Usagi Ya Pty Ltd v Murar

[2005] NSWADT 36

Set aside by Appeal: 1. The appeal is allowed.
2. Order No. 2 in the decision of the Tribunal dated 23 February 2005 is set aside.
3. In lieu of this Order, the Appellant is to pay the Respondent's costs as agreed or assessed, that are referrable to to the Appellant's pursuit of the claim for loss and damage set out in her cross claim.

CITATION:	Usagi Ya Pty Ltd v Murar [2005] NSWADT 36
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Usagi Ya Pty Ltd RESPONDENT Eva Murar
FILE NUMBER:	045025
HEARING DATES:	8/02/2005- 9/02/2005
SUBMISSIONS CLOSED:	02/09/2005
DATE OF DECISION:	02/23/2005
BEFORE:	Donald BG - Judicial Member
APPLICATION:	Claim for payment of money
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Le v Williams [2004] NSWSC 645 Mason v Sainsbury (1782) 99 ER 538 Randi Wiks Pty Limited v Pokana Pty Limited [2003] NSWADTAP 27
REPRESENTATION:	APPLICANT J Hyde, barrister RESPONDENT A S Monzo, barrister
ORDERS:	1. Respondent to pay the Applicant $18,343.63 within 28 days; 2. Respondent to pay the Applicants costs as agreed or assessed.

Background

1 Usagi Ya Pty Ltd (the Lessee) is seeking to recover its security deposit and overpayment of outgoings following the expiration of a retail shop lease from Mrs Murar (the Lessor) who, in reply, claims that she is entitled to retain the security deposit as well as claiming further damages because of breaches of the Lease.

2 The Lessee is a company owned and managed by Mr Shin and Mrs Kim. The shop is the ground floor of 314 Oxford St., Bondi Junction. The Lessor owns the building and her accountant Mr Schaw manages her affairs under her power of attorney. At all times he has retained managing real estate agents to supervise the shop and the Lease. The permitted use of the shop was an ‘Asian Grocery Store’, which the Lessee operated there.

3 The Lease (Ex E, Annexure A) had begun on 1 July 1999 for three years. The Lessee bought the business and took over the Lease from Mr Choi on 28 February 2001 under an Assignment Deed agreed with the Lessor. The Lessee vacated the shop on 20 August 2003 after having held over following the end of the three-year term on 30 June 2002.

4 In June 2001 the interior of the shop had been destroyed by a fire. It was fully restored and painted, with new vinyl floor covering and the Lessee recommenced occupation in November 2001.

5 The Lessor sued the Lessee in the District Court because of the fire (Ex A) and on 15 August 2003 shortly before the Lessee finally vacated the premises, a Judgment (Ex B) was entered by consent against the Lessee for the sum of $96,000 settling that claim.

6 The Lessee asked for its security deposit back together with an amount of alleged excess outgoings paid by it, but the Lessor now claims the right to retain the security deposit and to recover further damages for breach of the Lease because of:

Unrecovered losses from the fire

Unpaid outgoings due by the Lessee under the Lease

Cost of removing outdoor roofing and relocating a sink both installed in breach of the Lease

Cost of erecting a roof beam required as a result of breach of the Lease

Cost of replacing damaged vinyl flooring.

7 In my judgment only one of those items is lawfully claimable in part by the Lessor so that most of the security deposit should be recovered by the Lessee. I also consider that the Lessee has overpaid some outgoings and is entitled to recover that.

Fire Damage

8 The Lessor says that the fire was caused by the Lessee overloading the electrical circuits in breach of the Lease and that the amount recovered in the District Court action was less than the actual total loss. She says that the District Court action against the Lessee was pursued in her name by the insurer of the building under the insurance policy who settled the claim for less than her total loss, the difference being $22,607.

9 Her lawyers argue in this Tribunal that because the District Court proceedings were under the control of the insurers, a settlement of that litigation between the Lessee and the Lessor does not necessarily conclude the matter and that unrecovered loss can be sought again in further proceedings between the same parties.

10 I do not accept that argument. The District Court claim in respect of the fire is stated in exactly the same terms as in the Defence and Cross-Claim in this matter. In both proceedings the claim is for breach of cl. 5.5.2 of the Lease in that the Lessee installed electrical equipment that overloaded the electrical services to the premises. In both cases the allegation is that the overloading caused the fire and that the fire resulted in damage, both damage to the premises and loss of rental. In the District Court the claim was specified to be $107,135.10 and the matter was settled with the agreed payment of $96,000. In this Tribunal the damages are for reinstatement costs and rental loss but are limited to loss not recovered under the insurance claim.

11 The Lessor's lawyers cited Le v Williams [2004] NSWSC 645 as authority for the proposition that just because a person has had their loss compensated by an insurer, this does not prevent action being taken against the person who caused the loss. Particular reference was made to the very old 18th century case, Mason v Sainsbury (1782) 99 ER 538 which was referred to by Campbell J as authority for the fundamental proposition that:-

"…the fact that an insured has recovered his loss from an insurer does not prevent the insured from suing, for the full extent of the loss, a wrongdoer who had caused it.”

12 However that proposition does not apply here. In those cases the insurer, having provided or agreed a certain level of compensation to the insured, then exercised its standard right of subrogation, that is, the right under the insurance contract to take action in the name of the insured to recover the loss from the person who had caused it. There can be only one claim against the person causing the loss whether that claim is taken by the insured herself or by the insurer in the name of the insured. The insurer has no direct right against the wrong doer; there is no contract or duty of care between them and no statutory right. The insurer simply has a contractual right under the insurance policy to require the insured to sue and to conduct and settle that suit as the insurer decides. But when that claim is concluded as against the person who caused the loss by judicial proceedings or consent judgment, a further claim cannot be made for the same loss from the same person.

13 Whether this is called the principle of res judicata as contended by the Lessee (citing the textbook Spencer Bower, Turner and Handley, Res Judicata 3rd Ed. by Handley, pp.20-23) or whether it is a matter of issue estoppel, the simple position is that proceedings over the issue have been finalised between these parties; it is straightforward law that neither party can re-open that claim in the absence of fraud.

14 A good way of testing this is to ask what the District Court would have said if the day after this consent judgment was filed, the Lessor had filed a new claim on identical grounds but limited to the amount of alleged loss said to be unrecovered from the insurance company. I have no doubt the claim would have been struck out.

15 Accordingly, I find that the claim in respect of the fire as specified in this Tribunal is a concluded claim and that there is no entitlement remaining for the Lessor to claim further from the Lessee. That claim is dismissed.

16 If the Lessor contends the insurer has settled the Lessor’s claim on the Lessee for less than her actual loss, then that is a matter to be disputed and resolved between the Lessor and the insurance company under their contract of insurance. It is not for the Lessee, having in good faith settled its claim, to then be exposed to re-adjudication of the issue.

17 If an insurer decides not to require the insured to sue but the insured takes its own action against the wrong doer, the rule from these cases permits that action. Of course if the insurer has compensated the insured then any amount recovered from the wrong doer must be accounted for back to the insurer up to the compensation amount and in that case any extra recovered can be kept by the insured. But there is only one recovery from the wrong doer.

Outgoings

18 From the commencement of Lessee's occupation of the shop, the outgoings were first billed and paid at the rate of $450 p.m. and then reduced to $400 p.m.

19 The Lessee now claims that this amount exceeded the outgoings properly claimable under the Lease by $7,590. On the other hand the Lessor now says that she has discovered she billed a lower rate for outgoings than she was entitled to under the Lease and that she is due an additional amount of $5,390.

20 Mrs Kim for the Lessee gave evidence that when they bought the business, Mr Choi had said the outgoings were $200 per month and had shown her a list and letters supporting this (Ec CA, Ex H, Annexure A). She had queried the managing agent about this but had not pursued it during the lease, opting instead to pay the billed amount. On the other hand Mr Schaw for the lessor had conducted an audit of the outgoings, which he said demonstrated a shortfall. Mrs Kim took that audit and from it calculated what she considered properly claimable from the Lessee in calculating their claim.

21 The categories of expenses which are entitled to be recovered under the outgoings provisions of the Lease as read with the Retail Leases Act, the s.3 definition and s.22, are "expenses directly attributable to the operation, maintenance or repair of the building in which the retail shop is located" together with rates, taxes, levies, premiums or charge on the Lessor as owner.

22 The Lessor’s audited list for the three years in dispute claimed the following items:

Council Rates

Water charges

Land Tax

Insurance

Agent's Commission

Management & supervision

Repairs and maintenance

Depreciation — capital allowance (2.5%)

Accounting & audit

Sundries

23 Simply put, the dispute is that the Lessee says only the first four items qualify under the Lease and the Act and its calculation of the overpayment takes only those into account. The Lessor says all categories are claimable and that its claim for underpayment takes all of them into account.

24 In my opinion the ordinary meaning of the expression "operating expenses" as defined in the Act and in the Lease and as applied in normal commercial usage at least before this Tribunal is that Agent's Commission, Depreciation and Accounting & Audit are not properly included. I put that position to the parties during the hearing and they agreed that if that was to be my ruling, the overpayment by the Lessee for the relevant three-year period was $1,923.44 (Ex L). In my opinion that amount should properly be brought to account in favour of the Lessee.

Roof and Sink

25 The Lessor next claims to be entitled to deduct against the security deposit an amount of $3,189.56 for the removal of unauthorised structure and plumbing and removal of rubbish. The Lessor says that when the builder was renovating after the fire he discovered unauthorised corrugated plastic roofing in a side passage above an unauthorised sink, which had been relocated from elsewhere in the premises.

26 Both Mr Shin and Mrs Kim of the Lessee and also Mr Choi the previous owner of the business gave sworn evidence that Mr Choi who had made these structural and plumbing adjustments before the assignment and that whether or not they had been the subject of Council consent, no managing agent had ever objected to them. Mr Choi also gave sworn evidence that when he made these adjustments in 1996 the then managing agent had agreed or at least did not raise any objections when the matters were discussed.

27 The evidence for the Lessor against this was the opinion of the builder who only saw the structures and plumbing at the time of the fire in mid 2001 and had not any knowledge of the building prior to the Lessee taking occupation after the assignment. He said that in his opinion based on his experience they had been very recently installed having regard to the state of the plumbing, the condition of the timberwork and the condition of certain mortar.

28 In my opinion the weight of the evidence is that these minor works had been done before the Lessee acquired the business; the three witnesses for the Lessee gave evidence on oath and their credit was not in any significant respect cast into doubt. No claim for this work was ever made on the Lessee at the time when the remediation was done. Even though the builder had stated to the Lessee that the works did not comply and should be removed, the letter the builder sent to the Lessor setting out the cost of removal was never delivered to the Lessee with a demand for payment. The matter was only raised after the termination of the lease some two years later.

29 The Deed of Assignment of the Lease (Ex E p 49) to which the Lessor consented, provides that the Lessee will be bound by the covenants of the Lease as and from the date of the Assignment. The Lessor argues that notwithstanding the provisions of the Deed, any continuing non-complying structure from the previous Lessee/Assignor of the business remains the responsibility of the Assignee/Lessee. In my opinion the correct application of the Deed is that the Lessee is not responsible for things done before it took over the Lease even if they constituted continuing breaches of the Lease as non-complying structures.

30 For those reasons I am of the opinion that the cost of removal of the roof and relocation of the sink is not properly to the account of the Lessee. Nor is the cost of removing certain rubbish associated with this claim.

31 There was also an issue as to whether removal of a small part of the internal wall to provide ventilation for the refrigeration unit, should be the subject of compensation to the Lessor. On inspection of the photographic evidence I am satisfied that this work was substantially made good by the vacating Lessee so no claim can be made for this.

Cost of beam

32 After the Lessee took occupation of the premises and before the fire, its principal, Mr Shin, decided to remove an internal curtain wall to increase the effective floor space of the shop. Whilst Mr Shin, who had some experience in building and engineering, did not consider this left the building unsafe, the builder who was called in to do the renovation after the fire, formed a different opinion and installed a steel beam. Mr Shin, says he had recommended the installation of the steel beam because the previous wooden support had been partially burnt.

33 Regardless of whose version of the decision to install the beam is accepted, it is common ground that there was structural sense in installing the steel beam. The cost of doing so is claimed by the Lessor at $1,718.20. The question is whether the Lessee is liable for this cost.

34 There is no dispute that the removal of the wall was done in breach of the Lease as no formal consent was sought. However at no time has the Lessor or its Managing Agent ever suggested to the Lessee that the wall should be reinstated. This will clearly have been because of the benefit in terms of the internal space of the shop added by the removal of the wall. While I accept that the steel beam should have been installed when the wall was first removed for ordinary safety, whether or not absolutely essential, the work was done in the context of the renovation of the entire interior of the premises after the fire and the Lessor continues to enjoy the added value from the work in terms of the extra internal space.

35 In my view as between the parties it would be fair if they shared the cost of this repair. There was also the cost of removing the bricks from the site, itemised in the claim re the roofing and plumbing. This had not been done by Mr Shin as he thought they may have been used by the Lessor for paving. While no claim was made at the time, the Lessee does now concede that the bricks were removed by it and so the cost of removal from site including skip hire and labour should, in my opinion, be awarded in favour of the Lessor; I assess that at $500.

Vinyl flooring

36 The Lessor next claims that after the Lessee vacated the premises the vinyl flooring which had been newly laid after the fire was found to be damaged as a result of the positioning of certain heavy freezer equipment. Mr Schaw in his affidavit evidence said he had seen "substantial damage to the vinyl on the floor" which in oral evidence he expanded by describing as holes in the vinyl. A letter from the Managing Agent to the Lessee after vacation of the premises (Ex D) stated "The floor lino has a few tears in it. It will have to be replaced".

37 Against this evidence the Lessee provided photographs Mrs Kim swore she took at the time of vacating the shop, Ex C, showing an area of vinyl probably two metres square beside a wall and beneath the lowered ceiling from the staircase with some degree of marking. Mr Shin and Mrs Kim gave evidence that there were no holes as such and that they did not think it needed to be replaced. They explained that this was the space where the freezer had stood.

38 The Lessor claims an amount of $4,950 being the quote it has received from a company to replace the vinyl for thew whole shop, some 65 sq m.

39 The Lessor declined to bring evidence from the Managing Agent who had sworn an affidavit filed in the proceedings and who would have been able to have been cross-examined by the Lessee by reference to the photographs, Ex C, in relation to her letter describing the damage as ‘tears’, Ex D. In submissions, the Lessor’s lawyers criticised the Lessee’s case on the basis that Mr Schaw had not been shown the photographs Ex C and asked whether they affected his evidence. However I accept the response from the lawyers for the Lessee that they had understood the Managing agent was to be called and they would have shown the photographs to her as the person formally responsible for the inspection. I am entitled to take into account the failure of the Lessor to call an available witness with knowledge of the circumstances in assessing the competing evidence.

40 In my opinion there is a real issue as to whether the degree of damage on either evidence of its extent, is nevertheless the ordinary wear and tear within premises leased as an Asian Grocery Shop resulting from essential heavy equipment in the form of a freezer and refrigeration equipment placed on the floor with the knowledge of the Lessor and its Managing Agent over at least a two-year period. I think the wear from this would constitute ordinary wear and tear.

41 Further I think the photographic evidence should be given most weight and it does not reveal a degree of damage justifying complete replacement. Significantly, the vinyl has still not been replaced well over a year since the shop was vacated and I am entitled to infer that the shop has been offered for re-letting, even if it is not yet re-let, with the level of damage apparent.

42 For those reasons I am of the opinion that the Lessor is not entitled to hold the Lessee accountable for the cost of replacing the vinyl.

Conclusion

43 The Lessee has conceded that an amount of rent and other sums were unpaid so agrees with the deduction of $2,688.46 from the security deposit. Accordingly the accounting as between the parties, applying my decision should be:

ITEM $ $

Security Deposit 20,467.75

Less:

unpaid rent and other 2,688.46

Cost of beam 50% 859.10

Cost of brick removal 500.00

Deduction sub-total: 4,047.56

Plus:

Overpaid outgoings 1,923.44

Net adjustment-deduct 2,124.12

Refund due to Lessee 18,343.63

44 The parties did not make submissions on costs however I think it is appropriate for me to address this issue without putting the parties to the further cost of making written submissions; the principles are well established and, subject to them, it is a matter within the discretion of the Tribunal having regard to all the circumstances of the case.

45 In this jurisdiction costs are only recoverable in special circumstances, s.88 Administrative Decisions Tribunal Act 1997, and despite the commercial nature of the retail lease jurisdiction this has not been interpreted by the Tribunal and its Appeal Panel to permit costs simply following the event; Randi Wiks Pty Limited v Pokana Pty Limited [2003] NSWADTAP 27 and cases cited therein. The circumstances must be out of the ordinary but do not have to be exceptional.

46 In this case the Lessee has been successful on all issues save for some relatively small adjustments, particularly in relation to the installation of the roof beam.

47 By far the major claim was for the unrecovered fire loss which had already been litigated between the parties. In order to save costs I made an initial ruling dismissing that claim which avoided the need to take evidence. However my decision to take that course indicated that I judged that claim as clearly without merit. Had that claim not been pursued, there must have been a far greater chance that the dispute for effectively half the sum claimed by the Lessor could have been settled by negotiation.

48 The other claims (excluding the vinyl flooring claim which could only have been raised after termination), had not been raised with the Lessee during the term of the Lease even though they dated from the time of the restoration of the building some two years before. The Lessor declined to call the witness most likely to have its best evidence on the flooring claim.

49 All of those factors in my view constitute special circumstances taking this case out of the ordinary. In my opinion the Lessee in these circumstances should be entitled to recover its costs as agreed or assessed.

Orders

1. Respondent to pay the Applicant $18,343.63 within 21 days

2. Respondent to pay the Applicant’s costs as agreed or assessed