Zouk v Lyons Road Pty Ltd (No 2)
[2010] NSWADT 292
•7 December 2010
CITATION: Zouk v Lyons Road Pty Ltd (No 2) [2010] NSWADT 292 DIVISION: Retail Leases Division PARTIES: APPLICANT
RESPONDENT
Emelie Zouk
Lyons Road Pty LimitedFILE NUMBER: 055029 HEARING DATES: 10, 11, 12 and 13 May 2010 SUBMISSIONS CLOSED: 13 May 2010
DATE OF DECISION:
7 December 2010BEFORE: Higgins S - Deputy President CATCHWORDS: Damages LEGISLATION CITED: Retail Leases Act 1994 CASES CITED: Zouk v Lyons Road Pty Ltd [2005] NSWADT 143 REPRESENTATION: APPLICANT
RESPONDENT
G B Evans, barrister
G Sirtes SC, barristerORDERS: 1.On or before 15 December 2010, the parties file and serve draft short minutes of order in accordance with the Tribunal’s findings as to loss and damage as set out in these reasons for decision.
2.The matter is listed for directions on 21 December 2010 at 10am for the purpose of hearing submissions on costs (if any).
REASONS FOR DECISION
Introduction
1 On 2 March 2005 the applicant, Ms Zouk, commenced proceedings in the Tribunal seeking a declaration of rights, obligations and liabilities in regard to a lease she had entered on 20 August 2004 for premises known as shops 13 and 14 at 38-50 Lyons Road Drummoyne (the Lyons Road shop). The lessor of the lease was the respondent, Lyons Road Pty Limited (Lyons Road (the lessor)). The lease was for a period of 3 years plus a 3 year option with a 3 month rent free period so as to permit Ms Zouk to obtain development consent and also to fit-out the premises. The lease provided that the permitted use of the premises was retail fashion and accessories.
2 Clause 7.1 of the lease set out the responsibility of Lyons Road (the lessor) in regard to maintaining in a good condition and serviceable repairs the roof, the ceiling, the external walls and the floors of the premises. Clause 27.2 of the lease also required Lyons Road to take action in relation to dampness and water penetration to the premises.
3 A dispute arose between Ms Zouk and Lyons Road (the lessor) when, during the installation of the fit-out, the shop was found to be contaminated with asbestos and contain dampness due to water penetrations. The initial position adopted by Lyons Road (the lessor) was that these problems were not its responsibility. Ms Zouk, on the other hand, refused to pay rent until the problems had been fixed. In January and February 2005 Lyons Road (the lessor) wrote to Ms Zouk stating that it would terminate the lease and recover possession of the shop if Ms Zouk’s failure to pay the rent continued. It was these letters that prompted Ms Zouk to lodge her application with the Tribunal.
4 That dispute was determined, in part, by Judicial Member Donald on 28 June 2005: see Zouk v Lyons Road Pty Ltd [2005] NSWADT 143 (the Tribunal’s earlier decision).
In that decision, Judicial Member Donald determined that Lyons Road (the lessor) was not entitled to terminate the lease. He also determined that, as at 1 April 2005, there was no continuing breach by Lyons Road (the lessor) of its obligations in respect of asbestos contamination and water penetration to the premises: see at [24] of the Tribunal’s earlier decision. However, he did not finally determine the matter.
5 It is not disputed that, notwithstanding the determination of Judicial Member Donald, the Lyons Road shop was not in a condition that Ms Zouk could complete her fit-out and commence trading from the shop. She, through her company Emelie Zouk Pty Limited, did not commence trading from the shop until 8 September 2006. This was 94 weeks after 20 November 2004, which was the date envisaged by the parties, at the time the lease was entered, the shop would commence trading.
6 The proceedings have been very protracted. However, at the time of hearing, Lyons Road (the lessor) no longer disputed that is was liable for the 94-week delay in Ms Zouk’s company being able to trade from the premises. Accordingly, the hearing of this application on 10, 11, 12 and 13 May 2010 was limited to the issue of the amount of loss and damage arising from the 94-week delay.
Issues
7 In summary, the matters in issue for determination in this application is the loss and damage suffered by Ms Zouk, through her company, as a result of the 94-week delay in being able to commence trading due to the breaches of the lease by Lyons Road (the lessor). These losses being:
(b) the expenses incurred by Ms Zouk in regard to the defective premises.(a) the loss of profits during the 94-week delay (i.e. from 20 November 2004 to 8 September 2006); and
8 With one exception, it was not disputed that the onus rested on Ms Zouk to prove, on the balance of probabilities, her alleged loss. The exception concerned the alleged avoided Strathfield profit reduction, which is discussed more fully below at paragraph 44 and following.
Ms Zouk’s women’s clothing and accessory stores
9 Ms Zouk has operated women’s clothing and accessory stores for more than 35 years. As at 20 November 2004, the day on which the business at the Lyons Road shop was due to commence trading, Ms Zouk was operating, through her company, 2 shops (shop 24 and shop 9-10) from leased premises at Strathfield Plaza, Strathfield and 2 shops (shop 148 and shop 140-141) from leased premises at the Birkenhead Shopping Centre, Drummoyne.
10 Ms Zouk the sole holder of shares in her company and has the day-to-day control of that company. Ms Zouk’s income is entirely derived from the earnings of her company.
11 Shop 24 at Strathfield Plaza was selling handbags and luggage. In her affidavit, sworn on 4 May 2010 (Exhibit A3), Ms Zouk said that due to a downturn in turnover she had to cease trading and sold this lease on 5 May 2007. In her oral evidence, Ms Zouk gave a different account. She said ‘someone offered me a good price for it so I sold it.’ When shown her earlier account, as set out in her affidavit, she said that what was stated there was wrong and that she had sold the business because she was offered a good price for the lease. It is noted that she said that she was paid $100,000 for the sale, which represented $75,000 for good will and $25,000 for the stock.
12 Shop 9-10 at Strathfield Plaza was selling ladies fashions. Ms Zouk was still operating this shop as at the date of hearing.
13 Shop 148 at the Birkenhead Shopping Centre was selling perfume and ladies accessories. Ms Zouk explained that she was only paying $1 rent for this shop. She also said that, at the time she entered the lease for the Lyons Road shop, her intention was to cease operating this shop after its lease expired on 13 February 2005 (i.e. almost 3 months after the Lyons Road shop was due to commence trading).
14 Shop 140-141 at Birkenhead Shopping Centre was selling women’s clothing. Ms Zouk, in her affidavit, explained that the merchandise sold from this shop and shop 148 differed from that which she proposed selling from the Lyons Road shop. The Birkenhead Shopping Centre, she said, was an outlet Centre where the shops sold factory seconds and cheaper merchandise, including women’s clothing. It was Ms Zouk’s evidence that at the time she entered the lease for the Lyons Road shop, her intention was to also cease trading from this shop at Birkenhead when the lease for that shop was due to expire (i.e. 9 April 2005) as the rent was too high. However, when she was unable to commence trading from the Lyons Road shop, she extended that lease for another 6 months so that she could sell the stock she had bought for the Lyons Road shop in anticipation of it opening in November 2004. She also sold this clothing as seconds as she was selling them out of season. Ms Zouk did not cease trading from this shop until 30 September 2005.
15 On 30 December 2006, after the Lyons Road shop began trading, Ms Zouk opened a new bank account specifically for this shop. Separate sales reports for the Strathfield shops and the Lyons Road shop were also retained from about this time.
Loss of profits
16 It was the evidence of Mr Raymond Draybi, a qualified accountant and registered tax agent, that the loss of profit for the 94-week period was $173,900 (see Exhibit A5 at page 5 of the report). Mr Draybi, an expert, whose evidence was relied on by Ms Zouk, based his opinion on the trading and profit and loss statements for the year ended 30 June 2007 and 30 June 2008, monthly sales reports, daily sales summary reports, wages record, and ledger accounts for the business being carried out at the Lyons Road shop, together with the terms of the lease.
17 Mr Michael Ronald Parslow, a chartered accountant, also provided an expert report on behalf of Mr Zouk (see Exhibit A6). In his opinion, the net pre-tax loss of profits suffered by Ms Zouk’s company as a consequence of the leased premises not being available for use for the 94 weeks was approximately $138,000.
18 Dr Rodney J Ferrier, a chartered accountant, provided an expert report on behalf of the lessor, Lyons Road (see Exhibit R1). Dr Ferrier estimated the net pre-tax loss of profits suffered by Ms Zouk’s company as a consequence of the leased premises not being available for use for the 94 weeks was approximately $42,000.
19 At the direction of the Tribunal, a joint expert report was filed on 11 May 2010 (see Exhibit 1).
20 In their joint report, Dr Ferrier and Mr Parslow agreed it was appropriate to adopt the following loss calculation methodology in determining the loss of profit to Ms Zouk and her company as a result of the 94-week delay in being able to commence trading:
(a) Assess the net profit which would have been earned by the Lyons Road shop during the period 20 November 2004 to 8 September 2006 had the shop been opened on 20 November 2004 as planned ( the Lost Lyons Road Profit );
(c) Deduct the net profit which was in fact earned by the Birkenhead shop during the period 10 April 2005 to 30 September 2005, which was the period when the Birkenhead shop would not have been opened if the Lyons Road shop had opened on 20 November 2004 ( the Birkenhead Point Mitigation Profit ). The experts, including Mr Draybi, agreed that the Birkenhead mitigation profit was $5,600. In light of this agreement I have not considered this amount any further.(b) Deduct the amount (if any) by which the net profit of the Strathfield shop would have declined during the period 20 November 2004 to 8 September 2006 had the Lyons Road shop been opened on 20 November 2004 as planned ( the Avoided Strathfield Profit Reduction ); and
21 With the exception of (b) above, Mr Draybi agreed with this methodology. His position was that even if an avoided reduction in profits for the Strathfield shop could be established it was not a factor relevant to determining the loss of profit for the Lyons Road shop.
The Lost Lyons Road Profit
22 The experts all agreed that the actual profits of the Lyons Road shop for the 94 weeks commencing 9 September 2006 to 30 June 2008 could reasonably be adopted as the profits which would have been earned by that shop during the 94 week period it was unable to open (i.e. from 20 November 2004 to 8 September 2006). In this regard, the experts agreed to use, as the starting point, the detailed profit and loss statement Mr Draybi had prepared for this period from the financial records of Ms Zouk’s company. This statement showed a net profit of $180,508 (i.e. total value of sales less the sum of the cost of sales, the variable costs and the fixed costs) for the Lyons Road shop during the relevant period.
23 Where the experts disagreed was in the area of adjustments (if any) to the following items in the profit and loss statement prepared by Dr Draybi:
(a)variable costs
(b)salaries – director and management fees
(c)motor vehicle expenses net of employee contribution
(d)depreciation(d)interest and borrowing costs
24 The issues arising in regard to each of these items are dealt with below.
25 Variable costs – Dr Ferrier and Mr Parslow agreed that the variable costs charged to the Lyons Road shop were likely to be understated. Mr Draybi disagreed.
26 Mr Parslow was of the opinion that an adjustment (i.e. an increase in the expenses) of $2,750 for the 2007 year was warranted.
27 Dr Ferrier was of the opinion that an adjustment of $6,540 should be made. His opinion was based on the percentage of variable costs to total sales in 2008. As he pointed out, the percentage of variable costs to total sales of the business as a whole (i.e. the Strathfield and Lyons Road shops together) was 1.91%. However, when this was broken up for each shop, the percentage of variable costs to sales for the Strathfield shop was 2.6% compared to 1.4% for the Lyons Road shop. On the basis that the shops sold similar merchandise, Dr Ferrier expressed the opinion that without an explanation for the differences between the shops the same percentage of variable costs per sales should be applied to both shops (i.e. 1.9%).
28 Mr Parslow did not agree that an adjustment of the amount suggested by Dr Ferrier was warranted. He was of the opinion that the difference in the percentage of variable costs to sales for 2008 could be explained by the increased cost of telephone services for that year, which had been attributed to the Strathfield shop. Mr Parslow said that in all likelihood the increase was due to costs for communication services (e.g. mobile plans, fax lines and other communication services) that had been in existence prior to the opening of the Lyons Road shop.
29 I accept the evidence of Dr Ferrier and Mr Parslow that an adjustment should be made in regard to the variable costs. I prefer the evidence of Dr Ferrier of an adjustment of $6,540. I make this finding, as Ms Zouk bears the onus of proof and, in the absence of any evidence to support Mr Parslow’s assumed 2008 increase in the cost of telephone services, the evidence as it stands is supportive of an equal apportionment of telephone expenses between the two shops.
30 Salaries – director and management fees Mr Draybi advised the other experts that the item ‘Salaries-Ordinary’ in his profit and loss statement included Ms Zouk’s director fees and management fees. While Dr Ferrier did not question these amounts being included in salaries, he did question Mr Parslow having accounted for them separately in his original report. In the joint report Mr Parslow agreed that as a result of Mr Draybi’s advice, his additional apportionment for Ms Zouk’s director fees and management fees would need to be reversed. On this basis there is no need for me to consider the issue of director and management fees any further.
31 Dr Ferrier was also of the opinion that insufficient ordinary wages may have been attributed to the Lyons Road shop and an adjustment of $10,139 was needed. Mr Draybi and Mr Parslow did not believe any adjustment was necessary.
32 In forming his opinion, Dr Ferrier was of the opinion that it was preferable to assume that ordinary salaries would have been incurred in proportion to sales and that reliance should not be placed on the attribution of salaries and wages costs as reflected in the Lyons Road financial statements. In his analysis of total salaries (i.e. ordinary salaries and director and management fees) as a percentage of total sales for the whole period, Dr Ferrier calculated that salaries were 10.49% of total sales. While the attributed salaries as a percentage of sales for the Lyons Road shop and the attributed salaries as a percentage of sales at the Strathfield shops differed in 2007, Dr Ferrier accepted that the difference was attributable to the fact that there were 2 shops in Strathfield during this year. However, his analysis for the year ended 30 June 2008, when there was only one shop at Strathfield, showed a greater discrepancy between the two shops as follows:
| Lyons Road $ | Strathfield $ | Total $ | |
| Sales | 423,851 | 316,596 | 740,447 |
| Salaries - Ordinary | 36,271 | 37,536 | 73,807 |
| Directors Fees | 6,100 | 4,300 | 10,400 |
| Management fees | 6,100 | 4,300 | 10,400 |
| Ordinary Salaries as % of sales | 8.56% | 11.86% | 9.97% |
33 On the basis of this analysis and the absence of evidence as to how salaries were attributed to the Lyons Road shop, Dr Ferrier contended that the salaries attributed to the Lyons Road shop for 2008 was understated and those attributed to the Strathfield shop were overstated.
34 I can understand the logic of Dr Ferrier’s argument. However, I am not persuaded that this is the proper approach on this occasion. As mentioned above, it was accepted that the operation of the two shops was similar in that they both sold woman’s clothing and operated during similar hours. Accordingly, one would expect the cost of staff to be about the same. This I note is reflected in the above table prepared by Dr Ferrier from the accounts of Ms Zouk’s company. Had these amounts differed in such a way that a significantly greater share of the total salaries paid had been attributed to the Strathfield shop, I may have come to a different conclusion.
35 Accordingly, I find that no adjustment should be made for salaries as stated in the profit and loss statement for the Lyons Road shop, prepared by Mr Draybi.
36 Motor vehicle expenses Mr Draybi accepted that an adjustment of $2,767 should be made for motor vehicle costs as this expense had not been included in his profit and loss statement for the Lyons Road shop. During the relevant period the accounts of the company included an amount of $9,744 for motor vehicle expenses. Mr Draybi calculation of the amount to be attributed to the Lyons Road shop was based on the fact that Ms Zouk lived closer to the Lyons Road shop and therefore a lesser amount should be attributed to this shop. Dr Ferrier disagreed. As he pointed out the cost of Ms Zouk’s travel from home to the Lyons Road shop was not a deductible expense. In Dr Ferrier’s opinion the motor vehicle expenses should be apportioned in accordance with the percentage of sales earned by the Lyons Road shop as against the overall sales of Ms Zouk’s company for the relevant period. Mr Parslow appears to have agreed with this approach and the amount they calculated as being attributable to the Lyons Road shop was $4,932.
37 In the absence of any evidence of actual motor vehicle use, I accept the approach adopted by Dr Ferrier and Mr Parslow and agree that there should be a further deduction of $4,932 for motor vehicle expenses.
38 Interest Mr Draybi had not included any deduction for interest as he had been informed that no additional borrowings were raised to commence trading at the Lyons Road shop. He said he was informed that funding to commence operating the shop was obtained internally from cash flow and the private funds of Ms Zouk. Ms Zouk also gave oral evidence to this effect.
39 On the basis of the available accounts of Ms Zouk’s company for the financial years ending 30 June 2004 to 30 June 2008, Dr Ferrier noted the following in regard to the annual loan balances and interest paid:
Loan Balance ($) Interest Expense ($) 30 June 2004 30 June 2005 30 June 2006 30 June 2007 30 June 2008
40 On the basis of the increase in interest expenses in the year ended 30 June 2007, Dr Ferrier formed the opinion that had the Lyons shop opened in November 2004, rather than September 2006, an increase in borrowings of around $81,565 ($275,725 - $194,160) would have occurred in or about November 2004 and that interest would have been payable on this amount. On the basis of information that was available from the accounts of Ms Zouk’s company, Dr Ferrier calculated the amount of interest that would have been payable as $17,693 and in his opinion this was an amount that needed to be taken into account in determining the loss of profit for the Lyons Road shop.
41 Once again, in the absence of any explanation from Ms Zouk about the increased loan balance and the increase in the amount of interest paid, I accept the conclusions reached by Dr Ferrier. This conclusion is not inconsistent with Ms Zouk’s evidence as she acknowledged money had been loaned to her company so that it could commence operating in September 2006. However, details of the amount loaned and the interest that was paid in regard to that loan was not provided. Accordingly, in the absence of this evidence I accept the conclusions of Dr Ferrier that an adjustment of $17,693 should be made for interest.
42 Depreciation In his original report, Dr Ferrier took into account the depreciation expense associated with the assets (i.e. the fit-out) at the Lyons Road shop (see paragraph 5.21 of Exhibit R1). He estimated this cost to be about $5,000 per year. This estimate was derived from the difference between the total depreciation of assets in the company’s accounts for the year ended 30 June 2006 and the depreciation as at the end of the following financial year. In the joint report, Dr Ferrier remained of the view that a depreciation expense should be accounted for in the calculation of the loss of profit.
43 Although Mr Parslow had taken into account depreciation in his original report (see Exhibit A6 at paragraph 3.13), in the joint report he expressed the opinion that no adjustment should be made for depreciation as this was not a cost ‘saved’ by Ms Zouk’s company (see Exhibit A1 at paragraph 3.30 to 3.33).
44 In my opinion, Mr Parslow’s opinion, as expressed in the joint report, is to be preferred. As he explained, Ms Zouk, through her company, had paid for the cost of the fit-out in 2006 and she was entitled under the lease to use this fit-out over a term of 6 years and on this basis the charge for depreciation should be regarded as a cost paid by Ms Zouk and not a cost saved during the period in which her company was unable to commence operating from the Lyons Road shop.
The Avoided Strathfield Profit Reduction
45 It was not disputed that the Strathfield shops(s) sales figures for the quarter ended 31 December 2006 dropped significantly to that which had been earned in the same quarter the previous year (i.e. from $197,793 to $100,590 or 49.1%). The December 2006 quarter was also the first quarter of operation of the Lyons Road shop.
46 Dr Ferrier was of the opinion that the only reasonable conclusion to be drawn from this significant fall in sales was that the opening of the Lyons Road shop had an adverse impact on the Strathfield shops and the Lyons Road shop profits needed to be adjusted to the extent its profits were increased at the expense of the lost profits of the Strathfield stores.
47 Dr Ferrier was of the opinion that an adjustment of $72,402 was necessary (i.e. the net profit of the Lyons Road shop needed to be reduced by this amount).
48 In his oral evidence Dr Ferrier said that it is well known that owners of ‘large stores’ who decide to open a new store always take into account the possibility of ‘cannibalisation’ of customers from the existing store to the new store. He said that the significant drop in sales at the Strathfield shops during the December 2006 quarter could be explained as a result of customer ‘cannibalisation’. He accepted that this was not necessarily the only explanation and there were possibly other additional explanations for the fall in sales at the Strathfield shop, such as changes in the type of customer at the Strathfield shops. However, he remained of the view that this was the main factor and that it was ongoing thereafter and had the Lyons Road shop opened in November 2004, a similar reduction in the October – December 2004 profits of the Strathfield shops was likely to have occurred.
49 Mr Draybi and Mr Parslow were of the opinion that there was no basis to make an adjustment as suggested by Dr Ferrier.
50 Mr G B Evans, counsel for Ms Zouk, contended that the onus was on Lyons Road (the lessor) to prove the assumptions on which Dr Ferrier’s conclusions were made. Mr G Sirtes SC, counsel for Lyons Road (the lessor) contended that the onus remained on Ms Zouk to prove her loss.
51 I agree with Mr Sirtes SC in that the onus remains on Ms Zouk to prove her loss. The onus on Lyons Road (the lessor) is no more that an evidential onus.
52 While I understand the concept of ‘cannibalisation’ of customers as explained by Dr Ferrier, I am not persuaded that this concept is applicable in this case. Ms Zouk’s shops can hardly be described as ‘large stores’. Nor do I accept, as contended by Lyons Road (the lessor) that the customer base for the Strathfield shops was the same as those for the Lyons Road shop. The Strathfield shops are within a large shopping mall, with substantial parking. Whereas, the Lyons Road shop is part of a small group of suburban shops on the intersection of two very busy roads. The Strathfield shops had operated for many years previously and the distance between that shop and the Lyons Road shop was about 7 kilometres. Furthermore, I note from the map tendered into evidence by Ms Zouk (Exhibit A1) that there is another shopping mall, Burwood shopping mall, which is considerably closer to the Strathfield shopping mall and the Birkenhead Shopping Centre (also a large shopping area) is not far from the Lyons Road shop.
53 In the joint report, Mr Parslow sought to explain the fall in sales at the Strathfield shops through an analysis of the proportion of the Strathfield sales figures were attributable to the Strathfield bag and luggage shop at the relevant time. His analysis was only an estimate, as the actual sales figures of this store were not recorded.
54 It was Ms Zouk’s evidence that she had not advertised the opening of the Lyons Road shop. She did acknowledge that similar clothing and accessories were sold at the Strathfield and Lyons Road shops, but went on to say she did not know where her customers for the Lyons Road shop came from.
55 While I accept Ms Zouk’s evidence that she did not formally advertise, I do not accept that she failed to take any steps in promoting her new shop at Lyons Road, or that she did not know where her customers came from. Ms Zouk, on her own evidence has successfully operated women’s clothing and accessories shops for many years. She is clearly a very astute businesswoman and it is difficult to imagine that she did not already have a number of loyal customers before she opened the Lyons Road shop. Nevertheless, the question is whether, on the evidence, it can be inferred that sales made at the Lyons Road shop during the 2006 December quarter were made at the expense of sales, which would otherwise have been made at the Strathfield shop. If such an inference could be made it can be concluded that had the Lyons Road shop opened as planned in November 2004, a similar loss of sales would have occurred for the Strathfield shop. In this regard I note that the trading and profit and loss statement for the years ended 30 June 2007 and 2008 for the Lyons Road shop, as prepared by Ms Zouk’s accountants, lists an item for ‘Stock Transferred’: see Exhibit A5 Report of Mr Draybi at paragraph 7. An amount of $85,000 is entered for the 2007 year and no amount is entered for the 2008 year. While other stock was purchased for the Lyons Road shop during the 2007 financial year, without details as to when this stock was purchased and the trading and profit and loss statement for the Strathfield shop for the same period, there is an inference that some of the stock purchased for sale at the Strathfield shop had been transferred for sale at the Lyons Road shop when it was first opened. This presumably left a hole in the stock that was available for sale in the Strathfield shop at that time. I accept that this cannot be a full explanation for the loss of sales at the Strathfield shop during this quarter. However, on the evidence that is before the Tribunal, I am satisfied that the initial opening of the Lyons Road shop had an effect of the sales of the Strathfield shop and that had the Lyons Road shop opened in November 2004 a similar effect would have occurred and on this basis an adjustment was necessary. The effect in my opinion was relatively small and while it is not possible to calculate it exactly, I have estimated it to be $10,000.
56 Accordingly, I find that an adjustment should be made in the sum of $10,000 for the avoided Strathfield profit reduction.
Summary of findings in regard to loss of profit
57 For the reasons set out above, I find the net loss of profit in the 94-week delay in the opening of the Lyons Road shop to be $135,743, based on the following:
Agreed Lyons Road loss of profit, before adjustments, for the 94 weeks the shop could not operate Less the following Adjustments Birkenhead mitigation profit Adjustments of variable costs Motor vehicle expenses Apportioned interest Avoided Strathfield profit reduction Lyons Road net loss of profits
Expenses
58 Ms Zouk has made a claim for additional expenses incurred for 12 items, which she asserts were attributable to the Lyons Road shop being contaminated by asbestos, lead paint and rising damp. Lyons Road (the lessor) contended that, to the extent Ms Zouk was able to prove her claim for these expenses, she was only entitled to recover the amount paid less the GST amount. In my opinion this is the correct approach. I understand Ms Zouk does not dispute this.
59 Lyons Road (the lessor) has conceded that it is liable to pay 2 of these additional expense items. These are:
- Abbott Locksmiths: $330 (inclusive of GST)
- Electricity: $379.33 (inclusive of GST)
60 The expenses (inclusive of GST) of the remaining items are for the following:
- the shop fitter ($8,758.20),
- the electrician ($1,661.00),
- telephone ($834.67),
- air safety reports ($1,090.00),
- environment health safety reports ($1562.00),
- Aussie Home pest report ($200.00),
- post asbestos removal inspection report ($917.13),
- ceiling inspection report ($330.00),
- purchase of new ceiling tiles ($1,221.00) and
- payment for tiler to replace the ceiling tiles ($1,000.00).
61 It is the contention of Lyons Road (the lessor) that it is not liable for these costs, either in part or whole.
62 Shop fitter It was the evidence of Ms Zouk that the fit-out of the shop was complete when the asbestos was discovered and that additional costs were incurred as the removal of the asbestos and other rectification work had caused damage to the existing fit-out. In support of the amount claimed, Ms Zouk tendered into evidence a quote, dated 24 August 2004, from Ekard Pty Ltd to fit-out the shop at Lyons Road and a Tax Invoice, dated 6 October 2006 from the same company for the completed fit-out. The Tax Invoice included each of the items (including price) contained in the earlier quote and two additional items, neither of which were particularised. The first addition was for ‘additional work quoted’ on 11 May 2006 for the sum of $2,625.00 (exclusive of GST). The second addition was for ‘additional cost associated with the final fit-out … after Asbestos and damp repair work carried out’ at the shop. At the bottom of the invoice there was a general description of the work involved in this addition. The cost of the second addition was $5,337.00 (exclusive of GST). Ms Zouk seeks to recover the value of both additional expenses.
63 In support of her claim for the first additional amount, Ms Zouk tendered into evidence a letter, dated 24 July 2006, that was sent to her solicitor from the solicitor of Lyons Road (the lessor) (see Exhibit A8). In that letter the solicitor of Lyons Road (the lessor) said:
‘Our client undertakes to pay for the restoration of your client’s fittings so long as such cost is agreed to be confined to and consists only of the quotation provided by Ekard Pty Limited dated 11 May 2006.’
64 A copy of the 11 May 2006 quotation was not tendered into evidence, but the inference from the correspondence is that it related to repair work that needed to be undertaken to the fit-out following the work Lyons Road (the lessor) had undertaken to repair the shop. My understanding from the written submissions of Mr Sirtes SC, Lyons Road (the lessor) accepts this part of Ms Zouk’s claim.
65 In regard to the second additional item, on the available evidence, I find Ms Zouk has failed to establish to the requisite standard, that this is an expense she incurred as a result of the breach of Lyons Road (the lessor). The value of this work was twice the amount that had been quoted 4 months previously for the cost of undertaking remedial work to the shop fit-out. Without a detailed itemised account of the further additional work involved, there remains an inference that some, if not all, the work related to improvements or changes that Ms Zouk wanted to make and not as a result of breaches of the lease by Lyons Road (the lessor).
66 Accordingly, I find that the additional work quoted in the quote of 11 May 2006 (i.e. $2,625 exclusive of GST), is an expense Ms Zouk’s company incurred as a result of the shop being contaminated with asbestos and the work that was undertaken to remove the asbestos.
67 Electrician In support of her claim, Ms Zouk tendered into evidence a Tax Invoice from Ultralight Electrical Pty Ltd, dated 29 April 2005 and 31 August 2006. The first invoice was for an amount of $5,480.00 (inclusive of GST) and the second invoice was for the amount of $7,689.00 (inclusive of GST). Ms Zouk has claimed the difference between the amounts invoiced.
68 The second invoice contains a statement that the increase in the amount invoiced was due to new wiring having to be installed as a result of the asbestos contamination. However, this statement does not sit well with the electrical and lighting items specified in each invoice. The items specified in the first invoice differ to that contained in the second invoice. This gives rise to an inference that Ms Zouk had changed her mind about the lighting in the shop. It also gives rise to a possible inference that the new wiring was due to these changes. According, I find that Ms Zouk has failed to establish that her company incurred the additional costs claimed as a result of the shop being contaminated with asbestos.
69 Telephone
It was the contention of Lyons Road (the lessor) that Ms Zouk could have had the telephone disconnected when she realised the shop would not open in November 2004 and then have it reconnected when she knew it would be opened. The amount claimed by Ms Zouk were the monthly Telstra $43.67 line rental charges during the period the Lyons Road shop was not opened.
I accept the evidence of Ms Zouk that she did not disconnect the telephone because she did not know that the shop would not be opened for such a long time. The opening of the shop was dependent on the lessor completing the rectification work. In the absence of any evidence to the effect that Lyons Road (the lessor) had informed Ms Zouk that the rectification work would not be finished for the 94 weeks, I find that this is an expense Ms Zouk’s company incurred as a result of the shop being contaminated with asbestos and the delay in the commencement of the opening of the shop.
70 Air Safety Reports Ms Zouk has claimed the cost of two reports that she requested Airsafe Occupational Health and Safety Consultants to prepare in November 2004. She stated that she requested these reports to be prepared so that she could ‘prove to the landlord that there was asbestos on the premises.’ Lyons Road (the lessor) contended that this was a cost associated with the dispute that was decided by the Tribunal in 2005 and it was not for Ms Zouk to generate reports of this nature – this was the responsibility of Lyons Road (the lessor).
71 As mentioned above, Ms Zouk commenced these proceedings in 2005 after she had been served with a Notice to Quit. The findings of the Tribunal in its published decision, of 28 June 2005, included a finding that, Lyons Road (the lessor) was not entitled to terminate the lease and that, as of 1 April 2005, there was no continuing breach by Lyons Road (the lessor) of its obligations in respect of asbestos contamination or water penetration into the Lyons Road shop: see Zouk v Lyons Road Pty Ltd [2005] NSWADT 143 at [24] and [42]. In making its findings about the asbestos contamination, I note the Tribunal had regard to the November 2004 reports of Airsafe Occupational Health and Safety Consultants: see at [15].
72 At [41] of the Tribunal’s decision, the Tribunal noted that by consent its determination was confined to the issue of liability and that there ‘there may be issues which the parties contend remain on foot in the application.’ As the prolonged history of this application shows asbestos contamination remained an issue in dispute and at no time had the Tribunal considered or made a determination as to any alleged loss or damage suffered by Ms Zouk as a result of that contamination.
73 Having regard to the findings of the Tribunal in its earlier decision, I accept the evidence of Ms Zouk that she requested these reports so that she could demonstrate to Lyons Road (the lessor) that the shop was not free from contamination. It would appear that Lyons Road (the lessor) accepted the findings of this report and instructed that additional work be undertaken (see at [15] of the Tribunal’s earlier decision). In my opinion, as these reports were obtained prior to the commencement of these proceedings, this is a sufficient basis to find that this is an expense Ms Zouk incurred as a result of the shop being contaminated with asbestos and the delay in the commencement of the opening of the shop.
74 Environment health and safety reports Ms Zouk has claimed the cost of obtaining 3 environment health and safety assessments made by David Lane and Associates. These were obtained in March and May 2005 and in June 2006. The Tax Invoice for the first assessment (March 2005) states that it was for the provision of an inspection and comment. The second tax invoice (May 2005) relates to lead based paint assessments and the third Tax Invoice (June 2006) is for inspections, clearance certifications and discussions with Legal and WorkCover Authority between November 2005 and March 2006.
75 Lyons Road (the lessor) contends that it is not liable for these expenses. I agree with the contentions of Mr Sites SC that these were costs that were incurred for the purpose of litigating these proceedings and not costs that arose from the breach of the lease by Lyons Road (the lessor).
76 Aussie Home pest report –I agree with the contention of Lyons Road (the lessor) that there is no evidence to connect this cost as arising from its breach in regard to the delay in Ms Zouk’s company being able to commence trading from the Lyons Road shop.
77 Post asbestos removal inspection and ceiling inspection report - Ms Zouk has claimed the cost of two invoices, dated 28 February and 31 March 2005, for inspections of the ceiling space of the Lyons Road shop after the removal of the asbestos. Once again I find that these costs were incurred for the purpose of litigating these proceedings and are therefore not costs that arose from the breach of the lease by Lyons Road (the lessor).
78 Purchase of new tiles and payment for tiler – It was the evidence of Ms Zouk that the ceiling tiles were damaged ‘to such an extent that they were unusable’. It is the contention of Lyons Road (the lessor) that, in the absence of any complaint from Ms Zouk, as at August 2006, about the ceiling tiles being damaged or any direct evidence of the alleged damage, the evidence of Ms Zouk should not be accepted. It contended that only the inference to be drawn from the evidence was that the new ceiling tiles had been purchased and installed by Ms Zouk for her own purpose (i.e. to have a shiny new ceiling for her shop which was about to open). In opinion, a mere assertion by Ms Zouk that the tiles were not useable, is not a sufficient basis on which to find that the cost of the tiles and their installation is a recoverable expense arising from the breach of Lyons Road (the lessor). I note that neither of the invoices relied on by Ms Zouk make referenced to the existing tiles being damaged to such an extent they were unusable.
79 Accordingly, I find that this is not an Ms Zouk incurred as a result of the shop being contaminated with asbestos and the delay in the commencement of the opening of the Lyons Road shop.
80 For the reasons set out above, I find the following expenses (exclusive of GST) were incurred by Ms Zouk as a result of the shop being contaminated with asbestos and the delay in the commencement of the opening of the Lyons Road shop:
Total cost (excluding GST) $5,019.62Abbott Locksmiths: $ 300.00
Electricity: $ 344.83
the shop fitter: $2,625.00
telephone: $ 758.79
air safety reports: $ 991.00
Conclusions
81 For the reasons set out above, I have found:
(b) the expenses (exclusive of GST) incurred by Ms Zouk as a result of the shop being contaminated with asbestos and the delay in the commencement of the opening of the Lyons Road shop is $5,019.62.
(a) the loss of profit in the 94-week delay in the opening of the Lyons Road shop is $1,35,743.00; and
82 As both parties have indicated that they are seeking costs under section 88 of the Administrative Decisions Tribunal Act 1997 it is appropriate that orders are made for the parties to file and serve draft short minutes of order to reflect the findings I have made and also to set the matter down for directions on 21 December 2010 at 10am to hear submissions on costs (if any).