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MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

Citation:

City Executive Suites (Canberra) Pty Ltd v Ali Baba

Lebanese Cuisine Pty Ltd

[2018] ACTMC 5

Hearing Date(s): 28 – 29 November 2016, 3 – 5 April 2017, 30 August 2017,

11 – 12 September 2017

Decision Date: 1 May 2018

Before: Magistrate Morrison

Decision:

Catchwords:

See paragraphs [328] and [329]

Leases (Commercial and Retail) Act 2001; claim by landlord

for outstanding rent – basis for calculation; distinction

between outstanding rent and damages for loss of bargain;

make good obligations – whether provisions in lease void

for uncertainty; construction of provision in lease for

payment of “rent” after termination; whether landlord failed

to mitigate loss; landlord’s works – whether landlord failed to

comply with s79 of Act and obligations in lease; whether

landlord breached duty of care to tenant in carrying out

landlord’s works; whether tenant suffered any loss for which

damages payable for breach of duty or compensation

payable under Act; alleged rental representation as basis for

claim for damages or compensation for misleading or

deceptive conduct and/or unconscionable conduct under

the Australian Consumer Law – whether rental

representation had been made; GST – whether GST

payable on several components of claim; costs of

proceedings – whether legal costs of proceedings

recoverable under lease despite ss19 and 154 of Act.

Legislation Cited:

Competition and Consumer Act 2010 (Cth), schedule 2

(Australian Consumer Law), ss 18, 21, 236

Court Procedures Rules 2006 (ACT)

Evidence Act 2011 (ACT), ss 79, 141

Leases (Commercial and Retail) Act 2001 (ACT), ss 19, 79,

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81, 122, 154

Cases Cited: Australian Securities and Investments Commission v

Hellicar [2012] HCA 17

British Westinghouse Electric Mfg Co Ltd v Underground

Electric Railways Co of London Ltd [1912] AC 673

Bryan v Maloney (1995) 182 CLR 609

Dowse v Wynyard Holdings Ltd [1962] NSWR 252

Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009]

NSWCA 413

Galafassi and Anor v Kelly [2014] NSWCA 190

Ginninderra Properties Pty Ltd v Gelonese [2017] ACTMC

25

Ginninderra Properties Pty Ltd v Gelonese [2017] ACTSC

362

Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711

John J Ebbage and Anor v McMahon’s Transport Pty Ltd

[1996] QCA 332

Jones v Dunkel (1959) 101 CLR 298

Manshester, Sheffield and Lincolnshire Railway Co v

Anderson [1898] 2 Ch 394

Millington v Waste Wise Environmental Pty Ltd [2015] VSC

167

Moraghan v Cospak Pty Ltd [2007] VSC 483

National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4

VR 252

Owen v Gadd [1956] 2 QB 99

Payne v Parker [1976] 1 NSWLR 191

Sacher Investments Pty Ltd v Forma Stereo Consultants Pty

Ltd (1976) 1 NSWLR 5

Parties:

City Executive Suites (Canberra) Pty Ltd (Plaintiff /

Defendant to Cross Claim)

Ali Baba Lebanese Cuisine Pty Ltd (Defendant / Cross

Claimant)

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Representation: Counsel

Ms Glover (Plaintiff / Defendant to Cross Claim)

Ms Fisher (Defendant / Cross Claimant)

Solicitors

Douros Jackson Lawyers (Plaintiff / Defendant to Cross

Claim)

NOH Legal (Defendant / Cross Claimant)

File Number: CL 17 of 2015

MAGISTRATE MORRISON: Introduction: 1 City Executive Suites (Canberra) Pty Ltd (“CES”) entered into a lease (the

“Lease”) with Ali Baba Lebanese Cuisine Pty Ltd (“Ali Baba”) in respect of the premises situated at shop 2, 88-96 Bunda Street, Canberra City ACT 2501, being shop 2 of subleasing plan 5698 at Volume 1533 Folio 58 City District (the “Premises”), commencing 15 November 2004. The parties are referred to as Landlord and Tenant respectively in these reasons. The Lease was terminated by the Landlord. The dispute before me has been about the parties’ obligations to each other both before and after that termination.

2 It is convenient to start these reasons by recording what is not in contest.

a. The Lease was entered into between the Landlord and the Tenant.

Subject to the comment at paragraph 2g below, the Lease is accepted to be enforceable according to its terms;

b. The Leases (Commercial and Retail) Act 2001 (the “Act”) applies to the

Lease;

c. The expiry date of the Lease was 31 October 2014;

d. The Tenant was in default under the Lease because it failed to pay rent when due and the Lease was validly terminated by the Landlord on 18 August 2014;

e. The Landlord is entitled to recover from the Tenant the loss and damage

which it has properly incurred as a result of the Tenant’s breach (subject to the Landlord’s obligation to mitigate loss);

f. The Lease included make good obligations;

g. The validity of the make good obligations is in dispute but it is not in

contest that the Tenant did not undertake any make good works;

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h. The Landlord subsequently carried out works to make good the premises;

i. Separately, the Landlord carried out works to and around the Premises during 2014;

j. The Landlord did not give to the Tenant, in relation to those works, the

notice contemplated by clause 15.2(e) of the Lease;

k. The Lease was terminated by the Landlord on 18 August 2014;

l. The Landlord re-let the Premises to an entity described in the evidence as “Oliver Brown” – with that lease commencing on 15 November 2014.

3 The following questions arise for determination.

4 Rent and interest:

a. What is the Landlord’s entitlement to outstanding rent and interest?

b. What is the Landlord’s entitlement to damages for loss of bargain – i.e. for

loss of the benefit of the balance of the term of the Lease?

5 Make good obligations:

a. What are the extent of the Tenant’s make good obligations under the Lease?

b. Are clauses 8.3 and 12 of the Lease void for uncertainty or otherwise unenforceable?

c. Has the Tenant breached its make good obligations?

d. If so, what is the extent of the Landlord’s loss as a result?

e. If the Landlord has incurred loss as a result of a breach by the Tenant,

has the Tenant established that the Landlord has failed to mitigate that loss?

6 Grease trap cleaning:

a. What is the extent of the Tenant’s obligation to pay for grease trap

cleaning?

7 Counterclaim – breach of Lease:

a. Has the Landlord breached its obligations under clause 15.1, 15.2(e) or 15.2(f) of the Lease in connection with the awning and related work carried out?

b. If so, what is the Tenant’s entitlement to compensation as a result?

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8 Counterclaim – negligence:

a. Has the Landlord breached a duty to exercise care in relation to the

awning and related work carried out?

b. If so, what is the Tenant’s entitlement to damages as a result?

9 Counterclaim – misleading and deceptive conduct:

a. Has the Landlord engaged in misleading or deceptive conduct (or conduct likely to mislead or deceive) in breach of section 18 of the Australian Consumer Law (the “ACL”)?

b. If so, what is the Tenant’s entitlement to damages under section 236 of

the ACL?

10 Counterclaim – unconscionable conduct:

a. Has the Landlord engaged in unconscionable conduct in breach of section 21 of the ACL?

b. If so, what is the Tenant’s entitlement to damages under section 236 of

the ACL?

11 Costs:

a. If the Landlord’s claim succeeds, is the Landlord entitled to recover the legal costs of the proceedings under clause 17 of the Lease despite the provisions of section 19 and 154 of the Act?

RENT & INTEREST What is the Landlord’s entitlement to outstanding rent and interest?

12 The Tenant concedes that it owes some rent together with interest at the rate of

10% to the Landlord. It disputes the amount claimed by the Landlord saying that:

a. The Landlord is not entitled to rent as such following termination; and

b. The Landlord is not entitled to include GST in its claim for rent.

13 The Tenant’s first submission is a correct statement of the law. Following

termination, the Landlord’s entitlement to receive rent comes to an end. It is replaced, assuming that an entitlement to substantial damages exists, by a claim for damages for loss of bargain – that is for the loss to the Landlord of the benefit of the balance of the term of the Lease.

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14 There is no argument about termination for unpaid rent giving rise, in principle, to a claim for substantial damages.

15 I have treated the Landlord’s claim post-termination as being a claim for loss of

bargain damages. That was not how the claim was pleaded but it is apparent from the Tenant’s submissions that the Tenant understood the distinction in legal principle. There is no suggestion that the Tenant is prejudiced in any way by treating that part of the claim as being a loss of bargain damages claim.

16 To the extent that clause 12.3 of the Lease purports to give the Tenant an

entitlement to receive rent until completion of make good works despite termination, I deal with that at paragraph 35 of these reasons.

17 It follows that the Landlord is entitled to:

a. Unpaid rent for the period from 2 June 2014 to 18 August 2014 (the date

of termination) together with interest at 10% on the amount owing; and

b. Loss of bargain damages for loss of the benefit of the balance of the term of the lease after 18 August 2014.

18 The Tenant’s second submission about GST must be rejected. My reasons for

doing so are set out at paragraph 147 to 150 of these reasons. For the purposes of the interest calculation I have calculated the pre-GST monthly rental to be $11,861.00.

19 My calculations of rent and interest are as follows:

a. Pre-GST rent for period 1 June 2014 to 30 June 2014 $11,861.00

b. Interest on (a) at 10% for 3 years and 10 months $4,547.00

c. GST on rent at (a) $1,186.00

d. Rent for period 1 July 2014 to 31 July 2014 $11,861.00

e. Interest on (d) at 10% for 3 years and 9 months $4,448.00

f. GST on rent at (d) $1,186.00

g. Rent for period 1 August 2014 to 18 August 2014 (pro

rata)

$7,019.00

h. Interest on (g) at 10% for 3 years and 8 months $2,574.00

i. GST on rent at (g) $702.00

Total amount owing for rent and interest to date of judgment including GST

$45,384.00

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20 My calculations of damages for loss of bargain appear at paragraph 153 of these reasons.

MAKE GOOD OBLIGATIONS

21 It is not in contest that the Lease imposed what can be described as “make

good” obligations via clauses 8.3, 12 and 13, nor that the Tenant did not undertake any make good works.

Are clauses 8.3 and 12 of the Lease void for uncertainty of otherwise unenforceable?

22 The Tenant claims that the obligations imposed upon it by clauses 8.3 and 12

of the Lease are inconsistent or uncertain, and that, as a result, both clauses should be severed from the Lease as either void or unenforceable.

23 The Tenant’s submission misunderstands the respective obligations imposed.

24 Clause 8 is the general obligation imposed upon the Tenant to deliver up the

premises “in good repair at the end of the Lease, having regard to the state of repair at the Commencement Date, fair wear and tear excepted.”

25 Premises is defined in the Lease to mean, by reference to the schedule

appearing in the Lease, shop 2 on Plan number S698. I cannot see that the Lease contains any more precise description of the delineation of the premises the subject of the Lease or that the relevant plan was put into evidence. Nothing turns on that observation for present purposes.

26 Clause 12 deals more specifically with the removal of the Tenant’s fittings and

advertisements, signs and notices. ‘Tenant’s fittings’ are defined as “all fixtures, fittings, structures, alterations or additions that the Tenant has affixed to or installed on the Premises.”

27 The obligation cast upon the Tenant by clause 12.2 is to remove Tenant’s

fittings (and advertisements etcetera) and to make good and repair in a proper and workmanlike manner any damage caused by that removal.

28 The obligations are neither inconsistent nor uncertain and the Tenant’s

submission to that effect must be rejected.

What are the extent of the Tenant’s make good obligations under the lease?

29 The combined effect of the two clauses is that the Premises must be delivered

up at the end of the term in accordance with the clause 8 obligation, but to the extent that the removal of any Tenant’s fittings (or advertisements etcetera) has caused any damage then that damage must be made good and repaired in a proper and workmanlike manner in accordance with the clause 12.2 obligation.

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Has the Tenant breached its make good obligations?

30 In its written submissions the Tenant raises arguments to the following effect:

a. The premises were the subject of an earlier in time lease between the parties which came to an end on 31 October 2004 (the “Prior Lease”).

b. Under the Prior Lease, property in the fittings in the premises passed to

the Landlord when the Prior Lease came to an end.

c. The premises were refurbished in 2007. It is not in dispute that fittings affixed at that time were the Tenant’s fittings.

d. It follows that the Tenant was obliged to remove only “those fittings affixed

in or after 2007”.

e. Further, the premises were dated and dilapidated at the commencement date in 2004, such that any obligation on the Tenant is limited to returning the premises to an equivalent state of repair.

31 The arguments just referred to had been raised in the course of the hearing on

29 November 2016 (from (170)) and 3 April 2017 (from (222)). They came to light as a result of an objection to a question asked of Mr Newham in cross-examination. In the exchange which followed Ms Glover for the Landlord submitted that the Tenant had not pleaded what it sought to argue and that the Landlord was caught by surprise.

32 I was persuaded that the Tenant ought to have expressly pleaded what it

sought to raise. In reaching that conclusion I was influenced by the fact that what was sought to be raised had also not been expressly referred to in the statements of evidence exchanged pre-hearing. I refused an application by the Tenant to amend its pleadings and limited the evidence which the Tenant could adduce. In doing so I said this:

The conclusion I reach is that on any sensible approach to the pleadings, assertions that fixtures, or fixtures and fittings, were not owned by the tenant, or that work done by the landlord went beyond the style and standard of finish required by the lease should have been expressly pleaded, and in the absence of such an express pleading, a plaintiff is entitled to proceed on the basis that the facts now sought to be put in issue were in fact not in contest. I am reinforced in that conclusion by what I have been told about the two points raised not appearing in the evidence disclosed pursuant to the directions that were given in the lead-up to the hearing. In the end result, the ruling I make is that the defendant is not permitted to adduce evidence going to his ownership of the fixtures and fittings, or the style and standard of the finish of the premises as at the commencement of the lease.

(3 April 2017 (234) [1] – [14])

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33 The written submissions to which I have just referred are contrary to that ruling

and I disregard them.

34 It is not in contest that the Tenant did not undertake any make good works.

Can the make good claim include rent after termination?

35 Clause 12.3 of the Lease also gave rise to a preliminary issue which was not argued before me but which I must address for reasons to which I refer later.

36 Clause 12.3 follows clause 12.2 which sets out the Tenant’s obligation to

remove the Tenant’s fittings as defined and to repair damage. That obligation is triggered “at the expiry date or any earlier termination date”.

37 Clause 12.3 goes on to say:

The Tenant will be responsible for the payment of rent and all other charges properly payable under this Lease until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor.

38 It is not in contest that the Lease was terminated by the Landlord by notice with effect from 18 August 2014 and that the Tenant delivered up possession on 29 August 2014. It is also not in contest that:

a. The Tenant did not comply with the obligations to remove and make good

as they are expressed in clause 12.2(c);

b. That work was done by the Landlord to achieve that result; and

c. That the cost of that work is part of the Landlord’s claim for damages.

The Landlord’s claim under the heading of make good includes an amount by way of rent said to be payable by the Tenant under clause 12.3 of the Lease referred to above.

39 That aspect of the claim gives rise to an issue of legal principle, namely, what is

the basis for an entitlement to claim rent beyond the termination of the Lease under which rent is payable?

40 The parties did not address the point in submissions. It is of more than merely

academic interest. One possible construction of clause 12.3 is that it takes effect as a liquidated damages provision – that is providing for payment of a liquidated amount by way of damages following a breach. The point has potential impact on the mitigation argument. If clause 12.3 is, in effect, a liquidated damages provision the common law duty to mitigate loss does not apply to such a claim – see Galafassi and Anor v Kelly [2014] NSWCA 190.

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41 In the end result the conclusion I have reached is influenced by the inferences to be drawn from the language used in clause 12.2. It obliges the Tenant to remove all Tenant’s fittings and to make good and repair any damage at the expiry or any earlier termination date (emphasis added).

42 The clause does not, in its terms, require the Tenant to have completed

removal of its fittings and to have completed making good and repairing any damage by the expiry or termination date.

43 In those circumstances, the proper construction of clause 12.2 is that the

Tenant was obliged to remove fittings and to make good and repair damage within a reasonable period after termination. Such a construction is consistent with the approach taken in decisions such as John J Ebbage and Anor v McMahon’s Transport Pty Ltd [1996] QCA 332.

44 To give practical effect to that construction it is necessary for a Tenant to have

some right of ongoing access to the premises after termination to permit it to meet its removal and make good and repair obligations.

45 It is against that background that the requirement for the Tenant to “be

responsible for the payment of rent and all other charges properly payable under this Lease until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor” is to be construed.

46 In the circumstances the Tenant’s obligation under that clause is properly

construed as one to make a payment in the nature of a licence fee (fixed in an amount equal to the rent) for the right to access the premises following termination for the purposes of meeting the removal and make good and repair obligations.

47 It is not in dispute that the Tenant took no steps to make good. The reference in

clause 12.3 to the Tenant being responsible for rent until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor can only be a reference to the work required of the Tenant under the clause. It cannot be a reference to work subsequently undertaken by the Landlord as a result of the Tenant’s breach of the clause. I reach that conclusion for two reasons.

48 Firstly, the entitlement to access by the Tenant to do the work (in return for

which I have concluded that the amount is payable) of necessity comes to an end when the Landlord undertakes the work because of the Tenant’s failure to do so. Secondly, the clause requires payment to continue until work has been completed to “the reasonable satisfaction of the Lessor”. Such a requirement is incongruous if it was intended to apply where it was in fact the Landlord doing the work.

49 It follows that the Landlord’s claim for “rent” for the period after termination and

while the works were being undertaken must fail because it was the Landlord and not the Tenant which undertook the works. What would otherwise comprise

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the Landlord’s claim for “rent” for the relevant period becomes part of its claim for loss of bargain damages following termination.

The extent of the duty to mitigate

50 The last of the preliminary issues arises from a submission on behalf of the

Tenant about the extent of the Landlord’s duty to mitigate its loss.

51 The point of principle raised is relevant to both the Landlord’s make good claim, and its claim for damages for loss of the benefit of the balance of the term of the Lease.

52 In its submissions the Tenant accepts that it bears the onus of establishing that

the Landlord failed in its duty to mitigate its loss. A more comprehensive statement of principle is that the Landlord bears the onus of proving that the loss suffered resulted from the breach, after which the onus shifts to the Tenant to show that some or all of the loss could have been avoided by reasonable action by the Landlord: see Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711.

53 The Tenant’s submission refers to the common law position as being that:

… a plaintiff cannot recover for loss consequent upon a defendant’s breach of contract where he could have avoided such loss by taking reasonable steps. A defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable man, to have taken certain steps. The Plaintiff is not under any obligation to do anything other than in the ordinary course of business: Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 at 9.

54 The Tenant’s submission goes on to draw attention to clause 17.3 of the Lease

which is in the following terms:

The Lessor must take all reasonable steps to reduce the damages that the Tenant may be required to pay and to endeavour to lease the Premises at a reasonable rent and on reasonable terms.

55 The Tenant’s submission is, in effect, that the obligation to mitigate as

expressed in clause 17.3 is a higher duty than that imposed at common law. The submission is expressed in these terms:

[T]he Plaintiff was not simply required to take reasonable steps but all reasonable steps and was, therefore, under an obligation to do more than what the ordinary course of business would require.

56 The submission goes on to assert that the Landlord’s duty to mitigate required it:

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(i) To take all reasonable steps to endeavour to find a new tenant and to enter a new lease (at a reasonable rent and on reasonable terms) from 3 March 2014.

(ii) In the alternative, following the termination of the lease on 18 August

2014, to take all reasonable steps to endeavour to find a new tenant and to enter a new lease (at a reasonable rent and on reasonable terms) commencing 1 October 2014;

(iii) To take all reasonable steps to undertake the make good in a

reasonable time to reduce the rent payable by the Defendant pursuant to clause 12.3 (subject to the Court determining that the Defendant was required to undertake the make good pursuant to the lease).

57 The first submission above is based upon the exchanges which took place

leading up to and around 3 March 2014. It is not in dispute however that the Lease was not terminated on 3 March 2014 and that it remained on foot until termination on 18 August 2014. The submission must be rejected. There is no obligation to mitigate until termination of the Lease. While it remains on foot no need to mitigate arises: see Thomson Reuters, The Laws of Australia, (at 15 July 2012) 7 Contract, ‘The time to mitigate is at acceptance of the breach or repudiation of the contract’ [7.9.610], citing British Westinghouse Electric Mfg Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, especially Viscount Haldane LC at 689.

58 As to the significance of the use of the expression “all reasonable steps” where

it appears in clause 17.3 of the Lease, I reject the submission that it imposes upon the Landlord the more extensive obligation argued for by the Tenant. The common law statement of principle is to be found in the decision of the House of Lords in British Westinghouse Electric Mfg Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. Viscount Haldane L.C., with whom Lords Ashbourne, MacNaghten and Atkinson agreed, expressed himself in these terms:

The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. [emphasis added]

59 In the circumstances, insofar as is relevant for present purposes, the expression used in the Lease imposes no higher obligation upon the Landlord than the common law. Such a conclusion accords with a common sense approach to the obligation – if a step is reasonable there is a duty to take it – the use of the word “all” adds nothing to the extent of the duty.

60 Having dealt with the preliminary matters arising under this head of the claim, I

turn to what is in contest.

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61 I have concluded that the make good obligations in the Lease are not void or

unenforceable. It is not in contest that the Tenant did not carry out any work directed to meeting make good obligations under the Lease. Against that background it has not been difficult to reach a conclusion that the Tenant has breached its obligations under the Lease.

62 The questions for determination have been, firstly, what is the extent of the

Landlord’s loss flowing from the Tenant’s breach, and, secondly, has the Landlord taken reasonable steps to mitigate that loss?

63 The questions are posed in the manner just indicated for convenience only. It is

the Landlord which bears the onus of proving that the loss suffered resulted from the breach, after which the onus shifts to the Tenant to show that some or all of the loss suffered could have been avoided by reasonable action on the part of the Landlord: see Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711, Sweeney and Ryan JJ at 714 - 717.

64 There was no submission on the part of the Tenant that, as a matter of

principle, the cost of the work undertaken by the Landlord was not the proper measure of damages for breach of the make good obligation. Rather the argument has been that the costs are excessive.

65 As to the duty to mitigate, I accept the Tenant’s submission that the obligation

extends to a duty to mitigate both the loss incurred by the Landlord by way of the cost of the make good works, and the loss incurred by the Landlord by way of damages for loss of the benefit of the balance of the term of the Lease. The first directs attention to the cost of the make good work commissioned by the Landlord. The second directs attention to the time taken to complete the work so that the premises were available to be re-let.

66 I turn to the evidence as to the make good costs incurred by the Landlord. The

evidence of Mr Newham was that he had arranged for the make good work to be carried out by Rosedale Homes Canberra Pty Ltd (“Rosedale”). Evidence at hearing was given by Mr Newham and a director of Rosedale, a Mr Nick Andric.

67 Mr Newham’s evidence can be summarised in the following way:

a. Mr Newham and representatives of the Tenant had various exchanges

about removal of the Tenant’s fittings.

b. On 28 July 2014, as part of a letter dealing with arrears of rental payments and making a demand for payment, the Landlord’s solicitors wrote to the Tenant notifying it that it will be required to make good either on termination or at the end of the Lease if it runs its term, in the following terms:

Please also be aware that irrespective of whether the lease is terminated due to non-payment of the rental arrears, or whether your office brings the rental arrears up to date and is permitted to

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continue to occupy the premises until the end date of the lease (31 October 2014), your office is required in any event to make good the premises pursuant to the terms of the lease. Should your office fail to comply with its make good obligations, our client will of course undertake the make good and will be seeking reimbursement of its costs from your office, pursuant to the terms of the lease. (Affidavit of David Newham 18 April 2016, DN6)

c. The Tenant responded by email dated 29 July 2014. The response

referred to a rental payment having been made. It went on to include the following:

We offer to leave the cool room, freezer, fixtures & fittings in situ as enticement to any incoming tenant should this be satisfactory. We view this as a means of mitigating the on-going rental obligations after August as this could allow an interested party to take over much more quickly than if a complete new fitout was required. Would you please see if the Landlord is willing to work with us in this regard. (Affidavit of David Newham 18 April 2016, DN7)

d. The Landlord’s lawyer’s response was by email dated 4 August 2014.

Relevantly, it declined the Tenant’s offer just referred to, adding:

[The Landlord] does not hold the view that having half a fit-out in place will assist in finding a satisfactory new tenant, or in finding one more quickly. My client requires a clean shell from the make good of the premises. Please contact my client directly to discuss the make good and provide details of your builder. (Affidavit of David Newham 18 April 2016, DN8)

e. By email dated 8 August 2014 the Tenant responded to that part of the

Landlord’s solicitor’s letter in these terms:

Does your client have another party to take on the lease? We are trying to talk to a suitable replacement who is known to your client. If he is interested he may some of our existing equipment. If this occurred then the downtime would be kept to a minimum. (Affidavit of David Newham 18 April 2016, DN9)

f. By email dated 11 August the Landlord’s solicitor’s replied:

My client is in discussions with a number of suitable prospective tenants, none of whom want the fittings to remain. As such my client declines your proposal as to a replacement tenant.

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My client asks that you please contact him directly to discuss the make good and to provide details of your builder. (Affidavit of David Newham 18 April 2016, DN10)

g. On 13 August 2014 the Tenant replied with:

We are seeking to find a shop fitter to do the works required. As soon as we have someone we will be in contact with your client. (Affidavit of David Newham 18 April 2016, DN11)

h. On 18 August 2014 the Landlord’s solicitor’s wrote to the Tenant. The

letter was expressed as constituting a termination notice pursuant to section 122 of the Leases (Commercial and Retail) Act 2001. The letter included:

My client will contact you in due course to discuss make good and vacation of the premises. (Affidavit of David Newham 18 April 2016, DN13)

i. On 29 August 2014 the Tenant sent an email to Mr Newham advising that

the Tenant had:

…today closed the store and locked the premises removing any loose equipment items.” That email goes on to say, “We trust that you have a replacement tenant and expect they will be able to utilise the fixtures.

(Affidavit of David Newham 18 April 2016, DN14)

j. Later that same day the Landlord’s solicitors replied to the Tenant by

email (Affidavit of David Newham 18 April 2016, DN15). That communication pointed out the Tenant’s obligation to “reinstate the premises” and that “[y]ou cannot simply close the doors and walk away.” It pointed out that the Landlord was unable to re-let the premises until the make good was completed and said that as a result rental “will continue to be payable until the end of the lease or until make good is complete.” It went on to request that the Tenant “provide as a matter of urgency, your make good schedule”.

k. By email dated 10 September 2014 the Landlord’s solicitors again communicated with the Tenant. That letter included the following:

My client is willing to extend the time for your (licensed) builder to provide a satisfactory schedule of make good works by an extra week from today – and no later than close of business Wednesday 17 September 2014. No further extension will be provided. If this deadline is not met, our client will be making good the premises and

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seeking recovery of its make good costs from your office, pursuant to its rights under the lease. … Please advise immediately if you are not willing to make good in the circumstances so that our client does not have to wait a further week. (Affidavit of David Newham 18 April 2016, DN16)

l. By email dated 18 September 2014 Mr Newham advised the Tenant that

the make good had commenced (Affidavit of David Newham 18 April 2016, DN17). That email went on to say that Mr Newham had not found any persons interested in buying the cool rooms and stainless steel cabinets and benches. It invited the Tenant to “deal with and arrange with any parties who may want to pay you for the stainless goods” and that “[y]ou need to advise me prior to Friday afternoon if you have a person to take away these items as otherwise I will arrange for the scrap metal people to take them.”

68 Mr Newham’s evidence by way of his statement and oral testimony was that he

subsequently engaged Rosedale to carry out the make good work which the Landlord says should have been done by the Tenant. The cost of that work was initially given as $31,676.00. In his testimony on 29 November 2016, Mr Newham acknowledged, at (208), an arithmetic error and conceded that the correct amount was $29,190.00.

69 Under cross examination Mr Newham said that no written quote was given by

Rosedale before the make good work was commenced and no fixed price agreed upon. He said that the arrangement was that the Landlord would be charged for what work was required on what was described as a “do and charge” basis.

70 He said, at (188), that arrangement had been agreed upon, in lieu of a fixed

price contract, because of what Mr Newham described as “unknowns” including such things as the extent of plumbing work required, how hard it would be to remove multiple layers of tiles, and the extent of work required to remove air-conditioning units.

71 He said that he could not recall what hourly rates had been given to him by Mr

Andric but he recalled that they seemed to be in line with his (Mr Newham’s) building industry experience.

72 He said at (190) that the make good work had commenced by 18 September

2014 and that his discussion with Mr Andric about the basis for charging for the work took place a week or 10 days before that.

73 He said at (191) [31] – [32] that he didn’t ask Mr Andric to commit to a particular

time frame for the work but that the “discussion was we want to do it as quickly

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as possible once it commenced”. He said that he wanted to have fixtures and fittings out as soon as possible so that potential new Tenants could look at the site.

74 Mr Newham was cross examined about his choice of Rosedale to do the work.

He said that no quote for the work had been sought from any builder other than Rosedale. He said that he knew Mr Andric and that he was available at the time to do the work. He explained what he meant in saying that in these terms:

…particularly at this time of the year approaching the “silly season” for shopfitters and the like, building people, this is not a particularly attractive job to take on night work, dirty dangerous work. I’ve observed the list of – in somebody’s affidavit - the list of companies that were put forward as alternatives - and in Canberra - a city like Canberra the building industry, I knew it would be very difficult to find someone to take on this sort of work in a short timeframe. They were keen to get moving. (29 November 2017 (193) [25] – [32])

75 Mr Newham was asked under cross-examination (at (199)) how he understood

the work undertaken by Rosedale would be charged for. He explained that he understood the Landlord would be charged for actual costs incurred by Rosedale by way of subcontractors, hire costs and the like, plus a labour charge for the time spent by a foreman plus some component for the builder’s profit and overheads.

76 He said that the make good works were extensive – including the need for a

crane to remove air-conditioning plant including compressors from the roof of the building, the de-gassing of that air-conditioning plant, the capping of services and the removal of floor tiles.

77 He said, when his evidence recommenced on 3 April 2017 (at (276)), that the

make good works were completed on or about 14 November 2014.

78 Mr Andric also gave sworn evidence. He had signed a written statement which was then adopted by him as part of his oral testimony.

79 He said that he was a licensed builder and a director of Rosedale.

80 Under cross examination he accepted that shop fitting work was not work which

the company pursued in Canberra.

81 He said that he could not remember the precise dates upon which he discussed the work with Mr Newham or what discussion took place about the timing for the work. He did say that he did not think that he could give Mr Newham an exact date because he would need to speak to tradesmen.

82 He said that he did not give a fixed quote because there were “too many

unknowns in the building itself” (4 April 2017 (338) [37]) and that the agreement

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was to do the work on what he described as a “cost plus” basis (4 April 2017 (339) [11]).

83 Mr Andric’s evidence under cross about the timing of the work was vague. He

said he believed that he would have given Mr Newham an estimate of time for the job. He said he believed that Mr Newham would have asked for one. He said that he could not recall exactly what estimate he gave but he believed “I would have said approximately maybe two weeks, three weeks” (4 April 2017 (339) [32]). He said he thought Mr Newham accepted the estimate.

84 When asked whether he had been told there was any urgency about the work

he replied – “Yes I think he mentioned that he would like to get a new tenant in there maybe”. (4 April 2017 (339) [42] – [43]).

85 I asked some questions about how the final figures shown in the Rosedale

invoices which were in evidence had been calculated. Mr Andric’s answers were again somewhat vague. In response to a question about how what was described as the project management component of his charges was arrived at he said this:

Yes, I think it was 20 per cent of the labour, the hire, skips, electrician, the plumber which comes out to I think – well, it was around 3000 and then I charged myself out as well on top of that at about $120 an hour and I can’t remember how many hours we put down on that. (4 April 2017 (345) [37] – [42])

86 And in response to a subsequent question about what was described as the

insurance management and labour component the following exchange took place:

And how is that calculated in this case? --- I’m just trying to think was it a 20 per cent. Again I’m not sure about that. Sorry, you’re not certain how it was calculated? --- No, not exactly. I would have sent something to the bookkeeper. Sorry, say that again? --- I would have sent something to my bookkeeper or said something to her. (4 April 2017 (347) [7] – [14])

87 I was surprised that, knowing he would be asked questions about the work, the

invoices and the basis upon which the work was charged Mr Andric was not better prepared to answer questions. In particular he could not explain how the difference between the at-cost items such as labour and equipment and the invoice totals had been arrived at, beyond saying that he would have “charged myself out on top of that at about $120 an hour but I can’t remember how many hours we put down on that.” (4 April 2017 (345) [39] – [41]).

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88 Mr Andric went on to say that work on site was affected by “council” work being undertaken at the time by way of the construction of a new street crossing and streetscape works. He said that work involved blocking off the street at the front of the premises. He said that because of that work, and the surrounding tenancies being open for business during the day, the make good work could only be done in the evening and early morning, with most of it being done from 5:30pm or 7:00pm to midnight.

89 In addition he said that the street works affected access to the premises. He

referred in particular to extra work required of him around the delivery of equipment by Kennards and the delivery and removal of rubbish skips. He said the latter required the barrier fence erected for the street works to be taken apart and re-assembled and for the skips to be taken through what was in effect an ACT government worksite. He spoke of delays around finding a foreman on the street works site and having that person arrange for machinery to be moved to permit the site to be traversed.

90 It was put to Mr Andric that it was not necessary for the work to be undertaken

outside normal hours. He replied by saying that he had been told by Mr Newham that the work needed to be done after hours because of the other business operations in the vicinity.

91 Under cross Mr Andric was also questioned about a decision to stop work in the

second week on the site. He agreed that had occurred and said that it was because work needed to be done on gas lines or a gas meter. His testimony was in these terms:

[Ms Fisher:] And why did you stop in the second week?--- We had - there were some gas lines on the premises and a gas meter I think or two. I engaged my gasfitter to come out and have a look at it and he informed me that the gas meter was probably illegal now in the way it is situated inside the building because they need to be vented which I think I spoke to David about and then from – there was a period there where we couldn’t finish off the work because it was a little bit too dangerous because of the gas pipes that were there going through the building and feeding the neighbouring commercial premises as well so we stopped and I just stopped and waited until David got that cleared. (4 April 2017 (356) [29] – [37])

92 He went on to say that he thought the break in the work at that time was “two or

three weeks, something like that” and that the job was then completed with a couple more days of work (4 April 2017 (357) [32]).

93 In re-examination Mr Andric was asked a series of questions about the costs

and hire and charge rates referred to in Rosedale’s invoices. I was surprised that the questions had not been asked during his evidence in chief but I permitted the questions as arising from what was asked of him about costs under cross examination.

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94 In the re-examination Mr Andric said, in effect, that the costs, hire and charge rates were the going rate at the time and/or reasonable and appropriate.

95 No application was made for Mr Newham to be recalled to give further evidence

about anything arising from the testimony of Mr Andric. In particular no further evidence was received about the work stopping after two weeks while Mr Newham sorted out an issue with the gas meter.

96 I permitted the Defendant’s general manager Mr Malovany to give what was in

effect expert evidence about make good costs for other premises on the basis that he qualified as an expert under section 79 of the Evidence Act 2011 because of his experience.

97 The submissions on the make good claim were directed to the reasonableness

of the cost of the make good and the time taken for the works.

98 The Tenant points (at paragraphs 114 to 117 of its written submission dated 17 October 2017) to a range of factors which it says are established by the evidence including that the Landlord engaged Rosedale when it was a company not regularly carrying out make good work, that there was a social relationship between Mr Newham and Mr Andric, that the Landlord did not obtain quotes from other builders, and that the arrangement was for the work to be done on an open-ended ‘cost plus’ basis. The Tenant says that the evidence establishes that the Landlord “did not take all reasonable steps to get the make good work done at a reasonable cost.”

99 Mr Newham’s evidence on his choice of Rosedale was that based upon his

experience with the building industry in Canberra, the make good work “was not a particularly attractive job to take on” (29 November 2016 (193) [26] – [27]), that he knew it would be very difficult to find someone to do it, and that he knew Rosedale was available, having asked Mr Andric. His testimony just referred to was largely unchallenged and I accept it.

100 I also accept the evidence about the considerations which led to Rosedale

being engaged to carry out the work on a ‘cost plus’ basis. It is a common sense proposition that it would be very difficult, if not impossible, to arrive at a fixed price quotation for works the precise scope of which cannot be determined in advance.

101 In the circumstances I am not persuaded that the engagement of Rosedale to

perform the make good work, or the ‘cost plus’ basis of that engagement, constitutes a breach of the Landlord’s duty to mitigate.

102 That conclusion does not dispose of all of the Tenant’s submissions under this

heading.

103 The Tenant also submits that the Court “should be troubled” by evidence of the $6,000.00 management fee charged in the Rosedale invoice of 4 November 2014, and a further amount of $2,600.00 for “insurance, management and labour” charged in an invoice dated 5 December 2014. The Tenant says also

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that the time taken was unreasonable. The Tenant says that the testimony of Mr Malovany as to what the make good should have cost and the time it should have taken should be preferred.

104 I deal with each of these submissions in turn, but it is convenient to start with

the testimony of Mr Malovany.

105 In his oral testimony Mr Malovany said that his estimate of the cost of the make good works to the Premises was “somewhere between 15 and 17 thousand dollars” and that the time taken to do the work should have been between three and five days.

106 There was no evidence before the Court of the Tenant having obtained any quote or estimate for the cost of the make good works on the Premises from any builder, shopfitter or the like.

107 Mr Malovany did agree under cross examination that there were many factors

which influenced the cost of completing make good works. The list which was put to him, and with which he generally agreed, included the nature of the trades required, the availability of those trades, the services that needed to be capped, disconnected or re-routed, the extent of the damage caused in removal of fixtures and fittings, including such things as multiple layers of floor tiles, access to the site, co-ordination of multiple trades, the manner in which extracted items are disposed of, the proximity of neighbouring businesses and what were described as “unknowns” – that is, what might be discovered during the work.

108 He was asked a couple of questions in re-examination about jackhammering

multiple layers of tiles from a floor and how many gas meters were on the premises.

109 Mr Malovany had said in his evidence in chief that he had visited the store once

or twice a year since 2008. He had not been asked any questions about whether any visit had involved any special inspection of the state of the building or of the fixtures, fittings or services with a view to being in a position to giving an informed opinion about make good costs.

110 Mr Malovany did not say in his evidence on what basis he had formed the

opinion that the cost should have been between $15,000.00 and $17,000.00 beyond some general reference to the make good work at other premises. In particular there is no evidence from Mr Malovany about whether and if so how he took into account the various factors which he acknowledged influenced the cost of carrying out the make good works in forming his opinion.

111 To the extent that, inferentially, the Court is asked to conclude that his opinion is based upon his experience of the cost of make good works performed at other premises there is no evidence before the Court as to the similarity or difference between any such other premises and the subject premises, or as to existence or not, in any such other premises, of the various factors which Mr Malovany acknowledged influenced the cost of make good works.

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112 In the circumstances Mr Malovany’s bald statement of opinion, even as an

expert, that the make good cost should have been between $15,000.00 and $17,000.00 carries very little weight.

113 As I have already said, I am not persuaded that the agreed method of charging

(the ‘cost plus’ basis) of itself amounts to a breach of the Landlord’s duty to mitigate its loss. Nevertheless the amounts actually charged in the invoices are to be considered in light of the Tenant’s submissions.

114 Two Rosedale invoices are in evidence. They are at annexure D18 to Mr

Newham’s statement of 18 April 2016. Each contains a table with a description of work or of a cost item and a corresponding amount.

115 It is convenient to bring the two together which produces the following result:

4 November 2014 invoice: Labour $9,710.00 Hire (Kennards) $2,300.00 Skips (Kartaway) $2,720.00 Electrician $1,500.00 Plumber $470.00 Project Management $6,000.00

Total 4 November 2014 Invoice:

$22,700.00

5 December 2014 invoice: Electrical work to be completed, removal of switchboard, diversion of power and removal of fixtures

$1300.00

Final works on party walls between units Cap penetrations Remove and remaining pipes Waste removal and disposal Plumbing repairs (new stopcock) and drainage repaired and capped

$1500.00

Labour to disconnect AC units from units and roof plus 2 compressors (bleed gas from units)

$1200.00

Crane hire for removal of AC units from roof $1060.00 Clean and cap exhaust duct $500.00 Insurance management and labour $2,600.00

Total 5 December 2014 Invoice Inc. GST $8,976.00

TOTAL OF BOTH INVOICES: $31,676.00

116 From the above it can be seen that the total of the items listed comes to

$31,676.00. (It is accepted that an error appears in the invoices and that the figure claimed should be $29,190.00 but nothing turns on that for present purposes.) Of that total an amount of $8,600.00 is attributed to “Project

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Management” and “Insurance management and labour”. The total of the other items is $22,260.00.

117 My understanding of the evidence about the agreed ‘cost plus’ arrangement

between the Landlord and Rosedale is this:

a. Hire charges and subcontracted tradesmen and labour would be charged at cost;

b. Mr Andric’s time in his supervisory role would be charged for – at the rate

of $120.00 per hour;

c. An additional charge would be made to cover Rosedale’s overheads, profit margin and to cover insurance cover and the like – at a rate of 20% of the aggregate of the items already referred to; and

d. The amounts claimed under “Project Management” and “Insurance

management and labour” represent the charges under items b. and c. just referred to.

118 I have already remarked that I was surprised that Mr Andric could not give more

precise evidence about how the figures for “Project Management” and “Insurance management and labour” were arrived at or “how much time was put down”.

119 Doing some rough arithmetic of my own it appears that Mr Andric has charged

for between 20 and 25 hours of supervisory time on site at $120 per hour. That would come to a figure of between $2,400.00 and $3,000.00 for supervision time. Adding that range of figures to the costs of $22,260 produces a sum of between $24,260.00 and $25,260.00. Adding 20% per cent of those figures produces a hypothetical total cost of about between $29,592.00 and $30,312.00.

120 I have undertaken that exercise to work out (against the background of Mr

Andric’s inability to explain) how much on-site supervision time Mr Andric must have charged for (at $120.00 per hour) to come up with the total amount invoiced.

121 Given the evidence about the extent of the work involved and the uncertainty

around the scoping of it in advance some 20 to 25 hours spent in supervision does not appear excessive. In reaching this conclusion I have taken into account that there was a substantial break in the works and that, whilst a period of about 8 weeks elapsed from start to finish, the actual works took only some 2 weeks or a little more.

122 In the end result I find that the Landlord suffered loss in an amount of

$29,190.00 as a result of the Tenant’s breach of its make good obligations, that being the amount paid by it to have the works undertaken. The Tenant has not proved that any part of that loss could have been avoided by reasonable action on the part of the Landlord.

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123 The Landlord claims interest on the whole of its claim at the rate of 10% on the

basis of the obligation in clause 24.1 of the Lease. That obligation is expressed in these terms:

If any of the rental payments, outgoings or other payments due under this Lease are not paid on or by the due date, the Tenant must pay interest to the Landlord on the outstanding amount at the rate of 10%. The interest will accrue and be calculated on a daily basis until payment is received by the Lessor.

124 The Tenant submits that interest should be payable only at the rate provided for under the Court Procedures Rules 2006 (ACT) on the basis that what is described as the make good claim is a claim for damages flowing from the Tenant’s breach of the Lease and does not fall within the term “other payment due under the Lease”.

125 I accept the Tenant’s submission that, on its proper construction, the reference

in clause 24.1 to “other payments due under this Lease” does not include amounts payable by way of damages for breach of the Lease.

126 Clause 24.1 firstly refers to particular types of payments by way of “rental

payments” and “outgoings” – those being payments agreed to be made under clauses 4 and 5 of the Lease before going on to use the more general “other payments due under [the] Lease”. In the circumstances, the ejusdem generis rule properly applies, restricting the general words “other payments due under [the] Lease” to the genus of the preceding particular words. The genus of the preceding particular words (rental payments and outgoings) does not include damages for breach of the Lease.

127 The conclusion just reached also applies to other parts of the Landlord’s claim

for damages for breach of the Lease, but not to the claim for rent up to the date of termination.

128 I allow damages for breach of the make good obligations in an amount of

$29,190.00 and interest thereon from 2014 to date at the rates provided for in the Court Procedure Rules 2006 (ACT) in an amount of $6,586.00, making a total of $37,776.00.

Time taken to complete make good works

129 My findings so far do not dispose of the submission as to the time taken for the

Landlord to complete the make good works.

130 I have already concluded that no duty to mitigate arises until the Lease was terminated – see paragraph 57 of these reasons.

131 I am not persuaded that the evidence establishes that the date on which the

works commenced or the rate at which the work was performed, while it was being performed, establishes any breach of the duty to mitigate. It is the delay

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which occurred to interrupt the works – resulting in them not being completed for about eight weeks – which has required careful analysis.

132 It was put to Mr Newham that the make good works had taken something in the

order of eight weeks and that the time taken was unreasonable. Mr Newham’s response to that, and various follow up questions, appears at (283) of the transcript of 3 April 2017. In his response Mr Newham acknowledges that the majority of the work happened in the first two weeks and there was then a break. In explanation of that break he referred to several things including that “a number of items sat not done pending decisions of incoming tenants and builders”, and time taken to resolve difficulties around a gas meter.

133 Mr Newham’s evidence was somewhat vague and did not go so far as to

enable any dissection of what part of the break in the works was attributable to which of the factors referred to.

134 To the extent that the delay in the make good works was attributable to

“pending decisions of incoming tenants and builders” I am satisfied that, without further explanation, it was not reasonable for the Landlord to delay the works for that reason.

135 No such explanation was forthcoming. No more detailed evidence was given

about what the difficulties were around the gas meter, what steps were required to resolve them and what, if any, part of the delay could be attributed to taking those steps. The Plaintiff gave no evidence as to the extent to which delay attributable to the gas meter difficulties was separate from or may have overlapped with delay attributable to pending decisions of incoming Tenants and builders.

136 In the end result Mr Newham’s evidence indicates two causes for delay, one of

which (the pending decisions) points to a breach of the Landlord’s duty to mitigate. In the absence of further evidence I am satisfied that the delay in completion of the works was a breach of the Landlord’s duty to mitigate its losses.

137 The conclusion just reached about the delay in completing the works does not affect the quantum of the Landlord’s make good claim. It is however relevant to my assessment of when the premises ought to have been ready to re-let and therefore to the Landlord’s claim for damages for the loss of the benefit of the balance of the term of the Lease.

138 It is necessary therefore for some conclusion about what would have been a

reasonable time for completion of the make good works, disregarding any delay attributable to pending decisions of incoming Tenants and builders. Doing the best I can on the limited evidence available, I conclude that a reasonable time for completion of the make good works was a period of three weeks.

139 Accordingly I find that the Landlord failed to take reasonable steps to mitigate

its loss by virtue of the delay in its completion of the make good works. I find that, had reasonable steps been taken the works would have been completed

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in three weeks. It is not in dispute that the make good works commenced on 18 September 2014 and were completed on 14 November 2014. I find that had reasonable steps been taken the works would have been completed by 9 October 2014.

140 It is appropriate to here deal with the consequences of that finding about when

the works would have been completed had reasonable steps been taken.

141 It is not in dispute that the Landlord entered into a new lease of the premises with an entity referred to in the evidence as “Oliver Brown” on 15 November 2014. In the course of re-examination Mr Newham was asked why it was not practical for Oliver Brown to enter into a lease from 1 October 2014. He answered that question by saying – “Point one is that the make good was still occurring at that time” (4 April 2017 (326) [1] – [2]). He went on to refer to other things. They included that “we would have had to have the lease prepared in that time” and matters such as the Tenant’s lawyers checking the lease, and design approval (4 April 2017 (326)).

142 No more detailed evidence was given about the extent to which the time taken

to enter into a new lease with Oliver Brown was affected by any one or more of the factors referred to in Mr Newham’s evidence, or the extent to which that time was separate from or overlapped with the time taken because of the outstanding make good works.

143 I have concluded that the works should have been completed by 9 October

2014. Any loss flowing from delay in entering into a new lease beyond that date which is attributable to outstanding make good works results from the Landlord’s failure to take reasonable steps to have the works completed within a reasonable time.

144 In the end result Mr Newham’s evidence indicates reasons for the time taken to

enter into a new lease which include the time taken to complete the make good works. In the absence of further evidence I am satisfied that that the delay in entry into a new lease beyond 9 October 2014 is also a result of the breach of the Landlord’s duty to mitigate its losses.

145 The consequences of the conclusions just reached are dealt with later in these reasons under the heading of “Damages for Loss of Bargain”.

GREASE TRAP CLAIM

146 The Landlord’s claim includes a claim for $933.00 by way of unpaid outgoings

being grease trap cleaning fees. The Tenant concedes that an amount is owing but says that the claim does not properly include GST and that it should be reduced accordingly.

147 The Tenant makes a similar submission in relation to GST in respect of the rent

claimed to be owing.

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148 The Tenant’s submission refers to the decisions in Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413 and Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167. Both are readily distinguishable from the claim relating to the grease trap because they involve claims for damages in tort.

149 The Australian Taxation Office released GST Ruling GSTR 2001/4 “Goods and

services tax: GST consequences of court orders and out-of-court settlements” in 2001. The Ruling directs attention to the existence or otherwise of a relevant nexus between the payment under a judgment and a taxable supply. The supply in the present case, being the provision of the grease trap “services”, would constitute what is described in the Ruling as an “earlier supply”. The consideration for that earlier supply is the very subject of the proceedings insofar as the grease trap claim is concerned. It follows that GST is properly payable on that part of the claim, and therefore properly forms part of the claim insofar as the grease trap component of the overall claim is concerned. Such a conclusion is supported by decisions such as Moraghan v Cospak Pty Ltd [2007] VSC 483.

150 Similar reasoning applies, with the same result, in relation to the Landlord’s

claim for outstanding rent to the date of termination. The supply there – being the supply of the Premises under the Lease for the period in respect of which the rent is claimed – is an earlier supply. It follows that GST is properly payable in respect of that component of the claim and therefore properly recoverable as part of the Landlord’s claim.

151 The judgment includes an amount of $933.00 (inclusive of GST) for the grease

trap claim. For the purpose of calculating interest the pre-GST amount is $848.00. I allow interest at the 10% rate in the Lease which I calculate to be $311.00.

DAMAGES FOR LOSS OF BARGAIN

152 Against the background of the findings and conclusions referred to earlier in

these reasons, it is convenient at this point to finalise the question of the Landlord’s claim for damages for loss of bargain.

153 I assess those damages in an amount of $19,513.00 calculated as being an

amount equal to the rent which would have been paid by the Tenant had the Lease not been terminated for the period from the date of termination (18 August 2014) until 9 October 2014 – that being the date by which I have assessed the Landlord should reasonably have completed the make good works and re-let the Premises.

154 Unlike the component of the Landlord’s claim for rent and the grease trap

expenses this component of the Landlord’s claim comprises post-termination damages and is not a claim in respect of an “earlier supply”. I have calculated the amount without reference to GST.

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155 The claim is one for damages. Interest is properly dealt with under the Court Procedure Rules 2006 (ACT) and not clause 24 of the Lease.

156 I allow interest in an amount of $4,314.00 to date.

THE TENANT’S COUNTERCLAIM – BREACH OF LEASE BY LANDLORD

157 The Tenant’s counter-claim includes a claim that it has suffered loss and

damage as a result of certain works carried out by the Landlord. The claim is pleaded as arising because the Landlord:

a. breached clause 15.1 of the Lease in that it did not allow the Tenant

peaceable possession and use of the premises;

b. breached clause 15.2(e) of the Lease in that it failed to give the Tenant two months’ written notice of any alterations or building works to the Premises or building;

c. breached clause 15.2(f) in that it failed to compensate the Tenant for any

disturbance either as a result of a breach of the Lease (in conjunction with obligations under the Act) or as a result of the Landlord’s breach of duty.

158 In the alternative the claim is pleaded as arising in tort as a result of the Landlord’s breach of a duty owed to the Tenant to ensure the works were carried out in a timely manner.

159 It is not in dispute that the Landlord carried out certain work to the solid

“awning” over the footpath immediately outside the premises. The awning had been clad and the old cladding was removed and replaced with new. Work was also done to improve the drainage of rainwater along gutters and new lighting was installed. As I understood the evidence the new lighting was by way of downlights installed into the underside of the awning.

160 In preparation for that work the Landlord removed the Tenant’s signs which

hung from the awning. They can be seen in Exhibit D2 (and annexure HM-41 at (78)). In addition there was a period of time (the length of which is in dispute) between when the old lighting was removed and the new lighting installed.

161 For convenience I refer to the work just described as the “awning works”.

162 It is convenient to deal first with the claim under clauses 15.2(e) and 15.2(f) of

the Lease.

163 It is not in dispute that the Landlord communicated with the Tenant (and the other Tenants of the building) about what the Landlord intended to do in the terms set out in an email dated 24 February 2014 (forming part of Exhibit P2) in these terms:

Hello, as most of you are aware we have been planning to upgrade the cladding to the awning, lighting & CCTV for some time. This will greatly

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improve the street appeal of all the tenancies & the new uniform lighting will make the whole building stand out when the area is in darkness. The starting point will be to strip back what is there at present. To make this possible it will be necessary for our electrician to disconnect any power feeds form your switchboards to the awning. I will be on site with an elctrician in the morning to plan this aspect. Your assistance with this part will be necessary for this to happen smoothly. As part of the exercise we will be standardising the sign boxes. Can everyone send me their artwork for their sign so I can arrange for the new inserts as well as to provide for temporary signage as required during this process. Once the awning is stripped a timeline for works will be clearer & I will be in contact to pass on this information. Regards David Newham (Statement of David Newham 18 August 2016, DN19)

164 Mr Newham says that the work commenced in early March 2014 and was

completed by 11 April 2014.

165 For his part, Mr Malovany says that following the email just referred to he expected some further communication from the Landlord about what was occurring and that he “did not know that anything was actually started or completed until Evdon Brentham sent me an email dated 12 September 2014”.

166 The Tenant goes on to submit that the work was not completed when the Lease

came to an end because its signs had never been replaced, and that it suffered damage by way of loss of income from loss of trade as a result of various acts and omissions of the Landlord.

167 It is convenient to deal first with the Tenant’s claim under clause 15.2 of the

Lease.

168 Clause 15.2(e) and (f) provide that the Landlord must:

(e) give the tenant at least 2 months’ written notice about any alterations or building work to the Premises or the Building if the Tenant is likely to be materially affected by those works and give details of measures that will be taken to minimise the effect on the Tenant; and

(f) compensate the Tenant for any disturbance where required by

section 81 of the Leases Act.

169 Section 81(1) of the Act is in the terms set out below. Subsection (2) is irrelevant for present purposes.

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Compensation for disturbance (1) The lessor is liable to pay the tenant reasonable compensation for loss

or damage (other than nominal loss or damage) suffered by the tenant if the lessor—

(a) materially inhibits access by the tenant to the premises; or (b) takes action that would materially inhibit or alter the flow of

customers to the premises; or (c) fails to fix a breakdown of plant or equipment under the lessor's

care and maintenance as soon as practicable; or (d) for premises located in the retail area of a shopping centre—

does not adequately clean, maintain or repair the shopping centre (including common areas); or

(e) otherwise adversely affects the trade of the tenant by the

lessor's conduct without reasonable cause, whether by act or omission.

170 The submissions of both Landlord and Tenant appear to deal with the

obligations under sub-clauses 15.2(e) and (f) of the Lease as if they are co-dependent. No reference is made to the notice obligations appearing in section 79 of the Leases Act.

171 The obligations imposed under subclauses 15.2(e) and (f) are, in fact,

independent. The word “and” appears at the end of subclause 15.2(e) only because it is the second last of the six obligations set out in clause 15.2. The conclusion that the obligations are independent is hardly surprising – the compensation entitlement in section 81 of the Act is unconditional and, by virtue of section 19 of the Act, would prevail over anything in the Lease in any event.

172 I read sub-clause 15.2(f) as doing nothing other than incorporating as a term of

the Lease what would be the statutory obligation in any event, using the word “disturbance” to compendiously describe what are the triggers for payment in section 81, via adoption of the heading to that section chosen by the legislative draftsman.

173 Two things follow from that conclusion. The first is that a breach of sub-clause

15.2(e) of the Lease does not necessarily mean that a Tenant is entitled to compensation under section 81 of the Act.

174 The second is that it is not necessary for a Tenant to prove a breach of sub-

clause 15.2(e) of the Lease before it is entitled to compensation under sub-clause 15.2(f) of the Lease and section 81 of the Act.

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175 In other words establishing a breach of sub-clause 15.2(e) is neither a sufficient nor necessary pre-condition to an entitlement to compensation under section 81 of the Act.

176 Part of the Landlord’s submission is that the awning does not form part of the

premises as defined in the Lease. The Lease speaks in terms of works to the premises or the building. The Act looks to the effects of certain conduct without reference to location of any works as such. It is not suggested that the awning was not part of the building. It is not relevant for present purposes that it did not form part of the premises as described in the Lease.

177 The obligations in clause 15.2(e) of the Lease are triggered “if the Tenant is

likely to be materially affected by [the proposed] works”. The Landlord argues that the Tenant was not likely to be materially affected such that the obligations are not triggered. The Tenant says that it was likely to be materially affected.

178 The Lease provides no guidance as to what is meant by the expression

“materially affected”. I note that it is the potential effect on “the Tenant” which is to be assessed as opposed, for example, to the potential effect on the Tenant’s business operation or turnover or customers or the like. Expressed as it is the clause appears to call for broader considerations than what might be required in the case of the hypothetical examples just mentioned.

179 The submissions do not refer to any authorities on the meaning to be given to

the expression “materially affected” and my own enquiries have not revealed any relevant authorities.

180 The word “materially” should be given its ordinary meaning. It is defined in The

Shorter Oxford English Dictionary (William Little, H W Folwer and Jessie Coulson (Clarendon Press, 3rd revised ed, 1987)) as including:

“(i)n a material degree; substantially”

and in the Macquarie Dictionary (A Delbridge, JRL Bernard, D Blair, P Peters and S Butler (eds) (Macquarie Library, 2nd ed, 1992)) as including:

“to an important degree; considerably”

181 There are two other points to be made about construing the expression under consideration. The first is that it is the likely effect of the works on the Tenant which is to be assessed. The second is that context must be taken into account. In considering whether a Tenant is likely to be materially affected it is appropriate to recognise that the obligation on the Landlord which is triggered by that conclusion is limited to the giving of notice to the Tenant of what is proposed, along with “give details of measures that will be taken to minimise the effect on the Tenant”. The obvious intent of the clause is to protect the Tenant’s interests by giving the Tenant an entitlement to receive advance notice of future plans which are likely to materially affect the Tenant in some way. What constitutes the trigger for that entitlement should be construed accordingly.

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182 There is an argument between the parties as to when any such assessment is

to be made and what is to be taken into account.

183 It is tolerably clear that the assessment is to be made in advance of any works being carried out.

184 There is an argument that any implied obligation to assess the likely effect of

works cannot logically be expressed in terms of an assessment two months in advance of the work because the decision to do the works may not have been made at that time. In other words if a Landlord makes a decision today to perform work in one month which is not likely to have a material effect he cannot be in breach of any implied obligation in clause 15.2(e) by not having considered, one month ago, whether that effect would be material. The outcome in this case does not require any further consideration of that point.

185 For present purposes I accept the Tenant’s submission that the assessment is

not to be made retrospectively, that is, after the work is complete. That would defeat the purpose of protection for the Tenant which appears to be at the heart of the clause 15.2(e) obligation.

186 What comprised the Awning Works is summarised in paragraphs 159 and 160

earlier in these reasons.

187 I accept the Tenant’s submission that the likely effect on it is to be assessed objectively. That affect should be assessed having regard to all of the prevailing circumstances including the nature of the Tenant’s business operations.

188 There is a dispute as to the time taken to complete the works and the time

during which the awning was not operational. I have not found it necessary to determine that dispute.

189 It is not in dispute that the Tenant’s business is what it describes as a ‘quick

service’ restaurant and that it operates into the evening. Mr Malovany for the Tenant gave evidence of the extensive franchise operation of which the business operating from the Premises formed part and of the importance of brand recognition. To that evidence can be added the common sense observation that the likely natural inclination of potential customers of quick service restaurants is to prefer suppliers from premises without building works in progress over those with such works and to be influenced by the presence or absence of signs and external lighting.

190 The works to be undertaken by the Landlord were always going to have some

potential effect on things which could reasonably be expected to be important to a Tenant in a quick service restaurant business operation.

191 In the circumstances I find that the Tenant was likely to be materially affected

by the proposed works. It is not in contest that the obligations in clause 15.2(e) were not met. It follows that I find that the Landlord breached those obligations.

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192 To succeed with its claim however, it is not enough for the Tenant to establish only that clause 15.2(e) was breached. The Tenant must also establish that what it claims as loss and damage in fact was caused by that breach – that is, was caused by the Landlord’s failure to give notice and to give details of minimising measures as required.

193 There is no evidence before me as to what steps the Tenant would have taken

had formal notice under clause 15.2(e) been given. What is in evidence is limited to Mr Malovany’s email of 24 February 2014 saying “We will work with you on this” and his subsequent testimony that he expected some further communication.

194 It is also important at this point to recognise that the assessment made for the

purposes of clause 15.2(e) – that is, a prediction that the Tenant was likely to be materially affected by the proposed works – does not amount to proof that the Tenant was, in fact, materially affected by the works as carried out.

195 The Tenant’s evidence is to the effect that business sales declined. Its

evidence involves a comparison of the value of sales during the period relevant to the works with the value of sales in previous periods. Its submission is that the Court should infer that the decline in sales was caused by disturbance as a result of the Landlord carrying out the Awning Works.

196 The Tenant faces two difficulties with its submission.

197 The first is that, logically, its submission involves a conclusion that the number

of customers visiting its premises declined because of the works. (The alternate conclusion, that the numbers remained the same but that the spend per customer dropped, does not warrant consideration in the circumstances.)

198 No evidence of any decline in customer numbers is before the Court. More

importantly there is no evidence before the Court that any person made any complaint to the Landlord on behalf of the Tenant about the Awning Works or about any perceived decline in customer numbers as a result of those works.

199 The evidence establishes that the store was operated by persons referred to in

the evidence as Dima and Hassan until 24 March 2014 and by Evan Mannan as a licensee thereafter. None of those persons was called as a witness in the Tenant’s case. The Landlord urges an inference that “the evidence if adduced from these witnesses would not have assisted Ali Baba’s case.”

200 In making that submission the Landlord relies upon the principle in Jones v

Dunkel (1959) 101 CLR 298.

201 The pre-requisites for drawing such an inference (see Payne v Parker [1976] 1 NSWLR 191 (CA), Glass JA at 201) are met in this case – in particular:

a. at least one of the persons just referred to would have been expected to

have been called by the Tenant (and not by the Landlord);

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b. the evidence of that person would elucidate the matter of the effect, if any, of the Awning Works on the business operation; and

c. the absence of the witness is unexplained.

202 In making that last observation I note the submission of counsel for the Tenant

in the following terms: Further, in circumstances where the Defendant, unassisted by legal advice, determined the evidence it would adduce in the proceedings, it is explicable that none of Dima, Hassan or Evan Mannan were asked to provide witness statements (the Defendant unsurprisingly, being unaware of the rule in Jones v Dunkel.)

203 I do not regard that submission as a proper explanation of the absence of any of the witnesses referred to.

204 While on the subject of customer numbers I deal with the evidence about

access to the premises.

205 I heard testimony from Mr Newham about how the carrying out of the works affected access. There was no evidence in the Tenant’s case of any direct observations by any person about any effect on access to the premises or customer flow.

206 In the end result I accept the testimony of Mr Newham (4 April 2017, (309) –

(310)) to the effect that:

a. The mobile scaffolding required for the work was moved across the front of the premises as the work progressed over a period of two or three days;

b. There were times when the scaffolding prevented access to the premises but that never occurred during trading hours – the work being done from 6 or 6.30 am and ceasing before trading hours.

207 In the circumstances I am not persuaded that the physical presence of scaffolding or the like had any direct impact on customer access to the premises.

208 The other difficulty faced by the Tenant with its submission about loss and

damage is that the inference which the Court is invited to draw about the cause of the decline in sales is based on a premise that no other factors were at work as possible causes.

209 As the Landlord’s submissions point out there is evidence that other causes

were at work.

210 In particular the Tenant’s own evidence is to the effect that:

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a. Dima & Hassan [the former franchisees] had three (3) Ali Baba stores and were finding it difficult logistically to operate each one. (Statement of Robert Marjan 20 May 2016, paragraph [19])

b. “Dima & Hassan, advised they could not meet rental obligations” (before

24 March 2014) (Statement of Harry Malovany 20 May 2016 paragraph [19])

c. The Tenant “tried to obtain rental assistance around January & February

2014 because of difficult economic circumstances.” (Statement of Harry Malovany 20 May 2016)

d. In an email to Mr Newham of 22 January 2014, Mr Malovany records “As

you are aware our franchisee is struggling to meet rental commitments. Circumstances have changed and there is more competition everywhere you look.” (Statement of Harry Malovany 20 May 2016, HM3)

e. Dima and Hassan operated the store as franchisees until 24 March 2014

and thereafter the store reverted to a company owned store with Evan Mannan operating it. In his evidence, Mr Robert Marjan expresses the opinion that “results generated by franchised stores are usually better than company owned locations.” (Statement of Robert Marjan 20 May 2016, paragraph [10])

211 In addition the Tenant’s claim relies upon a comparison of weekly sales for the

period 24 March 2014 to 29 August 2014 with weekly sales for the same period in the preceding year. As the Landlord’s submissions point out analysis of those figures reveals that sales started to decline from 10 November 2013 (before any works were commenced) and continued until 29 August 2014, after the works were completed (but for the replacement of the sign).

212 In the circumstances, the evidence does not establish any causal connection

between the Tenant’s decline in sales and the Awning Works carried out by the Landlord. The fact that the Tenant’s sign was not replaced does not affect that conclusion.

213 It follows that the Tenant has not proved that it suffered any loss or damage as

a result of the Landlord’s breach of clause 15.2(e).

214 I move to consideration of the claim under clause 15.2(f) of the Lease and section 81 of the Act.

215 As I understand the Tenant’s claim it is based upon the asserted breach by the

Landlord of sections 81(b) and/or 81(e) of the Act. They impose upon the Landlord an obligation to compensate the Tenant if the Landlord:

(b) takes action that would materially inhibit or alter the flow of

customers to the premises; [emphasis added] or …

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(e) otherwise adversely affects the trade of the tenant by the lessor's

conduct without reasonable cause, whether by act or omission.

216 The emphasized wording of section 81(b) is curious – speaking as it does in a conditional tense. That style is not used in the wording of any of the other triggers for compensation appearing in sub-sections (a), (c), (d) or (e) of section 81.

217 Precisely how section 81(b) is to be construed was not the subject of

submissions by either Landlord or Tenant.

218 The only sensible conclusion is that the section is not intended to create an entitlement to compensation unless some material inhibition or alteration of the flow of customers is actually established, despite the use of the contingent in the expression “that would materially alter or inhibit the flow of customers”.

219 To construe the section as creating an entitlement based upon anything less

raises several difficulties including that of how any compensation is to be determined in the absence of any actual resulting effect on customer flow. It may be that the intent of the draftsman was that consideration be given to both present and future effects of any relevant action by a Landlord. In any event the circumstances before me do not require me to form any concluded view other than that which I have formed as set out at paragraph 218 of these reasons.

220 Having reached that conclusion the findings made in relation to the Tenant’s

claim based upon the Landlord’s breach of clause 15.2(e) of the Lease dispose of the section 81 claim also.

221 Despite the conclusion that the Landlord was obliged to notify the Tenant

because of the likely effect of the Awning Works the evidence does not establish that those works did in fact materially inhibit or alter the flow of customers to the premises or otherwise adversely affect the trade of the Tenant, or that there is any causal connection between the Awning Works and the decline in sales.

222 I deal next with the claimed breach of clause 15.1 of the Lease.

223 Clause 15.1 of the Lease sets out the Landlord’s obligation to allow quiet

enjoyment. It is expressed in the Lease as allowing the Tenant “to peaceable possess and use the Premises… free from any interruption or disturbance by the [Landlord].” No submission was made that the expression used is to be construed differently to the more traditional expression of quiet enjoyment.

224 As I understand the Tenant’s submissions it relies upon the complaints it makes

about the Awning Works for the purposes of its claim under clause 15.2 and section 81 of the Act as particularising what it says is the breach of the quiet enjoyment obligation in clause 15.1.

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225 I cannot see that the Landlord’s submissions directly respond to the allegation insofar as it relates to that particular covenant (clause 15.1) in the Lease.

226 In the end result I am not persuaded that the Landlord’s conduct amounts to a

breach of clause 15.1.

227 I reach that conclusion on the basis of the following:

a. Despite the proviso at the commencement of clause 15.1, the obligation on the Tenant to fulfil its obligations and that on the Landlord to allow quiet enjoyment are, as matter of law, independent – see Dowse v Wynyard Holdings Ltd [1962] NSWR 252 at 263.

b. Obstruction of access, even for a short period, may amount to a breach of

the quiet enjoyment covenant if it amounts to substantial interference to access but the disturbance or interruption must be of a “direct and physical character” - see Owen v Gadd [1956] 2 QB 99 at 106.

c. However, a mere temporary interference, not interfering with the estate of

the Tenant, is not a breach of the covenant for quiet enjoyment – see Manshester, Sheffield and Lincolnshire Railway Co v Anderson [1898] 2 Ch 394 at 401.

228 I have already recorded that I accept the testimony of Mr Newham to the effect

that:

a. The mobile scaffolding required for the work was moved across the front of the premises as the work progressed over a period of two or three days;

b. There were times when the scaffolding prevented access to the premises

but that never occurred during trading hours – the work being done at 6:00 or 6.30 am and ceasing before trading hours.

229 There is no evidence that any detriment was suffered as a result of any denial

of access outside of trading hours.

230 In the circumstances the Tenant has not established that the Landlord breached the covenant for quiet enjoyment in clause 15.1.

COUNTERCLAIM – NEGLIGENCE BY LANDLORD

231 I turn to consider the Tenant’s claim in tort for loss or damage alleged to flow

from the Landlord’s negligence in carrying out those works.

232 A preliminary point arises which has not been addressed in the submissions.

233 As I understand the evidence, the pleadings and the submissions, the Tenant does not allege any injury or damage to property arising out of the Awning Works. Its claim appears to be for what is purely economic loss. In the words of

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Brennan J in Bryan v Maloney (1995) 182 CLR 609, “the tort of negligence has not offered a remedy for the recovery of pure economic loss from a defendant against whom no more is proved than that his or her actions caused that loss and the loss was reasonably foreseeable.”

234 In the present context the question which arises is this: does the Landlord owe

a duty to the Tenant - pleaded as a duty to exercise all due care, skill and diligence to ensure that the works outside the premises were completed in a timely manner - so as to prevent pure economic loss to the Tenant? [emphasis added]

235 As an extension of that point there is what was described by Batt JA in National

Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252; [2002] VSCA 18 as the “deliberate trend in courts of final appeal to arrest on grounds of policy the expansion of the law of negligence into areas governed by contract, equity or statute” citing Tai Hing Cotton Mill [1985] 3 WLR 333; CBS Songs Ltd. v. Amstrad Consumer Electronics Plc [1998] AC 1013 (statute); Scally v. Southern Health and Social Services Board [1992] 1 AC 294 (contract); Downsview Nominees Ltd. v. First City Corporation Ltd.[1993] AC 295 (equity); Hill v. Van Erp (1997) 188 CLR 159; and especially Astley v. Austrust Ltd. (1999) 197 CLR 1.

236 The matters just raised go to the question of whether the Landlord, at law,

owed a relevant duty to the Tenant. That is not a matter on which the parties joined issue in the contest before me. The Landlord’s submissions appear to have proceeded on the basis that nothing done or omitted to be done by the Landlord breached any duty. I considered whether I should invite submissions on the antecedent point of whether a relevant duty existed, but for reasons which will become apparent, decided that it was not necessary to do so.

237 Even if the Tenant established that a duty to prevent pure economic loss

existed and that the acts or omissions of the Landlord breached that duty, the Tenant must also establish a causal connection between that breach and the loss or damage said to have been suffered. For the reasons set out above the evidence does not establish that the Tenant has suffered loss or damage as a result of any act or omission of the Landlord in connection with the Awning Works.

238 That conclusion disposes of the claim in negligence without needing to decide

the question of the existence or otherwise of a duty to prevent pure economic loss.

COUNTERCLAIM – MISLEADING OR DECEPTIVE CONDUCT BY LANDLORD COUNTERCLAIM – UNCONSCIONABLE CONDUCT BY LANDLORD

239 I turn to consider the Tenant’s counter-claim under the Australian Consumer

Law.

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240 The Tenant’s claim is that the Landlord engaged in conduct which was misleading or deceptive, or likely to mislead or deceive for the purposes of section 18; or in the alternative that it engaged in unconscionable conduct for the purposes of section 21. It is convenient to deal with both claims together.

241 In each case the conduct is particularised as being that:

During the telephone conversation in February between Mr Newham, Mr Marjan and Mr Malovany, Mr Newham (on behalf of the [Landlord]) represented to Mr Marjan and Mr Malovany (officers of the [Tenant]) that if Ziad took over the Premises and the Ali Baba store operated therefrom, the [Landlord] would enter into a new lease with an annual rental of $125,000.

242 I refer to the representation just described as the Rental Representation. The Landlord denies that the Rental Representation was made. It is not in dispute that no lease was entered into in accordance with the Rental Representation. The Tenant says loss and damage resulted from the Landlord’s failure to enter into such a new lease.

243 Particularised as it is, the Tenant’s claim stands or falls upon whether the

evidence establishes that the Rental Representation was, in fact, made. It is logical to start with an analysis of that evidence.

244 It is not in contest that negotiations took place between the Landlord and the

Tenant about a new lease to commence after the end of the then existing lease and the rental which would be payable if a new lease was entered into.

245 I set out below some relevant extracts of the evidence about the Rental

Representation.

246 Statements by Mr Malovany dated 20 May 2016 (Exhibit D1) and 9 September 2016 (Exhibit D2) were received in evidence. In the first in time statement Mr Malovany says this:

39. In February 2014 the Defendant advised the Plaintiff of a new potential

franchisee named Ziad Issa (referred to as Ziad) who was offered to purchase the Bunda street franchise. The Plaintiff and the Defendant agreed Ziad would be a good operator with good marketing ideas. Ziad was known to David by reason of his prior involvement in the store. Ziad had agreed to purchase the store from the Defendant. The sale was conditional on the rental being $125,000.00 per annum. The Plaintiff verbally agreed to a rental of $125,000.00 per annum to myself, Robert Marjan during a telephone conversation. I am informed by Ziad and verily believe that David Newham also advised Ziad that the Plaintiff would agree to a rental of $125,000.00 if Ziad was to be the operator of the store.

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247 Under the heading “Loss and Damages – Lost Sale” at paragraph 117, Mr Malovany’s statement says that “Robert Marjan and I approached Ziad with a view of selling the store to him.” It goes on to say the following:

Ziad was aware the Defendant was negotiating the rental with the Plaintiff. The sale was conditional on the rental being $125,000.00 per annum. Whilst the rental negotiations were protracted the Plaintiff verbally agreed to a rental of $125,000.00 to myself, Robert Marjan and the potential franchisee Ziad. This was subsequently withdrawn, retracted and denied for reasons unknown. Ziad did not proceed and as a result the Defendant lost a sale of $120,000.00. Annexed hereto and marked with the letters HM-31 is a copy of an email dated 28 October 2015 from Ziad. [emphasis in original]

248 The email (HM31) which comprises the annexure is in the following terms: Dear Harry In February 2014, I agreed to be the new franchisee for the Ali Baba Bunda Street. I had previously been in that store for a long time. I was prepared to pay $120k in two instalments. One of $50k and the second payment of $70k within 12months. I had plans to improve the customer offer and the appearance of the store. In the meeting with Robert and yourself, we discussed everything and i understood the gross rental was going to be $125k. Shortly thereafter i had a call with David the Landlord and he also confirmed to me that the new rental would be $125k pa. I was very excited. It was only after you contacted me and advised the Landlord would not honour his agreement on the rental that I decided that I would withdraw from the purchase. I was extremely disappointed as I had operated that location in the past and had generated sales in the vicinity of $15k - $17k per week and believed I would again reach this after a lot of hard effort. Through our association you were able to help me buy another Ali Baba store. This was at Erindale. I thank you for the help and support that Ali Baba always gives to me and its franchisees here in Canberra. I am prepared to be a witness if you need me.

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Kind regards Ziad Issa

249 A statement from Mr Robert Marjan dated 20 May 2016 was also received in evidence as Exhibit D3. It includes the following:

24. In February 2014 Harry and myself advised David of the Plaintiff that Ziad

was interested to purchase the Bunda street franchise. We agreed with David that Ziad would be a good operator with good marketing ideas. The sale was conditional on the rental being $125,000.00 per annum. The Plaintiff verbally agreed to a rental of $125,000.00 to Harry and myself during a telephone conversation we had together with David. I was also informed by Ziad at the time that he had spoken to David separately and David had agree to the rental being $125,000.00 per annum. As the Plaintiff subsequently refused to honour its commitment, Ziad refused to purchase the store and the Defendant had lost the sale.

250 The statement by Mr David Newham in reply (Exhibit P2) is dated 18 August 2016 and responds to Mr Malovany’s assertions in paragraphs 5 to 18. In summary he says this:

a. He was asked by Mr Malovany to consider a gross rental of $110,000.00

per annum.

b. He declined but said that he could freeze the rental at the current rate of $142,000.00 for 2 years on a 5 year lease.

c. He received an email from Mr Malovany saying that if the Tenant did not

receive substantial rental concessions they would have to close the doors.

d. Sometime between 29 January 2014 and 3 February 2014 he received a telephone call from Mr Robert Marjan. Mr Marjan told him that the franchisee was struggling to meet rental payments and asked that he consider a reduction from $142,000.00 to $110,000.00. He replied by saying that he would discuss the matter with his partners and get back to Mr Marjan.

e. On about 3 February he sent an email to Mr Malovany referring to his

conversation with Mr Marjan advising that he could not agree to a rental reduction to $110,000.00.

f. On or about 24 February 2014 he received an email from Mr Malovany

advising that Ziad was keen to be the franchisee of the store and proposing a 5 year lease with a 5 year option at a gross rental of $120,000.00.

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g. On or about 24 February 2014 he also received a telephone call from Ziad. He says that Ziad told him that Ali Baba’s management had said that he (Newham) had agreed to a reduced rent.

h. He says he told Ziad that he did not agree to a rent reduction but that he

was prepared to offer a rent free period in the first year such that rent for that year would be $125,000.00 after which the rent would increase to its then current level. He said that he told Ziad he was only offering that rent to him and not to Ali Baba and the current franchisee.

i. He said that Ziad told him that was not what he had been told by Ali Baba

and that it seemed they had lied to him. He said that some discussion then followed about difficult trading conditions for the store.

j. On or about 25 February 2014 he sent an email to Mr Malovany saying

that he had spoken to Ziad the day before and that he would be prepared to offer a rental freeze at the current level for 12 months and a 2 month rent free period.

k. On the same day he received an email from Mr Malovany saying that

$142,000.00 was too high “and that I had alluded to the fact that I couldn’t accept a reduction down to $110,000.00 p.a. but would entertain something around $120,000.00 - $125,000.00p.a.”

l. He did not agree or allude to entertaining a rent of $120,000.00 -

$125,000.00p.a.

m. On or about 28 February 2014 he sent an email to Mr Malovany saying that rent of $142,000.00 was in line with the market and that the rent free period offered would mean that Ziad would pay rent of $118,000.00 in the first year.

n. On or about 28 February 2014 he received an email from Mr Malovany

saying that he had agreed on a rental of $125,000.00 p.a.

o. At no stage did he agree upon rent being $125,000.00 per annum.

251 Mr Newham annexed to his statement copies of the emails to which he referred.

252 In Mr Malovany’s 9 September 2016 statement his response to what is said by

Mr Newham is limited to this:

37. “…I advise that I have recently spoken to Ziad Issa on the contents of the telephone conversation he had with David Newham and he has advised that he does not agree with the accuracy of the contents of the telephone conversation. He advised me that he did not say that the [Tenant] had lied to him regarding the rental offer and furthermore he did not say other franchisees were struggling and in fact he had told David that he was

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exceptionally keen to have the store. Ziad has also advised me that if he was offered the rental at true market value he would be in there tomorrow.

253 A statement by Mr Ziad Issa dated 13 September 2016 was also received in evidence as Exhibit D4. In it he says that he had agreed to purchase the store and was confident that he could improve the trading results. He goes on to say:

6. During the negotiation process of me purchasing the store, I had been

advised by Harry Malovany and Robert Marjan that they had been trying to get a new 5-year lease and that a proposal of an annual rental $110k was not approved but $125k was tentatively agreed.

7. I contacted David Newman as I knew him well and advised I was

purchasing the store. He seemed happy about this. He said he had refused Ali Baba’s request for an annual rental of $110k and $120k but was considering $125k, If he gets advised it is market rental. He was also considering keeping the same rental and giving a few months rent free.

8. Harry Malovany contacted me and advised that David Newham was now

saying he will not agree to the $125k but will keep the same rental and give 2 months’ rent free. I advised Harry that the rent was too high and not a fair price and as such I decided I would not proceed unless the rental was at market rates.

254 In his oral testimony he denied having said to Mr Newham that Ali Baba had

lied to him or that it would be a significant challenge to revitalise the business.

255 Each of the persons just referred to also gave oral testimony at the hearing. Before turning to that I note that, contrary to what is contained in Mr Malovany’s statement of 20 May 2016, and in Mr Marjan’s statement of 20 May 2016, Mr Ziad Issa does not, in his statement, say that Mr Newham had agreed to a rental of $125,000.00.

256 Under cross examination Mr Newham confirmed the evidence given by way of

his written statements.

257 He denied that he had any conversation in which the rental representation had been made. He said that he could not recall any telephone conversation with Mr Malovany under circumstances where Mr Marjan was also present with Mr Malovany.

258 He accepted that there may have been other conversations which had taken

place and that he could not be certain of the dates on which conversations occurred. He was not asked directly whether he kept any contemporaneous notes as a record of telephone calls but I was left with the impression that he did not.

259 He said that he did not believe that the conversation referred to in Mr

Malovany’s statement – that being the one in which the Rental Representation is asserted to have been made – ever took place.

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260 He said that he was not aware that the Tenant was negotiating with Mr Ziad to

take over the premises until he was contacted by Mr Ziad.

261 It was put to Mr Newham that his evidence about a 2 month rent free period was a fabrication and being used to explain how a figure of $125,000 was referred to at all in the conversations which had taken place. Mr Newham denied the proposition.

262 It was also put to Mr Newham that a 2 month rent free period did not result in a

rental of $125,000.00 in any event. In reply he said that the then current rent was $142,000.00 and that an increase of 4% was due. He said, as I understood his evidence, that when he did the figures in his head, a 2 month rent free period equated to a rent of $125,000.00 after allowing for a 4% increase. (My own calculations indicate a figure of about $123,000.00 from those calculations.)

263 Mr Newham acknowledged that he had received the email from Mr Malovany

dated 28 February 2014 which is DN12 to his statement of 18 August 2016 and which included the words “If you now choose not to consider the $125K we agreed, then we would have thought, you could have at least entertained a stepped rental increase from that as a starting figure.” He acknowledged that he did not respond by denying that such an agreement existed. He was not asked, either in cross or by way of re-examination why he had not done so. He denied that his lack of response was because such an agreement had in fact been reached.

264 In his evidence in chief, Mr Malovany expanded on the contents of his

statement.

265 The following exchange took place in relation to paragraph 39: [Ms Fisher:] At paragraph 39 of your statement, Mr Malovany, you say, "In February 2014 the defendant advised the plaintiff" - what, if any, is your knowledge about the defendant advising the plaintiff of those matters?---David and myself would talk on a number of occasions from January, February but in particular February, I remember that Ziad saw us on the 24th and a week before that I know that I and Robert picked up the phone from Robert's office because hehas a loudspeaker in there and we rang David and I talked to David about the - I said to him, "David, I spoke to you last week in regards that I may have a new franchisee. It's going to be Ziad," and David said, "That's very good news." I said, "What we now need to do is get the five-year lease and agree on a 120K rental." David said, "I can't agree on a 120K rental," and I said, "David, Ziad is a great operator. He'll do well for you and for us. You've got to help me here." Then Robert jumped in and said, "Look, I'm prepared to go to 125 K." David also said, "No, I want just a little bit more." Then Robert came back and said, "No, we've got to get Ziad in. You're not going to have any problems. He's got some marketing plans. He's going to have the rent paid on time. Everything is fine, and it will be the best outcome for both of

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us. You know how good his trading ability is." Then I jumped in on top and said, "David, I need the 125 K that Robert has just put forward, because Ziad said that's the maximum he would pay." David said, "Okay, if it's Ziad, I will agree to 125, but I need a bank guarantee, because there isn't a bank guarantee in place." Both Robert and I thanked David, and I said to David, "I'll come back to you as soon as I confirm everything with Ziad." That was the conversation that Robert and I had with David Newham. (5 April 2017 (464) [34] through to (465) [13])

266 In his evidence in chief Mr Malovany had said that a meeting took place on 24

February 2014 at his office with Robert Marjan, Ziad Issa and persons he referred to as Evdon and Dominic. He said that was the meeting at which Ziad agreed to buy the Bunda Street business and he (Ziad) was told by Robert that the Landlord had agreed to a rental of $125,000.00.

267 Under cross examination Mr Malovany agreed that his email of 24 February

2014 which is annex DN8 to Mr Newham’s statement of 18 August 2016 was sent after that meeting. That email reads as follows:

Hi David I just left a message. We have had a discussion with Ziad and he is keen to be the franchisee on the store. He has a number of exciting plans to improve the business. He will buy the business in order for the outstanding rental to be cleared. We ask that you work with us in the knowledge that he is going to be a good ambassador for both of us. Accordingly we are prepared to commence a new 5 yr lease (plus 5yr option) on a gross rental of $120k. We await your confirmation. Kind regards, (Statement of David Newham 18 August 2016, DN8)

268 When asked why that email referred to $120,000.00 Mr Malovany said that it

was a “typo” and that it should have said $125,000.00.

269 In response to a question from me he said that he had realised the next day that he had made a mistake with the figure in the email.

270 It was put to Mr Malovany that there had been no agreement reached in a

conversation with Mr Newham on a rent of $125,000.00 and that his email was

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a continuation of the negotiations on a proposed rent. He denied that was the case but did concede that the reference to a 5 year option was not something which had been agreed. He said that in discussions with Ziad he had said that he would be “going for an option if we can get it”.

271 Mr Malovany was referred to the exchange of email he had with Mr Newham on

25 February 2014. They appear as annex DN9 and DN10 to Mr Newham’s statement. In his email sent at 12:54 PM on 25 February 2014 Mr Newham says this:

Hello Harry, that is good news. I had a discussion with Ziad yesterday. In relation to the current status you will be aware that we have provided notice to quit which expires this Sunday March 2. We will not be waiting for a deal with Ziad for the payment being made. You need to pay the arrears to avoid us terminating the lease & taking possession of the store. Given the history of late rental payments we have experienced over the term of the lease If we are to enter into a new lease we would not be waiving the requirement of a bond of three months. I have told Ziad that we would offer a rental freeze at the current level for the first twelve months on a new lease. Our enquiries have indicated that the rental is commensurate with the prevailing market rate. We would also offer a two month rent free period to him. I would suggest that given Ali Baba stands to loose an outlet & income chanel that he you should similalry support him by a providing a period of royalty free trading. Thanks David Newham (Statement of David Newham 18 August 2016, DN9)

272 In his email sent at 2:24pm on 25 February 2014, Mr Malovany responds in this

way: Hi David I am very disappointed in the stance on the lease. The current rental of $142k is too high. I have been working hard on getting Ziad to be the franchisee so that everyone would feel comfortable as he is known as a good operator (even you suggested he was much better than what was there now) and the arrears would be paid in full.

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In our earlier discussion you alluded to the fact that you couldn’t accept a reduction down to $110k but could entertain something around $120k-$125K I thought I had been doing the right thing by all. I ask that you respectfully reconsider the rental so that Ziad will have a chance to survive through the hard effort he wants to make . For your information we already assist our franchisees in many ways. Kind regards. (Statement of David Newham 18 August 2016, DN10)

273 The following exchange took place in cross examination about those email:

[Ms Glover:] This is an email from you to David Newham, again on 25 February so it’s about an hour and a half after you receive the email from Mr Newham. You go on there to state that “I am very disappointed in the stance on the lease. The current rental of $142,000 is too high. We’ve been working hard on getting Ziad to be the franchisee so that everyone would feel comfortable as he is known as a good operator. Even you suggested that he was much better than what was there now and the arrears would be paid in full”. You agree with me so far there’s no reference to any error or mistake that you’ve made in your earlier email, is there?---No. “In our earlier discussions you alluded to the fact that you couldn’t accept a reduction down to $110,000 but could entertain something around $120,000 to $125,000”. You see those words you’ve written there?---Yes, I do. I put it to you that your reference to “alluded to” is a reference to the fact that there had been discussions about what the rent might be but at no stage had Mr Newham agreed to $125,000, had he?---No, he had agreed to $125,000. Mr Malovany, if he’d agreed to $125,000 why is it that this email, withdraw that. Why do you not say in this email look David, you agreed to $125,000 back on 17 February?---I didn’t say it in those words. No. What you say is you alluded to the fact that you couldn’t accept a reduction down to 110 but you would entertain something around 120 to $125,000. That’s what you say in this email, don’t you?---That’s what I say, yes. I put it to you that you put it in those words because all that had taken place prior to 25 February 2014 when this email was sent was

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discussions, negotiations about what the future rental may be?---That’s still incorrect. You then go on to say “I ask that you respectfully reconsider the rental so that Ziad has a chance to survive through the hard efforts he wants to make”? ---Yes. You see that?---Yes, I do. So in this email you’re not asking Mr Newham to stand firm to what you say he agreed on 17 February, are you?---No, I haven’t no. In fact, what you’re asking him to do is to reconsider his position on the rental and to agree to something around the 120 to the 125. That’s what you’re asking in this email, isn’t it?---I’m asking him to reconsider his position. He’s at 142 now. He’s changed it to 142. That’s because 125 was never agreed to?---125 was agreed to. On the 24th you put forward a proposal of 120. The very next day you’re referring to the fact that he alluded to the fact that he couldn’t accept a reduction to 110 but he might entertain something around the 120 to 125. This email clearly demonstrates that you are still trying to negotiate a rental with Mr Newham?---No. Turning over to page 75. On the next day, 26 February, David Newham sends you an email and he says “Hi Harry. As advised our inquires suggest that $142,000 is in line with the market. The rent free period I have offered means that he will be paying $118,000 in the first year. If you want to retain the outlet you need to pay the arrears by next Sunday. Ali Baba’s reluctance to put their hands in their pocket to fulfil their legal obligations is not helping the cause here”. It’s very clear, isn’t it, from this email that David Newham is again reiterating his position as to what he is prepared to offer that he set out in his email of the 25th?---Yes, he stated $142,000, yes. With a rent free period?---Yes. That is correct, isn’t it?---It is correct. So he’s putting forward again, repeating what he’s prepared to offer?---He is putting forward something, yes. At page 77, this is an email from you to David Newham on 28 February, so it’s a couple of days later. “Hi David. We know recent events have not been favourable however now that Ziad is committed we can’t understand after all these years why you won’t work with us to find a satisfactory solution”. Now, I put to you that your words “to find a satisfactory solution” again is a reference to the negotiations that have been taking place over these days in relation to what would be the terms of a new lease?---No,

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I’m basically saying because he’s reneged on the 125, I’ve got to still try and get it at 125 and I will work with him on that and I put it forward as an opportunity to start at that with a stepped up increase. You then go on to say “If you now chose not to consider the 125 we agreed, then we would have thought you could have at least entertained a stepped rental increase from that as a starting figure”. Do you see that?---Yes, I do. I put it to you $125,000 was never agreed, was it?--- It was agreed. Only days earlier you’ve been saying it was alluded to?---Alluded means it was discussed and agreed. (11 September 2017 (16) [13] through to (18) [13])

274 In his oral testimony on 11 September 2017, Mr Marjan confirmed the contents

of his statement.

275 Under cross examination, also on 11 September 2017, he said that the phone call with Mr Newham in which the rental Representation was made was between 14 and 18 February 2014. He said that the face to face meeting in Sydney with Mr Malovany, Mr Issa and Domonic and Evdon took place on 24 February 2014. He was asked about conversations with Mr Issa in the intervening period. He said that there had been at least one. He said that he recalled from that conversation that Mr Issa knew about the Landlord’s agreement to rent of $125,000 but he didn’t know whether Mr Issa had been told by Mr Malovany or by Mr Newham. He later said that, at the time of the meeting on the 24 February 2014 he was aware from a conversation with Mr Issa that Mr Issa had spoken to Mr Newham who had confirmed that the rent would be $125,000.00.

276 He explained that Mr Issa had already agreed to buy the Bunda Street store if

the rent was $125,000.00 prior to the telephone conversation with Mr Newham in which he said the Rental Representation was made.

277 Under cross he said that a copy of Mr Malovany’s email of 24 February 2014,

which makes reference to a rental of $120,000 had been sent to him on that day. He said that he was not in the office and did not see it until the following morning. He agreed with a proposition that the reference to $120,000 was very odd and that he spoke to Mr Malovany about it between 9 and 9.30am on the morning of 25 February 2014. He said that Harry replied by telling him that it was a mistake. He said at (71) that he responded by saying words to the effect of “Well, it doesn’t matter anyway, because everything’s gone to shit.”

278 He said, also at (71), that he used that expression “[b]ecause David had

reneged on our discussions” – adding “[t]hey’d established that the day before.”

279 Later, at (74), he said that he had been away from his office on the afternoon of 24 February 2014 but had received a phone call from Mr Issa in which Mr Issa

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told him that Mr Newham had changed his mind and would not “give us the store at the rental of 125.”

280 Mr Marjan was cross examined about the circumstances under which his

statement of 20 May 2016 came to be prepared. At first he readily conceded that he had read Mr Malovany’s statement before signing his own. His testimony at that point included the following:

[MS GLOVER:] And how is it that it came about the wording in your statement in a number of paragraphs is identical word for word to the wording used by Mr Malovany in his statement?---At the time that we were writing, we were in discussions with each other. It was in the same office. We did them ourselves. No - no real reason other than that. … Then how to explain the fact that the wording in a number of paragraphs in your statement and his statement are identical?---Only for the fact that we wrote things at the same time together. We discussed things, so they ended up being the same. Not because they were cut and paste. (11 September 2017 (75) [18] – [38])

281 As the cross examination progressed however Mr Marjan adopted a somewhat

more cautious stance. I was left with the impression that he had realised that the questioning was directed towards a suggestion of collusion between him and Mr Malovany.

282 His evidence at that point in time included the following:

MS GLOVER: And Mr Marjan, the reason for you getting together with Harry and reading Harry's statement and Harry reading your statement before they were signed, that was done to make sure that there was no inconsistencies in the statements, wasn't it?---I never did that with Harry. I never said I did. So you are saying to me - I withdraw that. I may have mislead you. I understood your evidence to be that before you signed your statement, you read Harry's statement?---Parts of it, yes. But - - - Before you signed your statement, did you read Harry's statement?---I - I can't recollect whether before or after, but yes, I have read Harry's statement. … Mr Marjan, I put to you that before you signed your statement, you read Harry's statement?---No. Well, then how is it in paragraph three, can you say, "I have read the statement of Harry Malovany, dated 20 May, 2016, and filed herein. I agree with the contents of Harry's statement and the matters set out in

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that statement are true and correct"?---Because some of the - some of the items in the statement, I did read - - - Well, that's not what you say here - - -?---Not - not the whole - - - You say, "I have read the statement of Harry Malovany"?---I haven't read his whole - okay - at that point, I hadn't read his whole statement, because there was more than one statement anyway, at some point. No. Let's just make this very clear?---Okay. Your statement is dated 20 May, 2016?---Okay Harry's first statement is dated 20 May, 2016?---Okay. You say, "I have read the statement of Harry Malovany, dated 20 May, 2016"?---Then - - - I put it to you that before you signed this statement, you had read the statement of Harry Malovany, dated 20 May, 2016?---On that day, I would have read it. Correct. The answer is yes?---Yes. Right. (11 September 2017 (76) [36] through to (78) [19])

283 Unsurprisingly I was left with the impression that Mr Marjan was tailoring his

testimony in a way which he believed best suited the Tenant’s prospects of success.

284 Mr Ziad Issa gave evidence on 12 September 2017. I was told that he had

suffered a stroke in October of 2016. I refer to evidence he gave about the effects of that later.

285 Under oath he confirmed the contents of his statement dated 13 September

2015 – see paragraph 253 above.

286 In the course of cross examination he said that he had attended a face to face meeting in Sydney on 24 February 2014 with Mr Marjan and Mr Malovany and Evedon and Dominic. I refer to it in these reasons as the Sydney meeting.

287 He said that the conversation with Mr Newham referred to in paragraph 7 of his

statement (to the effect that the Landlord was considering rent of $125,000) was in a telephone conversation and that he had called Mr Newham. He said that telephone conversation took place before the Sydney meeting.

288 The following exchange then took place about what Mr Issa knew about Mr

Newham’s attitude to the rent at the time of the Sydney meeting:

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Before that meeting on 24 February you were aware from this conversation that David Newham was not prepared to accept a rental of 110 or 120, he was considering 125 if he was advised that that was the market rental. That’s correct?---Yes. (12 September 2017 (4) [33] – [36])

289 Mr Issa was referred to that part of his statement (paragraph 8) where he had

said that Mr Malovany told him that “…David Newham was now saying he will not agree to the $125k but will keep the same rental and give 2 months’ rent free.” Mr Issa said his recollection was that the conversation with Mr Malovany just referred to took place the day after the Sydney meeting.

290 Mr Issa accepted that paragraph 7 of his statement did not say that Mr

Newham agreed to rent of $125,000.00. By way of explanation he went on to say that there had been another telephone conversation with Mr Newham after the one referred to in his statement.

291 He said that the other conversation between him and Mr Newham also took

place before the Sydney meeting.

292 As to the contents of that conversation the effect of his testimony is fairly summarised in the following exchange:

MS GLOVER: No, I’m grateful to your Honour. If I can just clarify Mr Issa, is it your evidence now that in this conversation you were asked how much rent do you expect. You said $100,000 as a joke. There was a laugh. Is it the case that you then said to him 125 would be suitable. Is that what you’re saying you said?---Yes. And is it your evidence as you sit here today that Mr Newham said to you I can make it 125 plus give you two months’ free rent?---That’s what I understood at that time, yes. Is that what was said to you or is that what you understood?---That’s what I understood from the conversation. Okay. Are you able to recall what was actually said by Mr Newham?---I can’t remember exactly. Mr Issa, you agree with me that that conversation that you’ve just told us about, that does not appear anywhere in your statement, does it?---Not the second conversation, no. (12 September 2017 (9) [34] through to (10) [8])

293 The cross examination of Mr Issa went on to deal with the circumstances under

which he had made his statement of 13 September 2016 and the

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circumstances under which he had sent the email of 28 October 2015 to Mr Malovany which is annex MM 31 to Mr Malovany’s statement.

294 This is a convenient point at which to refer to the evidence about the

consequences of Mr Ziad’s stroke.

295 No evidence was given about any medical diagnosis or prognosis.

296 It was apparent that English was not Mr Issa’s first language. Some miscommunication between counsel and witnesses in such circumstances is not unusual and can often be attributed to genuine misunderstanding of the language used by either counsel or the witness.

297 Mr Issa did at one stage during cross examination ask to be allowed to take

some tablets which he said were medication. He did not otherwise present in the witness box as a person who had suffered any of the more obvious debilitating consequences which sometimes result from a stroke.

298 He did however make reference to his memory and several exchanges took

place about the effect of the stroke on his ability to recall events, including the following:

HIS HONOUR: I think what Mr Issa may be getting at and perhaps this needs to be explored, has the stroke had an effect on your memory?---Yeah. Has the stroke had an effect on your memory of events which took place before you had the stroke?---It’s made me feel a bit hard to think and remember. If you understand the question I’m asking, when did you have the stroke? ---Just October last year. So my question to you is has the fact that you’ve had a stroke had an effect on your memory of things which took place before October, before you had the stroke?---Yeah, yes. …. HIS HONOUR: Perhaps we can get back, you might want to ask the question. I understand the point that Mr Issa’s making but I think you can probably re-ask the question. MS GLOVER: Mr Issa, just focus on the question for a moment. Is it the case that because of your stroke or for whatever reason you do not have a clear recollection of the conversation that you had with Harry Malovany when he asked you to prepare a statement?---Yes. Okay. Is it also the case that as a result of this stroke that you had or for whatever reason, you do not have a clear recollection of the conversations that you had with David Newham in February 2014?---Think so.

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Sorry?---Yes. (12 September 2017 (14) [38] through to (15) [33])

299 And later:

[HIS HONOUR:] What about looking back now on events that happened before you had your stroke all right, so before October of last year, do you have any feel or any sense of how good or bad your memory is of things that happened before October of last year?---Only the good things in my life still I remember but usually like business and conversation regarding that or even in my existing business I can’t remember everything of that. Whatever has been written or like letters or bills it’s easy for me to remember them because I can go back to it and read what’s in it. They prompt your memory, do they?---Yes. … MS GLOVER: Thank you, your Honour. Mr Issa, what I understood through the exchange you just had with his Honour is that when it comes to recalling conversations that occurred before the stroke you have difficulty doing that. Is that correct?---Yes, I can’t remember what happened exactly in a conversation but I can remember the subject and the result of the conversation. Yes, okay. I think I understand. Just a couple of questions more about your statement. When you were preparing your statement you took the time, didn’t you, to make sure that you recorded in that statement all the conversations that you thought were important?---Yes. Right. You agreed with me earlier that the conversation that you were telling us about today that you say occurred between yourself and David Newham after the conversation in paragraph 7 but before the meeting, you agreed with me that nowhere in your statement do you refer to that conversation, do you?---Sorry, repeat again? Sorry, it was a convoluted question. You agree with me, you gave some evidence earlier today about a second conversation that you say you had with David Newham after the conversation that you refer to in paragraph 7 but before the face to face meeting you had in Sydney?---Yes. You agreed with me that nowhere in your statement do you set out that conversation. That’s correct, isn’t it?---Just last part of the question again. You’ve read your statement before today?---Yes. In your statement you don’t refer anywhere to that conversation that you had with David Newham?---No.

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Right. Mr Issa, I put it to you that at no time has David Newham said to you that he would agree to a rent of $125,000 for the term of a new lease at the Bunda street store?---Sorry, he didn’t? In that conversation yes, he said he happy. I’m putting to you that that conversation never took place?---What you mean? HIS HONOUR: The process that Ms Glover’s going through, Mr Issa, is something that she’s required to do. She’s putting to you a proposition and you’re required to respond to the proposition either saying yes I agree or no I don’t agree or maybe that was the case, I don’t remember, whatever. You need to respond to the proposition that’s being put to you?---This question, okay. Perhaps you could put the proposition again. MS GLOVER: Okay. Mr Issa, this is the proposition. I’m putting to you that at no time did David Newham tell you that he would accept an amount of $125,000 per annum for rent for the Bunda street store?---Disagree. (12 September 2017 (21) [42] through to (23) [31])

300 The cross examination of Mr Issa about the circumstances under which he had

made his statement of 13 September 2016 and the circumstances under which he had sent the email of 28 October 2015 to Mr Malovany which is annex MM 31 to Mr Malovany’s statement was somewhat excruciating.

301 Mr Issa prevaricated in his answers about both subjects. He was pursued

doggedly (but not, I add, improperly) in cross examination.

302 The relevant part of the cross examination occupies some 20 pages of the transcript. I will not set it out in full. The following is in my opinion a fair summary of the testimony given by Mr Issa. The numerals appearing in brackets are references to the transcript of 12 September 2017.

a. Ms Karol Duric, an employee of Ali Baba, helped him with his statement

(10);

b. He first became aware of the Court proceedings about 2 years ago (12);

c. The contact with him about preparing a statement came from by Mr Malovany (10);

d. He thought he needed help to prepare the statement because of his

language (11);

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e. When it was first put to him that Mr Malovany told him what he wanted addressed in the statement, Mr Issa said “no” (13);

f. When asked how he knew what the proceedings were about he said –

“He (Mr Malovany) told me what was going on and where things were going” (13);

g. When asked what Mr Malovany told him at that time, Mr Issa said he

could not remember exactly (14);

h. When asked whether Mr Malovany asked or told him what the statement was to cover Mr Issa said “Yeah, kind of like I need to talk about the conversation and kind of, where I’m working, what I’m doing now and after that I tried to call Karol” (14);

i. When asked whether Mr Malovany had asked him to include in the

statement any conversations he’d had with Mr Newham in which rental negotiations were discussed he said “yes” (14);

j. He went on to say that he could not recall what was said in that

conversation with Mr Malovany and referred to having had a stroke (14);

k. He went on to give the answers which are set out at paragraph 298 of these reasons about not having a clear recollection of the conversation with Mr Malovany when he was asked to prepare the statement of the conversations with Mr Newham in February 2014.

303 In response to questions about the process involved in preparation of his

statement the following exchange took place:

[MS GLOVER:] Okay. So when it came to drafting or preparing your statement is it the case that Karol Duric would say to you something like “Okay, now you had a conversation with David Newham and he said to you that the rent was going to be $125,000” and then she’d ask you if that was correct?---Yeah. Then if you said it was correct is it the case that she would then write a paragraph, I’m assuming she typed it?---She typed it. Typing it and then is it the case that she’d then read to you what she typed?---Yes. Okay?---Or sometimes I may have to check. She will email it to me to check if that right. You said she worked through it paragraph by paragraph and particularly in relation to the conversations, I’m putting to you that she said to you “You had a conversation with David Newham. He said to you that he would

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agree to a rent of 125”. She then wrote that down, showed it to you or read it to you. You said okay. Is that correct?---Yes. And then you moved to the next paragraph?---Yes. (12 September 2017 (16) [19] – [39])

and later:

Is it the case that before you prepared this statement with Karol you’d seen a copy of Ali Hamid’s statement and you’d seen a copy of Mr Newham’s statement?---Yes. (12 September 2017 (17) [11] – [13])

and later:

[MS GLOVER:] So it’s the case, isn’t it, that before you signed your statement you had read the statement of Harry Malovany?---Yeah, I believe I should, yes. It’s a simple yes or no answer. Is it yes you did?---Yes. (12 September 2017 (19) [25] – [28])

304 When asked about his email to Mr Malovany of 28 October 2015 (annex HM 31

to statement by Mr Malovany of 20 May 2016) Mr Issa said the following:

a. His wife helped him write it (24);

b. At first he said that he heard that Mr Newham would not accept rent of $125,000 on the 25 February 2014 that being the day after the Sydney meeting of 24 February 2014 (25);

c. He was referred to that part of his email to Mr Malovany where he said:

In the meeting with Robert and yourself, we discussed everything and i understood the gross rental was going to be $125K. Shortly thereafter i had a call with David the Landlord and he also confirmed to me that the new rental would be $125K pa.

d. He at first said that the meeting referred to was the Sydney meeting (27).

When his attention was directed to what was said in the email about the call with David the Landlord shortly thereafter, he changed his evidence to say that he could not recall whether he was referring to the Sydney meeting or some other meeting (27) – (28).

e. In response to a proposition that he had a discussion with Mr Malovany

about what was to be put in the email Mr Issa said this:

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[MS GLOVER:] Well, I put it to you that before you wrote this email, you had a discussion with Harry Malovany about what you were going to put in this email?---No. Well, tried to ask him at that time, and from when to where and what I need to explain, which is everything, or like, short sentence, or explain the day when Robert start calling me, and from - which is the beginning of March to the end to mid - sorry. Beginning of February to the mid of March, that's the type of question. Not, like, what you'd like me to write it. (12 September 2017 (30) [17] – [23])

f. When asked about what was in the email about the discussion with Mr

Malovany and Mr Robert Marjan, he said that he had a recollection of the events and was not “simply working on the basis of what was written” in the email (31).

305 He went on to agree at (31) that at the time of the conversation with Mr

Newham referred to in that email he’d already been told that the Landlord had agreed to a rental of $125,000.00.

306 I have concluded that the testimony of Mr Issa cannot be relied upon as

supporting the assertion that the Rental Representation was made on behalf of the Landlord.

307 My reasons for that conclusion are these:

a. Mr Issa’s original statement of 13 September 2016 made no mention of

the Rental Representation as such – under circumstances where, if such a representation had been made, it is highly unlikely that it would not have been referred to in the statement.

b. In his testimony Mr Issa does not give any plausible explanation for his

statement not including reference to the Rental Representation.

c. The overall tenor of Mr Issa’s testimony indicates that he does not have the independent recollection of events which he professed to have at least in relation to some aspects of his evidence.

d. The circumstances under which the email of 28 October 2015 came into

existence undermine the reliability of it as an accurate record of the events to which it refers. Its admission was not objected to, despite it having been prepared apparently in contemplation of the subject proceedings. It was prepared at the request of the Tenant some 12 months after the events to which it refers. Mr Issa has suffered a stroke after it was prepared and, as I have said, I am persuaded that he does not now have a reliable independent recollection of the events referred to in it. In addition his testimony about his exchanges with Mr Malovany suggest a significant risk of reconstruction of what had taken place at the time of its preparation.

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308 Having reached that conclusion about Mr Issa’s evidence in relation to the Rental Representation I turn to consider the other evidence about it.

309 Both Mr Malovany and Mr Marjan say that the Rental Representation was

made.

310 There are some features of their evidence which tend to undermine its reliability.

311 I include in this category the following:

a. I infer, from the absence of any relevant evidence, that no steps were

taken by the Tenant to record what Mr Malovany and Mr Marjan say was the Rental Representation made in the telephone conversation with Mr Newham – and in particular there was no communication with Mr Newham recording what is asserted to be that Rental Representation. That observation is made against the background that what is asserted to be the agreement reached would clearly have been important to the Tenant’s discussions with Mr Issa and that there were frequent other email communications passing between the parties. No questions were asked of Mr Malovany or Mr Marjan either in chief or by way of cross examination on this aspect of the circumstances.

b. The communication which the Tenant says was intended to record the

Rental Representation is the email of 24 February 2014 referred to in paragraph 267 of these reasons. The Tenant accepts however that it does not accurately record what the Tenant says was the Rental Representation because it refers to a figure of $120,000 and not $125,000. That is a surprising error to have been made in the circumstances. In addition the language used in that email – in particular the reference to ”we are prepared to commence a new 5 yr lease (plus 5yr option) on a gross rental of $120k” and “we await your confirmation” suggests a communication more consistent with on-going negotiations than a confirmation of the terms of a Rental Representation previously made. The Tenant says that the email raised for the first time the prospect of an option not previously discussed. The email does do so but not in a way which unequivocally supports what the Tenant presses for as the explanation for the language used in that communication.

c. In the email from Mr Malovany to Mr Newham dated 25 February 2014

which follows Mr Malovany being told that Mr Newham has denied having made the Rental Representation, no mention of it is made by Mr Malovany – see paragraph 272 of these reasons. Ordinary experience suggests that, if the Rental Representation had been made and subsequently denied, the natural reaction of the Tenant would have been to point to the “agreement” which it said had been reached and make some complaint about, or request some explanation of, the subsequent denial of it.

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d. I have set out at paragraph 272 of these reasons the contents of that email from Mr Malovany. It not only makes no reference to the Rental Representation having been made, but the language used – in particular the reference to “our earlier discussion” and “you… could entertain something around $120k-$125K” is a communication more consistent with on-going negotiations than a response to the denial of the Rental Representation having been made.

e. Mr Malovany’s testimony about why he made no reference to the Rental

Representation in his email is set out in the exchange at paragraph 273 of these reasons. It is unconvincing.

f. It is not in contest that in an email of 28 February 2014 from Mr Malovany

to Mr Newham he refers to “the $125 we agreed”, but that was some time after the exchanges just referred to in which some reference to the Rental Representation, if it had in fact been made, was to be expected.

g. The evidence strongly supports a conclusion that there were discussions

and exchanges between Mr Malovany and Mr Marjan about the evidence they planned to give – either directly or indirectly via the employee Ms Karol Duric.

312 There is no documentary evidence directly supporting the Tenant’s assertion

about the Rental Representation having been made. The email which are in evidence do not unequivocally support the Tenant’s assertions, and indeed on one view of them the language used is inconsistent with those assertions.

313 In the absence of persuasive documentary evidence the Tenant’s case on the

Rental Representation relies materially upon acceptance of the testimony of Messrs Malovany and Marjan.

314 There are several aspects of Mr Malovany’s testimony (to which I have referred

in these reasons) which have been criticized by the Plaintiff. Those criticisms are valid. Those aspects of the testimony relate to what are the central issues in the case and not mere minor or peripheral matters. They lead me to have serious concerns about the reliability of his evidence.

315 I have already referred to my conclusion that Mr Marjan was tailoring some of

his testimony in a way which he believed best suited the Tenant’s prospects of success. That causes me to have concerns about the reliability of his other evidence also.

316 I have already recorded that I reject the evidence of Mr Issa and the reasons for

doing so.

317 The Tenant bears the onus of proof in its claim based upon the Rental Representation. Having regard to the absence of any persuasive documentary evidence and the reservations I have about the testimony of both Mr Malovany and Mr Marjan, I cannot be satisfied that the Rental Representation was, in fact, made.

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318 The conclusion just reached disposes of the Tenant’s counter-claim based

upon misleading or deceptive conduct and based upon unconscionable conduct.

COSTS

319 The Landlord’s claim includes a claim for its legal costs, based upon the terms

of clause 17.1(c) of the Lease.

320 In Ginninderra Properties Pty Ltd v Gelonese [2017] ACTMC 25 I dealt with an application by a Landlord for recovery of the legal costs of the Court proceedings based upon a clause in the lease.

321 In dismissing the claim I said this:

74 The Plaintiff’s claim for costs is not, in any event, expressed to be

sought pursuant to the exercise of the Court's discretion to order costs. Rather, it is expressed in the written submissions as being “on an indemnity basis in accordance with clause 6.1.6 of the Lease". It was pleaded in the Amended Statement of Claim as a claim for costs pursuant to clause 8.7 of the Lease, but nothing turns on that for present purposes.

75 Framed as It is, the Plaintiff's claim for costs is one for an amount

claimed to be owing by virtue of the express agreement by the Tenant to pay the costs as set out in the Lease, rather than pursuant to the Courts discretionary power to make an order for costs under s154. It is in effect a liquidated claim for monies asserted to be owing by the Tenant under the Lease.

76 A claim for costs made on that basis faces two difficulties. 77 The first is that, pleaded in that fashion, the claim requires evidence

to be presented at hearing as to the amount of costs asserted to be payable so that an appropriate award can be made in satisfaction of the liquidated claim. No amount was specified for the claim for costs and no evidence was presented to support any amount in respect of the claim.

78 The second and more fundamental difficulty, insofar as what is

claimed is asserted to represent costs of the proceedings, stems from the effect of section 19 of the Act which provides that, if a provision in a lease is inconsistent with the Act, then the provision is void to the extent of the inconsistency.

79 Against the background of section 154 requiring that each party to

proceedings bear its own costs (absent an order otherwise), a provision in a lease which extends to obliging a tenant pay the costs

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of proceedings is inconsistent with the Act and therefore void to that extent.

80 In the circumstances I find against the Landlord on its claim for costs

of the proceedings.

322 The Landlord’s claim in the present proceedings does not face the first of the difficulties referred to but the second remains.

323 My decision on costs in Ginninderra Properties was overturned on appeal

(Ginninderra Properties Pty Ltd v Gelonese [2017] ACTSC 362) His Honour Robinson AJ concluding that, despite a claim for costs on ordinary discretionary grounds not having been pleaded, the Landlord ought to have been given an opportunity to make submissions seeking a costs order pursuant to section 154 of the Act.

324 The conclusion of His Honour Robinson AJ in relation to the costs claimed

under the Lease was that “… the claim [being] formulated in this way, as an indemnity representing the costs of the proceedings, the trial judge was correct to dismiss it as being inconsistent with the Act”.

325 I see no material distinction between the claim for costs by the Landlord in

these proceedings pursuant to clause 17.1 of the Lease and the claim for costs under the lease in Ginninderra Properties.

326 I dismiss the claim for costs on that basis.

327 I reserve any decision on a costs order under section 154 of the Act pending

further submissions following delivery of these reasons for decision.

JUDGMENT

328 On the Landlord’s claim against the Tenant I give judgment for the Landlord against the Tenant in an amount of $106,231.00 made up as follows:

a. Rent (pre-GST) from 1 June 2014 to 18 August 2014

(Paragraph 19)

$30,741.00

b. Interest on (a) (Lease rate)

$11,569.00

c. GST on (a)

$3,074.00

d. Damages for breach of make good obligations (Paragraph 128)

$29,190.00

e. Interest on (d) (Rules rate)

$6,586.00

f. Grease trap cleaning $848.00

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(Paragraph 151)

g. Interest on (f) (Lease rate)

$311.00

h. GST on (f)

$85.00

i. Damages for loss of bargain (Paragraph 153)

$19,513.00

j. Interest on (i) (Rules rate)

$4,314.00

TOTAL

(Including interest to date of $22,780.00) $106,231.00

329 The Tenant’s counterclaim against the Landlord is dismissed.

330 I will hear the parties as to any claims for costs, outside the claim already

dismissed under the terms of the Lease.

I certify that the preceding three hundred and thirty [330] paragraphs are a true copy of the Reasons for Decision of his Honour Magistrate P J Morrison.

Associate: Narika Wicks Date: 1 May 2018