CITATION: Kennard -v- Shanhaven Pty Limited [2002] NSWADT 243 DIVISION: Retail Leases Division 1. APPLICANT Joseph Rohan Kennard trading as Tabanacal 1. RESPONDENT PARTIES: Ed Silk Real Estate 2. APPLICANT Shanhaven Pty Limited 2. RESPONDENT Joseph Rohan Kennard FILE NUMBER: 1. 015098; 2. 015127 HEARING DATES: 15/08/2002 - 16/08/2002 SUBMISSIONS CLOSED: 08/16/2002 DATE OF DECISION: 11/21/2002 BEFORE: Fox R - Judicial Member APPLICATION: Claim for payment of money - Claim for relief against forfeiture - Claim for surrender of possession of premises MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Prasad and Walker –v- Fairfield City Council, [2000] NSWADT 164 1. APPLICANT In person 2. APPLICANT J Priestly, barrister REPRESENTATION: 1. RESPONDENT J Priestly, barrister 2. RESPONDENT In person ORDERS: 1a. Lessee is to pay $945.00 per week (being rent including GST $831.25, outgoings including GST $113.75) before 4:45pm Friday 16 August 2002, and on each and every Friday thereafter. The Lease terminates immediately without further order if any payment is missed; 1b. The December 2002 CPI adjustment is to apply, and the weekly rent is to be adjusted accordingly; 2. The Lease is to terminate on 1 April 2003, unless before that date the Lessee has entered into and completed a valid, bona fide contract for sale of the benefit of the Lease registered number 6847710Q; The Lessor is to comply with Lessor's obligations under part 5 of the Retail Leases Act with respect to assignment of lease; 3. The Lessee's claim for compensation, damages, and extension of lease is dismissed; 4. The Lessor shall cause an audit of all outgoings incurred from the date of commencement of the Lease, and is to deliver copy to the Lessee by 16 September 2002. Section 29 is to be complied with; 5. The Lessee is to pay the Lessor the sum of $15,000.00 on assignment of the Lease; 6. The Lessee is to pay Ed Silk Real Estate costs in the sum of $1,500.00 within eight weeks of the date of the hearing (11 October 2002); 7. Lessee to install and keep efficiently and properly operating a calibrated noise monitor with a visual sound level indicator installed in a prominent position to warn of impending breach of the standard noise conditions (Section 17AA) referred to in the report of Ambiance Audio Services dated 4 September 2001. This monitor is to be connected to the power circuit of the sound amplifiers in use in the premises so that the power to such amplifiers is cut if the sound levels are not reduced after six seconds; 8. Liberty to restore on five days notice. 1 These proceedings arise out of a lockout. The premises are an upstairs restaurant and terrace in Byron Bay, which have had a 3am restaurant on-licence for many years. The premises are in a commercial building, and are up a side street which, although on the way to and quite close to the beach, is just off the main pedestrian tourist circuit of the town. The Lessee deposed that he had found a niche with the locals, during the tourist season, late in the night, when the pubs shut, and there would be queues to get into the more prominent late night licensed premises. 2 The, focus of the application and cross application, properly summarised, was (more or less) as initially pleaded:- 1. Propriety of the lockout 2. Breach of Lease Covenants 3. Compensation for loss of value of goodwill of business as a result of closure of the building for re-building purposes. 3 The lockout was for failure to pay rent, and turned on the Lessee's record of almost never having been on time with his rent during the 18 months of the occupancy. The alleged breaches of covenant for consideration were the use of the premises as a watering hole instead of a restaurant/bar, and the loud disco music played in that process. The compensation claim arose from the Lessor arranging a re-building of the access stairway to the building, which completely removed any practical commercial entry to the premises for a period of 8 weeks. 4 Mr Priestly Barrister appeared for the Lessor, instructed by Mr Hayden, the Solicitor who had drawn the original lease, and the Lessee appeared for himself assisted by Mr Anderson, a person who had some minor financial interest in the Lessee's business. 5 Orderly progress of proceedings where one party is represented and the other is not is always difficult and in this matter did appear to resolve in a substantial amount of evidence which may not have been entirely relevant. 6 There were statements from, and oral evidence by Mr Kennard the Lessee, Mr Bailey, director of the Lessor company, Mr Silk the rental managing agent, and Mr Farden the building project manager. An affidavit by Debbie Thomas, Mr Silk's employed property manager, in the end was not read, and I also had an affidavit from a private enquiry agent, a Mr MacEvoy, in relation to certain events within the premises, which I found not to be relevant. 7 The matter had a long history. There was my initial "stay" order made after a telephone hearing on 17 October 2001, which restored the status quo as it was on Wednesday 26 September 2001 immediately prior to the lockout. There were directions hearings (all by teleconference) on 6 November 2001, 21 February 2002, 18 April 2002, 30 May 2002 and 27 June 2002, during several of which I indicated to the Lessee that the application as initially taken by him, against Mr Silk as respondent, was inappropriate and I suggested to him that he obtain legal advice in relation to that aspect in particular, giving him leave to join the Lessor company at the same time. Despite this, the Lessee insisted on retaining Mr Silk in the proceedings, and consequently the first issue to be resolved in the hearing on 15 August 2002 was whether or not Mr Silk should remain as respondent. 8 After submissions from both parties, I ruled that Mr Silk had no place in the proceedings other than as witness, and I dismissed the application against him, indicating that in my view he should not have been put to that particular trouble, and that, although I formally reserved the question of costs, it seemed to me that it was more than probable that there were special circumstances and that I would make a costs order against the Lessee, in favour of Mr Silk. 9 The next issue to be resolved was a difficulty raised by the Lessee's filing an Amended Application on 29 July 2002, when, for the first time, he sought compensation and a 14 month extension to the Lease, the matter previously having been regarded as a simple application that the lockout be declared void, and his lease reinstated. The Lessor, had, some days before the hearing, formally objected, and I had indicated, in view of the long running nature of the dispute, and the fact the hearing time had been reserved and all arrangements made for a two day hearing in Lismore, that I was either prepared to deal with a preliminary application for an adjournment by telephone conference on Monday 12 August, or alternatively, the matter could be considered at the commencement of the hearing. 10 When Mr Priestly raised this aspect at the commencement of the hearing, I directed that, if the matter of compensation did become a live issue, then, in any event, I would not hear evidence on that during these particular days, but would give directions at the close of the second day, so that that issue could be resolved in a way which did not catch either party by surprise. 11 The hearing proper commenced, and the Lessee indicated that he wished to call evidence from Mr Smith, a local Glazier, who had been charged with the job of repairing the sliding glass door which gave entry to the premises. His evidence was that the door initially fitted to the premises was of a domestic quality, and had rollers which were not sufficiently heavy duty to give long service, and that he had been called upon to replace them five or six times, at the Lessor's expense, during the Lessee's occupancy. The problem had recently been averted by the installation of a new door, which was of commercial quality, having heavier frames, thicker glass, and most importantly, stronger rollers. 12 As this evidence did not establish that there were any delays in effecting the repairs, it seemed to me to speak more positively in favour of the Lessor having met repair obligations than anything else, and I wondered at the utility of calling the evidence. 13 I next heard evidence from the Lessee which established that he had found business extremely difficult during the first year, and that is why he had always been tardy in meeting his rent commitments. He had tried various menus and manners of running the place, from a full dining menu, (breakfast, lunch, dinner and later), to the present arrangement when he opened for dinner and then continued to trade as a bar, for patrons who were in the premises with the intention of dining, as required by the terms of his licence. 14 It is fair to say that I was exhaustively taken through the current arrangements for patronage, and at the end of the first day's hearing I travelled from Lismore to Byron Bay for a view of the premises. 15 Considering all of the evidence I am satisfied the premises have not recently been used as any kind of dining restaurant, but give some credence to the description which the Lessee gave it – a "party restaurant"- being a place where people go after they have been elsewhere, and wished to be in a place where there is alcohol available. To comply with the terms of the licence, they must have "intention to dine". This intention, of course, is established by the fact that entry is by a payment, (usually $5.00), in exchange for which a voucher is given, which may be applied towards the "bar food" which is served. The bar food appears to be a bowl of wedges, or a bowl of Nachos or similar. 16 It is appropriate to indicate that I am satisfied that from time to time there is a more extensive menu, the kitchen to the premises certainly appeared to be of sufficient size and quality to do the full restaurant job. I accept the Lessee's evidence to the effect that he does have "curry night" and other special event nights where there is more extensive food service, but I am satisfied, that, generally speaking, the trade for the premises is for late night custom; drink, music and limited food selection. 17 I note the Lessee's concession that he is presently trading at the outer edge of the limits permitted by the licence. 18 I make these comments to place some aspects of the matter in context, however the first substantive issue before me was the action by the Lessee in closing the premises on 7 June 2001 to be absent in the United Kingdom for a period of 6 weeks. 19 It was the Lessee's assertion that he had, in April of the year 2001, become aware of the Lessor's intention to effect the building's stairway reconstruction, in the then near future, and because winter is always a slow time, and business is marginal, he might as well take the benefit of the necessity, and shut down the business all together. The Lessee asserted that the Lessor had indicated that the work would start in about 6 weeks time, and that he made his plans accordingly. The Lessor's Mr Bailey positively denied this, indicating that he had never given a firm starting time, because at the time of the meeting, all council approvals were not to hand, and consequently no starting time could be set. 20 Considering all of the evidence in relation to the meeting, I prefer the evidence of the Lessor and Mr Farden, and I am not satisfied that the Lessee was told that the work would start in 6 weeks time. I should say that in view of Mr Kennard's general demeanour in the witness box, and considering the circumstances, being that he chanced upon Mr Bailey and the builder inspecting the building and discussing arrangements for the reconstruction, I can understand how he drew the conclusion. I note in this regard, further, that, although, there may have been some other informal information around the building about the proposed rebuild, the fact of the matter was that other tenants appear to have been given only one or two days written notice and it is clear that the Lessee was not given any written notice at all, but that was because, by the time the building works commenced on 10 July, the Lessee was in England. 21 There was a strong contest about the date of commencement of the works and the date of the Lessee's leaving for England, presumably because of the compensation implications. Again, I question the relevance of that contest, because I am quite satisfied that the prime cause of the Lessee's decision to close and take a break, whenever it may have been, was the Lessor's indication that he would be doing the work. 22 It is appropriate at this point to observe that the Lessor's actions in this regard were entirely in breach of the provisions imported into the lease by Sections 33 and 34 of the Act. 33 Lessee to be given notice of alterations and refurbishment A retail shop lease is taken to provide that the lessor must not commence to carry out any alteration or refurbishment of the building or retail shopping centre of which the retail shop forms part which is likely to adversely affect the business of the lessee unless: (a) the lessor has notified the lessee in writing of the proposed alteration or refurbishment at least 2 months before it is commenced, or (b) the alteration or refurbishment is necessitated by an emergency and the lessor has given the lessee the maximum period of notice that is reasonably practicable in the circumstances. 23 The Section underscores the need for the Lessee to have substantial notification of such Lessor's proposals, so that the appropriate alternative arrangements can be made for trading. It was totally inappropriate for the Lessor to in effect say of the Lessee:- "he jumped the gun", because the Lessor completely ignored the right of the Lessee to have a substantial, proper and formal notice of the intentions. 24 Of course, the real difficulty arose after the building work had been commenced, when, instead of it taking the 3 or 4 weeks which might have been a realistic preliminary assessment of the situation, it spread out to 10 weeks. Apparently, as the initial demolition took place, it became clear that the first proposals for retention of part of the old stairway were not viable, and consequently the scope of the work increased by a factor of perhaps 50%. 25 In this regard Section 34 of the Act became relevant; 34 Lessee to be compensated for disturbance (1) A retail shop lease is taken to provide that if the lessor: (a) inhibits access of the lessee to the shop in any substantial manner, or (b) takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop, or (c) unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or (d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor's control, or (e) fails to rectify any breakdown of plant or equipment under the lessor's care or maintenance, or (f) in the case of a shop within a retail shopping centre, ……… (2) In determining whether a lessor has acted unreasonably for the purposes of subsection (1) (c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices. (3) A retail shop lease may include a provision preventing or limiting a claim for compensation under the provisions implied by this section in respect of any particular occurrence if the likelihood of the occurrence was specifically drawn to the attention of the lessee in writing before the lease was entered into. Note. A disclosure statement is an appropriate means of specifically drawing the attention of the lessee to the likelihood of an occurrence. (4) …………. 26 No evidence was called before me to establish that the building was not done with due expedition, and so one of the triggers of that Section does not arise. In this regard I note that the Lessee did not make a formal request in writing either, although I am satisfied that he made his requirements known in other ways, and so find that this particular trigger had been substantially complied with. 27 Even had the statutory compensation right created by Section 34 been enlivened, I am satisfied that the Lessee could not have established entitlement, because it transpired that, during his absence, the Liquor Administration Board had suspended the operations of the business until certain acoustic requirements had been complied with, and I am satisfied that they were complied with only 2 weeks after the building was (in effect) reopened, upon the practical completion of the stairway building work. 28 In summary, in this regard, I am satisfied that, on the one hand, the period of closure was at a time when because of seasonal factors, it was quite unlikely that the Lessee would trade profitably in any event, and on the other hand, that during the latter period of the closure when the Liquor Administration Board intervened, the Lessee could not have traded at all, the mainstay of the business at all times being the sale of alcohol. 29 In relation to the lockout, I have in other matters (i.e. Prasad and Walker –v- Fairfield City Council, [2000]NSWADT164) indicated my view that, in circumstances such as these, where there has been a long and consistent pattern of rental payments being in arrears, the Lessor cannot validly seek to exercise these common law rights without giving appropriate and preliminary warning. True it is that I am satisfied that the rental managing agent was always "at" the Lessee by telephone, and true it is that, in the April 2001 meeting, the Lessor's Mr Bailey indicated his dissatisfaction with the rental payment pattern, but I am not satisfied that the notice of 5 September 2001 was sufficient in all the circumstances. 30 The notice did clearly require the Lessee to bring his arrears up to date but made no mention of any kind of the prospect of a lockout. It seems to me that, in circumstances where there has been a long pattern, which amounts to a tacit acceptance, equity is only done if the Lessee is given some notice either written or otherwise, which adverts to the actual prospect of the premises being locked against him. 31 I think this is the more so in these present circumstances. There had been substantial complaint from the Lessee about the fact that the building works had blown out, and that his access to the premises had been interfered with for a much longer period. There had been a request by the Lessee for compensation. The 5 September 2001 demand for the payment which preceded the lockout was an offer of compensation by way of waiver of the rent during the actual period of non access, a waiver of one half of the rent for the period when the Lessee had closed in anticipation of the work commencing, and a waiver of all of the rent for 14 days after the reopening; there followed calculations, which concluded that, taking all these concessions into account, $1,000.45 was payable – "please pay immediately", and 21 days later, there was a lockout. There was no mention in the notice that a lockout was a possibility. 32 Although I often had reason to doubt the accuracy of the Lessee's evidence, I do accept that he had, in the day or two before the lockout, indicated to Debbie that he had the funds available and would make the payment in cash as he always did, and that he in fact went to the premises on the Wednesday morning for that very purpose, to take the money from the safe to go and pay it, but found the premises locked against him. I note that in this regard it was acknowledged that generally he did pay in cash to Debbie, and Debbie only worked Wednesday and Thursday. 33 When evidence was being given in this regard, it became clear that the calculation of the arrears included claims for payment of outgoings. I felt bound, especially in view of the fact that the Lessee was not legally represented, to draw attention to the fact that I had no evidence of compliance with Sections 27, 28 and 29 of the Act. It transpired that these Sections had not been complied with, and that called into question the propriety of the claim for contributions to outgoings, and the Lessee's rights in relation to such payments, perhaps mistaken because the Act had not been complied with. I note that the total amount of such outgoings contributions paid was in excess of $7,700.00. 34 I felt this failure to be one of the reasons for exercising my discretion in favour of the Lessee, but the further legal implications of these possibly mistaken payments were not fully aired, nor could they be in view of the absence of legal representation on behalf of the Lessee. 35 On the question of breaches covenant, the Lease contained the usual covenant against the generation of loud noise and I think it is very clearly established by the evidence that there was loud noise within the premises, and that, in all probability that was a breach of the Lease. That issue was first raised (in relation to the question of noise) in the proper manner which might have triggered a termination of the Lease by the Notice of Breach of Covenant dated 19 October 2001 , but of course by that time the Liquor Administration Board had intervened, and the Lessee had already complied. That evidence, I am satisfied, established that a substantial attempt had been made to remedy the breach of covenant. I further note the Lessee's evidence, which I accept, that, if the steps which he had taken in compliance with the directions are now found to have not fully ameliorated the noise, he proposed to take some further steps, which were a kind of "stage two" in the report which he had commissioned to meet the Liquor Administration Board requirements. 36 The same Notice raised the issue of the use of the premises. In this regard Mr Priestly sought to establish that, instead being a restaurant/bar, the late night activities, augmented as they were by loud music issuing from a DJ, dim flashing lights, and a rotating mirror ball, the premises were in fact being used as a night club. 37 I acknowledge the validity of the distinction, but the evidence before me satisfied me that the activities fell within the terms of the liquor licence. This observation answers the other substantial matter raised in the Notice of Breach, being activities which might jeopardize the liquor licence. I am not satisfied that the Lessor established that the Liquor Administration Board requirements were not being complied with. 38 Mr Priestly spent a substantial period of time attempting to establish that the Lessee's operations could not be properly described as licensed restaurant, the suggestion being that the 'restaurant/bar" authorised use required the premises to be used as both restaurant and bar. I had not, as the second day of the hearing closed, concluded either that the evidence brought by the Lessee had established the requisite level of restaurant activity, or that the opposite had been established. It was all very finely balanced. However, no matter what my decision might have been in that regard, there was still the issue of compensation for the loss of value of business during the re-building closure. In view of the Lessor's failure to comply with Section 33, it seemed to me that this might well be a matter which the Lessee should be allowed to further explore, although, considering the general tenor of the evidence I doubted whether he could raise anything objective to establish the value of the goodwill. It seemed to me that it would be just as difficult for the Lessor to gainsay the bald assertion of loss. Be that as it may, there was a prospect that the Lessee could establish that it was a necessary implication of maintaining the value of the goodwill that he trade over the winter months at a loss, and that the saving effected by the complete closure of the business was less than the loss in value of goodwill and connection brought about by that event. 39 In any event, I inclined to the view that, in the end, the only proper order would be to, direct that there be a substantial continuation of the term of the Lease as compensation for the improper denial of access and the (possibly) improper lockout, even if I concluded that the use of the premises was contrary to that which was authorised, and so fatally in breach of the relevant covenant. 40 Of course, the issue of possible loss of value of goodwill suffered by the Lessee, and the exploration of the consequences flowing from the admitted failure to comply with Sections 27,28 and 29, would have meant that the parties faced the expense of at least another day's hearing. 41 In keeping with the spirit of the legislation, which lays such strong emphasis on mediated settlement, I gave the parties a preliminary indication of my views, and invited them to consider their position. 42 After a short adjournment, the parties responded by indicating that they wished me to make the following orders, (some of which may be better described as items for noting rather than orders):- 1a. Lessee is to pay $945.00 per week (being rent including GST $831.25, outgoings including GST $113.75) before 4:45pm Friday 16 August 2002, and on each and every Friday thereafter. The Lease terminates immediately without further order if any payment is missed. 1b. The December 2002 CPI adjustment is to apply, and the weekly rent is to be adjusted accordingly. 2. The Lease is to terminate on 1 April 2003, unless before that date the Lessee has entered into and completed a valid, bona fide contract for sale of the benefit of the Lease registered number 6847710Q. The Lessor is to comply with Lessor's obligations under part 5 of the Retail Leases Act with respect to assignment of lease. 3. The Lessee's claim for compensation, damages, and extension of lease is dismissed. 4. The Lessor shall cause an audit of all outgoings incurred from the date of commencement of the Lease, and is to deliver copy to the Lessee by 16 September 2002. Section 29 is to be complied with. 5. The Lessee is to pay the Lessor the sum of $15,000.00 on assignment of the Lease. 6. The Lessee is to pay Ed Silk Real Estate costs in the sum of $1,500.00 within eight weeks of the date of the hearing (11 October 2002). 7. Lessee to install and keep efficiently and properly operating a calibrated noise monitor with a visual sound level indicator installed in a prominent position to warn of impending breach of the standard noise conditions (Section 17AA) referred to in the report of Ambiance Audio Services dated 4 September 2001. This monitor is to be connected to the power circuit of the sound amplifiers in use in the premises so that the power to such amplifiers is cut if the sound levels are not reduced after six seconds. 8. Liberty to restore on five days notice DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.