clauses 32(1)(2)(a)(b)(c) of the Regulations 1997.
a) ensuring all walls, ceilings, floors and equipment in the preparation areas are able to be easily cleaned and maintained in a clean condition;
b) removing any build-up of materials eg. food scraps, dirt, grease from any cracks or crevices in the food preparation floors by repairing the floors;
c) all broken windows to be repaired/replaced and adequately fly protected so as to reduce vermin and dust entering the premises and contaminating foods.
If steps are not taken to present or mitigate these breaches then Council will have no hesitation in proceeding with a prosecution for breaches of the Food Act 1989 and Food (General) Regulations 1997.”
19 The Applicant conceded that he was at least one month in rent arrears at the time the Respondents re-entered the Premises. On the same day that the Respondents re-entered the Premises their solicitors wrote to the Applicant's solicitors and set out the basis upon which the Applicant could go back into the Premises. That letter stated:
20 The Applicant’s evidence was that either he or his wife obtained a bank cheque for the $5,961.62 requested and handed it to his solicitor however, this cheque was not passed on to the Respondents or their solicitors. The Applicant had also arranged for a bank guarantee in respect of the bond but this was not passed on to the Respondents. The Applicant’s evidence was that his solicitor had advised him against paying the money and that the Council would close the business down anyway.
“Our client instructs that he will return the keys to your client subject to all of the following conditions being met:
1. A bank cheque for the sum of $5,961.62 is delivered to our office by 3pm today being
2. Delivery of a bank guarantee in respect of the bond to our client by Friday 15 September as required under this lease. We note that your client has provided a letter dated 14 July 2000 from Colonial Bank stating that the bank guarantee was being prepared and would be forwarded when ready. However the bank guarantee was never delivered. Our client is not willing to accept a similar letter. The bank guarantee itself must be provided by Friday 15 September.
(a) rent for the month of August being $3,120.00
(b) interest at a rate of 10.2% on the rent being $36.62
(c) $200.00 for the cost of changing the locks
(d) $850.00 for the cost of hiring a security guard
(e) $100.00 for the broken window
(f) $1,655.00 for legal fees incurred in dealing with this matter (I note that this is an increase over the amount quoted to you over the phone but I have only now obtained a printout and taken into account GST)
3. Written acknowledgment from your client that all further payments of rent will be made on time, that there will be no further breaches of the lease by your client and that if there are any further breaches of the lease by your client, our client is entitled to terminate the lease without notice to your client.”
21 The Applicant’s evidence is that the Premises were in a reasonable state of repair at the commencement of the Lease. However, evidence given by the Applicant and by Ms Stefopoulos is that from about mid 1999 the roof of the Premises leaked and this caused significant disruption to the business. No expert evidence was available in regard to the issue. They stated that the water-leaking problem was very significant, wide spread and damaging to the business. They each said that they raised the matter with the Respondents but that the Respondents failed to rectify the problem. The Applicant stated that Mr Manikas told him that the Applicant was responsible for the repairs to the roof and that Mr Manikas refused to do them. Ms Stefopoulos stated she had raised the matter with each of the Respondents. She said that Ms Manikas had told her that she was only interested in the rent and that Mr Manikas had been generally non-responsive to her request that he attend to the problem. However, she conceded that on one occasion she had observed that Mr Manikas was on the roof of the Premises and that he had indicated that he was inspecting it. Nevertheless, it is common ground that no effective repairs were undertaken to the roof.
22 The premises no longer exist and there is no expert evidence as to the structure of the Premises. There is no evidence as to the structural stability of the under-floor area. A few photographs taken at about the time the Respondents re-entered in September 2000 are in evidence however these provide no assistance with respect to the under-floor area. The Council health reports that were admitted give limited comment about the state of the Premises.
23 The Applicant said that at the start of the Lease in November 1998 the Premises were in good condition and that they were fit enough to conduct a snack bar and take away food restaurant. He gave evidence that he first noticed changes in the Premises in 1999 and he said that the floor in the back of the shop was caving in. The Applicant and other handymen installed tiles by placing sheets over a pre-existing linoleum floor cover and then gluing tiles to those sheets. A diagram representing the internal configuration of the Premises was put in evidence. The diagram indicates that the floor area, which was said to have been caving in, was made of concrete and could not have been in the state that the Applicant suggested. The Applicant said that he observed broken tiles and in some areas the floor was not in a level condition. The Applicant’s evidence on these issues was inconsistent. There is no expert evidence in support of the argument that the collapsing floor caused the cracked and broken tiles.
24 While by no means conclusive of the point, photographs in evidence do not give any support for the Applicant’s contentions. Nor do the photographs support the assertion that the Applicant discovered rotting floorboards between the ice cream machine when he moved it to clean it.
25 Despite the Applicant’s evidence that he noticed changes in the Premises in 1999, at the same time he sought the Respondents’ permission to assign the Lease into the name of Ms Stefopoulos. He was unable to explain the obvious conflict between these issues.
26 The Applicant said that he had originally purchased the business in partnership some 10 years prior to entry into the Lease and that he had subsequently purchased his partner’s share. The price paid for the business was said to have been $150,000. He gave evidence as to the price he paid for the business however there was no documentation evidencing the purchase. No expert evidence was available in regard to the value of the Applicant’s business. The Applicant stated that there was a fire at the business in 1998. A report prepared for the insurer at the time of the fire provides that the gross profit for the business for the year to 30 June 1998 was $113,970 with a daily gross profit of $164. The Applicant settled an insurance claim for lost income on the day of the fire for the net amount of $14 after deduction of an amount of $150 being the policy excess. The Applicant conceded that the returns from the business were declining and this appears to be supported by the balance sheet for the business that were put in evidence.
27 The Applicant stated that the Premises were upgraded to some extent before and after the fire in 1998. The Applicant also says that he purchased a salad bar and food bar in 1996 for $15,000. He claimed improvements to the business during 1999 by the installation of new fryers and a new hood. These were replacements under a policy of insurance as a consequence of the fire. The Applicant also stated that he had had to pay $3,000 or $4,000 out of his own money to the supplier of the new equipment however no documentary evidence in support of that proposition was produced. He took those items with him at the end of his lease. The Applicant also claimed $22,000 expenditure in relation to a Country Fried Chicken franchise. That expenditure involved the purchase of a chicken cooking apparatus, together with the supply of signs, pamphlets and other promotional material and an ongoing supply of raw product. Notwithstanding these assertions, the balance sheet showed no increase in fixed assets under the heading "plant and equipment" between 1988 and 1999.
The Applicant’s Submissions
28 Mr Spry for the Applicant submitted that the Applicant has the benefit of a covenant of quiet enjoyment. Further, Mr Spry referred to the decision in Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 at 8 as authority for the principle that the Lease contained an implied covenant not to derogate from the grant. He also referred to Land Law (3rd Ed) at 311, where Professor Butt explained the law as follows:
29 It is not in dispute that by virtue of clause 2 of the Lease, the Premises:
“Where the landlord remains in possession or control of premises which are ancillary to the leased premises (such as roof, stairway or drains), and keeping the ancillary premises in repair is necessary for the proper enjoyment of the leased premises, than the landlord must take reasonable care to ensure that the ancillary premises are kept in repair or at least that they are not in a condition that causes damage to the tenant of the leased premises”.
30 Mr Spry argued that there will be a breach of the covenant of quiet enjoyment or alternatively the implied covenant not to derogate from the grant where the acts or omissions of the lessor are such as to render the demised premises unfit for the purpose for which they are intended to be used. In support of this submission he referred to the decision in Hawkesbury Nominees Pty Lid v Battik [2000] FCA 185 (1 March 2000) at [39], [41]. Accordingly, the Respondents’ failure to repair the roof and or the floor amounts to a breach of the covenant of quiet enjoyment and/or alternatively the implied covenant not to derogate from the grant: see Martins Camera Corner v Hotel Mayfair Ltd [1976] 2 NSWLR 15 at 24, 26, 27.
(a) excluded the roof (cl 2(4));
(b) extended to the exterior face of external walls, shop fronts and doors, and otherwise to the centre line of any point on internal walls, ceilings and floors (cl 2(1)).
31 Mr Spry argued that the Applicant is entitled to the full benefit of the demise of the possession, for the known or nominated purpose. The premises were intended for use as a snack bar and takeaway restaurant. The failure by the lessor to repair the roof and/or the floor rendered the Premises unsuitable for this purpose. This is not by any means to elevate matters to a covenant for the fitness of the Premises for the nominated purpose: see Byrnes v Jokona Pty Ltd [2002] FCA 41 (31 January 2002) at [62], and generally at [59] - [67].
32 Mr Spry submitted that the Applicant is entitled to recover the profit he could be expected to make if the contract had been performed: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, 102-3, 125 and 138. The amount sought by the Applicant is $132,503.
Respondent's Submissions
33 Mr Pappas made detailed submissions on behalf of the Respondents. He submitted that the first prayer for relief is entirely misconceived, as this Tribunal has no power to declare the Lease void. He argued that if any provision in the Lease required the lessee to "pay any amount in respect of the capital costs of the building" then the effect of section 23 of the Act is to render that provision void.
34 Mr Pappas’s primary submission is with respect the Applicant's claim for relief pursuant to section 34 of the Act. He submitted that before this Tribunal can award any compensation pursuant to section 34 of the Act it must be satisfied of a number of matters. The Tribunal must be satisfied that the Respondents
35 Mr Pappas submitted that there is a fundamental and complete answer to the Applicant’s claim that he suffered the loss of the value of his business in consequence of the Respondents’ failure to take reasonable steps to repair the floor and the roof of the Premises. He argued that the Applicant was excluded from the Premises by the lawful conduct of the Respondent following delivery of a number of notices of default from the Respondent to the Applicant.
a. failed to take reasonable steps to prevent or stop something that was attributable to causes within their control
b. that caused significant disruption of the trading of the Applicant
c. or which had a significant adverse effect on the trading of the Applicant
d. as soon as reasonably practicable after being requested in writing by the lessee to take those steps and
e. loss or damage (other than nominal damages) was suffered by the Applicant as a consequence.
36 Mr Pappas referred to the Applicant’s concession that as at the date of his exclusion from the Premises he was at least one month in arrears in the payment of rent, that being the rent for the month of August 2000 which was due and payable on the 1st of August or at the very latest by the 14th of August and which was payable in advance in accordance with clause 5(a) of the Lease.
37 Mr Pappas urged the Tribunal to conclude that at all times the Respondents made it plain that if the rent arrears and other monies due under the Lease were paid and if a bank guarantee in appropriate form was supplied then the Applicant would be allowed back into occupation of the Premises.
38 It follows, he argued, that the Applicant was excluded from the Premises lawfully and because of his breaches of fundamental terms of the Lease. If indeed he lost a valuable business then that loss flowed not from some failure to act on the part of the Respondents to address health inspection issues, but flowed directly and naturally from the operation of clause 31 of the Lease and the determination of the Lease because of the Applicant’s defaults.
39 Mr Pappas submitted that all of the evidence points to the fact that, even if the Respondents undertook the rectification work sought in a timely manner, the Applicant would still have been in breach of the Lease and the Respondents would still have been in the position where termination of the Lease was the only option.
40 Mr Pappas also asked the Tribunal to bear in mind that the failure to pay the rent in August 2000 was not the first occasion upon which the Applicant had defaulted pursuant to the terms of the Lease. The tendered documentation makes it plain that the Applicant had been in default over many months. He urged the Tribunal to conclude that the Applicant’s business was in a downward spiral from at least 30 June 1998 and possibly earlier and the business was barely surviving.
41 Mr Pappas submitted that the Applicant showed himself to be an artful liar, someone who was prepared to hide behind the catch cry "I don't remember” whenever he was in a difficult situation in the witness box and someone who invented tales whenever it suited him and apparently advanced his interests. Mr Pappas also submitted that the Tribunal should not accept any evidence from the Applicant unless that evidence is corroborated by documentary evidence. Further, insofar as any documentary evidence emanates from the Applicant himself, the Tribunal should reject that as corroboration unless that documentation itself was corroborated by some independent evidence or another document.
42 The Tribunal should conclude that the Applicant knew that if he did not attend seriously to the Council's requirements his business was in jeopardy and yet he did not attend seriously to those matters. The Applicant was unable to pay his rent when it was due. He was still reducing arrears of rent dating back to the previous year and was, for that reason, desperate.
43 Mr Pappas also submitted that the clear evidence is that the business was conducted by the Applicant and Ms Stefopoulos in partnership. Ms Stefopoulos is not an applicant in the proceedings. There is no suggestion either on the face of the application or in evidence given by the Applicant that he was authorised to sue on behalf of his partner or that in some way she had assigned to him whatever interest she might have had in the partnership business. That being so it is simply incompetent for the Applicant to seek to recover the whole of any supposed loss associated with the business in his own name.
44 Mr Pappas urged the Tribunal to dismiss the application without making any of the orders sought. He also sought leave to be heard on the issue of costs.
Findings
45 In these proceedings the Applicant alleges that the Respondents failed to take reasonable steps to repair the floor of the Premises and/or to repair the roof of the Premises in consequence of which it is said the Applicant suffered the loss of the value of his business.
46 I note Mr Spry’s submission in relation to the covenants of quiet enjoyment and non-derogation from the grant. In Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94 Donald JM considered various authorities in relation to these issues. The Judicial Member stated at paragraphs 107 and following:
47 This seems to me to be a reasonable summation of the current state of the law on these issues. I also note and agree with the views expressed by the Tribunal in Prasad & Anor -v- Fairfield City Council [2001] NSWADT 28 (21 February 2001) where Fox JM stated at paragraphs 43 and 44:
“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:-
108 The Court went on to state the principle as :-
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).
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:-
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.
110 And as stated by Street J in Gordon v. Lidcombe Developments Pty Ltd (1966) 2 NSWR 9 at 14-16:
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.
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”.
…
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:
114 In my view the interference here was clearly substantial within that enunciation of the principle.
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.
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.”
48 In the circumstances of this matter the relief sought is damages. Whether what is complained of amounts to a substantial interference will be a question of fact. On the evidence before me I am satisfied that there was some interference with the enjoyment of the premises but it could not be said that the Respondents’ interference was so great as to almost frustrate the purpose for which the Lease was granted. The interference was seldom to the extent that trading had to cease and only occasionally resulted in the inability to open the business at the usual time. In those circumstances it is my view that the interference falls somewhere short of amounting to substantial interference.
43 It is established in law that a landlord may not derogate from the grant to his tenant by taking action which renders unviable the authorised business conducted from the premises. A comprehensive recent review of the law in this area is found in the Queensland Court of Appeal decision- Aussie Traveller Pty Limited v Marklea Pty Limited (1997) QCA 2, 11th February 1997. McPherson JA, having made the comment "The law governing the relevant obligations of a landlord to a tenant is less certain than might perhaps be hoped" goes on to fully consider the Australian law following from O'Keefe v Williams (1910) 11 CLR 171, a case which might well in our jurisdiction indicate that there is very little difference between the obligations flowing from the covenant for quiet enjoyment, and the obligation not to derogate from the grant.
44 The law in this field in New South Wales is probably set by Gordon v Lidcombe Investment Pty Limited, a decision of Street J in 1966 (2 NSWR 9), a case which is used to "justify the proposition that the landlord's interference must be so great as to almost frustrate the purpose for which the Lease was granted". However, McPherson JA goes on to say "For my part I do not consider that, in order to establish a breach of the Lessor's implied obligation recognised in O'Keefe v Williams, the law insists on `practical frustration' of the purpose of the Lease", in circumstances where the relief sought is damages, and not an injunction to restrain the alleged disturbance. It was further observed that the "Browne v Flower requirement" (1911) 1 Chancery 219 that there must be physical interference with the enjoyment of the premises, is a test which has fallen into disregard, and quotes a number of cases where there was held to be a derogation from the grant in circumstances where there was no direct physical impact on the affected premises.
49 There can be little doubt that the Respondents had an obligation to maintain the roof in good order nor can there be any doubt that they failed to undertake the necessary work to ensure that the roof did not leak. This was a factor that was within the Respondents’ control. There can also be little doubt that the failure to maintain the roof in a reasonable condition caused disruption or had an adverse effect on the Applicant’s trading. There is some doubt about the extent of that disruption or effect but it is possible that it was significant. However, there is no evidence on which I can make a finding as to the extent of any loss or damage was suffered by the Applicant as a consequence of any breach of section 34(l)(d) of the Act.
50 As to the Applicant’s claim for damages for the loss of its business, I agree with Mr Pappas’s submission as to the weight to be given to the Applicant’s evidence. In this regard, I note that under cross-examination the Applicant at various times was evasive, combative and unresponsive. Some aspects of his evidence were self-serving while some responses were obstructive. In view of his behaviour, the Applicant's evidence is of limited assistance to the Tribunal. The Applicant's recollection of the actual events cannot be relied upon as faithful to the truth.
51 In my view, the Respondents lawfully excluded the Applicant from the Premises because of his breaches of fundamental terms of the Lease. It was within the Applicant’s power to pay the amount that the Respondents sought as advised in their solicitor’s letter dated 11 September 2000 and thereby recover access to the Premises. He could then have commenced action to have the Respondents carry out repairs to the Premises as required by the Lease. He failed to take this course of action. Any loss of his business flowed not from some failure to act on the part of the Respondents, but from the determination of the Lease because of the Applicant’s defaults and the Applicant’s failure to remedy those defaults.
52 Accordingly, I agree with Mr Pappas that the application should be dismissed without making any of the orders sought.
53 I note Mr Pappas’s request to be heard on the issue of costs. I agree to that request. In the absence of any request to have the matter re-listed I propose that this issue be determined on the basis of written submissions. Any submissions on behalf of the Respondents are to be filed and served within 14 days of the date of this decision. Any submissions on behalf of the Applicant are to be filed and served within a further 14 days of the date of the filing and service of the Respondents’ submissions. A decision on the issue of costs will then be made on the basis of those submissions.
Findings
54 The Application is dismissed.
55 Each party is invited to file written submissions parties in relation to the issues of costs. Any submissions on behalf of the Respondents are to be filed and served within 14 days of the date of this decision. Any submissions on behalf of the Applicant are to be filed and served within a further 14 days of the date of the filing and service of the Respondents’ submissions.
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