Worsfold v de Goede

[2002] NSWADT 273

CITATION:	Worsfold -v- de Goede [2002] NSWADT 273
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Ellice Worsfold RESPONDENT Peter de Goede
FILE NUMBER:	025099
HEARING DATES:	28/11/2002
SUBMISSIONS CLOSED:	11/28/2002
DATE OF DECISION:	12/23/2002
BEFORE:	O'Connor K - DCJ (President); Fagg N - Member
APPLICATION:	Claim for payment of money - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:
REPRESENTATION:	APPLICANT In person RESPONDENT In person
ORDERS:	1. That pursuant to s 72AA(1)(a) of the Retail Leases Act the respondent pay the applicant $6000 by way of damages.

1 This dispute takes the form of proceedings under the Retail Leases Act 1994 (the Act) and relates to the lease by the applicant of a shop owned by the respondent. The applicant has lodged a retail tenancy claim (see ss 70, 71 and 72); and an unconscionable conduct claim (see ss 62A, 62B, 70, 71A and 72AA). At hearing she mainly pressed the unconscionable conduct claim.

2 She claims that the respondent breached various obligations owed to her under the lease (the retail tenancy claim) and that he behaved towards her unconscionably (the unconscionable conduct claim). She is no longer in occupation; and seeks relief by way of an order for damages.

3 The premises comprised a shop (‘Cooks Gap General Store’) and an associated residence, both situated at Lot 90, Spring Creek Road, Cooks Gap 2850. The applicant entered into occupation on 24 November 2001. The rent was $250 per week, later varied for a period to $200 per week. She ceased trading on or about 29 March 2002. The business operated 7 days a week, for about 12 hours a day, opening around 8 am.

4 The shop is an isolated situation at Cook's Gap in the Mudgee district. It was a general store selling mixed grocery items and including a fast food section, selling hamburgers, chips and the like.

5 The respondent had built the shop and the associated residence around 1992, and he and his wife had operated the business from 1992 to about 1998. He is an older man who had worked as a building contractor in the district for the last 40 years. He explained at hearing that he saw the business as being a source of retirement income for him and his wife.

6 In 1998 the shop and residence were let to a Mr Woodgate for a short time, then it was taken over by two women, Ms Samuels and Ms Henderson. Samuels and Henderson sold the business to the applicant for $18,000 (stock in hand, equipment, goodwill) in November 2001. The applicant came from the district. The equipment included fast food equipment which they had installed. They had extended the business into that area.

7 The applicant moved in to the shop and the residence with her husband, Scott, and four children on 24 November 2001, and commenced business the next day. The business traded satisfactorily, we consider, over December, January and February. Takings were (approximately) $16,600 (December), $18,900 (January), $13,500 (February). For the first half of March (1-15) they were $5,500.

8 Late in February a Mr Tim Egan approached the applicant with a view to acquiring the business. There were preliminary discussions and a cheque for $2000 was paid on 2 March 2002 as a holding deposit, and Mr Egan was then going to speak to a solicitor to have an agreement drawn up. It was dishonoured on 6 March 2002. The respondent had been informed of the discussions soon after they began.

9 The applicant is firmly of the belief that the respondent had then approached Mr Egan, and put a proposal that he deal directly with him. She says that Mr Egan told her that when she contacted him after the cheque was stopped. The applicant believes that the respondent, by these alleged actions, deprived her of the opportunity to leave the business on a reasonable financial basis. She indicated at hearing that she was looking basically for $18,000 or an amount close to that, representing the price she had paid a few months before to Samuels and Henderson to take over the business.

10 The applicant and her husband sought a formal written lease from the respondent after these events occurred, and he refused. After that, the applicant believes that the respondent initiated a campaign among locals who patronised the business involving smears and allegations that it was not clean. Turnover dropped significantly as from 18 March 2002. On 27 March 2002 the respondent, by way of a solicitor’s letter, sent her notice of eviction on three grounds: unpaid rent, extending the business to sell pizzas and hamburgers, and failing in that regard to conform to health regulations. She said that every day in March the respondent reminded her that he was going to put her out.

11 He gave the applicant until 10 April 2002 to vacate, and demanded the rent to that date. The applicant closed up the shop and house, and removed all their possessions and left on 31 March 2002.

12 The applicant's evidence is that she intended to return within a few days to do a final clean and tidy-up before handing back the keys. She said that she had told the respondent she would be back to do a final clean-up before 10 April 2002.

13 On 1 April 2002, the respondent had brought a locksmith to the premises and had the locks changed. In the applicant's eyes, he locked her out. In the respondent's eyes, he was securing premises where he said a door to the house had been insecure, and, as he saw it the premises had been abandoned. Mr Egan subsequently moved into occupation.

14 The respondent claims that he had not been aware by Samuels and Henderson that they were interested in selling the business. He expressed dissatisfaction that they had dealt with the applicant. He said that there was a lease between him and Samuels and Henderson, but they had never signed it. He said his solicitor had prepared one, sent it to them but they had never returned it signed. He did not produce any copy of this lease.

15 As far as he was concerned the lease with Samuels and Henderson was the only lease he had given. He indicated that until recently, following the taking of action against him in the Tribunal by the applicant and also by Mr Egan, he had not been aware of the Act.

16 Both parties had obtained some assistance from solicitors in the course of preparing these proceedings. Neither were represented at hearing.

17 I will deal briefly with the matters of fact and law that I consider to be clear.

(1) I am satisfied, despite the respondent's denials in the affidavit sworn by him and filed by his solicitors in the proceedings, that there were discussions between the applicant, her husband, Scott, and the respondent of some length and detail about them taking over the business and moving into the residence prior to 24 November 2002. I am satisfied that the respondent adopted a welcoming attitude, and sought to assist them from his experience of running the business as to various matters. The applicant had never run a business before. His welcoming attitude is reflected in his allowing them to keep a child's horse in a paddock of his that neighboured the residence and shop.

(2) The premises, though of a mixed character (domestic and commercial), fall within the meaning of a 'retail shop' for the purposes of the Act, as they were used ‘predominantly’ for carrying on a business listed in the Schedule, a general store (s 3). Accordingly the respondent was obliged to deal with prospective lessees in accordance with the requirements of the Act. On the evidence before me, he did not do so. He did not furnish a lease (s 9) (or facilitate an assignment of lease (s 39)) and he did not provide the applicant with a disclosure statement (s 11). These breaches are established and the retail tenancy claim is made out. The lease was one for five years (s 8).

(3) The applicant also alleges that he made two false representations to her in the course of the pre lease discussions (s 10). He is said to have told her that the council had approved the premises for fast food operation, and that it had an approval to sell liquor. I am satisfied that there were references to both these issues by the respondent. I am of the view that what the respondent said at that time simply reflected his understanding of the situation. Clearly, in my view, he was happy that the business had a fast food element as that made it more attractive to passers by. As to the liquor situation, I am satisfied that all he was seeking to convey was a belief on his part that because the general store was in a tourist area it was possible to apply for a licence to sell packaged liquor. The business did not at the time handle liquor, and I do not consider that anything that the respondent said in that regard could reasonably be regarded as a misrepresentation. It was more in the category of an enthusiastic owner talking up the possibilities as to how the business might be developed. The applicant never took any steps to add a liquor service, and there is no evidence that it was an issue between her and the respondent during the months of relative contentment, December, January and February.

(4) The significance, now, of the fast food and liquor questions has to do with the actions that the respondent took during March. In March he raised concerns that they were not complying with Council regulations, and asked the Council health inspector to visit and inspect the premises. He suggested that they were not entitled to provide fast food. The true position as to what approvals were required in relation to fast food, who was meant to get them (should Samuels and Henderson have got them?) and whether there were any concerns on the part of Council in that regard remained unclear at the hearing. I make no findings on those matters.

(5) Despite the denials by the respondent, I am satisfied from the evidence given by the applicant and her husband at hearing and the documentary evidence (in the form of receipts) that on or about 8 March 2002 (not 18 March 2002, as claimed by the respondent) the respondent entered into an agreement to permit Mr Egan to enter into occupation of the residence and the business when the applicant left. I am satisfied that when the respondent heard a few days before from the applicant and Scott that they were looking to selling the business, he was disappointed and took steps to protect his position in terms of a future income from the business. I am satisfied that Mr Egan's action in stopping his holding deposit cheque to the applicant, and then giving a cheque (which was not stopped) to the respondent are consistent with the respondent having interfered with the applicant's ability to continue to deal with Mr Egan as a prospective purchaser of the business. The terms that the respondent used in his receipt (produced at hearing) for Mr Egan's payment was a calculated attempt to disguise the true nature of the transaction. The receipt recorded payment by Mr Egan of $1000 as ‘deposit shop, house in lieu of lease’ and bears a date that appears to read ‘18 Mar 02’, with the ‘1’ much less emphatic than the ‘8’. There was no evidence that the respondent was seriously considering actually selling up his property to Mr Egan as the receipt may be thought to indicate.

(6) It may be that after learning that the applicant and her family were thinking of leaving that the respondent manifested his disappointment to others including making derogatory remarks about the applicant and their business. It may be that he engaged in a smear campaign. This is a very serious allegation. The evidence before the Tribunal was insufficient to warrant the making of any findings in that regard, and I make none.

(7) By about 18 March 2002, I am satisfied that the applicant had made a firm decision to close the business and vacate the residence. The takings dropped considerably after 15 March except for the last day, 29 March, when $1900 was taken and the ledger book recorded ‘sold most of the goods of the business.’

(8) I am satisfied that the applicant was reasonably up to date in her rent at all times. There was a degree of informality about her rent payment arrangements, but her evidence at hearing including receipts given by the respondent and her record of bank payments clearly establishes that she was a good payer.

(9) I am satisfied that the grounds stated in the letter of eviction were baseless. They were mere assertions on the part of the respondent. The rent was up to date or almost so. There was no independent material in existence at that time to suggest problems of a health nature. The inspector had yet to visit. To the extent that the letter carried a suggestion that he, the respondent, had not permitted the extension of the use to pizzas and hamburgers, that was baseless. He was well aware that fast food had been part of the business for some time. The applicant had bought a pizza oven in January and starting making pizzas. He did not object at the time, and in my view would have had no basis for doing so.

(10) I am satisfied that the applicant was wrongly locked out of the premises on or about 1 April 2002, and lost the use of the property until 10 April 2002 (a breach of s 34).

18 The respondent’s failures in respect of non-provision of the lease and non-provision of a disclosure statement do not appear to have caused any financial harm to the applicant.

19 The applicant's main contentions were that the respondent breached the Unconscionable Conduct provisions of the Act. Section 62B provides:

‘(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
(2) A lessee must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
(3) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to:
(a) the relative strengths of the bargaining positions of the lessor and the lessee, and
(b) whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and
(c) whether the lessee was able to understand any documents relating to the lease, and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and
(e) the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and
(f) the extent to which the lessor’s conduct towards the lessee was consistent with the lessor’s conduct in similar transactions between the lessor and other like lessees, and
(g) the requirements of any applicable industry code, and
(h) the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, and
(i) the extent to which the lessor unreasonably failed to disclose to the lessee:
(i) any intended conduct of the lessor that might affect the interests of the lessee, and
(ii) any risks to the lessee arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and
(j) the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and
(k) the extent to which the lessor and the lessee acted in good faith.
(4) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessee has contravened subsection (2) in connection with a retail shop lease, the Tribunal may have regard to:
(a) the relative strengths of the bargaining positions of the lessee and the lessor, and
(b) whether, as a result of conduct engaged in by the lessee, the lessor was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessee, and
(c) whether the lessor was able to understand any documents relating to the lease, and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessor or a person acting on behalf of the lessor by the lessee or a person acting on behalf of the lessee in relation to the lease, and
(e) the amount for which, and the circumstances under which, the lessor could have granted an identical or equivalent lease to a person other than the lessee, and
(f) the extent to which the lessee’s conduct towards the lessor was consistent with the lessee’s conduct in similar transactions between the lessee and other like lessors, and
(g) the requirements of any applicable industry code, and
(h) the requirements of any other industry code, if the lessor acted on the reasonable belief that the lessee would comply with that code, and
(i) the extent to which the lessee unreasonably failed to disclose to the lessor:
(i) any intended conduct of the lessee that might affect the interests of the lessor, and
(ii) any risks to the lessor arising from the lessee’s intended conduct (being risks that the lessee should have foreseen would not be apparent to the lessor), and
(j) the extent to which the lessee was willing to negotiate the terms and conditions of any lease with the lessor, and
(k) the extent to which the lessee and the lessor acted in good faith.
(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person institutes legal proceedings in relation to that lease or refers to arbitration a dispute or claim in relation to that lease.
(6) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person fails to renew the lease or issue a new lease.
(7) For the purpose of determining whether a lessor has contravened subsection (1) or whether a lessee has contravened subsection (2):
(a) the Tribunal must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and
(b) the Tribunal may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.
(8) A lessor or lessee, or former lessor or lessee, who suffers loss or damage by reason of unconscionable conduct of another person that is in contravention of this section may recover the amount of the loss or damage by lodging a claim against the other person under section 71A.
(9) If the matter of such loss or damage arises in connection with a matter the subject of proceedings in the Tribunal, the Tribunal may proceed to decide it, and in so doing may award such sum as it thinks fit.’

20 If a claim of unconscionable conduct is proven, the Tribunal may grant the relief permitted by s 72AA of the Act. Section 72AA provides:

‘(1) In proceedings for an unconscionable conduct 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.

(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.’

21 The respondent was a person of experience in commercial matters, mainly connected with his long experience as a self employed building contractor; and had served on the shire council. He had founded the general store business and after ceasing to run it himself with his wife had leased it twice before dealing with the applicant. He had a level of acumen in commercial and retail lease matters. The applicant had none. It was the first time that she had gone into business and leased a shop. She trusted the respondent. As it happened, for reasons that were not explored at hearing, she had decided to move on by the end of February or early March, and discussions occurred with Mr Egan.

22 She lost a potential purchaser due, I have found, to the respondent's interference.

23 He then compounded the situation by serving the notice of eviction dated 27 March 2002. There was no reasonable justification under the lease for the respondent to take that action at that time. The applicant said that this was the last straw, and she was determined to go. On the other hand, the downturn in turnover as from about 18 March 2002 may tend to suggest that she had already made a final decision. She says the downturn was due to the alleged smear campaign on which I have made no findings.

24 I am satisfied that the respondent behaved unconscionably within the meaning of the Act. He engaged in unfair tactics when he heard (probably to his great disappointment) that the applicant and her family were thinking of going after such a short time. I am satisfied that by dealing with Mr Egan behind the back of the applicant, he fractured the relationship, one that had previously been good.

25 He had taken on an inexperienced person when he let her the general store and the residence. There is a greater risk than usual in this situation that the tenant may find herself ill-suited to the business (perhaps for family reasons, it was an 7 day a week business opening for long hours). She was at liberty to make such a decision and proceed to sell her business. The business and the lease go together. It was necessary for her to find a purchaser who would be acceptable to the respondent, as lessor. Provided that was so, the lessor is obliged to consent to an assignment of the lease: s 39.

26 This is not an unusual situation. The respondent’s responsibility was to deal with this (perhaps unwelcome) development in a professional way. He did not do so. It is clear that he would have agreed to Mr Egan as an assignee given his subsequent conduct. On the other hand, the applicant did the right thing in letting the respondent know that she had opened discussions with Mr Egan and an in-principle agreement had been reached. I am satisfied that the respondent used unfair tactics and did not act in good faith. I am satisfied that the applicant acted in good faith throughout her relationship with the respondent.

27 The applicant should in my view receive an award of damages.

28 The actual economic loss that the applicant can claim to have suffered is difficult to estimate, and is probably low. The original $18,000 that she paid was, essentially, stock in hand and equipment installed by Samuels and Henderson (as distinct from equipment installed by the respondent). She could possibly have sold her business to Mr Egan for around $18,000. She acknowledged at hearing that this amount roughly equalled the value of stock on hand and equipment, which she had estimated as at 7 March 2002 as being $6,500 (approximately) for stock and about $10,500 (approximately) for equipment.

29 There is no evidence as to whether Mr Egan would have proceeded to confirm the sale, then at an in-principle stage. Instead the applicant, once she decided to go and with no buyer, proceeded to run down the stock over the next three weeks, and had a major closing sale on the last day, bringing in $1900. She removed the equipment and took it with her. There was no evidence before the Tribunal on the difference between the resale value of the stock and equipment as part of a going business and the sold-down value of the stock and the market value of the equipment for a purchaser not considering purchase of the equipment in situ.

30 In these circumstances it is difficult to identify the amount of any economic loss possibly attributable to the loss of the potential sale to Mr Egan.

31 This is, nonetheless, a case where there should be award of damages, as permitted by s 72AA(1)(a), to compensate the applicant for the unconscionable conduct that she suffered. She was undermined by the respondent. He then adopted a hostile attitude to her. She was humiliated by his sending of an eviction notice that was without foundation. After moving out and relocating her family, she went back to do a final clean-up and found the locks changed. Her husband went to see the respondent. I accept her husband’s evidence that after receiving the eviction notice, and querying the respondent about it, the respondent threatened to shoot him if he did not get off the property. The applicant has, I accept, endured great anguish and has a deep sense of public humiliation within the environment of a small community.

32 In my view, an award pursuant to s 72AA(1)(a) of $6000 is appropriate. It includes a component to compensate her for the rent she had paid for the period 1-10 April after being locked out.

33 Finally I make some reference to material that the parties placed before the Tribunal to which I have had no regard with one limited exception. Both parties submitted statutory declarations from various members of the local community in support of their evidence. I have ignored all of the statutory declarations with one exception. The makers of the statutory declarations were not present to be cross-examined. The parties were unrepresented. It would have been unfair to give the statements any weight when there was no opportunity to cross-examine the declarants. The one item I have taken into account is the first paragraph of the declaration of Mr Egan. The statement had been obtained by the applicant. Mr Egan is also involved in a dispute with the respondent. The respondent accepted at hearing the essential accuracy of the first paragraph. That paragraph states that the respondent told Mr Egan that the applicant had no lease; was behind in the rent; was about to be evicted and had little or no stock. Mr Egan said in that paragraph: ‘He therefore advised me to pay her nothing and, as he was the owner of the premises, to deal directly with him, with regard to any lease agreement.’

ORDER

1. That pursuant to s 72AA(1)(a) of the Retail Leases Act the respondent pay the applicant $6000 by way of damages.