Nakhle v Karmanchuk [2006] NSWADT 352

Pending Appeal :

CITATION: Nakhle v Karmanchuk [2006] NSWADT 352

DIVISION: Retail Leases Division

APPLICANT PARTIES: Melissa Nakhle RESPONDENT Zoya Karmanchuk

FILE NUMBER: 065092

HEARING DATES: 10/10/2006

SUBMISSIONS CLOSED: 11/28/2006

DATE OF DECISION: 12/13/2006

BEFORE: Fox R - Judicial Member

CATCHWORDS: Claim for relief against forfeiture

MATTER FOR DECISION: Principal Matter

LEGISLATION CITED : Retail Leases Act 1994

C K Lawyers REPRESENTATION: Penhall & Co, Lawyers

ORDERS: 1. Applicant not in breach of covenant in lease registered No. 9570246.; 2. Applicant entitled to continue her occupation of the premises in accordance with the terms of that lease.; 3. The parties have leave to approach the Registrar within 14 days of the date of this Order to list the matter for hearing before me in relation to the question of costs. If no such Application made the Order will be "No special circumstances. No Order for Costs."

REASONS FOR DECISION Background Facts 1. The Applicant Melissa Nakhle is the occupant of lock-up shop premises at 132 Marion Street, Leichhardt. The premises are used as a beauty salon under the style "Ambience At Leichhardt Day Spa Skin Clinic". The Respondent Zoya Karmanchuk is the registered proprietor of the property. 2. The matter came before the Tribunal by Application for Urgent Interim Order filed 22 June 2006, the Respondent having locked the premises against all entrants on the preceding day. The salon was then and now, being operated by Katie Duffie – as manager according to the Applicant, or as purchaser of the business according to the Respondent. 3. Some days previously, on 14 June, Garry Penhall, the Respondent's solicitor, had forwarded a letter to Katie Duffie, alleging that the premises were either the subject of: - (a) a 5-year lease effected by Section 16 of the Retail Leases Act as a result of Solomon Nakhle's entry to the premises in December of 2002, or, (b) were the subject of a registered lease to Melissa Nakhle, wife of Solomon, dated 1 December 2002, for a 5-year term with two successive 5-year options. 4. The letter opened with a reference to Supreme Court proceedings then (and now) on foot between the Respondent and Applicant, seeking to prove that the lease registered on the title was a forgery, but, in any event (correctly), asserted that, no matter which of the two effected the Nakhle's right of occupation, it was governed by the Retail Leases Act. The letter made reference to a business names record search which showed the "Ambience" trading name to have been transferred from Solomon Nakhle to Katie Duffie on 1 May 2006 and went on to assert that, because the Respondent had never consented to the change in possession, there had been a fundamental breach of the lease, which repudiated it, and rendered Ms Duffie a trespasser and as such, required her to vacate the premises. Matters not in Issue 5. It seems appropriate to identify those matters which are not in issue between the parties:- (a) In December 2002 Solomon Nakhle purchased the goodwill of the business from the Respondent, who previously conducted it as owner/occupier. (b) The original negotiations for the purchase included a proposal for Solomon to buy the freehold, but that aspect came to nought because Solomon could not arrange finance. (c) In anticipation of the purchase of the freehold, Solomon took occupation of the shop and commenced the running of the business early in December 2002. (d) There is a lease registered on the title under registration No. 9570246. It is in (more or less) standard Law Society approved form, between Melissa Nakhle and Zoya Karmanchuk for a 5-year term commencing 1 December 2002 and ending 30 November 2007 together with two 5-year options. (e) There are proceedings in the Supreme Court of New South Wales in its Equity Division under No. 3414/04 by Zoya Karmanchuk against Solomon Nakhle, Melissa Nakhle and George Shad, solicitor, alleging that the lease registered on title is a forgery and seeking its expungment. All of the pleadings and affidavit evidence in the Supreme Court proceedings to date were in evidence before me being, broadly, annexures to the affidavit of Garry Penhall. (f) The Business Names Register for the State of New South Wales shows the transfer of the business name "Ambience At Leichhardt Day Spa Skin Clinic" from Solomon Nakhle to Katie Duffie. The document effecting that change indicated that Duffie's ownership of the name commenced on 1 May 2006, and, incidentally, showed the name to have been first registered on 11 November 2002, and it appears that the original proprietor of the name was indeed Solomon Nakhle. The official records were in evidence before me pursuant to subpoena. The Lease 6. Mr Penhall argued that I have to decide, as a threshold matter, which of the two possible leases apply to the premises, either the 5-year lease implied by Sections 8 and 16 of the Retail Leases Act flowing from Solomon's entry of the premises, or the longer lease as registered on the title in Melissa's name. I disagree. As I understand the law, and as Mr Carney argued, the lease registered on the title is good against all the world, and whilst it is on the title, I am bound to assume that it is the document which governs the occupancy now before me. I note that the Respondent states that lease to be a forgery, but that is a question which the Respondent has elected to litigate in another place, and it was never suggested by Mr Penhall that that "bigger" issue was to be ventilated before me. My enquiry is limited to the propriety of the Respondent's action in locking the Applicant out for breach of a covenant imposed by the lease registered on the title. The Evidence 7. There were affidavits by Melissa Nakhle dated 26 June, Solomon Nakhle dated 10 July and Katie Duffie dated 10 July and Francis Gangi dated 12 July, all on behalf of the Applicant, and all four were cross-examined before me. For the Respondent I had the affidavit of Zoya Karmanchuk dated 27 June 2006 on which she was cross-examined and the affidavit of Mr Penhall dated 20 July 2006 putting in evidence correspondence between himself and Michael Chahoud, solicitor, for the Applicant as well as the lease, the contract for sale of business, and the Supreme Court pleadings etc. 8. Melissa Nakhle's affidavit and oral evidence averred that she is the lessee under the registered lease, and that she personally managed the business. When she became unable to do so because of difficulty with her pregnancy, she employed Katie Duffie to manage it. She denied any transfer or sale to Katie. In relation to the ownership of the business she said, "My husband and me own the business – it's his, but we are married" and went on to say that their tax returns showed them to be working in partnership. In relation to the rent paid to the Respondent, her evidence was that these funds were drawn from a bank account which she described as "our bank account". Although it is an account in Solomon Nakhle's name only, she is a co-signatory to it and has full access. She then again asserted that, despite the style of the bank account, and the registration of the business name, the business was their joint property – Solomon did the books and Melissa managed the customers. 9. Solomon Nakhle's evidence was that preliminary discussions with Katie Duffie about her managing the business took place in February and March 2006 and were still ongoing when Melissa's pregnancy suffered complications, which led to her being admitted to hospital, and the baby being born shortly thereafter. The end result was something of a panic in which it transpired that there was difficulty in arranging an appropriate bank account. Solomon's affidavit indicated that the business banking account, with the Westpac Bank, was linked to all his private banking, and that he did not want Katie to have access to those private accounts. In order for Katie to open an account in her name only for the business, using the registered business name, the bank indicated that the business name would have to be transferred to Katie. That was why Solomon and Katie signed the Form of Change of Particulars – there was never any oral or written agreement to transfer the business to Katie, all she ever did was manage the business and the paperwork for that was eventually sorted out in an Agreement dated 10 July 2006 between Solomon and Melissa on the one hand, and Katie on the other hand. 10. That Agreement was in evidence and in part states "Now this Agreement witnesseth that Duffie shall manage the business for a period of 6 months from 19 April 2006. Such term can be extended by mutual agreement." It went on to provide for a salary of $300.00 per week plus 75% of any net profits, but if the business lost money, then Duffie would still receive her $300.00 per week, and would not be liable for any part of those losses. Clause 4 said:- "That Nakhle shall transfer the business name to Duffie during the period of the management." Clause 5 of the Agreement said:- "Duffie agrees to retransfer the business name back to Nakhle on the expiration of her management of the business." Clause 7 obliged Duffie to open a bank account for the purposes of the business, and clause 7 described Duffie's duties as:- "(a) general management of the business, (b) taking bookings, (c) servicing customers, (d) daily running of the business, (e) hiring and firing of staff, and (f) advertisement." 11. I noted the Agreement to be an assertion made some 6 weeks after the date of the Department of Trading forms, being the application to note change in particulars of proprietor, and calls for details of the new proprietor as well as details of the former proprietor. 12. Katie Duffie confirmed her affidavit evidence to the effect that she was the manager of the business, that the business names transfer document was signed as a result of the Westpac Bank's indication that the merchant account could not be conducted by her in the registered business name unless it was registered in her name, that she did not own the business and had never entered into any agreement with either Solomon or Melissa to buy it, nor had she ever paid any money for it. She went on to say that there had always been an oral agreement in relation to the terms of the management, and that was reflected by the 10th July document annexed to her affidavit and confirmed that, when she ceased managing, she would transfer the business name back to Solomon. She was not shaken in cross-examination. 13. It is appropriate to consider the evidence of Francis Gangi and Zoya Karmanchuk in reverse order. 14. Ms Karmanchuk's evidence was that on Monday 5 June 2006 she telephoned the business in the following terms:- "My name is Julia Ross. Can I have an appointment with Melissa for 10.00am 29th June … who am I speaking to?" The response was:- "My name is Francis. It won't be with Melissa." Zoya then said:- "If she is busy I will make it another day." To which the response was:- "She is going to Lebanon she thinks for 12 months next week." Zoya:- "That's sad for me. I was told she was a very good beautician maybe because she was the owner of the salon." Francis:- "We have a new owner. Her name is Katie, she is Melissa's cousin." Zoya:- "Has the salon been sold?" Francis:- "Katie is the new owner." 15. The affidavit went on to refer to the business name search and to assert that Ms Karmanchuk, as lessor, had never consented to any transfer of the lease or right of occupancy. 16. Of course, cross-examination turned on the fact that Zoya had indulged in a ruse and had been less than honest. However, in relation to the words said to have been used, generally speaking, she was not shaken in cross-examination other than to admit that there may have been a reference to Melissa having a baby which she did not include in her affidavit. 17. Francis Gangi's evidence confirmed that she recalled the telephone conversation with Julia Ross, and that it had struck her as odd at the time, to the point where she had made a full note of it in the business computer message recording system on the same day when the phone call occurred. The words which struck her were in response to her observations that Melissa was not available, but that Katie was the manager and she was as good as Melissa. The response was that the caller:- "Preferred the business proprietor because they do a better job". Francis denied that she used any words to indicate that Melissa would be away for 12 months, nor did she indicate in any way that Katie was the owner or the new owner. 18. Ms Karmanchuk's affidavit did go on to say that, as a result of the admission of change of ownership which was made in the telephone conversation, she instructed her solicitor to carry out the business name search which brought up the information which has already been adverted to. In cross-examination she indicated that if that acknowledgment had not been made in the telephone conversation, she would not have instructed the business name search. Finding on Facts 19. In relation to the telephone conversation between Francis and Zoya, I am not satisfied that Zoya's is the more likely to be true, and so it is not, on the balance of probabilities, proven that Francis said that Katie was the new owner. I interpose to observe that, even if I had found that Francis said that which Zoya alleged, it would have been by no means conclusive of the actual ownership of the salon. 20. In relation to the arrangements for Katie's presence on the premises, I find, again on the balance of probabilities, considering the evidence of Melissa, Solomon and Katie, that the arrangement is one of management and not of ownership. In this regard I observe that the registration of change of business name, although I accept the explanations given, was (and is), a quite foolish thing to do, holding out, as it does to all the world, that Katie is the beneficial owner of the business name whereas, in truth, she would appear to hold it in trust for the Applicant, or the Applicant's husband. 21. I note that the Business Names Act in this regard is really quite neutral. It provides for penalties on those who carry on a business under a business name of which they are not noted as proprietor on the register. It does not, as I understand it, bring about a situation where registration is conclusive proof of ownership, it only seeks to ensure that all who do carry on the business can be found on the register. 22. The concept of carrying on a business is not defined by the Act. 23. The business names registry form in issue before me is "Application to Change Proprietors of a Business Name". Mr Penhall, it seems to me, was correct in submitting that the form prima facie indicates a change of business owner, and an assignment, but as I have indicated, I accept the Applicant's evidence to the contrary. 24. It may well be the case that what Solomon, Katie and Melissa have done with the business name amounts to one or more offences under the Business Names Act, but it seems to me that that is the only consequence, nothing appears to be reversed or invalidated by the failure to have the Business Names Register reflect the facts. Conclusion 25 It follows from my findings of fact that the Applicant was not in breach of the lease and so the Respondent was not entitled to lock the premises against the Applicant's agent. 26. I find that the Applicant:- (a) Did not assign the ownership of the business known as "Ambience At Leichhardt Day Spa Skin Clinic" and so is not in breach of the lease registered 9570246 in respect of the premises at 132 Marion Street, Leichhardt being the whole of folio identifier A/439973, and, (b) Is entitled to continue her occupation of the premises in accordance with the terms of the lease registered on that title. (c) Mr Penhall sought to rely on the fact that the goodwill of the business was bought by Solomon, and that the lease is in Melissa's name. I accept that such disparities are not uncommon in businesses conducted by husband and wife. I am satisfied that, in equity at least, the business is jointly owned, and so is the lease registered on the title. The business is conducted as a partnership, it seems to me, both in fact and in law. In this regard I note Melissa's uncontradicted evidence that she and Solomon file tax returns for the business as a partnership. 27. In view of the various allegations made before me in relation to the lease, it is appropriate to observe that I make no findings about it at all other than to repeat my earlier observation that, whilst ever it is registered on the title I am bound to assume that the lease is the document which governs the occupancy in issue before me. 28. Mr Penhall argued that his client had no choice but to lock Karen Duffie out once his client was on notice of the change in the registration of the business name, for fear of being seen to acquiesce in Duffie's occupation, so creating a new 5-year lease. The better analysis is that, in those circumstances, there would be a risk of an acknowledgment and acceptance by the lessor of the assignment of the remainder of the term of the lease and that that be remedied by a demand of cessation and an application for a declaration in this Tribunal and, in the interim, acceptance of the rent without admission. 29. In relation to the question of costs, I say that my preliminary view is that there are no special circumstances justifying an order for costs in favour of any party, but I give the parties leave to approach the Registrar within 14 days of the date of this order to list the matter for hearing before me in relation to the question of costs. If no such application is made within 14 days I will simply make the further order above indicated, in effect, in chambers.