Zaoud v Musico

[2001] NSWADT 58

CITATION:	Zaoud -v- Musico & Anor [2001] NSWADT 58
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Saadein Zaoud RESPONDENTS Domenico Musico and Antonia Musico
FILE NUMBER:	995028
HEARING DATES:	16/03/2001
SUBMISSIONS CLOSED:	03/16/2001
DATE OF DECISION:	04/17/2001
BEFORE:	Donald B - Judicial Member
APPLICATION:	Claim for assignment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights - Claim for payment of money
MATTER FOR DECISION:	Damages
LEGISLATION CITED:	Conveyancing Act 1919 Retail Leases Act 1994
CASES CITED:	Yared v Spier [1979] 2 NSWLR 291.
REPRESENTATION:	APPLICANT R Walker, barrister RESPONDENT J M Atkin, barrister
ORDERS:	1. Order that the Respondent pay to the Applicant the sum of $10,600 plus interest at the rate for judgments in the District Court from 19 October 1999 to the date of order.

Reasons for Decision

1 Following my decision of 14 August 2000 that the lessor had not been entitled to withhold consent to the assignment of the lease, it is now necessary to determine the consequences of that failure.

2 The lessee claims damages for the failure quantified as:-

• Consideration for sale of business $16,000
• Value of stock $ 4,300
• Rent paid from anticipated date of settlement of business sale 20 August 1999

to end of lease $2,166

• Interest at 10.05% per annum to date from 20 August 1999

3 Other items claimed by the lessee were not pressed following examination of the factual basis for them in the course of the hearing.

4 The claim is opposed by the lessor.

5 In order to determine the damages claimed it is necessary to set out some further facts in the matter.

6 Following the fit-out of the shop the lessee stocked it in early March 1999 with both tobacco and gift products. The fit-out included the installation of a heavy duty safe which on the evidence had to be partly assembled inside the premises.

7 Security became an immediate problem and as noted in the earlier decision, there were robberies in the course of one of which, the premises were rammed by a car and damaged. Tobacco stock was stolen and has since been the subject of an insurance claim.

8 By end of March or early April 1999 the lessee's staff felt too insecure to work in the shop so the lessee chose to cease operating the business and began to seek a purchaser to acquire it. This action was taken despite clause 6.1.2 of the lease which required the lessee to "open for business at a time usual for a business of this kind". There were correspondence and numerous threats over ensuing months, but the lessor never took the step of seeking to terminate the lease for breach of this clause, nor indeed of other clauses in dispute including the requirement to pay a bond and certain out-goings. Accordingly the lessee kept paying, and the lessor kept receiving, the rent.

9 Following two attempted sales of the business which fell through in circumstances resulting in complaints by the lessee over the lessor's failure to consent (complaints not pressed to a legal claim), the lessee then notified the prospective sale the subject of this matter. The lessor having been notified about 21 July 1999 of the details of the proposed assignee, the Agreement for Sale of Business was exchanged on 5 August 1999, dated 6 August 1999 for completion in two weeks.

10 I observe that the Sale Agreement was not drafted to reflect the time under s.41 of the Act and clause 10 of the lease in the completion structure; ie that consent by the lessor can be deemed to have been given six weeks (42 days) after the written request for consent, if the lessee has otherwise complied with reasonable requests for information concerning the assignee.

11 The parties fell into a protracted dispute over the consent process and alleged breaches of the lease with the lessee finally commencing proceedings in the Supreme Court on or about 28 September 1999, returnable on 7 October 1999, seeking a declaration pursuant to s.41(d) that the Lessor had consented and for damages.

12 The parties then became further embroiled in a dispute over apparent changes to the terms of the lease.

13 No information was given to this Tribunal as to the status or outcome of the Supreme Court proceedings but they had certainly not produced any outcome by 19 October 1999 when the purchaser of the business rescinded the Sale Agreement for failure of the lessor to consent.

14 The parties then reached an agreement whereby the lease would be terminated and the lessee would vacate by 31 October 1999. The lessee gave evidence that this was a rapid vacation which was only able to be achieved by allowing the removalists to take the fixtures and fittings, including breaking down the safe, which had a book value of some $6,000, into scrap, and also taking certain stock, all to a book value of some $12,300. The lessee contended these items would have been of a much reduced value to the removalists and so were a fair price for their work in achieving the rapid departure. The lessee did not however supervise the removal of the fixtures and fittings nor endeavour to determine whether there was any possibility at all of removing the safe in such a way as would retain some of its value.

15 In November and December 1999, a mediation between the parties failed and then on 20 December 1999 the proceedings were commenced in this Tribunal. Before me, no issue was taken as to the Tribunal's jurisdiction nor any comment made as to the status of the Supreme Court proceedings.

16 As noted, the legal regime establishing a lessee's rights in respect of the assignment of a retail shop lease is in ss. 39, 41 and 43 of the Retail Leases Act. For the purposes of retail shop leases, these replace s.133B of the Conveyancing Act 1919.

17 This is significant because it appears to have been settled law prior to the Retail Leases Act that failure of the lessor to grant consent to an assignment was not a breach of a positive obligation but only the failure of a qualification of the lessee's covenant under s.133B such that no remedy in damages arose, only a right in the lessee to proceed with the transfer: Yared v Spier [1979] 2 NSWLR 291.

18 It is important that s.43 of the Retail Leases Act expressly provides that s.133B of the Conveyancing Act does not apply in this context, that the section having set out the form of covenant construed in the prior case law.

19 In my opinion the previous law no longer applies and the terms of s.41 and clause 10 of the lease which reflects them, do not exclude the possibility of damages in an appropriate case. Indeed the lawyer for the lessor conceded that this was likely to be the case. In my view s.41 sets up a positive obligation in the lessor to deal expeditiously with the request for consent and then deems that consent to have been given if a lessee has complied with the reasonable requests for confirmation and the lessor has not within 42 days consented.

20 However damages do not necessarily flow as the appropriate remedy from a failure of the lessor to perform his obligation in this regard. Indeed the primary remedy in both the Act and the lease is for a lessee to rely on the deemed consent to an assignment after the 42 day period and proceed to complete the sale of the business and the assignment of the lease.

21 If in the circumstances of a particular case however, that process cannot be pursued then in my view the right to damages may arise.

22 The lawyer for the lessor correctly argued that it must be established that the damages claimed need to have been proximately caused by failure of the lessor to consent. He therefore argued that the lessee, after the loss of the sale of the business, still had the premises, the business and its fittings, and therefore retained the goodwill of the business as a going concern. Accordingly he suffered no loss as a consequence of the failure of the lessor's consent. The argument is that the lessee chose to walk away from this business, ceased operating the business, long before even the first attempt at assignment and chose to keep the business closed right up until the time at which he negotiated an end of the lease and an end of his obligation to pay rent. Therefore there was no causal link between the failure of consent and the loss of the value of the business and its stock and its fittings.

23 In my opinion, in the particular circumstances of this case, the lessee has suffered damage as a proximate result of the failure of the lessor to have consented to the assignment but that damage is limited to the loss of the goodwill value in the Sale Agreement and a portion only of the value of the fixtures and fittings in that agreement. In my opinion the other items of damage claimed are the result of the decision by the lessee in late March 1999 to cease carrying on the business and to maintain that closure up until the point where he negotiated the termination of the lease; they are not the result of the failure of consent.

24 I think the $8,000 value attributed to goodwill in the Sale Agreement of 6 August 1999 was lost as a result of the failure of consent. A better drafted Sale Agreement may have reduced the risk of this loss by following the procedure in the Act and the lease including the 42 day time limit following which consent is deemed to have been given. Nevertheless, in this case the facts were that legal proceedings were commenced in the Supreme Court seeking exactly that declaration but those proceedings did not in fact reach a result before the purchaser of the business validly rescinded the Sale Agreement. At that point the agreed value on the goodwill of the business with a willing purchaser was lost and it could not be said with any certainty that such goodwill value would arise in the future even if the business continued to be operated as a going concern.

25 There is no basis other than mere speculation upon which I could make a decision as to a factor by which the lost goodwill should be discounted by reference to the continuing value of business, had it been operated. Accordingly I find myself unable on the evidence to make such a concession in favour of the lessor.

26 The more difficult question is whether the fixtures and fittings including the safe, constitute the basis for an item of damage caused by the loss of this sale of the business. On the one hand they would retain their book value in a continuing business as physical items. On the other hand there could be no certainty that they would yield that book value to the lessee either as part of that business or as an element in any future sale at the level achieved in the lost sale.

27 There was no evidence as to the period of time over which the fixtures and fittings would be depreciated in the books of the lessee but I consider it reasonable to proceed on the basis that a three year period is the probable period. It is reasonable to infer from the limited financial evidence available to the Tribunal that the inventory of fixtures and fittings, Annexure B to the Sale Agreement were valued in the sale at roughly their acquisition cost and had not yet been written down. Accordingly I consider it reasonable to infer that in the sale, the lessee had achieved a value on the fixtures and fittings above their written down value to the extent of approximately one year of depreciation. Accordingly in my view the lessee should be entitled to recover $2,600 being approximately one-third of the value of that inventory.

28 I do not think that the claim for stock of $4,300 is made out. While that was no doubt the acquisition cost as at the preceding March of the gift stock remaining on hand, the lessee had chosen not to carry on the business at least in the beginning of April so that the loss of the opportunity to sell that stock at full value was as a result of the lessee's decision and not as a result of the failure of the lessor to consent.

29 Nor do I think the loss of rent paid from the date for the anticipated settlement of the Sale Agreement to the date of vacation of the premises can be claimed as damage caused by the failure to consent. First it was the lessee's decision not to continue trading during that time, thereby obtaining value from the payment of that rent. Furthermore a completion date of 20 August 1999 was not insisted upon by the prospective purchaser who did not rescind the agreement until 19 October and had therefore held open the prospect of ultimate completion until that later date. At best there would only have been a 12 day period even if I were to have considered that head of damage to have been made out.

30 Accordingly I order that the lessor pay to the lessee the sum of $10,600 plus interest at the rate for judgments in the District Court from 19 October 1999 to the date of order. I do not think there are any special circumstances entitling the Applicant to an award of costs.