Singh v Doulakis [2004] NSWADT 205

CITATION: Singh v Doulakis [2004] NSWADT 205 DIVISION: Retail Leases Division APPLICANT PARTIES: Manpreet Singh RESPONDENT Peter Doulakis and Maria Doulakis FILE NUMBER: 045065 HEARING DATES: 3/09/2004 SUBMISSIONS CLOSED: 09/03/2004 DATE OF DECISION: 09/21/2004

BEFORE: Molloy GB - Judicial Member; Harrison B - Non Judicial Member APPLICATION: Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: APPLICANT REPRESENTATION: M Lynch, barrister RESPONDENT M Heath, barrister ORDERS: 1. Declare that the applicant did not exercise the Option contained in Deed of Lease 6696728H; 2. Declare there was no unconscionable conduct by the Respondent Lessor; 3. Order that the Amended Application be and is hereby dismissed; 4. Leave granted to either party to re-list this matter within fourteen (14) days of this Judgment to argue any issue relating to costs. In the event that either party does no so re-list then there will be no order for costs

REASONS FOR DECISION Background 1 The Applicant is the Lessee of part of the land in Certificate of Title Folio Identifier 3/435850 described in the Lease as "All those lock-up ground floor and upstairs shop premises known as 169 King Street, Newtown". The Lease is registered 6696728H and commenced 18 February 1999, terminated 17 February 2003 and contained an option for renewal for a period of 4 years commencing 18 February 1999 which option required to be exercised by the Applicant "by written notice to the Lessor (the Respondent) at least three (3) months and not more than six (6) months before..." 17 February 2003. 2 There is a hand-written notation on the front of the registered Lease to the following effect: "+1st floor (upstairs) – subject to the Council approval and owner consent for proposed use." Curiously, no party made any submissions relating to this notation. 3 The evidence of both parties demonstrated clearly that they were persons in business who operated, not only the premises the subject of the Lease, but also other premises – the Applicant operated another restaurant at another location, apparently (on his evidence) for over 10 years without any documentation; the Respondent also owned /leased other premises. Although both parties gave evidence partly in English and partly in another language (the Applicant in Punjabi and the Respondent in Greek), it is plain to the Tribunal that both parties were people experienced in business activities. 4 The evidence on behalf of the Applicant was not given by the Applicant himself but rather by his father Mr Labh Singh who is the Manager of the business conducted in the premises and known as the "Indian Fantasy" restaurant. It is important to make this observation because the claim agitated by the Applicant was a combined retail tenancy and unconscionable conduct claim. There was a strong submission made by counsel for the Respondent that it could not be said that the Applicant was the victim of unconscionable conduct because there was not evidence that Mr Labh Singh communicated anything at all to the Applicant. 5 In the Amended Application under the Retail Leases Act, 1994, the Applicant firstly alleged a collateral agreement between the parties in which the period in which the option to renew the Lease could be exercised was extended. This claim was abandoned at the hearing. 6 Nextly, the Applicant alleged that he had exercised the option to renew the Lease – similarly, that claim was also abandoned at the hearing. Then, in paragraph 16 of the Amended Application, perhaps in response to the Notice to Quit served by the Respondent upon the Applicant and dated 8 March 2004, the Applicant alleged that in response to any allegation that he had breached the Lease that if there is or are any breaches then the Respondent had not provided any reasonable time to remedy those breaches. It is fair to point out that allegation was also not pursued at the hearing. 7 Counsel for the Applicant stated that the case was only an unconscionable conduct claim in that it was not alleged that there had been any agreements reached between the parties but rather that the representations by the Respondent amounted to unconscionable conduct. 8 Finally, and by way of further background, counsel for the Respondent submitted at the end of the hearing that because of the terms of the Notice to Quit and its expiry there was in fact no lease and the Tribunal had no jurisdiction. That indeed was a submission that was made very early in the piece when the matter firstly came before the Tribunal, the Applicant at that point seeking an urgent interim injunction which was granted on the basis that there was prima facie material that might have supported an argument for unconscionable conduct in circumstances where the Applicant remained in occupation of the demised premises and was paying rent – in those circumstances it seemed that the Tribunal had jurisdiction and it was never seriously contended until the very last submission made at the closure of the hearing that the effect of the Notice to Quit was that the Tribunal was deprived of jurisdiction. Indeed, during the whole of the Hearing there was no debate at all over the validity or otherwise of the Notice to Quit or indeed what would be its effect (if valid) on the jurisdiction of the Tribunal. In other words, it was not an issue before the Tribunal and in the circumstances and where the Applicant was actually in occupation of the demised premises and paying rent, effectively holding over under the Lease, and in circumstances where there was no debate about the Notice to Quit and its effect, the Tribunal is of the view that it is able to exercise jurisdiction in relation to this Application. In any event, the power of the Tribunal (Section 62B) deals with retail shop leases and these are defined (Section 3) 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 the use of the premises as a retail shop…." and there was no argument the Lease granted by the Respondent to the Applicant was a retail shop lease, that the Applicant was holding over under that Lease, that the Applicant was paying rent (albeit not precisely on time) and in those circumstances and absent real argument about the validity or otherwise of the Notice to Quit and having regard to Sections 62B and 72AA it is clear in our view that the Tribunal has jurisdiction to hear and determine this Amended Application. It may well be that the Respondent has other rights available to them consequent upon the determination of this Tribunal, but that is a matter for their advice. Evidence 9 Both parties gave oral and written evidence. They were cross examined – Mr Lahb Singh on behalf of the Applicant and Mr Peter Doulakis being the first Respondent. It is appropriate to make this observation: The Tribunal was less than impressed (to put it mildly) with the evidence of both witnesses. In our view, and with great respect, both witnesses appeared to prevaricate, hesitate in answering questions when a clear answer would have been easy and in circumstances where it appeared that they were each looking to provide an answer that would assist their case rather than simply answering the question. In addition, in the case of the Applicant Mr Labh Singh stated on more than one occasion that matters that he sought to allege orally were not included in his two affidavits. Consequently, we have found it difficult to draw any conclusion from the oral evidence provided in circumstances where we found that evidence to be less than compelling and open to justified criticism. In making these comments the Tribunal is acutely aware that in the case of each witness English is not their first language and allowance must be made for that circumstance. The Tribunal is also aware that this is a commercial Division of the Tribunal and both witnesses are in business and have been in business for many, many years. 10 The allegations of various conversations held between the Applicant (through Mr Labh Singh) and the Respondent were all denied by the Respondent. The Applicant's evidence in support of his case can be summarised in this fashion: - In late 2002 the Applicant (in all conversations in this paragraph 10 reference to the Applicant is a reference to his father Mr. Lahb Singh) said to the first Respondent: "We want to stay here for another four years" and he replied: "No problem with that. You can stay here as long as you like." - In November 2002 the first Respondent said: "You should come to my restaurant at Lane Cove [where the Respondent operated another restaurant] and we can discuss the renewal of your Lease". - In December 2002 the Applicant said to the first Respondent at the Lane Cove restaurant: "I would like to renew the Lease but can it be at a 2% annual increase and not 4%?" and the first Respondent replied: "I will see what I can do. I will have to speak to my wife [the second Respondent] to discuss. She's the boss." - In January 2003 at the demised premises the Applicant said: "Have you spoken to your wife about the 2% annual increase?" and the Respondent replied: "No, I have been busy as I have just sold one of my businesses. We really haven't had time to think it all through. I'll get back to you as soon as I can." - In early February 2003 the first Respondent said: "Your lease expires in February 2003 so you need to think about renewing the lease" and the Applicant responded: "We want to stay here." The first Respondent said: "Well, get your solicitor to renew the Lease" and the Applicant said: " I will do that." - The Applicant stated that he "believed there was still time to renew the Lease based on my discussions with (the first Respondent)". As we have pointed out above the time for renewal had in fact passed – indeed, the time for renewal had passed on 17 December 2002 and it would not be an unfair inference to draw that the Applicant was in fact aware of that (although he denied it) having regard to his conversations set out above (paragraphs 10.1 and 10.2) in late 2002 and in November 2002. - The Applicant then told his solicitor (Mr Jack Singh) in February, 2003 to renew the Lease and later in this Judgment the Tribunal will refer to the correspondence that flowed between the solicitors for the parties. - In about February 2003 the first Respondent said: "If you really want to make money you should make the restaurant a licensed restaurant." The Applicant responded: "You're probably right ... I'm going to move the kitchen back and put in two more toilets." The first Respondent replied to the effect:" That would be a good idea for the business." The Applicant said: I am also looking at converting the upstairs space into three rooms for my staff to get some money in to help me with the rent" and the first Respondent said: "That's fine, as long as you pay the rent." - In March 2003 building and renovation works commenced on the premises, performed by a company called Bharaja Building Services at a cost of approximately $67,000.00 and during March and April 2003 two additional toilets were installed and three rooms on the first floor of the demised premises were constructed. It was alleged that the first Respondent attended the demised premises and observed the building works being carried on. In May/June 2003 some members of the staff of the Applicant commenced boarding on the first floor. - In May/June 2003 the Applicant said to the first Respondent: "I have some of my staff living upstairs", to which he replied: " You should think about giving the first floor back to me. I could do some further work on it and rent it out myself. You could keep downstairs and I'd take something off your rent". The Applicant responded:" I will be happily to do that as long as we can agree on the cheaper rental for the restaurant on (the) ground floor" and the first Respondent said: "I'll need to speak to the real estate agent to see what can be done". The Applicant also alleged that on "at least one occasion during January 2003 to April 2003 (he) said to (the first Respondent): "We are here until 2007?" and (the first Respondent) replied: " You can stay here as long as you want". In oral evidence the Applicant alleged that the first Respondent told him that he could stay at the premises for "ten years, twenty years, or whatever". - The Applicant also alleged that in April or May 2003 he said to the first Respondent: " I think that the rental increase should only be 2% and not 4%. Business is very slow for us. Could you help me?" and the first Respondent said:"I don't know. I will think about it." - In early June 2003 the Applicant said to the first Respondent: " Every business is down at the moment and it would help me if you could reduce the annual increase to 2%. It is difficult to pay 4% each year", to which the first Respondent replied: " No, I can't agree to that. The Lease is at 4% and that's it. It is not negotiable anymore." The Applicant said:" I have no choice but to accept the 4%. I agree to everything in the Lease." 11 Suffice it to say that the Respondent (through the first Respondent) denied all of those conversations. 12 The nub of the case for the Applicant was that he relied upon those statements made to him by the first Respondent such that they encouraged him to think that he would have a lease to 17 February 2007 and as a consequence he could carry out the building and renovations works and expend money on the premises. In his submissions counsel for the Applicant invited the Tribunal to conclude that because there was contact between the parties direct then, notwithstanding the correspondence between the solicitors, that correspondence did not "inoculate the parties from the consequences of their conduct." That submission is based upon the assumption that the Tribunal will accept unreservedly, or to a large extent, the evidence of the Applicant in relation to that contact and the alleged conversations. The Tribunal has indicated that it is not prepared to accept that evidence – the Tribunal was very unimpressed with the oral evidence of both parties and has formed the clear view that it would be unsafe to make findings of unconscionable conduct in reliance upon that evidence. 13 Furthermore, it is significant that the Applicant claimed the "cost of the renovation and building works" in $67,000.00. In the Amended Application filed 19 July 2004 the Applicant sought an order that the Respondents "compensate the Applicant for the costs incurred in renovating the premises over the period 1 January to 30 April 2003". Other than the bald statement in the Applicant's Affidavit 29 July 2004, paragraph 23, that the cost of the renovation and building works "was approximately $67,000.00" there was absolutely no corroborating evidence at all in support of that statement. If a party seeks compensation orders in a Court or Tribunal then there are ways of proving the loss to be compensated. The Applicant made no attempt at all to prove the loss and even if he were successful in the unconscionable conduct claim the Tribunal would be forced to conclude that there was absolutely no proof at all of the cost of renovation and building works and therefore no proof of the loss to be compensated. In any event, and importantly, the Respondent gave crystal clear notice to the Applicant that they were seeking the necessary corroborating material – by two Summonses to Produce Documents issued on behalf of the Respondent, one addressed to the Applicant and one addressed to the building company, and both seeking the necessary corroborating documents relating to the building works at the demised premises (including contracts, invoices, statements, delivery documents, work sheets, receipts, etc), upon return of those Summonses before the Tribunal at the commencement of the hearing no documents at all were produced. The Tribunal is not prepared to make any observations relating to those failures other than to repeat that absent corroborating material in support of a claim for loss/damage a Court or Tribunal would be reluctant (to put it mildly) to make awards for damages/compensation. Solicitors' Correspondence 14 Once one accepts that the oral evidence is unreliable one turns to the correspondence between the solicitors for the parties. At the outset it is appropriate to observe that both parties made continual reference to their solicitors during the course of their relationship. The evidence demonstrates that both parties relied upon their solicitors and a large volume of solicitors' correspondence was tendered. It is plain to the Tribunal that the solicitors carried out the negotiations between the parties and we are unable to conclude that the parties intended to create legal relations or legal consequences absent than through their solicitors. 15 The starting point is the registered Lease. As we have pointed out above the Lease expired on 17 February 2003 and the final date for the exercise of option was 17 December 2002. There was no dispute that the option had not been exercised. Curiously (however) the first letter was 12 February 2003 from the solicitor of the Applicant which is framed in a most curious way, as follows: "We confirm that we act for [the Applicant]. We understand the our client executed an agreement of Lease of the above property on 11 February 1999. According to the Clause Four of the Lease Agreement our client can use the OPTION TO RENEW this lease. Now we confirm our client's instructions to request you to exercise the said OPTION OF RENEW for another two years on the same conditions. Please get your client's instructions and advise us accordingly. Your urgent attention would by appreciated." We have set this letter out in the same way in which it was sent to the solicitors for the Respondent. Forgetting for a moment (if one can so forget!) the phraseology used it is plain that it was sent nearly two months after the last day of exercise of option and incorrectly refers to "another two years" when the option was for four years. 16 The Respondents' solicitor by letter 18 February noted that the Lessee had "to comply with the provisions of clause 4 of (the) Lease …(and)…the Lease expired on 17 January 2003 and your letter dated 12 February 2003 is therefore out of time". The Lease (of course) did not expire until 17 February 2003! 17 In any event, the matter progressed: by letter 16 April 2003 the Respondent's solicitors stated that the Respondent was prepared to grant to the Applicant "a fresh lease", with a commencing rent of $89,989.12 per annum, a term of 4 years commencing 18 February 2003 and annual rent reviews at 4% per annum. The letter went on to say that the Respondent "has informed us that negotiations between the parties in relation to the lease are broken down to the point where the offer contained in this letter is on a "take it or leave it" basis". The offer was expressed to be capable of acceptance "within fourteen (14) days from the date of this letter" and if it was not accepted then the Respondent "may give one (1) month's notice to vacate the premises." 18 By letter 29 April 2003 the Applicant's solicitor responded that "due to the public holidays we could not get our client's instructions and therefore we are instructed to request to extend the date to consider your offer until 8 May 2003", to which the Respondent's solicitors advised 29 April 2003 that the offer was extended to 8 May 2003. 19 Again, the solicitors for the Applicant did not act with promptitude, whether under instructions or otherwise we do not know. There was no further communication until 15 May 2003 when a counter-offer was made seeking to commence the new lease from 16 May 2003, not 18 February 2003 as previously offered. If this was thought to be an acceptance of the original offer 16 April 2003 extended to 8 May 2003 then it clearly was not. On 19 May 2003 the Solicitors for the Respondent advised that the Respondent was considering their position. 20 Nothing further happened until 10 June 2003 when the Applicant's Solicitor stated baldly: "Now we are instructed to accept all the conditions as mentioned in your letter dated 16 April 2003 for the Lease of the above property." This clearly was not an acceptance, and could not be. The letter went on to state: "Now we request you to get you client's instructions and advise us accordingly." 21 Nothing further happened until 8 March 2004 (some nine months later) when the Notice to Quit was served upon the Applicant. At the time of service the solicitors for the Respondent wrote a "without prejudice" letter to the Applicant making a further offer to the effect that if prior to the expiration of the Notice to Quit the Applicant entered into "a new lease" with the Respondent then the Respondent would withdraw the Notice. The "without prejudice" offer required acceptance within 14 days. There was no response from the Applicant and no response from his solicitors and no explanation proffered at the hearing for this lack of interest in the "without prejudice" offer 8 March 2004. 22 There was some subsequent correspondence and eventually the solicitor for the Applicant cranked into gear and wrote on 12 May 2004 complaining about the Notice to Quit, alleged that the Respondent "is receiving the rent from 17 February 2003 until now along with 4% increase as agreed between the parties. Our client is regularly paying the rent and your client is receiving the rent without any objection, which makes Lease renewed. Our client has paid rent until 18 May 2004" and requested a new lease consistent with his letter 10 June 2003. This letter 10 June 2003 is an important letter because counsel for the Applicant placed considerable reliance upon the failure of the Respondent through their solicitors to respond to the Applicant's solicitor's letter 10 June 2003 (paragraph 20 above). 23 There is no need to refer to any subsequent correspondence. Applicant's Submissions 24 The Applicant submitted (as we have stated above) that the correspondence between solicitors and the engagement of those solicitors does not protect the parties from the consequences of their conduct. In the circumstances, we reject that submission simply because we are not satisfied (for the reasons stated above) that the Applicant has discharged his onus in relation to that aspect. 25 The second submission was to the effect that the unconscionable conduct in this case is of an estoppel type. The Tribunal (it was submitted) has flexibility under Section 62B and the letter of 10 June 2003 from the Applicant's solicitors, to which there was no response, and in the context of the Applicant carrying out building work, left the Applicant with a misapprehension that he held tenure until 2007. It was said that the Respondent took advantage of this by failing to inform the Applicant by responding to the letter 10 June 2003 and by their silence the Respondent held out that the offer contained in the letter 16 April 2003 was still open such that (presumably) the Applicant could assume that he held a lease on those terms expiring 17 February 2007. And in answer to the query from the Tribunal to the effect that by 10 June 2003 the Applicant had already carried out the alleged building and renovation work, his counsel submitted that it was relevant that the work had been carried out, there were on-going negotiations such that the Applicant was not aware he was on a monthly tenancy and thought that the conditions of the proffered lease had been accepted. After all, the Applicant remained in the premises and was paying rent and the Tribunal was invited to conclude that it was quite likely that there were in fact discussions between the parties direct such that the Tribunal should look at the totality of the conduct of the parties commencing in early 2003 and extending beyond 2003 into 2004. By not responding to the letter 10 June 2003 the Respondent (it was submitted) left the Applicant's right of occupancy "up in the air". 26 The Tribunal rejects those submissions. Firstly, it is obvious that the Applicant had carried out the building and renovation work (we observe without Council approval) prior to 10 June 2003 and prior to May 2003. Secondly, it is curious and unexplained that the Applicant's solicitor did not follow up his letter 10 June 2003. If one accepts (as we do) that the parties carried out their negotiations through and allowed their solicitors to determine their contractual, legal and equitable rights, then why did not the Applicant's solicitor take some step to clarify his client's occupation of the premises subsequent to 10 June 2003? Thirdly, there was no explanation at all as to why the Applicant did not respond to the clear "without prejudice" offer 8 March 2004. Some attempt was made to explain it in the Applicant's solicitors letter 12 May 2004, when the solicitor for the Applicant referred to the Notice to Quit but, curiously, did not refer at all to the "without prejudice" letter of the same date and offered no explanation as to why that offer had not been taken up by the Applicant who was so allegedly keen to clarify his tenure. 27 Nextly, the Tribunal notes that the Applicant had in fact completed his building and renovation work before he instructed his Solicitor to accept the lease offer (by that time it having expired) by that letter 10 June 2003. It could not therefore be contended that there was some reliance. Indeed, counsel for the Respondent submitted that there was no estoppel, no representation, no reliance and no detriment and with that summary we would respectfully agree. 28 When one looks at Section 62B it cannot be properly contended (in our view) that the Applicant in these proceedings has properly articulated the conduct that is said to fall the concept of "unconscionable conduct." It is true that 62B(3) does not limit the matters to which the Tribunal may have regard and we accept the Applicant's counsel's submission that the Tribunal has flexibility under this Section. But having said that it is appropriate to articulate with particularity the conduct which is said to constitute "unconscionable conduct", particularly where both parties are business people, have been in business for some considerable time and where the Applicant found difficulty in falling within any of the sub-categories of Section 62B(3) – the best that could be agitated was Section 62B(3)(i), but it is plain from the above findings that no conduct of the Respondent falls within either sub paragraphs of that sub paragraph. Indeed, in his Affidavit 29 July 2004 Mr Lahb Singh states (paragraph 36) that it was not until early June 2003 that he told his solicitor "to accept the offer of the New Lease" and that resulted in the letter 10 June 2003. Findings 29 This Tribunal is of the opinion: 1. The option contained in Deed of Lease registered 6696728H was not exercised. 2.There was no unconscionable conduct as alleged by the Applicant. 3. In any event, even if there had been an even if the Tribunal was minded to make a finding in favour of the Applicant, there was no evidence sufficient upon which to base a claim for compensation. 30 The Tribunal will therefore make appropriate Declarations and Consequent Orders. DECLARATIONS AND ORDERS 31 The Tribunal makes the following Declarations and Orders: 1 Declare that the Applicant did not exercise the Option contained in Deed of Lease 6696728H. 2 Declare there was no unconscionable conduct by the Respondent Lessor. 3 Order that the Amended Application be and is hereby dismissed. 4 Leave granted to either party to re-list this matter within fourteen (14) days of the date of this Judgment to argue any issue relating to costs. In the event that either party does not so re-list then there will be no order for costs.