Bradley & Ors v North Eastern Travelstops Pty Ltd [2004] NSWADT 145

CITATION: Bradley & Ors v North Eastern Travelstops Pty Ltd [2004] NSWADT 145 DIVISION: Retail Leases Division APPLICANTS PARTIES: Seamus Bradley, Margie Howarth and Peta Hunter RESPONDENT North Eastern Travelstops Pty Ltd FILE NUMBER: 035012 HEARING DATES: 17/03/2004 - 18/03/2004 SUBMISSIONS CLOSED: 03/18/2004 DATE OF DECISION: 07/21/2004

BEFORE: Boyce P - Judicial Member APPLICATION: Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 CASES CITED: Trustees of the Pius Society of St Charles v Vodap Pty Ltd & Ors (No.2) [2004] NSWADT113 APPLICANT REPRESENTATION: S Woodward, solicitor RESPONDENT M Campbell, barrister ORDERS: 1. The Respondent pays to the Applicants the sum of $17,982.00 by way of compensation together with interest at the rate of 9% from 1 November 2003 until the date of payment. This amount to be paid within 21 days of these orders. 2. That in the absence of an agreement as to costs the Applicants and the Respondent file written submissions in relation to costs within 28 days of the date of these reasons.

REASONS FOR DECISION BACKGROUND 1 Ladehai Pty Limited was the registered proprietor of land being Lot 3 in DP 862441 upon which was erected a Service Station and Restaurant and known as 1 Coast Road, Hastings Point. 2 On 2 November 1997 Ladehai Pty Limited leased the whole of 1 Coast Road, Hastings Point to Caltex Australia Petroleum Pty Ltd ("Caltex") for a term of five years ending on 1 November 2002 ("Head-Lease"). 3 Caltex ("the Franchisor") entered into a Franchise Agreement and a Sub-Lease, to occupy the premises to commence on 1 November 1998 with Quality Travel Stops Pty Ltd for the service station and restaurant business operated from 1 Coast Road, Hastings Point for a term of five years ending on 30 October 2003. ("Franchise Agreement"). 4 On 23 March 2000 Quality Travel Stops Pty Ltd assigned its Franchise Agreement and Sub-Lease of the 1 Coast Road, Hastings Point to the Respondent with the Franchisors, and Lessors and Sub-Lessors consent. 5 Before 12 December 2000 the Applicants entered into a contract with the Respondent to purchase a business known as "Café Portofino" operated from the restaurant constructed on 1 Coast Road, Hastings Point for a purchase price of $22,000.00 plus stock. The contract was completed on 12 December 2000. 6 On 12 December 2000 the Applicants also entered into an agreement called a "Permit to Occupy" with the Respondent permitting the Applicants to occupy a "Licensed Area" which was defined in the agreement by reference to a plan of the restaurant annexed to the agreement and identifying "the Premises Common Use Areas, car parking ingress and egress" ("Premises") for a term ending midnight on 30 October 2003 with a conditional option for a further term of five years. APPLICATION TO THE TRIBUNAL 7 The Applicants claim the agreement called "Permit to Occupy" was a retail shop lease for the purposes of the Retail Leases Act 1994 8 The Applicants claim damages for the Respondent's breach of the terms and conditions of the Permit to Occupy for not being able to occupy the Premises for the term and option period of five years and, also claim compensation under the Retail Leases Act s.10. 9 Further, the Applicants apply for orders that the Respondent pay them damages "pursuant to Statute" interest and costs. 10 The Applicants abandoned their claim under the Trade Practices Act 1974. EVIDENCE 11 The Applicants responded to an advertisement placed by Benchmark Business Brokers in the "Gold Coast Bulletin" for the sale of a restaurant in about October 2000. On behalf of the Applicants, Margie Howarth telephoned Benchmark Business Brokers and spoke to Bruce Coudrey. Mr Coudrey told Ms Howarth that the business advertised for sale operated from premises forming part of a service station and caravan park known as "North Star Holiday Resort, Hastings Point" and was known as "Café Portofino". Ms Howarth and another of the Applicants, Seamus Bradley, went to see the restaurant. After seeing the restaurant Ms Howarth called Mr Coudrey again and asked him to make an appointment for her to meet with the owner of the restaurant. 12 Both Ms Howarth and Mr Bradley gave evidence that they attended a meeting with Mr Coudrey and Chris Morris, a Director of the Respondent at the Respondent's offices at Bundall, in Queensland. 13 The Applicants, Ms Howarth and Ms Hunter gave evidence that they had been in partnership conducting another restaurant known as the "Raging Radish" at Kingscliffe for more than four years. All three Applicants had other experience in the catering and restaurant business. 14 Mr Morris gave evidence that he was an experienced operator of service stations and businesses conducted in association with service stations in Queensland and New South Wales. 15 The evidence is unclear when, but certainly before the Applicants entered into a contract with the Respondent to purchase the business, they were given by MrCoudrey, the Respondents agent an "Executive Summary" that document states, inter alia, "LEASE DETAILS: To 1/11/2007 (including options)". 16 Further discussions took place between Ms Howarth and Mr Bradley on behalf of the Applicants and Mr Morris on behalf of the Respondent including the concerns of the Applicants in relation to the Motor Way then being constructed to by-pass the main Pacific Highway from coastal villages including Hastings Point which was due to open in 2002. Although the Respondent generally denies that comments attributed to Mr Morris alleged by the Applicants, it is clear that before entering into any contract for the purchase of the business, or the Permit to Occupy, the Applicants were aware of the construction of the by-pass and were concerned about the impact of the by-pass on the business. 17 After further negotiations between the Applicants and Respondent an offer was made by the Applicants to purchase the business for $22,000.00 plus stock with the Vendor (Respondent) financing part of the purchase price with an interest free loan of $12,000.00 repayable at $1,000.00 per month for 12 months secured by a Traders Bill of Sale. 18 The Applicants retained Elizabeth Ellis, Solicitor on or about 29 November 2000 to act on behalf of the Applicants in relation to their proposed purchase of the business known as "Café Portofino". Ms Ellis gave evidence that on 29 November 2000 she requested from the Vendor's (Respondent's) agent a copy of the contract documentation for the Purchasers (Applicants) approval before execution. On 5 December 2000 Ms Ellis consulted with Mr Bradley about the proposed purchase and discussed the matter generally with him. Ms Ellis also had telephone conversations with the Applicants. On 11 December 2000 Ms Ellis provided written advice to the Applicants that after consideration of a draft Contract for the Sale of Business (Queensland version), Permit to Occupy and Bill of Sale as follows: "In relation to the permit to occupy, we confirm our earlier advice to you that the permit is personal only and does not create an equitable or caveatable interest in the land. Of greater concern is the lack of particulars relating to the term of the Company's Licence. Despite requests of the Vendor's Solicitors, and assurances that those particulars would be forthcoming, to date we have not received same. In light of the above, we would advise you not to sign the Permit to Occupy and not to complete the Contract. Similarly, the draft Bill of Sale recently furnished by you requires revision in relation to term, interest, penalty etc. " 19 On 12 December 2000 a fax was sent by Gadens Lawyers, acting for North Eastern Travelstops Pty Limited, to Miss Ellis. This fax provided, inter alia: "I confirm that my client North Eastern Travelstops Pty Limited operates the Caltex Service Station at Hasting Point under a Franchise Agreement with Caltex. The Franchise Agreement contains within it, a Licence to occupy the site. To allow the sale of the restaurant to proceed, Caltex has effectively carved out the area taken up by the restaurant for the licence and the Franchise Agreement and granted my client a separate licence of that state. The terms of that licence were attached to the permit to occupy. Although my client would prefer not to disclose the commercial arrangements between itself and Caltex, I have been instructed to inform you that the licence agreement between Caltex and my client grants my client a three year licence of the restaurant area. The term of the licence expires on 31 October 2003 therefore, the expiry date of the permit to occupy will be 30 October 2003 to avoid any suggestion that the licence has been assigned." A copy of this letter from Gadens, Lawyers was faxed to the Applicants on 12 December 2000 by Ms Ellis. 20 On the evening of 12 December 2000 all the Applicants attended Café Portofino Restaurant so that they could carry out a stock take in preparation for the taking over of the business and to commence trade on 13 December 2000. The execution of the Permit to Occupy took place after the stock-take. Before signing the documents discussions took place and the permit to occupy was amended by adding additional clauses as follows: "22. In the event of the sale of the franchise; 22.1 that in the event of the sale of the franchise by the company that it shall be a condition of such of sale that the permit holders be given the option to continue under the terms and conditions as set out in the permit to occupy and its relevant schedules and attachments, subject to the continuing approval of Caltex Oil Australia, as set out in the Licence Agreement. 23. Further Option. 23.1 That the Licence holder be granted a further five year option in the event that Caltex exercise its option and that the company also exercise its option." The schedule to the permit to occupy was also completed by adding in the words to Item 2 Commencement Date:- "Wednesday, 13th day of December 2000" and adding in Item 3 expiry date:- "Midnight on 30th day of October 2003" and in Item 4 Manner of Times for Payment of Permit Fee:- "Monthly in advance on the first of the month". Annexed to the Permit to Occupy was a copy of the Respondent's licence agreement with Caltex disclosing that the Respondent's term expired on 30 October 2003 which was initialled by all parties. 21 In her Affidavit of 15 August 2003 Ms Howarth (Exhibit A1) gave evidence of a conversation at para 12, para 13, para 14 and para 15 that discussions took place between her and Mr Morris and that he answered her concern about what would happen if the Respondent sold its business by volunteering to add Clauses 22 and 22.1 to the permit to occupy. Ms Howarth gave evidence that when the additional clause was being added to the permit to occupy Mr Morris said words to the effect: "Whilst Caltex remains on the site you have the right to remain operating the restaurant no matter who is the franchisee. This Clause will cover you so that it is only if Caltex leaves the site your right to continue would cease". Mr Morris denies at para 18(f) of his Affidavit of 30 October 2003 that he made this statement. 22 Mr Bradley and Ms Howarth's evidence of the discussions about the term of the Respondent's licence is preferred because of the specific reference to the discussions that took place. Mr Morris' recollection was of that he generally denied Mr Bradley and Ms Howarth assertions. Neither of these Applicants refer to Mr Morris' discussions of the tenure of being controlled by Caltex lease, as they were relying on the Respondent's licence with Caltex which disclosed an initial term expiring on 30 October 2004. 23 In his Affidavit of 15 August 2003, Seamus Bradley (Exhibit A3) at para 8 gave evidence that Mr Morris represented that he had a nine year lease on the premises with about eight years to go and that, if the Applicants proceeded to purchase the business that would be able to trade from the premises for the remainder of the lease. 24 In his Affidavit of 30 October 2003 Mr Morris (Exhibit R2) at para 17(k) and 17(e) denies that he made any assurances or representation in relation to the tenure of the Premises other than the tenure was controlled by lease between Caltex Australia Petroleum Pty Limited and Ladehai and that the Applicants' rights in relation to the premises were contingent upon the lease remaining in existence. 25 In her Affidavit of 15 August 2003 (Exhibit A1) Ms Howarth at para 15 gave evidence of Mr Morris' response to her concerns about options on renewal of the Permit to Occupy by adding in Clause 23 and 23.1. 26 There is evidence by both Mr Bradley and by Ms Howarth that Seamus Bradley requested a "letter of comfort" from Mr Morris to satisfy the Applicants that Mr Morris and the Respondent intended to continue to trade from the site under its Franchise Agreement with Caltex. Mr Morris in his Affidavit denies that those requests were made by the Applicant. 27 Both Seamus Bradley in his Affidavit of 15 August 2003 (Exhibit A3) at para 8 and Margie Howarth in her Affidavit of 15 August 2003 (Exhibit A1) at para 15 gave evidence that in response to the Applicants' concern about the impact of the by-pass to the Pacific Highway that Mr Morris indicated that the by-pass would have no impact on the business. 28 Mr Morris in his Affidavit of 30 October 2003 (Exhibit R2) denies that he made any representation in relation to the effect of the by-pass to the main Pacific Highway by the construction of a motor way. Under cross-examination Mr Morris gave evidence that when he purchased the restaurant and service station in March 2000 he was not aware of the proposed by-pass was aware of it at the time that he advertised the restaurant business for sale. He conceded that if the by-pass went ahead it would affect the business. 29 Seamus Bradley gave evidence in his Affidavit of 15 August 2003 (Exhibit A3) at para 24 that: "the Applicants and myself had spent considerable time and effort in building up the business over time creating a viable business in which we would be able to work hours convenient to ourselves and sharing the workload. Even where trade was effected by the opening of the motor way by changing our hours from 7 days per week 8.30am to last sitting 8.30pm to initially 11.30am to last sitting 8.30pm on weekdays and 8.30am to last sitting 8.30pm on weekends and holidays of our September/October 2002 to Easter 2003 and then from Easter 2003 to 27 July 2003 from 5.30am to last sitting 8.30pm Monday, Wednesday, Thursday, Friday and 11.30am to last sitting 8.30pm on the weekends through reduction of staff and staff hours the income which I received by way of wages and profits share had remained substantially the same as to prior to the opening of the motor way". 30 It is common ground between the parties that the "Permit to Occupy" is a retail shop lease to which the Retail Leases Act applies. 31 The Retail Leases Act s.11 requires a Lessee to be given a Disclosure Statement for a lease at least seven days before a retail shop lease is entered into. 32 The Retail Lease Act s.10 (2) provides that the giving of a Lessors Disclosure Statement to a prospective Lessee under a retail shop lease is considered to be the making of a representation by the Lessor to the Lessee as to the information in the Disclosure Statement. 33 There is no evidence that a Disclosure Statement was given by the Respondent to Applicants. 34 The Retail Leases Act s.9 provides that person must not as Lessor or on behalf of the Lessor, offer to enter into a retail shop lease unless the person has in his or her possession a copy of the proposed retail shop lease and that person makes a copy of the proposed lease available to any prospective lessee. There is evidence that the draft Permit to Occupy was given to the Applicants before they signed it. TERMINATION OF HEAD LEASE 35 On 14 February 2003 the Applicants received a letter from Blake Dawson & Waldron, Solicitors acting for Caltex Australia Petroleum Limited giving notice to vacate the premises on 28 February 2003. The notice also asserted that no Licence had been granted to the Applicants in respect of the equipment used in the Restaurant. Caltex accordingly withdrew any repairs or maintenance of the equipment and required the equipment to be yield up on or before 28 February 2003 in conjunction with the occupancy of the Restaurant. As a result of the notice the proceedings were commenced and Caltex Australia Petroleum Limited and Ladehai Pty Limited (the registered proprietor of the land upon which the premises are located) were joined as Respondents to the Applicant's application. After the commencement of these proceedings no further steps where taken by Caltex in relation to the notice to terminate and the Applicant continued to occupy the premises pending an effort to resolve the dispute. The Applicant was unsuccessful in resolving the dispute by mediation with Caltex and Ladehai and the Applicants agreed to vacate the premises on 27 July 2003 and ceased trading on that day. 36 The option period for a further five years from 1 November 2003 to 30 October 2003 was, by the clauses added to the Permit to Occupy on 12 December 2000, subject to Caltex exercising its option under the Head Lease, which it did not. SUMMARY OF EVIDENCE 37 On considering the great volume of evidence I find as follows: A. The Respondent did not give to the Applicants any Disclosure Statement as required by the Retail Leases Act s.11. B. The Respondent made a copy of the proposed Permit to Occupy available to the Applicants as required by the Retail Leases Act s.9 before the Applicants entered into it. C. The Permit to Occupy is a retail shop lease for the purposes of the Retail Leases Act. D. The Applicants were advised on the terms of the Permit to Occupy by their Solicitor, Elizabeth Ellis before they entered into the Permit to Occupy with the Respondent and that they should have attempted to verify the term of the Respondents tenure of the premises before completing the purchase of the business and entering into the Permit to Occupy. E. The Applicants were aware that the term of the Permit to Occupy was from Wednesday, 13 December 2000 until midnight 30 October 2003. F. I am satisfied the Respondent represented to the Applicants that it had tenure to the premises until midnight 30 October 2003 through both by the representations made by Mr Morris and its Solicitors, Gadens Lawyers in their fax of 12 October 2000 to the Applicants' Solicitor. G. Any right to occupy the premises after 30 October 2003 would be subject to Caltex Australia Petroleum Limited the Lessee under the Head-Lease exercising its option for a further five year period or in the alternative if the Respondent sold its business that it would grant to the Applicants an option to continue to occupy the premises but always subject to the continuing approval of Caltex Australia Petroleum Limited. H. The initial term of the Permit to Occupy expired on 30 October 2003. I. Caltex did not exercise its option under the Head Lease nor did the Respondent under its licence and the Applicants could not exercise their option. J. The Head Lease from Ladehai Pty Limited to Caltex expired on 1 November 2002 without Caltex exercising its option and the right to a further term under the Permit to Occupy ceased. K. By the termination of the Head Lease an essential term of the Permit to Occupy was breached constituting repudiation of it. EVIDENCE OF LOSS 38 The Applicants claim that they suffered loss and damage as a result of them being unable to trade from the premises from 27 July 2003 to 30 October 2003. The Applicants' evidence in both the Affidavit of Margie Howarth sworn 15 August 2003 (Exhibit A1) and the Affidavit of Seamus Bradley sworn 15 August 2003 (Exhibit A3) as to loss and damage is as follows: To loss of profit from 27 July 2003 to 30 October 2003 at $4,000.00 per month (net):- $12,000.00 To loss of business comprising:- Goodwill $40,00.00 Plant and Equipment $22,000.00 TOTAL $62,000.00 Less salvage value of equipment:-$5,492.70 $56,507.30 Plus outgoings claimed by Caltex $ 1,399.00 Plus loss of wages by Applicants from 27 July 2003 to 30 October 2003 at $4,170.00 per month:- $12,510.00 TOTAL LOSS AND DAMAGE $70,416.30" 39 The expert evidence given by Mr Greg Kelly on behalf of the Respondent provided a calculation for projected net profit for the period 22 July 2003 to 30 October 2003 having regard to the abnormal decline in trading conditions due to the Pacific Highway by-pass of Hastings Point and at Appendix 8 of his report and states that the total net profit for the period 27 July 2003 to 30 October 2003 is $16,853.00 without taking into account Partners wages for that period. He calculates that the Partners wages for that period including superannuation would be $18,115.00. 40 Mr Kelly provides an opinion that: "In closing, given the permanent decline of the businesses sustainability, due to the new Pacific Highway, we hold that, beyond the salvage value of any plant and equipment and inventory owned by the business, as at 30 October 2003 the business was of no value. Given the pattern of decline, the business may have sustained the wages of any persons buying the business but would have provided no return on the business investment." 41 I prefer Mr Kelly's opinion which provides a reasonable determination of the value of the business as at 30 October 2003. FINDINGS AS TO PRE-LEASE MISREPRESENTATIONS 42 Section 10(1) of the Retail Leases Act provides: "A party to a retail shop lease is liable to another party to the lease (" the injured party" ) reasonable compensation for damage suffered by the injured party that is attributable to the injured parties entering into the Lease as a result of a false or misleading statement or representation made by the party, or any person acting under the parties authority, with knowledge that it was false or misleading" 43 I find that the representations made by Mr Morris on behalf of the Respondent and by his Solicitors, Gadens Lawyers in their fax to the Applicants' Solicitors of 12 October 2000 were that the Applicants term of the Permit to Occupy would expire on 30 October 2003. The Respondent's Licence Agreement with Caltex also expired on 30 October 2003. 44 I find that the Applicants understood that their Permit to Occupy with the Respondent after 30 October 2003 was always dependant on either Caltex exercising its option for a further five years period of its Head Lease and that if the Respondent sold its businesses to operate the service station then the Applicants' rights of tenure would be preserved by the Respondent with the purchaser of its business to enable the Applicants to continue to occupy the Premises subject always to the continuing approval of Caltex Oil Australia. 45 The Applicants attempted to verify the entitlement to tenure of the Premises through the Respondent. 46 The Respondent made the information available to the Applicants through copies of its License Agreement with Caltex. Together with this, the Applicants relied on the information provided by the Respondent's Solicitor as the Respondent's entitlement to tenure of the premises until 30 October 2003. The License Agreement was annexed to the Permit to Occupy at the time of it being signed and was initialled by all parties. 47 43. I find that there is no evidence that the Respondent knowingly gave false or misleading representations as to its tenure and that the Applicants are therefore not entitled to succeed in relation to their claim under the Retail Leases Act s.10(1). MINIMUM 5 YEAR TERM 44. The Retail Leases Act s.16(1) provides: "The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the Lessee of a further term has an extension or renewal of the lease, must not be less than five years. An agreement or option is not taken into account if it was entered into or conferred after the Lease was entered into" 48 Section 16(5) of the Retail Leases Act provided: "This Section does not apply to a lease to the extent that its application would be inconsistent with the terms of any Head Lease under which the Lessor hold the retail lease". 49 I find that the provisions of the Retail Leases Act s.16(1) do not apply to the permit to occupy as the Respondent held its tenure under the terms of a License granted by the Lessee (Caltex) under a Head Lease from Ladehai Pty Limited. REPUDIATION OF PERMIT TO OCCUPY 50 The notice given by Caltex to vacate the Premises on 28 February 2003 put the Respondent in the position that it lost its tenure and was not able to fulfil its obligations to provide the tenure under the Permit to Occupy for the remainder of the term. The Applicants agreed to vacate the premises on 27July 2003 as a result of the Respondent's repudiation of the Permit to Occupy. 51 I am satisfied that the compensation sought for pre-lease misrepresentation would be the same as the damages to which the Applicants would be entitled for the Respondent's repudiation of the Permit to Occupy. DAMAGES 52 The Applicants are entitled to damages for the loss suffered by them as a result of being unable to trade from the premises from 27 July 2003 to 30 October 2003. 53 The Applicants have claimed damages for loss of goodwill to the business. I am not concerned that they are entitled to be compensated for the goodwill component of their claim as there was no goodwill attributable to the business upon expiration of the Permit to Occupy on 30 October 2003 and if they are compensated for loss of profit for the period they were unable to trade there is no loss of goodwill. 54 The Applicants in assessing their damages have also claimed for the loss of plant and equipment in the sum of $22,000.00. They recovered $5,492.70 of the plant and equipment being its value at the time of its disposal. As they have received the value of the plant and equipment, the Applicants are not entitled to recover any other compensation in relation to the equipment. 55 The Applicants have claimed as part of their damages loss of profit of $12,000.00 plus loss of wages of $12,510.00. In his evidence on behalf of the Respondent, Mr Kelly concludes that given the pattern of decline in the business caused by the new Pacific Highway the business may have only sustained the wages of a person buying the business but would have provided no return on the business investment. Mr Kelly calculates that the net profit for the period from 27 July 2003 to 30 October 2003 would be $16,853.00 without taking into account partners' wages for that period. Calculates that partners' wages for the period would have been (including superannuation) $18,115.00. 56 I prefer Mr Kelly's expert calculation of the net profit for the period as the loss suffered by the Applicants. There would be insufficient profit to pay any wages and accordingly the net profit is the appropriate compensation. 57 As a result of the Respondent's repudiation of the Permit to Occupy the Applicants had to pay additional outgoings in respect of the Premises of $1,399.00 to Caltex and this is properly included in the Applicants claim for damages. 58 I find that the Respondent is liable to pay the Applicants reasonable compensation of $16,583.00 for the loss of profit plus $1,399.00 for the outgoings, totalling $17,982.00. 59 The Applicants sought interest pursuant to Sections 72A of the Retail Leases Act and accordingly I allow interest at the relevant statutory rate which I note is 9% from 1 November 2003 until the date of payment of compensation pursuant to these Orders. COSTS 60 I note that under of the Administrative Decisions Tribunal Act 1997 the Tribunal may award costs only "if it satisfied that they were special circumstances warranting an award of costs." I urge the parties to consider the decision of Judicial Member Montgomery given on 8 June 2004 in Trustees of the Pius Society of St Charles v Vodap Pty Ltd and Ors (No.2) [2004] NSWADT113. 61 I further note that both the Applicants and the Respondent advised the Tribunal that they wish to address it on the issue of costs after the decision is published. Unless an agreement can be reached between the parties as to costs I invite each party to file written submissions in relation to costs within 28 days of the date of these Reasons. ORDERS 1.The Respondent pays to the Applicants the sum of $17,982.00 by way of compensation together with interest at the rate of 9% from 1 November 2003 until the date of payment. This amount to be paid within 21 days of these orders. 2.That in the absence of an agreement as to costs the Applicants and the Respondent file written submissions in relation to costs within 28 days of the date of these reasons.