Aras v Victoria Avenue Nominees Limited [2003] NSWADT 50

Set aside by Appeal : Set aside on 8/9/2003 without considering any submissions or reaching any conclusions as to the underlying decision

CITATION: Aras v Victoria Avenue Nominees Limited [2003] NSWADT 50 DIVISION: Retail Leases Division APPLICANT PARTIES: Umrancan Aras trading as Sultenbey RESPONDENT Victoria Avenue Nominees Limited FILE NUMBER: 015093 HEARING DATES: 15/05/2002-17/05/2002, 06/06/2002 SUBMISSIONS CLOSED: 06/06/2002 DATE OF DECISION: 03/12/2003

BEFORE: Hole M - Judicial Member APPLICATION: Claim for compensation for pre lease misrepresentations MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Bill Acceptance Corp Limited v GWA Limited (1983) 50 LR 242 James v Australia and New Zealand Banking Group Limited and Ors (1986) 64 ALR 347 APPLICANT REPRESENTATION: G Carolan, barrister RESPONDENT I Pike, barrister ORDERS: 1. The Respondent pay the amount of $76,430.00 to the Applicant as compensation pursuant to Section 34 Retail Leases Act 1994.

1 Umrancam Aras trading as Sultanbey ("the applicant") has applied for orders in respect of various matters relating to a lease of premises from AMP Asset Management Australia Ltd. The interest of AMP Asset Management Pty Ltd subsequently became the interest of Victoria Avenue Nominees Limited ("the Lessor"). 2 The lease is of a shop premises in the centre known as Chatswood Chase ("the Centre") and is the one to which the Retail Leases Act 1994 applies. The shop is known as LG 17 Chatswood Chase Shopping Centre. The lease commenced on 24 April, 1997. 3 The applicant has claimed compensation for economic loss alleged to have been sustained directly as a result of alleged misrepresentations made on behalf of the Lessor and of actions of the Lessor subsequent to the lease being entered into. The applicant has also claimed compensation for the requirement of the Lessor to exceed fit out spending. 4 The claim for compensation relates to two particular issues, one being the alleged misrepresentations by the representatives of the Lessor as to the number and type of shops that would be selling food in the food court/centre and the other being the alteration of the design of the position and shape of shop site LG 19 affecting the flow of customers to the shop as a result of the affect on the sight lines available in the food court in relation to the applicant's site. 5 Prior to the refurbishment of the food court in 1998, representatives of the applicant and the applicant inspected the premises several times noting the proposed position of the shop that the Applicant intended to lease. 6 The applicant gave evidence to the effect that he had been sought out by Mr Lee Pinder ( Asset Manager at that time) and Mr Jonathon Wilmot (Leasing Manager at that time) on behalf of the Lessor. He met with Mr Pinder and Mr Wilmot and believed that they had represented to him that there would be no more than 6 food outlets at Chatswood Chase "competing for the same market". 7 A food concept document had been developed on behalf of the Lessor, the applicant did not recall having seen the document, the document is annexed to the affidavit of Mr Falson, retail design and tenancy co-ordinator . The document is helpful in understanding the lease strategy of the Lessor and includes points directed to enhancing the opportunities of potential lessees and the Lessor, some pertinent points to the instant matter are: a) The physical layout of the food court should be such that it allows maximum exposure to all food outlets so that people can 'graze' (page 13) b) The food court should be built so that it will effectively handle traffic flow and provide adequate sight lines (page 21) c) Accessibility and visibility are key ingredients to food court planning (page 21) d) The food court configuration should channel customers through the food court past each operator and make for optimum traffic flow. U-shaped and circular food courts with seating in the middle inevitably create under-utilised trading conditions and subsequently long-term leasing problems. Other designs have proven to be under performing if customers can enter and exit the food court without passing all tenancies (page 22). As a suggested menu mix for the food court the recommendation is that the following would be suitable: An Italian outlet selling pizza, pasta and foccacia, A popular fast food outlet, A mixed Asian cuisine outlet, A New Zealand ice cream outlet, A coffee bakery outlet, A gourmet sandwich and salad outlet, A middle-eastern cuisine outlet. 8 The market of the business of the applicant was that of fast food. He operated similar businesses at Westfield Burwood and Westfield Chatswood. The business sold a particular type of fast food which could be taken away for consumption outside the centre or could be eaten at tables provided in the centre food court. 9 The applicant was provided with a rough plan of the proposed food court by or on behalf of the Lessor. A copy of this plan is Exhibit 3. 10 At the time of the preliminary discussions between the applicant, the applicant's wife, Mr Pinder and Mr Wilmot the position of shop LG17 was clearly noted to the rear of a depiction of the escalator placement. The pattern of the walk through areas between K Mart, Coles, the exit to Archer Street and the exit to the car park was in a pattern referred to as "clover leaf". 11 One of the shop sites in close proximity to the site proposed to be leased by the applicant is that shown on Exhibit 3 as LG19. This site is shown as surrounding the escalators and forms an irregular shape which is partially curved. The shape allows for a flow of customers circularly around the escalators and consequentially past the applicant's site LG17. The design fits a cover leaf design and surrounds the existing impediment of the escalators. 12 The clover leaf pattern was described as a design of the food court which took into account the traffic flows in the food court and was designed to ensure the best exposure possible for all tenancies. 13 The applicant and his wife, who also gave evidence, attested to their request that the representations as to the number of fast food outlets be in writing and that this request was refused. Their concerns were related particularly to the passing trade, the potential for the shop LG17 to be insolated and obscured and their need to compete with a set number of fast food outlets. 14 Evidence was provided on behalf of the Lessor that the shop that had been preferred by the applicant was earmarked for another tenant and that the applicant was told that the only site available was shop LG17. 15 Mr Pinder and Mr Wilmot gave evidence as to their understanding of the verbal representation that they had made to the applicant. 16 Both the applicant and his wife and the two representatives of the Lessor were conscious that shop LG17 could be isolated and that there would need to be a greater effort on both parties to the lease to secure the necessary trade for economic viability. This was later recognised by a reduced rental in the first year of $10,000 below market average. 17 The applicant would have preferred to lease the area leased later by the Noodle shop being the site immediately adjacent to LG17 toward Kmart. 18 Ultimately the applicant entered into a lease of shop LG17at a reduced rental for the first year. The disclosure statement was provided to the applicant which allowed a space for the applicant to disclose any representations in writing, it did not show any representations. 19 The disclosure statement was signed by the applicant. The disclosure statement, in full, is no longer in existence. It is not clear as to the disclosures made on behalf of the Lessor to the applicant in relation to the mix of tenants to be offered sites in the centre. 20 Subsequent to the applicant signing the lease of shop LG17 it was necessary for the shop fit out to occur. Part of the requirements of the Lessor was that a particular designer be employed. This was accepted by the applicant and although the cost was excessive, in the applicant's opinion, the applicant cannot now expect to recover any of that cost Pre-lease representations as to tenancies and site of shop LG19. 21 There was not a meeting of minds between the applicant and the representatives of the Lessor as to the numbers of fast food outlets and the tenant mix. Mr Pinder stated that he believed he had referred to "six full menu food court tenancies", he further stated that other tenancies such as "Wendy's" were not "full menu food court" tenancies. A large amount of evidence was given as to what constituted a "full menu food court tenancy" or otherwise. There was no agreement as to whether the negotiations were to include all food outlet tenancies in the centre or only those on the K Mart, Coles level. The proposed plan Exhibit 3 could lead a person to the view that on that level the competitors to the applicant were restricted to 6. The applicant stated that he had not heard the term "full menu food court tenancy". 22 As noted, the definition of a "full menu food court tenant" was subject of a large amount of evidence. The description preferred to all the other descriptions is that of Mr Wilmot as being where there is a distinction to be made between tenancies of a shop that provides fast food such as ice cream and tenancies which provide food which can be purchased and then the purchaser may sit down at seating provided in the Centre, or take the food away; and there are other tenancies where a customer goes into a particular tenancy area and is served at the table by the tenant of that area. 23 Mr Wilmot impressed as being sincere in his attempt to secure the applicant as a tenant whilst providing to that prospective tenant honest and reliable information. Mr Pinder was also sincere as to his recollections of the negotiation and did try to satisfy the tenants requests for information. Notwithstanding this, the applicant attempted to secure the necessary commitments unsuccessfully. At the time of the lease the applicant was not completely satisfied and certainly had no knowledge of the proposed change to the shop LG19 later leased by Fornini. 24 As the evidence evolved in respect of the Fornini site it became clear that the changes to that site were not intimated to the applicant, nor was the applicant consulted until the negotiations with Fornini had reached an advanced stage, it seems that part of the underlying problem now being faced is due to the delay by the Lessor in discussing the proposals for the Fornini altered site and proposed fitout thereof with the applicant. 25 The applicant became involved with the centre management, at various times, together with other tenants of the food court, in relation to their concern as to the lack of activity by the Lessor's representatives to ensure that proper advertising takes place and made suggestions where this could be improved. 26 Antagonism between the applicant and the centre manager arose particularly in relation to good presentation and various signs placed in/on the premises and the relationship of Lessor and Lessee was fraught with difficulties. 27 The representations made by Mr Pinder and Mr Wilmot on behalf of the Lessor, whatever they were, were made by them as a result of information that they had been given by the Lessor and its employees. The apparent intention at the time of the pre-lease negotiations on behalf of the Lessor was to encourage the applicant to lease shop LG17, both the applicant and the Lessor's representatives were aware that LG17 had exposure problems. 28 At the time of the pre-lease negotiations the applicant knew of the position of the LG19 site and was concerned that any prospective tenant of that site would fit out in a way which could restrict the sight lines of LG17. Nevertheless the applicant proceed to lease LG17 on that basis. 29 The representation made on behalf of the Lessor to the applicant in respect of the number of "food outlets' prior to the lease being entered into were made by the representatives of the Lessor to the effect that there would be "6 full menu food court tenants". The representations understood by the applicant were to the effect that there would be "6 food outlets competing for the same market". There was no meeting of minds as to the representations made. The representatives of the Lessor did not know that the applicant misunderstood the representations. 30 The disclosure statement has not been provided, a disclosure statement was signed by the applicant. The applicant did not record on the disclosure statement any representations that he believed had been made. 31 The evidence of the representatives of the Lessor does not support the view that any representations made were with knowledge that those representatives were false or misleading. What can be deduced from the evidence is that the applicant entered into the lease on a misunderstanding of the proposed number of tenancies and the proposed activities of those tenancies 32 Any representations believed to have been made by the Lessor's representatives being in respect to future matters and which subsequently have turned out to be false can not be considered to be misleading or deceptive at the time that they were made. The respondent has drawn attention to Bill Acceptance Corp Limited v GWA Limited (1983) 50 ALR 242, and James v Australia and New Zealand Banking Group Limited and Ors (1986) 64 ALR 347 at 372 per Toohey J. Alteration to site of shop LG 19. 33 The Lessor proceeded, at a later date, to alter the "foot print" of LG19. The new foot print effectively destroys the clover leaf design surrounding LG19. The change to the foot print is significant. The Lessor's representative knew that there was a risk that other tenants would be upset at the change. The Lessor had already contracted with the applicant, who was relying on the representations made and who knew that there could be changes to the final tenant mix and sites. The Lessor had a responsibility to comply with the agreement (the lease and pre-lease representations and documents) and if there was to be a significant change then consultation would be necessary. 34 On behalf of the Lessor, Mr Falson , a retail and tenancy coordinator, explained the difference in the foot print as originally proposed for LG19 and as built as not being able to be construed as "radically" different. The test in Section 34(1)(b) is that where the action taken by the Lessor that inhibits or alters, to a substantial extent, the flow of customers this may result in the Lessor being able to bring a claim. The change to the foot print is significant and the fit out has the effect of creating a large rectangular block on the floor. The flow of potential customers is now deflected around a significantly different path. 35 The consultation which occurred in respect of the altered foot print was belated. Other issues were emerging between the applicant and the Lessor, these issues confused the situation. 36 The decision to change the footprint of LG19 was driven by desire of the Lessor to accommodate Fornini's requirement for a particular shape. The design was by Mr. Landini the same designer of the Sultanbey fit out. 37 Mr Falson suggested that the original design of LG19 surrounding the escalator was difficult to fit out. This does not explain the substantial change in the resultant footprint of LG19. 38 The redesign of LG19 separates the site from the escalators creating two obstructions to customers in their negotiation of the area. The redesign in the absence of fit out effectively pushes the applicant's site further into the background. 39 The fit out of the redesigned LG19 to the requirements of Fornini, was designed by the same person who designed the fit out for the applicant, it is elaborate, stylised and bulky. Many calculations and allowable measurements were provided to the tribunal. The cubic bulk was not provided, either as a comparison of the potential cubic bulk of a maximised fit out of the original site LG19 or on its own. The positioning of the redesigned LG19 further fractured the area between the applicant's site, the two pillars between the "Noodles Plus" site and the Fornini fit out. The overlay plan Exhibit 17 does not disclose the walk way between Fornini and the escalators, no issue turns on this. 40 A view of the site took place in the presence of representatives of the applicant and the respondent. The view confirmed the position of the two sites and clarified the relative positions thereof and the flow of pedestrian traffic was observed. 41 Section 34(1)(a) requires the Lessor to "rectify the matter as soon as reasonably practicable" after "being requested in writing by the Lessor to do so..." This requirement envisages the Lessee being able to determine the specific action taken by the Lessor which inhibits or alters the flow of customers. In the instant case the applicant became aware of the proposed change to the footprint of LG19 at a late stage of the lease negotiations with Fornini. Mr. Falson requested the applicants consent to the changed footprint of LG17. 42 The applicant and his wife noticed a downturn in trade after Fornini's commenced trading. This must have been shortly after the completion of the fit out for Fornini's on the re-designed foot print. The applicant looked to all avenues to redress the apparent loss of trade. This included activity related to the marketing by the Centre Manager, reaction to surveillance of the display by representatives of the Lessor, meetings with the General Manager of the Centre and meetings with the Retail Manager of the Centre. These activities did not reveal the ""action" which may have been the basis of a written request to rectify the action. 43 Section 10(1) may be applied to a situation where a party enters into a lease as a result of a false or misleading statement or representation made, where it is made, with knowledge that it was false or misleading. When applying this to the pre-lease representation as to the proposals for LG19 it is clear that the representations could not be considered false or misleading as the alteration occurred after the date of the lease. 44 Thus the only applicable section is Section 34(1)(b). The letter dated 27 May 2001 from the applicant's then solicitor to the representative of the lessor raises the issue of Fornini's fit out. The letter does seek suggestions from the lessor as to any assistance which will assist the applicant in the remaining 15 months of the lease. This letter does not specifically address the "action" perceived by Section 34 (1) (b), it does appear to recognise that Fornini's lease is in effect. This letter satisfies the requirement that the lessee request in writing that the lessor rectify the matter. Failing rectification the Lessor is liable to pay reasonable compensation for any loss of the applicant suffered as a consequence of the action. The actionable date being from the completion of the Fornini fit out, that is late 1998. 45 Submissions were made ion behalf of the Lessor that the losses of the applicant were due to other various factors. These submissions are not supported by the evidence. 46 The applicant has suffered loss as a result of the action of the Lessor in the repositioning of the site of LG19 in that the flow of customers has been altered to a substantial extent. 47 The applicant has suffered loss as a result of the action of the Lessor in the repositioning of the site of LG19 in that the flow of customers has been inhibited to a substantial extent. Loss or damage. 48 The lease commenced on 24th April, 1997. Fornini commenced business at the end of 1998. The applicant submitted that his business traded from commencement and that the first full financial year was that ending on the 30th June 1998 and that the profit for that year was $18,387. This reflected the rent reduction of $10,000. 49 The financial evidence of the applicant shows that the gross sales for the financial years were: 1998 - $438,661.90 1999 - $502,765.00 2000 - $389,698.80 2001 - $376,705.78 While the rental was: 1998 - $115,516.67 (ex 10,000) 1999 - $132,047.70 2000 - $150,322.46 2001 - $150,799.97 50 The figure supplied to the Lessor by the applicant for the financial year 2000 in respect of sales was significantly different to that as shown in the financial evidence. Although the relevance of this difference in respect of the revised rental for that year was not explained. 51 In calculating the loss of the applicant as a result of the action of the Lessor in altering the footprint of LG19 and its subsequent fit out consideration has been given to the financial evidence of the applicant in respect of the premises subject of the lease. This evidence discloses that the profit for the relevant years is: 1998 - $18,387.25 (ex $10,000 rent reduction) 1999 - $5,834.17 2000 - ($334.37) 2001 - ($15,279.17) 52 The evidence in respect if the increase in profits of the shop of the applicant at Westfield Shopping Tower is not a reliable comparison as to any expected increase of profit to be applied to the subject shop. 53 The rental increases were approximately 14% for 1999 allowing for the rent reduction of $10,000 in the first year, 13% for 2000 and no substantial increase in 2001. An averaged annual increase of 10% would seem to be a reasonable expectation taking into consideration the rent increases. 54 In the absence of any reliable percentage figure of expected increase in profit and bearing in mind the rent reduction in 1998 was $10,000, the calculation of profit (rounded figures) may be made as follows: 1998 = 18,300 (inc. rental allowance) = 18,300 1999 = 5,800 (where half of the year was affected by Fornini & construction thereof the profit could be calculated as 18,300 + 10%) = 20,130 2000 = (300) (20,130 + 10%) = 22,143 2001 = (-15,300) (22,143 + 10%) = 24,357 Totals = 8,500 = 84,930 = 76,430 Therefore loss to June 2001 is $76,430 55 I make the following findings: 1. Any pre-lease representations made by the Lessor or on behalf of the Lessor were not made with the knowledge that they were false or misleading. 2. The cost of the fit out was an incident of entering into the lease as it was a condition of the Lessor that a particular designer be used. 3. The Respondents action, in redesigning shop site LG19 and subsequently leasing that site, inhibited or altered, to a substantial extent, the flow of customers to the applicant's shop LG17. 4. The Applicant made the requisite request pursuant to Section 34 (1) Retail Leases Act. 5. As a result of Paragraphs 52.3 and 52.4 the Applicant is entitled to reasonable compensation. 6. The calculation of the compensation to be based on the profit realised in 1998 and then increased at 10% per year for each of the years 1999, 2000 and 2001. 56 I make the following order: The Respondent pay the amount of $76,430.00 to the Applicant as compensation pursuant to Section 34 Retail Leases Act 1994.