Four Seasons International Agriculture Pty Ltd v Dominic Iacullo & Or [2002] NSWADT 91

CITATION: Four Seasons International Agriculture Pty Ltd v Dominic Iacullo & Or [2002] NSWADT 91 DIVISION: Retail Leases Division APPLICANT Four Seasons International Agriculture Pty Ltd PARTIES: RESPONDENTS Dominic Iacullo Lillian Iacullo FILE NUMBER: 025015 HEARING DATES: 19/04/2002 SUBMISSIONS CLOSED: 04/19/2002 DATE OF DECISION: 05/31/2002

BEFORE: Rossiter C (Deputy President) ; Fairweather R - Member; Ward R - Member APPLICATION: Costs - Jurisdiction - Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 Masters v Cameron (1954) 91 CLR 353 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 NLS Pty Ltd v Hughes (1966) 120 CLR 583 CASES CITED: Lace v Chantler [1944] KB 368 Hall v Busst (1960) 104 CLR 206 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 Campbell Discount Co Ltd v Bridge [1962] AC 600 Muschinski v Dodds (1985) 160 CLR 583 APPLICANT REPRESENTATION: J Caristo, solicitor RESPONDENT S Vicars, solicitor ORDERS: 1 Application dismissed; 2 Each party to pay own costs

Introduction 1 In these proceedings, the applicant seeks to recover from the respondents a bond paid to secure a lease granted by the respondent to the applicant. The proceedings have been brought in the Tribunal as the applicant alleges that the lease is a retail shop lease within the meaning of ss 3, 6 Retail Leases Act, 1994 and the dispute before the parties is a retail tenancy dispute within the meaning of s 63 Retail Leases Act, 1994 and the application is, thus, a retail tenancy claim within the terms of s 70 Retail Leases Act, 1994. At the outset of the hearing of the proceedings, I pointed out to the parties that there may be an issue concerning the jurisdiction of the Tribunal to entertain these proceedings having regard to a contest between the parties as to the duration and term of the lease. Indeed, in their reply to the applicant's claim, the respondents submitted that the Tribunal had no jurisdiction to hear the claim. 2 In its application, the applicant alleged that the term of the lease was six months whereas by their reply, the respondents pleaded that the lease was for a term of two months. Section 3, Retail Leases Act, 1994 defines a retail shop lease as 'any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of use of the premises as a retail shop.' Section 6 provides that the Act does not apply to leases for a term of less than 6 months. A retail tenancy dispute is defined by terms of s 63 Retail Leases Act, 1994 as 'any dispute concerning the liabilities or obligations … of a party or former party to a retail shop lease or former lease …' It follows from the terms of these definitions that if the Tribunal finds that the lease was for a term of less than six months, the lease would not be a retail shop lease and the dispute between the parties would not be a retail tenancy dispute. Accordingly, in those circumstances, the Tribunal would have no alternative but to dismiss the application for want of jurisdiction. 3 Given that the dispute between the parties concerns a relatively small amount of money, dismissal of a claim for want of jurisdiction, with the not unlikely consequence that fresh proceedings would be brought in another court, would be an outcome the reverse of desirable. It was for this reason that, notwithstanding the failure of attempts to mediate the dispute between the parties, I urged the parties to endeavour to reach a settlement of the dispute and the proceedings were adjourned for some two hours as the parties attempted to negotiate. Regrettably, the parties failed to reach a settlement. The Evidence 4 Ms Jie Yun Luo gave evidence on behalf of the applicant. She is an officer of the applicant company holding the position of director. Her evidence is to some extent corroborated by Mr Ken Wu, a friend of Ms Luo, who also gave evidence. Ms Luo is not proficient in spoken English and needed the assistance of an interpreter during the hearing, although, the Tribunal notes, her answers to some questions by her counsel in the early part of the hearing were given in English and her expression was understandable. Her evidence was to the effect that in or about October, 2001, while living at 4/448 Canterbury Road, Campsie, she approached the male respondent with a view to leasing a shop at premises 478 Canterbury Road, Canterbury for the purpose of the company's business which was described as the importing and exporting, inter alia, of flowers. After some preliminary discussions, the parties met on a second occasion and the male respondent proposed a rent of $350-00 per week for the shop inclusive of renovations which included repainting the walls, repairing a leaking ceiling and other matters. The term agreed was 6 months. Ms Luo further deposed that on 20 October, 2001, in discussions between Ms Luo, Mr. Wu and the respondent, a term of 6 months for the lease was discussed and a rental of $350-00 per week inclusive of all renovations to be completed by the landlord. Ms Luo said that she had to go to China and she would think about the terms and be in touch upon her return from China. 5 On her return from China, Ms Luo went to see the respondent at his smash repair shop on 6 November and again was told that the rent of the shop would be $350-00 per week and that the respondent, for that amount of rent, would do all the renovations in the shop. On 9 November, she went to see the respondent again, this time in the company of Mr. Wu, to confirm the terms of the lease including the renovations. She deposed to the fact that the respondents agreed to all the terms discussed but required her to pay a two month bond. The evidence of Ms Luo was that the male respondent filled out the cheque and the cheque butt for the amount of the bond and Ms Luo then signed the cheque on terms agreed with the male respondent that the applicant was to have a rent holiday for two weeks from 15 November to 30 November. Ms Luo deposed that no documentation or disclosure statement under the Retail Leases Act, 1994 was given to her by the respondent but that on 9 November, she believed that she had an agreement of the shop for a term commencing, after the holiday, on 1 December, 2001 and ending on 31 May, 2002, a period of six months. The applicant received a key to the premises and, with the permission of the respondents, installed some of her goods in the premises. 6 After requesting a receipt for the bond money and attending the male respondent at his shop every day requesting a written form of lease, she received a form of lease on 19 November. On this occasion, Ken Wu was with her. The written lease as proffered did not accord with Ms Luo's understanding of the terms of the agreement. In particular, it provided for a term of two months, provided for rent of $375-00 per week after two months, instead of $350-00 per week, provided for the applicant to pay outgoings, such as council and water rates, provided for the lessee to pay 50% of the cost of installation of a security alarm and to pay for the cost of re-decorating and any internal repairs. The applicant took the view that, as the written lease as tendered was inconsistent with the oral agreement, she no longer wished to proceed with the lease of the shop. She removed her goods from the premises, returned the key and demanded return of the bond money. This was refused on the ground that the respondents alleged that the bond money had been used to renovate the shop. 7 Mr. Ken Wu gave evidence of conversations he had with the respondent in the company of Ms Luo. On all significant points, Mr. Wu's evidence was corroborative of Ms Luo's evidence in chief. 8 Ms Luo and Mr. Wu were cross examined by Ms Vicars, solicitor, on behalf of the respondents. The cross-examination did not cast any serious doubt on the testimony given on behalf of the applicant or cause the witnesses to change their version of facts and events to any significant extent. 9 The evidence for the respondents was given by Dominic Iacullo and this evidence revealed a very different story to that of the applicant. Mr. Iacullo deposed that the premises owned by the respondents at 478-480 Canterbury Road, Campsie consisted of two lock up shops fronting Canterbury Road and a storeroom and one bedroom flat at the rear. The premises had been let as one whole for many years as a pharmacy and became vacant when the lessee relocated to other premises. Mr. Iacullo gave evidence to the effect that the applicant approached him to lease the premises urgently as she wished to have her business operative before the Christmas trading period. Certain refurbishment work and fit out work was to be done which, Mr. Iacullo alleged, was to be done to the account of the applicant. It was alleged that the applicant understood that she was to do this work but, as she did not know any tradesmen and had seen work done by the respondents' tradesmen in other premises and was satisfied with the standard of the work, she requested the respondents to do the refurbishment work on her behalf. It was agreed that the work would be done by the respondents to the account of the applicant. Since the applicant did not have money to pay for the renovations in one lump sum, the parties agreed that the rent would be increased by $50-00 per week from $300-00 to $350-00 per week for the term of the lease. 10 The term of the lease is one of several differences but a critical difference in the evidence given on behalf of the applicant and the respondents. Mr. Iacullo deposed that the agreement between the parties made in November, 2001 was to the effect that the respondents granted a two month lease from 1 December, 2001 of both the shops at a rental of $350-00 per week, plus GST. After expiration of the term, if the respondent wished to have a lease of both shops, the lease would be a month to month lease at a rental of $650-00 per week, plus GST, but if the applicant wished to lease only one shop, the rent would be $350-00 per week, plus GST, plus $25-00 per week, totalling $375-00 plus GST. The respondents allege that the sum of $25-00 per week was to recoup the costs of partitioning the two shops and installing separate electrical switchboards. Mr. Iacullo was adamant in evidence that the term of the lease was for two months. Strenuous cross-examination by Mr. Caristo for the applicant failed to shake the respondent on this point. Indeed, it came out in cross-examination that the respondents owned other commercial property and understood the terms of the Retail Leases Act to the effect that a lease of six months or more was a retail lease and the Act required a minimum term of five years. Mr. Iacullo said in evidence that he desired a short term lease of two months in order to preserve his position in relation to future demolition and rebuilding plans that he had for the building comprising the demised premises. 11 When the applicant returned the proffered written lease and refused to proceed further, Mr. Iacullo deposed that the renovation work continued and he held the premises available for occupation by the applicant. The respondents allege that they incurred a total cost in the order of $12,500-00 in the execution of the renovations at the request of the applicant. Invoices for the work done were tendered in evidence. Credibility 12 All witnesses gave their evidence with candour and without significant contradictions. Their memory of events was good and there was no aspect of the evidence given by any witness which we would clearly reject. Cross-examination, at times quite vigorous, did not shake the confidence of any witness and did not derogate from the evidence given in chief. In summary, we believe the witnesses were endeavouring to present the facts to the Tribunal to the best of their knowledge, recollection and belief. The issues 13 There is some common ground between the parties. Both parties allege an oral agreement for lease was made in or about November, 2001. The agreement was not made 'subject to contract' and, although both parties envisaged a written lease, the agreement was intended to be binding. It was thus an agreement within the first category noted by the High Court in Masters v Cameron (1954) 91 CLR 353. Both parties acknowledge that a sum of $3,336-67 was paid by the applicant to the respondents as a bond or security deposit. Both parties acknowledge that the key to the premises was handed to the applicant by Mr. Iacullo. Both parties accept that the lease has come to an end. The respondents gave evidence that the demised premises have now been relet. 14 There is an acute contest between the parties as to which party was to pay for the renovations or refurbishment of the premises. Assuming for the present but without deciding that the respondents' version of events is to be believed, it seems to me that it is for the respondents to show an entitlement to forfeit the bond or security deposit. The only title to the bond moneys which the respondents can possibly establish is one consequent upon a forfeiture or appropriation for the applicant's breach. The legal ground upon which the respondents claim to forfeit the bond was not the subject of submissions or address by either counsel. The Bond 15 The parties agree that the sum claimed by the applicant was paid to the respondents as a bond. There was no evidence presented to the Tribunal as to what the parties intended by the use of this term. A bond paid may be in the nature of a deposit which the parties intend to be liable to forfeiture consequent upon termination of the lease for the lessee's default. It may be intended to serve as liquidated damages for the lessee's breach. If so, the amount of the bond would need to be a genuine pre-estimate of the lessor's likely loss arising from breach: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79: NLS Pty Ltd v Hughes (1966) 120 CLR 583. A third alternative is that the parties intended that the amount of the bond should serve as a security for such damages as the lessor actually suffers following a breach of the lease by the lessee. This was the nature of the bond found by the High Court in NLS Pty Ltd v Hughes (1966) 120 CLR 583. In Hughes, the Court was able to construe the legal nature of the bond from the language employed in the lease by the parties. The lease provided that certain moneys deposited with the lessor were paid 'as an assurance that the Lessee will duly comply with observe and perform all the Lessee's covenants herein contained or implied …' Perhaps it may be inferred that the respondents intended that the bond should serve as security for the actual loss when regard is paid to the fact that they tendered a written lease to the applicant which contained a provision, clause 36B in the draft lease, that 'as security for the performance and observance by the tenant of the terms and conditions of the lease, the tenant shall pay to the landlord a security deposit in the amount noted on the front page of the lease.' In the absence of any evidence or submissions from the applicant on this question, the Tribunal cannot conclude what the applicant intended by the use of the term 'bond.' 16 Whatever the parties intended by the use of the term 'bond', and it is not necessary for the determination of these proceedings to come to any conclusion upon the matter, it is for the respondents to prove loss caused by the applicant's breach triggering a right of forfeiture or appropriation of the bond moneys. This the respondents have failed to do. It must be remembered that the evidence from the respondents themselves was to the effect that the applicant did not agree to pay directly for the cost of the renovations or refurbishment of the premises. The agreement was that for an increased rental of $50-00 per week, the respondents undertook to do the work agreed and to have the premises available for occupation by the applicant on a specified date. The applicant's promise, according to the evidence of the respondents, was to pay rent at a rate of $350-00 per week plus GST from 1 December, 2001 until 31 January, 2002. The relevant breach by the lessee entitling the lessor recourse to the bond moneys would be a breach of the obligation to pay rent or a repudiation of the lease on the ground of non-payment of rent, abandonment or whatever ground the respondents might have sought to argue . 17 The respondents should have proved this loss and given evidence of any attempt to mitigate loss. In particular, the date of reletting of the premises and the rental payable under the new lease should have been the subject of evidence as should have been the date of termination of the lease by the respondents by acceptance of the applicant's repudiation, if repudiation there were. Conclusion: was there a lease for a term of six months or for a term of two months or was there no legal agreement at all? 18 The respondents have submitted that the Tribunal has no jurisdiction to hear this matter because the agreement for lease was not a retail shop lease. Reluctantly, we accept this submission. We say 'reluctantly' because we would have wished to have disposed of this case upon the merits. We have come to this conclusion because we have reasoned, upon the evidence available to us, either that the agreement for lease was for a term of two months or that there was no agreement in law at all. We now state our reasons for this conclusion. 19 The evidence of the applicant, corroborated to some degree by Mr. Wu, was that the agreement for lease was for a term of six months. On the other hand, the respondents are adamant that the term of the lease was for two months. We believe that all witnesses were endeavouring to tell the truth as to their understanding of the agreement. On balance, and this has been a difficult matter for us, we prefer the evidence of the respondents on this point for three reasons. First, cross-examination of Mr. Iacullo revealed that he had some understanding of the Retail Leases Act, 1994 and, in particular, was aware of the provisions of section 16 relating to a minimum five year term. He deposed that he wished to avoid committing to a lease of six months or more for this reason. Secondly, the amount of the bond corresponded exactly to rent for a period of two months including GST. Thirdly, the written lease, which was prepared on the respondents' behalf and tendered to the applicant, reflected the respondents' understanding of the terms of the oral agreement with the applicant and, in particular, the two month term. In any case, the onus of proof lies upon the applicant to establish her case. Because the evidence is so finely balance, the applicant has failed to discharge this onus. 20 More likely than not, and we make no final determination on this point, there was a genuine misunderstanding between the parties as to the term of the lease. This could have been the result of language difficulties between the parties. The applicant had the need of the services of an interpreter during the hearing. Her spoken English was not good and, even with the assistance of Mr. Wu, it is not impossible that the parties failed to reach a consensus on the term of the lease, the applicant wanting a six month lease and the respondents only prepared to give a two month term. If so, the parties failed to agree on an essential term of the lease and no agreement at all was made between them in law: Lace v Chantler [1944] KB 368; Hall v Busst (1960) 104 CLR 206; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600. In such a case, of course, the applicant would have a right to a return of the bond moneys paid. It is not for this Tribunal to make this determination. Either the parties agreed to a term of two months or they failed to reach an agreement at all. In either case, the lease is not a retail shop lease within the meaning of the Retail Leases Act and the dispute between the parties is not a retail tenancy dispute and the application is not a retail tenancy claim. Accordingly, the Tribunal has no jurisdiction to hear the matter and the claim must be dismissed. Costs 21 The usual rule in this Tribunal is that the parties must each pay their own costs. The applicant brought the proceedings in good faith and the evidence was fairly presented. This is not a case where any special circumstances exist to depart from the usual ruling on costs. Accordingly, the Tribunal orders that each party pay her/his own costs. 22 We note that the applicant foreshadowed a costs application in the event of a successful outcome. In the event, this need not be pursued. The respondents did not foreshadow any costs application. The parties did not have the opportunity to make a submission on costs during the hearing and, we think, the best outcome in these circumstances would be to grant leave for either party to approach the Registrar within 7 days of the date of these orders to re-list the matter for costs submissions if either party wishes to make an application at variance with the orders made in paragraph 21 above. Unconscionability 23 The applicant sought to invoke in her claim the unconscionability provisions of the Retail Leases Act and claimed relief upon the ground of unconscionability. No claim of unconscionability was made out and no serious arguments were addressed to the Tribunal on any issue of unconscionability. The parties merely submitted to the Tribunal that a finding against the applicant or against the respondents, as the case may be, would be 'unfair'. The parties should be reminded that Part 7A of the Act, which confers upon the Tribunal jurisdiction to entertain claims based upon unconscionability, cannot be used as a 'panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other' (Campbell Discount Co Ltd v Bridge [1962] AC 600 per Lord Radcliffe at 626) and is not a medium for the indulgence by the Tribunal of 'idiosyncratic notions of justice and fair play.' (Muschinski v Dodds (1985) 160 CLR 583 per Deane J at 615). The regime introduced by Part 7A of the Act is a regime founded upon principle and any decision based upon unconscionability must be a principled decision having regard to a body of precedent established with respect to unconscionability claims, supplemented, as it is, by those specific matters catalogued in section 62B(3)(4) to which the Tribunal may pay regard.