Irresistable Frocks v Sparbac and Roche [2003] NSWADT 241

CITATION: Irresistable Frocks v Sparbac and Roche [2003] NSWADT 241 DIVISION: Retail Leases Division APPLICANT Irresistable Frocks Salon Pty Ltd PARTIES: FIRST RESPONDENT Sparbac Pty Ltd SECOND RESPONDENT Roche Group Pty Ltd FILE NUMBER: 035060, 035103 HEARING DATES: 11/09/2003 SUBMISSIONS CLOSED: 09/11/2003 DATE OF DECISION: 11/10/2003

BEFORE: Chesterman M - ADCJ (Deputy President); Fagg N - Member; Griffiths G - Member APPLICATION: Claim for payment of money - Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 APPLICANT R Titterton, barrister REPRESENTATION: FIRST RESPONDENT No appearance SECOND RESPONDENT R Angyal, barrister ORDERS: 1 Each Respondent is liable to pay to the Applicant the sum of $21,818.63, comprising a principal sum of $20,085.25 and interest totalling $1,733.38; 2 The Second Respondent's cross application is dismissed; 3 In the absence of agreement on the matter, each party is to file written submissions on the matter of costs within 28 days of the date of these reasons

Introduction 1 The principal application in this matter (file no. 035060) was made by Irresistible Frocks Salon Pty Ltd ('Irresistible') on 13 June 2003. It applied for an order that Sparbac Pty Ltd ('Sparbac') and/or Roche Group Pty Ltd ('Roche') pay to it the sum of $20,085.25. This was an amount debited to its bank account under a guarantee ('the guarantee') given by it to Sparbac, as lessor, in its capacity as lessee under a retail shop lease ('the Lease') of premises at Shop 2, 20-26 Cross Street, Double Bay ('the premises'). Irresistible also sought interest and costs. 2 A cross application by Roche against Irresistible (file no. 035103) was filed on 9 September 2003, two days before the hearing. The principal relief that it claimed was an order that Irresistible pay to it the sum of $45,000 as damages for a breach of the Lease, or as damages for conversion of items of fitout that were the property of Roche. In the alternative, it sought a declaration that it was entitled to retain the sum of $20,085.25 pursuant to the guarantee and to apply it to the cost of reinstatement of the premises at the end of the current lease, refunding any balance to Irresistible, or that Irresistible breached the Lease by failing to provide an appropriate guarantee. Further in the alternative, it sought a declaration that Irresistible was liable to pay damages in the amount of the cost of such reinstatement. It also sought an order for costs. 3 Irresistible tendered an affidavit stating that its application had been duly served on Sparbac. Sparbac filed no notice of reply, evidence or submissions. It did not appear at the hearing. Although we received no submissions on its behalf, we consider that if any ground of defence that Roche put forward would also operate in Sparbac's favour, we should take due account of it in determining the liability of Sparbac. 4 The case was heard on 11 September 2003. On 16 September, Roche's solicitors filed and served a supplementary written submission. Irresistible's solicitors objected by letter to the receipt of these submissions, on the grounds that leave had not been granted for further submissions to be filed and that in the absence of leave submissions should not be received after the conclusion of a hearing. We endorse these grounds and uphold this objection. Uncontested facts 5 The Lease commenced on 1 July 1997 and was for five years, with an option for renewal for a further five years. The permitted use was 'retail sale of clothing'. The Lease fell within the provisions of the Retail Leases Act 1994 ('the Act'). 6 No security deposit was required. Instead, clause 26.2 of the Lease required Irresistible, as lessee, to give a guarantee of its obligations under the Lease to Sparbac, as lessor. Subparagraph (d) of this clause provided that the guarantee should entitle Sparbac to apply any money paid under the guarantee 'on account of any money payable by the Lessee under this Lease as the Lessor may determine'. 7 On 17 July 1997, the Commonwealth Bank of Australia, at the request of Irresistible, executed a guarantee in favour of Sparbac. It provided for payment to Sparbac of any amount demanded to a maximum of $20,085.25, without notice to Irresistible. The expiry date was 2 January 2003. It contained the following statement: 'The benefit of this guarantee is personal and not capable of assignment.' 8 At the time of commencement of the Lease, Irresistible expended a significant sum on fitout for the premises. Mr Thomas Danos ('Mr Danos'), a director of Irresistible, gave an estimate of about $100,000. He said that the premises were initially an 'empty shell' and that the fitout included a new parquetry floor, a false ceiling with high-quality lighting, two fitting rooms, a kitchen, a stove area, shelving, hanging space for clothes, mirrors and signage. It did not include a shopfront, as the premises already had one. A partition separating Irresistible's shop from an adjoining shop was already in place. 9 This fitout was, it appears, installed by Irresistible with the consent of Sparbac. 10 On 14 January 1998, Sparbac entered into a contract for sale of the premises to Roche, which until October 1998 had the name Peakhurst Properties Pty Ltd. Clause 37.7(f) of the contract provided for Sparbac to execute a deed of assignment of 'the vendor's right, title, interest and benefit of Lessor Securities which comprise bank guarantees'. It further provided as follows:- If an assignment of those bank guarantees is not permitted or is ineffective at law or in equity, then the vendor agrees that it will after completion hold that right, title, interest and benefit for and on behalf of the purchaser. 11 In a deed of assignment dated 13 February 1998, Sparbac assigned to Roche, with effect from the date of completion of the sale of the premises, …the benefit of all assignable covenants or agreements contained in any of the leases or new leases to which the sale is subject, together with the benefit of any guarantees, securities or bonds in favour of the Vendor as Lessor in respect of those Leases. 12 On 18 March 2002, Mr S R Danos (the father of Mr Danos), who was also a director of Irresistible, sent a letter on Irresistible's behalf to Laing & Simmons, Double Bay, in their capacity as property agents for Roche, advising that Irresistible did not wish to exercise its option to renew the Lease when it expired on 30 June 2002. The letter stated that a company called Tinine Group Pty Ltd ('Tinine') was interested in negotiating the terms of a new lease and would be contacting Laing & Simmons in the near future. 13 On the same day, Mr S R Danos wrote to Tinine, stating that Irresistible intended to vacate the premises on 30 June 2002, that it was notifying Laing & Simmons of this, that it would also notify Laing & Simmons of Tinine's interest in obtaining a lease and that it was prepared to sell to Tinine 'the fittings and fixtures' at an agreed amount of $25,000, subject to a lease being negotiated with Roche. 14 At some time before 1 July 2002, this sale of the fixtures and fittings was concluded and Irresistible vacated the premises. According to a contemporaneous handwritten note made by Mr Danos, on the afternoon of 1 July he delivered the keys in a sealed envelope to a nearby shop owned or occupied by Tinine. 15 Neither Mr Danos nor anyone else on behalf of Irresistible took any steps to procure a release of the guarantee. 16 Roche leased the premises to Tinine for a term of three years from 1 July 2002, with an option to renew. The lease was executed by Roche on 4 July. It also bears the seal of Tinine, but no date of execution is shown. The space in the lease headed 'date' has the entry '22 July 2002'. 17 About this time there was a dispute between Tinine and Roche because Tinine objected to the insertion of a 'make-good clause' in the lease between them. In the lease that they concluded, clause 13.1 answers this description. 18 On 26 July 2002, without notice to Irresistible, Roche wrote to the managing director of Sparbac requesting that Sparbac make a call on the guarantee on Roche's behalf. The important paragraphs of this letter were as follows:- We understand that you are aware that we need to make a claim under the bank guarantee provided by [Irresistible] pursuant to its lease and that we are unable to make the claim ourselves as the guarantee cannot be assigned. We would therefore be most grateful if you would arrange for Sparbac to claim the whole of the amount guaranteed and to forward the funds to Laing + Simmons Double Bay. We will of course pay any fees Sparbac incurs and will indemnify Sparbac in the event that any claim is brought by the lessee in connection with carrying out our request.