TianyD Beauty & Hairdressing Australia Pty Ltd v Fasako Pty Ltd (No 2)

[2023] NSWCATCD 4

Civil and Administrative Tribunal

New South Wales

• Amendment notes

Medium Neutral Citation:

TianyD Beauty & Hairdressing Australia Pty Ltd & anor v Fasako Pty Ltd (No 2) [2023] NSWCATCD 4

Hearing dates:

14 December 2022, then on the papers

Date of orders:

01 February 2023

Decision date:

01 February 2023

Jurisdiction:

Consumer and Commercial Division

Before:

D Bluth, Senior Member

Decision:

(1) The Respondent is to pay to the Applicant the sum of $120,395.69 within 7 days of publication of the orders.

(2) The Respondent is to pay to the Applicant at the same time as the payment pursuant to order 1, interest on the sum of $120,395.69 from 14 September 2018 at the rate of 6% above the cash rate.

(3) The Respondent is to pay the Applicant’s costs of and incidental to these proceedings before me and for the initial proceedings before me as agreed or assessed.

Catchwords:

Damages for breach of lease, costs

Legislation Cited:

Civil and Administrative Tribunal Rules 2014

Cases Cited:

Fasako Pty Ltd v TianyD Beauty & Hairdressing Australia Pty Ltd [2022] NSWSC 49

Fasako Pty Ltd v TianyD Beauty & Hairdressing Australia Pty Ltd [2022] NSWCA 112

Hadley v Baxendale (1854) 9 Exch 341

Koompahtoo Local Aboriginal Land Council & Anor v Sanpine Pty Ltd & Anor [2007] HCA 61 at [54]

Robinson v Harman (1848) 1 Exch 850 at 855

TianyD Beauty & Hairdressing Australia Pty Ltd v Fasako Pty Ltd [2020] NSWCATAP 184

Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No2) [2011] FCA 1123.

Category:

Costs

Parties:

TianyD Beauty & Hairdressing Australia Pty Ltd (Applicant)

Fasako Pty Ltd (Respondent)

Representation:

Counsel:
T Fishburn (Applicant)
P Barham (Respondent)

Solicitors:
TPS & Co Lawyers (Applicant)
Hunt & Hunt Lawyers (Respondent)

File Number(s):

COM 20/38663, COM 20/38664

Publication restriction:

NIL

REASONS FOR DECISION

1. On 17 October 2019 I determined that the lease between the parties dated 24 March 2017 of premises in Sussex Street Sydney (the Lease) had not been validly terminated by the Applicant.

2. The Applicant appealed that decision to the Appeal Panel.

3. On 7 September 2020 the Appeal Panel held that the Applicant had validly terminated the lease and set aside my orders of 17 October 2019 [2020] NSWCATAP 184 (AP Decision).

4. The Respondent appealed to the Supreme Court which upheld the decision of the Appeal Panel, Harrison As J [2022] NSWSC 49.

5. The Respondent then sought leave to appeal to the Court of Appeal, which was refused on 1 July 2022 [2022] NSWCA 112

6. The Appeal Panel in granting leave to appeal and setting aside the orders made on 17 October 2019 also ordered that the applications be remitted to the Consumer and Commercial Division of the Tribunal to determine:

1. the entitlement of the Applicant, if any, to damages or compensation by reason of the Respondent’s breach of the Lease;

2. the amounts, if any, due to the Respondent under the Lease upon termination; and

3. costs of the proceedings

such determination to be in accordance with the reasons of the Appeal Panel and according to law.

7. The Appeal Panel determined that the Tribunal may be constituted by the Member who made the decision the subject of this appeal.

8. In accordance with Order 5 made by the Appeal Panel the proceedings on remittal before me are to be determined in accordance with the evidence originally filed in the Tribunal and the transcript of the original hearing on 3 and 4 December 2018, subject to any directions of the Tribunal. No directions for the filing of further evidence has been made.

Background

9. The premises the subject of the Lease were to be used by the Applicant for the provision of luxury hair and beauty services.

10. The founder of the business conducted by the Applicant in mainland China is the second Applicant Mr Yao Zhu who is also the Guarantor under the Lease and the second Respondent in the claim for rent and damages by the Respondent. Mr Zhu affirmed his affidavit on 22 August 2020. The Applicant relies on this affidavit, the Exhibits to it and the transcript of the proceedings. Mr Zhu was cross examined.

11. The Lease commenced on 27 March 2017 with a rent free period of 3 months, presumably to allow the applicant to undertake its fit out, as the premises had never been occupied before, it being in a cold shell state.

12. The Applicant began its design work for the fit out engaging consultants, architects and project managers to manage the fit out project.

13. In or about 27 June 2017 it became apparent to the Applicant that the existing pumps of the fire sprinkler system to the whole building could not provide the requisite flow to service the premises, the subject of the Lease.

14. The Applicant made a number of requests to the Respondent to update the pumps to bring them into compliance with the Building Code of Australia. However, the Respondent refused to do so, saying it was the responsibility of the Applicant as part of its fit out, in particular because such fit out was an intensive use of the premises which rendered the pumps inadequate and required an upgrade.

15. On 13 September 2017 the Applicant served on the Respondent a notice of termination of lease on the basis that the water pumps in the building were incapable of providing the requisite flow rate for the fire sprinkler system in the premises.

16. Clause 9.3 of the Lease states:

9.3 Structural Repair

The Lessor must keep the building in sound structural condition except for structural damage caused by:

(a) The Lessee; or

(b) Fire, storm, tempest or similar act of nature, riot or similar event following which the Lessor must, subject to its rights under clause 11, promptly repair.

17. Clause 11.1 of the Lease states:

11.1 Rent abatement if Premises unusable

If the premises are damaged so that they cannot be used, the lessee is not liable to pay rent or other money to the lessor for the period that the premises cannot be used.

18. The Appeal Panel held at paragraph 150 of AP Decision:

It follows that while we accept clause 9.3 is an intermediate or innominate term, in our view the breach was sufficiently serious to justify the termination notice. The termination notice was validly issued. The lease was therefore terminated on 13 September 2017.

19. The issues ventilated before the Appeal Panel, the Supreme Court and the Court of Appeal focussed on whether the Applicant could raise a breach of clause 9.3 of the Lease as justifying the notice of termination, it not being expressly pleaded before the Tribunal. The Court of Appeal at [15] and [22] held:

15.The first issue involved a complaint that the (Applicant) had been allowed, before the Appeal Panel, to rely upon a breach of clause 9.3 of the Lease as justifying the termination notice. The (Respondent’s) case was that clause 9.3 had not been pleaded as a basis for terminating the lease in proceedings before the Tribunal.

22. The actual submissions referring to clause 9.3 may have been scant, but it was clearly understood to be in play and the factual material on which the (Applicant’s) case turned was very much to the forefront of the consideration in the Tribunal.

Is the Applicant entitled to damages by reason of the Respondent’s breach?

20. The Applicant seeks damages in respect of its wasted expenditure incurred in reliance on the Lease (e.g McRae v Commonwealth Disposals Commission (1951) 84). The submission by counsel for the Applicant, Ms Fishburn is that the expenses which the Applicant claims by way of reliance damages were incurred in reliance on the Respondent’s promises to provide the premises in accordance with the Lease including that the building and the premises were in “sound structural condition” pursuant to the obligations of the Respondent under clause 9.3 of the Lease.

21. Further, such expenses were incurred in connection with the Lease in either or both the following circumstances;

1. they have arisen naturally from entry into the Lease; or

2. they ought to have been in the contemplation of the parties when the Lease was entered into.

22. The submission continues, that the moneys paid by the Applicant to the Respondent under the Lease (rent and outgoings) ought to be returned to the Applicant on the basis that such amounts were not owed by the Applicant in circumstances where the Respondent’s breach of clause 9.3 of the Lease rendered the Lease null and void from its commencement.

23. Mr Barham, counsel for the Respondent submits that the notice of termination by letter dated 13 September 2017 was not a rescission but a termination. Thus, the parties remained bound by the Lease and bound to perform the obligations thereunder including the paying of rent and outgoings. The Applicant argued its case and as determined on appeal to the Appeal Panel, on the basis of repudiation by the Respondent of its obligations under the Lease, relying on the High Court in Koompahtoo Local Aboriginal Land Council & Anor v Sanpine Pty Ltd & Anor [2007] HCA 61 at [54]

We add that recognition that, at the time a contract is entered into, it may not be possible to say that any breach of a particular term will entitle the other party to terminate, but that some breaches of the term may be serious enough to have that consequence… Since the corollary of a conclusion that there is no right of termination is likely to be that the party not in default is left to rely upon a right to damages, the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract.

24. The Appeal Panel held at [144] that not all breaches of clause 9.3 of the Lease would constitute conduct entitling a tenant to terminate the contract, but in this case they do. The Lease was terminated by the Applicant for breach of lease, not rescinded.

25. The respondent concedes that the test in the first limb of the rule in Hadley v Baxendale (1854) 9 Exch 341 is met, in that although the Respondent did not know at the time the Lease was entered into any particular details of the particular fit out that the Applicant would undertake it was aware that the Applicant would undertake a fit out and expend money in doing so.

26. Mr Barham cites Parke B in Robinson v Harman (1848) 1 Exch 850 at 855:

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damage, as if the contract had been performed.

Quantum of damages for the Applicant.

27. Ms Fishburn has helpfully provided a Schedule of Damages updated from discussions between the parties taking into account that certain damages claimed are now conceded by the Respondent. The amount originally claimed was $273,246.87 but in a second submission certain amounts were not pressed and the amount is now $154,771.89. The Schedule sets out the items claimed, the date incurred, the amount, reference to the claim in the affidavit and exhibit by Mr Zhu and whether the claim is conceded or not.

28. The categories and the amounts of the outstanding claims are:

1. deposit of $32,969.36

2. lease costs (4 items) for $8,183.91. (These are now conceded by the Respondent.)

3. consultant costs (9 items) for $39,923.17

4. salary (7 items) for $28,000

5. equipment cost (3 items) for $34, 376.00

6. legal costs (4 items) for $11,319.25.

29. Ms Fishburn submitted that the evidence of the Applicant’s expenses is unchallenged by the Respondent despite a lengthy cross examination of Mr Zhu during the hearing in 2018. His evidence went to payment of some of these expenses in cash without obtaining receipts and furthermore, in particular that the equipment was custom made for the premises and were not able to be reused by the Applicant elsewhere. He was not challenged on any of these matters.

30. Ms Fishburn submitted that the moneys expended by the Applicant are reasonable and foreseeable (Hadley v Baxendale) and unsurprising in the circumstances where the Applicant was committed to undertaking a new business venture in Australia in the premises and

1. the expenditure as it turned out was entirely wasted given that the Applicant derived no benefit from the Lease as a result of the breach by the Respondent;

2. the evidence of the expenditure is unchallenged; and

3. the amount of the expenditure is reasonable and proportionate.

31. In response, Mr Barham directed the attention of the Tribunal to the evidence of Mr Zhu that there was over 60 stores in Southern China under the brand of the Applicant, there was in each store a typical fit out, that it was fundamental to have the ability to refit and partition the stores, the same partitioning concept applied, that it was the intention for the style and type of salons in Guangzhou to be replicated in Sydney with the same look and feel.

32. Further, where the Applicant could not provide specific evidence of payment and receipt from the payee, these being for salary and some of the consultants, then the Tribunal should, where there is no actual proof of any fact, feel an actual persuasion of the occurrence or existence of that fact before it can be found. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Tribunal (Emmet J in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No2) [2011] FCA 1123. It is not just for the Applicant to assert the facts without evidence, for the Tribunal must be satisfied that such events, such as payments did occur.

33. The Applicant claims damages for salary payments to individuals Feng Chen and Jack Huang engaged by the Applicant to manage the fit out process. These payments, as stated by Mr Zhu were made in cash, in lump sums between $2,000 and $5,000 amounting to $28,000. No evidence of payment or receipt has been provided. Mr Barham submits that, without evidence, the Tribunal should not feel actual persuasion that the moneys were paid and related to the fit out. Ms Fishburn submits that the expenditure is reasonable and that it would be usual for a party in the position of the Applicant to engage help to assist in the enterprise of managing the fit out project.

34. Given the enterprise of a complete fit out of the premises and considering all the circumstances surrounding the fit out, notwithstanding the lack of evidence as to payment, the Tribunal is persuaded that the salary expenses were incurred by the Applicant as being in the usual course of business and not out of the ordinary in quantum. Consequently, these became wasted expenditure for which the Respondent should reimburse to the Applicant.

35. In regard to the claim for consultants costs in the sum of $39923.17. The sum of $17,045.87 has been conceded by the Respondent at the hearing or in submissions, leaving a disputed amount of $22,873.30. Again there is a paucity of evidence of actual payment and receipt from the payees, to the extent that Mr Barham submits that the Tribunal should not be persuaded as these forming part of the damages claim. There are invoices and remittances, but in some cases no actual receipt from the payee. The evidence is certainly more fulsome than in relation to the salary costs claimed. Again, I am satisfied that these payments were made in pursuance of the fit out project, that they were made in the course of the business as expected when engaging consultants to handle a fit out and the amounts are not disproportionate or out of the ordinary. I allow the claim.

36. Legal costs amounting to $11,319.20 are claimed as wasted expenditure. The sum of $2,695 has been conceded. costs relate to acting for the Applicant on the Lease and advising up to the date of termination of the Lease. Mr Barham objected to these forming part of the damages claim for wasted expenditure because legal fees in pursuing a case are treated as distinct from losses or damages incurred. Further, Mr Barham submits that the 2 invoices do not show the work done and whether it related to the lease. However, these legal fees were incurred not in pursuing the case, as they were incurred well before termination of the Lease by the Applicant. Ms Fishburn submits that they do not form part of any award of legal costs being sought in the costs application. I am satisfied that there is sufficient nexus between the invoices and the legal work on advising the Applicant with respect to the Lease and fit out. The Tribunal allows the claim, such legal costs being no different to consultants costs as part of the endeavour to undertake the fit out and as a consequence of the breach of Lease by the Respondent are also wasted expenditure.

37. The applicant claims the cost of equipment for the fit out, as wasted expenditure in the sum of $34,376.00. The invoices are in Mandarin, and expressed in Yuan currency. The items as ordered are also in Mandarin. No translation, that I could see has been provided. Nor has there been any evidence as to the currency rate applied for the conversion to form the amount claimed. Noting the submission by Mr Barham from the evidence of Mr Zhu regarding the TianyD brand of store, the Tribunal finds that the Applicant was to have a uniform approach to the fit out of its shops to be consistent throughout with the other shops through China with the same approach to be adopted in Australia. Consequently, the expectation would be that a significant number of the items of equipment could be used in any shop and were reusable. It is noted that the Applicant opened a shop in Chatswood, subsequent to the termination of Lease.

38. Mr Barham’s submission on this category of damages is preferred for the reasons set out above. The Tribunal is not persuaded that the items are wasted expenditure and have not had any further use to the Applicant. There is no itemised listing of the equipment in English, and thus no ability for the Tribunal to even consider which equipment may have been able to be used elsewhere. Consequently, the Tribunal rejects this aspect of the claim.

39. The next claim for damages of wasted expenditure is the deposit paid by the Applicant in the sum of $32,919.36. Ms Fishburn submits that pursuant to the breach of clause 9.3 of the Lease by the Respondent, clause 11.1 of the Lease allows for full rent abatement where the premises are damaged and cannot be used. Consequently, the deposit paid should sound in damages as wasted expenditure the same as for consultants costs and legal costs where the Applicant was not able to fit out the premises and occupy the space to trade. Mr Barham maintained that because the Lease was terminated and not rescinded, then the liability for payment of rent and outgoings was still alive up to the date of the termination. However, even if this were so, any rent or outgoings paid by the Applicant would sound in damages for wasted expenditure. This claim is allowed.

40. The Respondent has a claim for unpaid rent and outgoings under the Lease, on the basis that the Lease was terminated and not rescinded. Tribunal rejects the claim by the Respondent for the Applicant to pay rent and outgoings up to the date of termination of the Lease. Clause 11.1 of the Lease allows to the Applicant a full abatement of moneys paid under the Lease whilst the premises are damaged and unusable. The Applicant could not use the premises. Harrison As J in [2022] NSWSC 49 at par 234 held

This ground of appeal raises disputed factual issues such as Mr Moon’s evidence and the fire reports which I have set out earlier and analysed … I am satisfied that there was evidence to support the factual findings Fasako impugns under this ground of appeal namely that: the premises could not lawfully be occupied at the commencement of the Lease by reason of it having a defective fire safety system ..:the building was structurally unsound by reason of it having a defective fire safety system…; baffles were required to be installed prior to or by commencement of the Lease…;and there was an obligation on Fasako to carry out work in order to render the building structurally sound which existed at the commencement of the Lease.

The Applicant would have been entitled to abatement of rent. The Tribunal rejects the claim by the Respondent for the Applicant to pay rent and outgoings up to the date of termination of the Lease.

Costs

41. At first instance on 3 June 2020 I made a costs order in favour of the Respondent. The Applicant seeks to overturn that order and have costs awarded in its favour. The Respondent submits that the costs order should stay in place.

42. Mr Barham submits that ordinarily in a case such as this costs follow the event, subject to the discretion of the Tribunal, the discretion sometimes being exercised adversely to a party depending on particular issues or events within the case for the running of the case. In this matter the Applicant ultimately succeeded on a matter not clearly run in the hearing before the Tribunal Member. Had that aspect of the case been clearly flagged and run, perhaps there would not have been the satellite litigation which occurred after the primary judgment in this matter. Accordingly, it is the Respondent that should have its costs at first instance.

43. Mr Barham further submits that whilst the Appeal Panel found that “on balance" clause 9.3 of the Lease was relied upon by the Applicant and had not been abandoned, it pointed out that it had certainly not been the subject of express submissions. All of the other manifold grounds that the Applicant did press failed. Significant hearing time and submissions were taken up with aspects of the Applicant’s scattergun approach which failed. A proper exercise of discretion should not, effectively, punish the Respondent with the costs of the many failed arguments advanced by the Applicant.

44. Ms Fishburn submits that costs should follow the event, in the normal course, as the Applicant was successful before the Appeal Panel and not overturned in the Supreme Court and the Court of Appeal. The costs award made by me is no longer apposite. An examination of the transcript of the hearing before me in December 2018, according to Ms Fishburn reveals that the overwhelming amount of trial time related to the case for the Respondent. The various causes of action put by the Applicant (the description of a scattergun approach is rejected by Ms Fishburn) in its cross claim relied in substance on the very same factual substratum (which was the same factual substratum in the claim by the Respondent). Further, it is noted that the Respondent advanced an argument of waiver against the Applicant, which was rejected by me in my Original Decision.

45. The question of costs is governed by Rule 38(2)(b) of the Civil and Administrative Tribunal Rules 2014 to award costs in the absence of special circumstances where the amount in dispute exceeds $30,000, which it does in this case.

46. Mr Barham invited the Tribunal to exercise its discretion to look at the various categories of claims by the Applicant run before the Tribunal and to isolate them away from that aspect of the claim that was ultimately successful, and not to have costs to defending those issues awarded against the Respondent. However, I am inclined to agree with Ms Fishburn that in any event the majority of the time and consideration and it is evident from a review of my Original Decision was taken up with a thorough investigation of the adequacy of the pumps servicing the fire sprinkler system in the building. This issue was germane to the whole proceedings before me and before the Appeal Panel. The Supreme Court and the Court of Appeal, in dismissing the application of the Respondent to appeal, were also of the view that the issue regarding the adequacy of the pumps was the main issue between the parties.

47. As already noted, the Court of Appeal at para 22 held:

22. The actual submissions referring to clause 9.3 may have been scant, but it was clearly understood to be in play and the factual material on which the (Applicant’s) case turned was very much to the forefront of the consideration in the Tribunal.

48. Ultimately the issues were in respect of the same factual substratum. I am not prepared to undertake the exercise requested of me by the Respondent to separate out those causes of action to which the Applicant failed and should not receive a costs award. I do not believe the issues to be so discrete to warrant such an exercise.

49. The Appeal Panel overturned my initial decision. My costs award also is no longer apposite. The Applicant is successful in terminating the Lease and being awarded damages. The Applicant is entitled to its costs of the proceedings before me and is also entitled to its costs on the question of damages and costs.

50. The Applicant sought orders for an amount of damages plus interest at 6% above the cash rate from 14 September 2018. The Respondent made submissions on the quantum claimed but no submissions on the interest component and the starting date for interest. I will allow the claim for interest to commence from 14 September 2018.

ORDERS

51. I make the following orders:

1. The Respondent is to pay to the Applicant the sum of $120,395.69 within 7 days of publication of the orders.

2. The Respondent is to pay to the Applicant at the same time as the payment pursuant to order 1, interest on the sum of $120,395.69 from 14 September 2018 at the rate of 6% above the cash rate.

3. The Respondent is to pay the Applicant’s costs of and incidental to these proceedings before me and for the initial proceedings before me as agreed or assessed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Amendments

23 August 2023 - Formatting amendments.

Decision last updated: 23 August 2023