CITATION: Smith & Co (Sales Agency) Pty Ltd v Leather.Com Pty Ltd [2006] NSWADT 71 This decision has been amended. Please see the end of the decision for a list of the amendments. DIVISION: Retail Leases Division APPLICANT PARTIES: Smith & Co (Sales Agency) Pty Ltd RESPONDENT Leather.Com Pty Ltd FILE NUMBER: 055077 HEARING DATES: 3/11/05, 10/11/05 SUBMISSIONS CLOSED: 12/23/2005 DATE OF DECISION: 03/09/2006 BEFORE: Fox R - Judicial Member CATCHWORDS: Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 APPLICANT G Smith, agent REPRESENTATION: RESPONDENT P Hutton, solicitor ORDERS: Respondent to pay to Applicant forthwith, $30,894.36 being pursuant to Section 72(1)(a), restitution of bond, damages for failure to invest bond and, pursuant to Section 72A, interest. REASONS FOR DECISION 1 This is an application for the repayment of a Retail Shop Lease security bond in the sum of $23,000.00. It was paid by the Applicant to the Respondent's then Solicitors, Hunt and Hunt, on 14 September 2000, and it remained in that firm's trust account until the first days of May 2002 when it was called upon by the Respondent. 2 The Retail Shop Lease was a sub Lease of part of the Respondent's retail occupancy in one of the Hilton Hotel Arcades. The Applicant conducted a souvenir shop from the premises. As will transpire from these Reasons, the paperwork put to me left much to be desired, but that was eventually explained by the fact that the Sydney Olympic Games started on 15 September 2000, a factor greatly relevant to the Applicant's business. 3 The hearing of the matter took place on two (2) half days, 3 November 2005 in the afternoon, and 10 November 2005 in the morning. The Applicant was not represented, and Ms Patricia Hutton, solicitor, appeared for the Respondent. 4 The evidence available to me on the first day was the Affidavit of Claire Smith dated 10 October 2005 and filed 11 October 2005, and the Affidavits Lilya Fain, financial co-ordinator of the Respondent and Sophie Seilaba, assistant shop manager of the Respondent, both of which were sworn and filed on 3 November 2005. 5 Mrs Smith Affidavit's covered the payments of rent, GST, and outgoings made by the Applicant up to 4 June 2001, to demonstrate that there were no arrears to justify the taking of the bond, however, when the oral evidence of the Smiths was completed, and I came to consider the Affidavit of Lilya Fain, which had been sworn and filed a few hours before the start of the hearing, it became clear that it was the Respondent's case that the bond, as appropriated in May 2002 was partly to cover rent arrears said to have arisen before that date, partly to cover cost of preparation of the sub Lease, and partly to cover arrears of rent which were claimed to have arisen subsequently to the appropriation of the bond. 6 On any view of the matter, at that point in the evidence, the rent deficit prior to the bond forfeiture was unlikely to exceed $9,000.00 or $10,000.00, and so, even assuming that the fees paid to Hunt and Hunt in the sum of $3,000.00 did comply with Section 13 of the Retail Leases Act as it then applied, there was a question to be resolved of an amount possibly in excess of $10,000.00, allocated to post bond alleged rent arrears. There was also, obviously, an issue whether or not the bond had ever been invested in accordance with the requirements of Section 47 of the Act. 7 Further evidence was available on the second day, by the further Affidavit of Claire Smith sworn and filed on 8 November 2005, the Affidavit of Nathan Arden sworn on 2 November 2005 and filed on late 3 November 2005. Lastly, in accordance with leave to issue summons to appear given my me, the oral evidence of Peter Garrett, solicitor, formerly of Hunt and Hunt was also available. 8 At the end of the evidence it was clear that: - A. The use of the shop for retail sales began on 16 September 2000, the day after the glass entry door to the subdivided shop had been installed. B. There had been some fitting out (being the construction of the intertenancy wall) in the immediately preceding days. C. The Sub Lease document which evidenced the terms of the occupancy, was executed by the applicant on 16 September 2005 in the presence of David Cass solicitor to the Applicant. As drawn the document noted a commencement date of 1 September 2000, but as executed, and offered by the Applicant to the Respondent, the date had been amended to 16 September 2005. D. The only document offered to me as evidence of the sub letting was a photocopy of the Applicant's counterpart as executed by the Applicant, the counterpart executed by the Respondent (if there ever was one) was not in evidence. E. The Sub Lease as amended purported to commence on 16 September 2000 and to end on 27 February 2002, a term which was some sixteen (16) days less than the one (1) year five (5) months and twenty seven (27) days described on the document. F. The Sub Lease was subject to the consent of the head lessor, which was not available on 16 September, and so David Cass sent the document to Peter Garrett with a letter which stated: - "SMITH & CO (SALES AGENCY) PTY LIMITED –SUB LEASE FROM LEATHER COM PTY LIMITED Premises: Shop 625A, Capital Centre Arcade, 255 Pitt Street, Sydney I refer to the telephone conversation of 14 September 2000 between your Mr Garrett and the writer. As discussed, my client Company has agreed to the proposal of a licence arrangement pending formal consent to the sub-lease by the head lessor. To that end, it is noted that the parties agree as follows: 1. That as from 14 September 2000 your client grants a licence to Smith & Co (Sales Agency) Pty Limited to occupy the subject premises pending the formal consent of the head lessor to the sub-lease; 2. That until the consent to sub-lease is granted, that you will hold the executed copy of the Sub-Lease, which is enclosed with this letter. Further, it is agreed that you will hold in your trust account the monies in the sum of $23,000.00 paid by my client for the rental bond, and that you will not account to your client until the head lessor's consent is granted, and that if it is not, then the monies shall become immediately refundable to my client. 3. The terms of the licence shall reflect the provisions agreed in the sub-lease as negotiated between the parties where applicable, and it is agreed that your client shall have the right to determine the licence on 24 hours notice. Please acknowledge receipt of the executed sub-lease document and of the cheque from my client Company at your earliest convenience". G. Consent was in hand by letter of 1 November 2000 from FPD Savills (the rental managing agent) approving of the Sub Lease for a use which appears to have included the use to which the Applicant in fact put the shop, but for a term without the option which the Sub Lease document before me purported to grant. H. It was another term of the consent that there be a formal Deed of Consent and I accept that such a document was prepared, because the Memorandum of Fees and Disbursements issued by the lessor's solicitor (Blake Dawson Waldron) dated 3 November 2000, reciting the preparation of the Deed of Consent, was in evidence before me, and I accept Mrs Smith's assertion that the fee was paid. I. The rent was $13,100.00 per month, being rent $11,500.00, GST $1,150.00 and outgoings $450.00 (which were generally described "electricity"). J. There was, right from the start friction between Nathan Arden and the Smiths (and their shop manager "Victor") about the rent being late. This, I find, arose from the dispute about the commencement date of the occupancy, Mr Arden wishing to "count" from 1 September 2005, and the Smiths opting for 16 September 2000. K. I also find that, despite request by the Smiths for detail or calculations to justify the claim being made against them for arrears of rent, none were forthcoming. L. Further I find that the fax dated 2 January 2002, from the Applicant to Nathan Arden, bearing the text: - a. "I agree with the use of the bond to settle the disputed rent for The Oz Souvenir Shop. As you are aware the Souvenir/Tourism Industry is facing very hard times, so it is very difficult for the shop at the moment. b. However, you will have to get Mr Garrett to contact our solicitor Mr Cass, so the figures and dates can be worked out and agreed, and get this matter sorted out once and for all. c. Mr Cass has been trying for over 6 months to contact Mr Garrett regarding the matter, so we have actually been trying to resolve this." was actually signed by Victor and given to Nathan Arden. M. No calculations were ever given and I am satisfied that the clear intent of the fax was that the bond not be released until calculations were made available and agreement reached. N. The letter was used as authority to release the bond in early May 2002 and the funds were appropriated by Nathan Arden, as to the sum of $20,000.00 to rent and as to the sum of $3,000.00 to fees for Hunt and Hunt. The fees actually paid to Hunt and Hunt Sydney were an amount of between $1,200.00 and $1,500.00 for Sydney matters undertaken by the firm for Mr Arden, and an amount of between $1,800.00 and $1,500.00 was paid to the Brisbane arm of Hunt and Hunt, to pay for work done by that firm in Brisbane for Mr Arden. O. The bond always remained in the Hunt and Hunt trust account, it never was invested. P. The Smiths were not, at that time, told of the forfeiture of the bond. Q. There were negotiations in July of 2002 which resulted in an abatement of the rent to $10,000.00 per month including GST and electricity. These payments were then made in the sum of $5,000.00 per fortnight until the occupancy ceased in November of 2002, about the time when the Arcade (and the Hilton Hotel) were closed for a major refurbishment. 9 The issues to be resolved are: - 1.When did liability for sub-lease rent start. 2.What was the true state of the accounts between the parties. 3.How much (if any) bond should have been refunded to the Applicant on the termination of the occupancy in November of 2002. The Commencement Date of the Lease 10 It was Mrs Smith's evidence that she did not know who altered the date on the sub-lease document which was in evidence before me, she thought it was Mr Cass. However when one considers the letter written by Mr Cass in submitting the document, it seems to me to be quite clear the actual commencement date proposed by him for the "licence in terms of the Lease", was 14 September. That date also seems to me to accord with the tenor of the evidence given by Mr Smith. 11 I was not given any other document or any other positive evidence to indicate any other date for commencement. Peter Garrett, without his file, was unable to assist with such specifics, although, his evidence, given from his personal recollection only, did accord substantially with the circumstance described in the David Cass letter. 12 It was Nathan Arden's evidence that the Smith's fit out began late in August, and that they commenced trading on the 15 September 2000, being the first day of the Olympics. Further, it was his evidence that he did not authorise the amendment to the commencement date, nor did he have any recollection of ever being told that that date had been altered, and that it was always his intention that the lease commence on the 1 September 2000. However he admitted that the document did accord with his instructions in that there was to be a three (3) week rent holiday to allow the fit out, but that the rent was payable from the date when trading commenced. 13 It was also Mr Arden's evidence that, when he and Mr Smith had agreed on the deal, they both went to see Peter Garrett to sort out the details of the Lease. Mr Smith denied this, and I gained the impression from Peter Garrett's evidence that he too was quite surprised by that suggestion. 14 I do not accept Mr Arden's recollection of the Lease negotiations and subsequent conduct, and am satisfied that the truth is found in the documents before me. 15 I am satisfied and find that there was a right of occupancy which commenced on the 14 September 2000, which commenced as a licence terminable on twenty four (24) hours notice, but otherwise entirely in accordance with the sub-lease document in evidence before me, which, eventually, on the granting of the consent in November, became a Retail Shop Lease within the meaning of the Act, which, as a matter of technicality, because there may not have been a Section 16 Certificate, may well have been for a term of five (5) years from that date. The Accounting Between the Parties 16 It is clear that there was to be a three (3) week rental holiday, and consequently, the rent became due, not on 1 September 2000 as Mr Arden proposed, but on 5 October 2000. It follows that instead of being substantially in arrear, it seems to be to be quite clear that the rent was paid in advance for the first months. It is difficult to understand how Nathan Arden concluded that the rent was in arrear. The first payment of rent whether due 21 September or due on 5 October in the year 2000 was the payment made 15 August 2000. It follows that the payments made in October, November, December, January and February were all well in advance. In this regard I note that the Applicant believed that the Lease commenced on 16 September 2000, so that the first payment was due 7 October 2000. In view of my finding that the due date was 5 October, it follows that the calculations were generally two (2) days "out". Apart from this aspect, I accept that the actual payments made are reflected by the Schedule E to the November Affidavit of Claire Smith (which incidentally establishes that the bond was paid on the 14 September 2000, the date which I accept as the starting point of the Lease), evidencing that there were rent payments made on 15 August 2000, 10 October 2000, 7 November 2000, 4 December 2000, 18 January 2001, 13 February 2001, 5 April 2001, 7 May 2001, 4 June 2001, 5 July 2001, 7 August 2001, 5 September 2001, 5 October 2001, 6 November 2001, 6 December 2001, 7 January 2002, 6 February 2002, 6 March 2002, 5 April 2002, 9 May 2002, each being either for the combined rent and GST and outgoings or alternatively for the rent, there being subsequent appropriate follow up payments to cover electricity and GST. I accept Mrs Smith's reconciliation which indicates that the payment made 10 October she allocated to the payment not made in March of 2001, thereby bringing all the subsequent payments into "sync". 17 I also indicate that I am not surprised that Nathan Arden did not agree with Claire Smith's initial calculations; the document headed reconciliation, annexed to the Affidavit of Lilya Fain, and adopted by Mr Arden in his Affidavit, seems to me to only become accurate after April of 2001. Prior to that the list suggests a cheque dated 13 February 2001 (and according to the Applicant withdrawn from it's account on 14 February 2001) was in fact banked on 7 February 2001. Similarly, it appears to suggest that an amount of $14,250.00 was banked on 7 January 2001, whereas that amount was made up of two (2) cheques in the sum of $1,600.00 and $12,650.00 drawn 8 and 18 January respectively (and withdrawn from the Applicant's bank account on 18 January). A payment of $15,400.00 by cheque dated 4 December (and according to the Applicant withdrawn on 6 December) was according to the Respondent not banked until the following day. A cheque drawn 10 October in the sum of $11,500.00 was banked on 7 October according to the Respondent. 18 These book keeping irregularities in the Respondent's records, taken together with the misconception of the first due date, seem to me to have been fertile ground for the rental dispute which arose. It is clear to me and I find that the rent, on the day of claiming the bond, was either up to date, or, at maximum, four (4) days late. 19 It is difficult to understand how Nathan Arden came to the view that the rent was $14,000.00 in arrear at the time of the appropriation, when, even on his (erroneous) view that the rent (being $13,100.00 per month) was payable on 15 September, it was only ever twenty two days in arrear. The Rent Abatement Agreement 20 It was the Smith's evidence that in June of 2002 they found business so poor that they resolved to close it down. By a document which was on a fax sheet dated 12 June 2002 (but which bore an original set of initials which were most likely those of Victor) the following was notified: - "we are writing to give you one (1) months notice to vacate our shop at 498 George Street, Sydney. We will be leaving on 12 July 2002. At that point we will remove all the shop fitting to leave it in the same state as when we moved in". 21 The evidence attempted to clarify the status of this document. It is clear to me that, although the document may have been produced by a fax machine, it had none of the usual evidence across the top to indicate that it had been actually sent by fax, and because, it bore an original set of initials, it seems to me to be much more likely to have been a document generated by a fax machine as a copy, and then hand delivered. 22 Across the bottom of the document in evidence, in handwriting probably generated by the same laser printer, were the words: - "if Nathan want a full rent $13,100.00, then we will definitely move out. If Nathan agree to reduce then we will consider". Mr Smith denied that this was his handwriting, it was not Mrs Smith's, and so, again, may well have been Victor's. 23 In any event, the evidence was that there was a meeting on 10 July 2002 between Mr Smith, Victor, and Nathan, when an abatement of rent was discussed. Mr. Smith declared that the meeting took place outside the shop. However, Sophie Seilaba, manager of the Respondent's store, gave evidence to the effect that she was a witness to the meeting, and said that it took place inside the shop. She was not a party to the discussion, but was standing elsewhere in the shop as an observer. I am satisfied that nothing turns on the situs of the discussions and make no finding in this regard. 24 I was given in evidence a photocopy of piece of scrap paper which was, according to Mr Smith, signed at that meeting. It bore the words: - "be paid $12,333 until 24 July (excl) 2.33 on cheque $6,333 11 July 2002 one cheque $6,000 18 July 2002. from 24 July 2002 $10,000 … 30 = $5,000/2 weekly. All of these words and symbols appeared to be in the same handwriting, but I am not satisfied that I have quite all of the words, because the right hand margin appears not to have been fully photocopied. All of this handwriting appears to have been by the same person as the person who wrote the bullet points across the 12 June letter. Under that appeared, in a very different handwriting: - "every fifteen (15) days" and underneath that was the signature of Mr Smith, and, on the same partly obscured right hand margin, a set of initials. Mr Smith's evidence was that the initials were placed there by Nathan Arden. Nathan Arden denied this, and in evidence gave examples of his handwriting and of his "ordinary initials". I found this evidence unconvincing, and I find, on the balance of probabilities, that the document did bear Mr Arden's initials. I make no finding who was the author of the handwriting because, I do not believe that anything turns on these facts. No matter who wrote it (or who in fact initialled it) Mr. Arden, in his oral evidence, acknowledged that he had agreed to an abatement of rent to $5,000.00 every 15 days, but for a temporary period only, and said it was not a formal agreement. The tenor of this evidence was clearly intended to be that the reduction in rent was for a month or two only, but there was no compelling evidence to raise any indication of any demand that the higher payments be reinstated, and, just as tellingly, it was the Smiths' evidence that, prior to the July discussions, there had been a constant series of assertions that the rent was in arrears, and that it should be brought up to date, but that after the meeting, when the $5,000.00 per fortnight regime was instituted, there was no further complaint of any kind. 25 I find that there was an agreement to reduce the rent to $10,000.00 per month including GST and outgoings, and in this regard I accept unreservedly the calculation given by Claire Smith to establish the correct and appropriate apportionment of those amounts. 26 There is a discrepancy in relation to the payment records at this time, Ms Fain's Affidavit suggests that there was a payment of $5,000.00 on 18 July. Ms Smith's Affidavit states this payment to have been in the sum of $6,000.00. In view of the evidence generally, again on the balance of probabilities, I accept that Ms Smith's records are the more accurate. 27 Incidentally, on the same basis, I accept that Mrs Smith's calculations of the rent to the day of departure, again, were accurate, my only difficulty with her calculations being that, in total, they were two (2) days "out of sync". 28 Further, in this regard, it is also clear from the sub lease document made available to me in evidence that it was always the case that there was only to be a rent holiday, there was not to be an outgoings holiday. 29 In relation to outgoings I accept that there were no invoices of any kind made available to the Smiths relating to promotion levies or similar outgoings of that kind, and consequently none of those are claimable against them – see Sections 27, 28 and 29 of the then Act. The only outgoing relevant for these purposes is the agreed electricity contribution at $450.00 per month, and consequently, on any view of the matter, the Smith's payments in this regard are three (3) weeks and two (2) days "short". Amount of Bond Refund 30 In relation to the bond, I accept the evidence of the Smiths that they were not given any notice of the forfeiture of the bond, and did not in fact become aware of that until receipt of Hunt and Hunt letter of 4 February 2003. 31 I accept that the Smiths' fax of 2 January 2002 was taken by Mr Arden to be authority to appropriate the bond, but as indicated previously, I am unable to understand how he came to believe that the amount in question was approximately $14,000.00, when there was a clear pattern of payment of the rent between the 5th and the 8th days of the month. Obviously, further, even if the arrears at the time were of the order of $14,000.00, there is absolutely no justification for having appropriated more than that amount. 32 In this latter regard I must say that I accept the evidence of Peter Garrett. He indicated that he was given the letter of 2 January 2002 as authority to allocate the bond, but indicated to Mr Arden that he required some evidence from Mr Smith of the attempt at reconciliation. Some time later he was told that that evidence was in hand and it would be sent to him, but it never arrived. In view of the fact that Hunt and Hunt's file was not available in evidence, it is not appropriate that I make further comment in relation to this aspect, save to say that I am satisfied that none of the proper steps for forfeiture of bond, as prescribed by the Lease, were taken. 33 Lastly, in relation to the question of Hunt and Hunt's costs, I again unreservedly accept the evidence of Mr and Mrs Smith to indicate that they never did see an account from the firm of Hunt and Hunt for sub-lease preparation costs, the first threshold requirement of Section 13(1) of the then Act was not met, and consequently no allocation should have been made in this regard. 34 It follows that I am satisfied that, subject to the "apportionment" calculations I carry out hereunder, there was never any arrears of rent which justify the appropriation of the bond, and, subject only to the minor setoff, the whole amount is repayable to the Smiths. 35 Section 47 of the Act requires that a bond be placed in an interest bearing deposit, and that clearly was not done. 36 In this regard I again turn to my finding that the occupancy only became a Lease strictly so called within the terms of the Retail Leases Act in early November, when the consent from FPD Savills came to hand. I presume that the Deed of Consent referred to in the Blake Dawson Waldron account would have shed light on the actual commencement date, had it been in evidence. No matter how one views it, allowing for administrative requirements, there is no reason why the bond could not have been invested in accordance with the requirements of the then Act by 5 December 2000, and the Respondent is liable for interest, on that amount to 5 December 2002 (being fourteen (14) days after the date of termination – see Clause 11.1(b)(1)(e) of the Sub Lease. I was given no evidence, but it seems to me that I can take notice under Section 73 of the ADT Act that interest bearing deposits were earning approximately 4.5% during the relevant period, and I adopt that rate as appropriate. It follows that the amount which should have been available on 5th December 2002 is $23,000.00 together with $2,070.00 interest, making a total of $25,070.00. 37 I now come to calculation of the set off. For outgoings of $450.00 per month, I calculate the daily figure to be: - $450.00 x 3 91 = $14.84, and of course 23 days would then amount to $341.32. As to the rent allocated as being "out of sync" I calculate that to be $11,500.00 + $1,150.00 = $12,650.00 which, on a daily basis (x 3 / 91) works out to be $417.03 per day, and so 2 days amounts to $8834.06. The actual amount which was payable by the Respondent to the Applicant on 5 December 2002 was $23,000.00 plus $2,070.00 (interest) less $341.12 (outgoings not paid) less $834.06 (rent not paid) = $23,894.82. 38 I can see no reason why the Respondent should not pay interest on the same basis as if judgment had been given against it. The amount which I may award is set by Section 72A, and, at 9%, from 5th December 2002 to the date of this order that amount is $6,999.54. It follows that the total amount payable by the Respondent to the Applicant this day is $30,894.36. CORRECTION 39 Pursuant to Section 87 of the Administrative Decisions Tribunal Act (1997) I direct that the obvious error in the text of the decision, namely the title by which the Applicant is described, be corrected. 40 The application before me was conducted by Gavin Smith and Claire Smith as directors of the company Smith & Co. (Sales Agency) Pty Limited. The Applicant in the proceedings was Smith & Co. (Sales Agency) Pty Limited and not Gavin Smith. 41 It is obvious that the entitlement to the proceedings is an error. If the trading entity before me was unincorporated, then its appellation would have been "Gavin Smith trading as Smith & Co (Sales Agency)". If it was incorporated (as the Applicant was) then the application was made by it as a corporate entity, and not by a person on its behalf – as the inappropriate title of this Application would appear to indicate. The title to the proceedings does not reflect the obvious fact, and is indeed a legal nonsense. The correct title was simply "Smith & Co. (Sales Agency) Pty Limited". The hearing before me (which was conducted on an urgent basis) was by the directors of the company:- Gavin and Claire Smith as the Company, not as individuals trading pursuant to a registered business name. 42 I direct that the title to the proceedings be corrected by deleting the words "Gavin Smith trading as". 19/09/2006 - To correct title of Applicant - Paragraph(s) Front cover. Paragraphs 39-42 inserted 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.