Nissim & anor -v- Marino [2001] NSWADT 191

CITATION: Nissim & anor -v- Marino [2001] NSWADT 191 DIVISION: Retail Leases Division APPLICANTS David Nissim PARTIES: Esperance Nissim RESPONDENT Elke Elizabeth Marino FILE NUMBER: 005061 HEARING DATES: 30/05/2001, 01/06/2001, 04/06/2001 SUBMISSIONS CLOSED: 06/04/2001 DATE OF DECISION: 11/15/2001

BEFORE: Fox R - Judicial Member APPLICATION: Claim for assignment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights - Claim for payment of money - Claim for relief from payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 CASES CITED: Zaoud -v- Musico & anor [2000] NSW ADT 107 Yared -v- Spier (1979 2 NSWLR 291 APPLICANTS REPRESENTATION: P Braham, barrister RESPONDENT R Tregenza, barrister ORDERS: 1. Applicant's application dismissed; 2. On Respondent's cross claim: (a) Applicant to pay Respondent $27,500.00 damages (b) Interest at prescribed Local Court rate from 1 November 1999; 3. Applicant to pay Respondent's costs (as assessed or agreed) of the second day's hearing, and the cost of preparing for that second day incurred after the first day's hearing.

1 In these proceedings, Mr Braham appeared for the applicant and Mr Tregenza for the respondent. 2 The applicants are the owners and lessors of a sandwich shop at Sydenham Road, Brookvale and the respondent is tenant pursuant to a lease for a term of 5 years from 2 June 1999 at a weekly rent of $525.00. The respondent vacated the premises on 9 December 1999, they were vacant for 32 weeks, and then re-let at an amount of $500.00 per week. The applicants sue for the rent unpaid during the vacancy and, for the rest of the term, for the difference between for the rent now being paid and that which the respondent would have paid. The respondent cross-claims for an order relieving her of any obligation to pay and for compensation for the loss flowing from the applicants' failure to consent to an assignment of the Lease. 3 In order to understand the issues between the parties, it is necessary to consider some of the history of the premises. 4 In July 1994 the premises had been let to Mr & Mrs Cigercioglu, when they purchased the existing fittings and fixtures of the shop from the applicants. There was a transfer to Ianni & Talliano in November 1997. The respondent, by contract dated June 1999, purchased the goodwill fixtures, fittings and equipment of the business from them for $150,000.00, such agreement being conditional on a new lease being executed between the respondent and the applicants. That Lease is the instrument upon which the present dispute turns. 5 The Lease of the premises had been drawn for the applicants by Barker Gosling. The respondent did not have a solicitor to act for her on the lease because (she said) David Nissim proposed to her that having her own solicitor would be an unnecessary expense. It is appropriate to observe that in relation to the contract to purchase the business (drawn by Cara Marasco solicitor), the respondent also did not take legal advice. The respondent did claim some problems of literacy, and so had her partner, Keith Orth, read the documents. She then resolved to seek the advice of an accountant. She knew none in Sydney, so she approached the Ianni's accountant. That accountant apparently considered the documents, and advised her to proceed. 6 The respondent commenced occupation on 2 July 1999 but almost immediately found that her personal arrangements for managing the shop did not work out, and within a week or two she elected to on-sell. 7 The sale was placed in the hands of an agent, and there were some "nibbles", but they came to nothing. After some price reductions, preliminary negotiations in August 1999 with Mr and Mrs Stamboulidis resulted in the issue by Leys Law Firm (then solicitor for the respondent) of a sale contract for $35,000 for goodwill, fixtures, fittings and equipment, and stock, conditional of the assignment of the existing term of (almost) 5 years plus 2 year option. The purchaser was shown as"Rhoda Stamboulidis", who is (it later transpired) the daughter of Mr & Mrs Stamboulidis. 8 When the Stamboulides first had the Lease examined, they concluded, rightly in my view, that the document claimed the shop fixtures, fittings and equipment as the property of the lessor. The Lease was in standard Law Society approved form and included a schedule headed: "Landlords' fixtures" which actually repeated the inventory of fixtures, fittings and equipment which was part of the June 1999 contract for the respondent's purchase of the business. The schedule follows from clause 3.2 of the Lease: "The Landlords fixtures and fittings are included in the property leased". 9 David Nissim's evidence was that this list was included to identify the items which were to be insured, but that flies in the face of the plain words of the document and, as the respondent correctly alleges, renders the mandatory disclosure statement given her quite misleading. 10 Having heard David Nissim's evidence, I am satisfied that this circumstance arose quite innocently, partly because he sought to ensure (as so many lessor business men seem to) that no lawyer on behalf of the lessee consulted the document, but mainly because of his overriding concern to ensure that all of the fixtures, fittings and equipment in the shop which enabled it to be used as a sandwich shop stayed within the shop. It was abundantly clear that the items in question had at one stage been the property of the applicants, but had been sold to Cigercioglu, and then on-sold, and so when the respondent took occupation of the shop, they were hers. 11 On being approached by Soula Stamboulidis, and being told that she had no property in the fixtures, fittings and equipment, the respondent spoke to David Nissim by telephone to clarify. She was in a state of some concern, understandably, now believing that she had paid $135,000 for nothing more than the good-will. Again, having heard David Nissim and the respondent in evidence, I accept that he said words to the effect "everything in the shop is mine". 12 This was not so, the Lease was clearly wrong and the fixtures, fittings and equipment were not the applicants'. 13 At this stage the respondent instructed Mr Hearne solicitor, and the applicants asked their law student grandson John Levy to act for them. These two negotiated to rectify the Lease and effect the consent to the assignment. 14 The rectification was established by David Nissim's letter of 15 September 1999. However this letter also sought to achieve a resolution of David Nissim's overriding concern about the shop fittings, fixtures and equipment, by inserting a new clause into the Lease requiring: "the lessee not to remove the fixtures, fittings and equipment from the subject premises during the term of the lease". 15 Considering all of the evidence, it is abundantly clear that the misunderstanding about the fixtures, fittings and equipment, and David Nissim's concern to retain them in the shop, were the seeds of the atmosphere of suspicion and mistrust which became evident in the assignment consent negotiations. This attitude eventually led to the failure of the consent process, and then resulted in the termination of the sale agreement between the respondent and Rhoda Stamboulidis. And that in turn resulted in the respondent ceasing to pay rent and finally stripping the shop of the fixtures, fittings and equipment. 16 Once the terms of lease rectification had more or less been agreed to, negotiations between the respondent and the Stamboulides continued, and the contract was entered into, showing Rhoda Stamboulidis as purchaser. 17 In furtherance of the application for consent to assignment, by 27 September, John Levy had been supplied with a copy of an insurance cover note taken out by one of the Stamboulides for the fixtures, fittings and equipment within the shop, and a curt and perhaps misleading accountant's reference for Rhoda Stamboulidis. John Levy made a credit enquiry and ascertained that the proposed assignee of the Lease and operator of the shop was 19 years old. This may well have been a further innocent misunderstanding, and the Stamboulides may well have always intended that Rhoda and not Soula Stamboulidis be the owner of the business, but it is clearly the case that neither David Nissim nor John Levy, nor Mr Hearne had any understanding of that until John Levy ascertained the fact. 18 Circumstances at this time were not conducive to calm consideration. The respondent had attempted suicide on 20 September and was either in hospital or otherwise prohibited from attending to the business, the Stamboulides had, pursuant to the contract (and with the tacit consent of the applicants) commenced the day to day running of the shop for their contract trial, and (apparently) only the consent of the applicants was needed to complete the matter. David Nissim had on 23 or 24 September signed a document which may have amounted to a consent, but that would have been for Soula and Louis Stamboulidis, parents of Rhoda. It is understandable that David Nissim felt somewhat put upon. 19 A meeting was called on 1 October, at the home of the applicants, to try to resolve it all. Present were David Nissim, John Levy, Louis Stamboulidis, Soula Stamboulidis, Rhoda Stamboulidis and Keith Orth, the partner and sometime adviser of the respondent. The major focus of the discussion was the financial standing of the 19 year old Rhoda and her capacity to run the shop, but I am also satisfied, that in view of the inappropriate and incorrect provisions of the Lease in relation to the fixtures, fittings and equipment, the Stamboulides were concerned to establish the ownership of these items, and of course the retention of these very items was a major concern of David Nissim as well. 20 I heard evidence from all parties in attendance at the meeting (other than Louis Stamboulidis), and I am satisfied that at the conclusion it was all (perhaps reluctantly on behalf of the applicants) resolved and should have resulted in an assignment, had there been the slightest spirit of co-operation left between the parties. 21 As evidenced by David Nissim's 5 October letter, there was to be a bank guarantee for $9,100.00 (equivalent of 4 months rent) in addition to the $2500 cash bond already held, and proof of insurance. Further, David Nissim and Louis Stamboulidis had agreed on a kind of option for David Nissim to purchase the fixtures, fittings and equipment on the premises being vacated at the end of the Lease. Apparently this was to be achieved in the Deed of Consent. 22 The bank guarantee dated 13 October 1999 submitted to John Levy, however, did not correctly spell David Nissim's name and did not note Mrs Nissim at all. The insurance evidence did progress beyond the cover note, there seem to have been several certificates of currency, but certainly there was never a policy. Further, (and later) there was some correspondence about the Deed terms which would establish the basis upon which the fixtures, fittings and equipment would be "bought back" by David Nissim, but the words of that were never quite settled. 23 David Nissim's letter of 17 October complained of the absence of the bank guarantee, objected to the terms of the certificate of currency which had been supplied, and in view of the lack of progress, resiled from the 1 October agreement by reasserting the demand for personal guarantees in addition to the bank guarantee, to ensure that the fixtures fittings and equipment remained within the shop. The Stamboulides' solicitor rejected this requirement by letter of 29 October, and confirmed his clients' readiness to adhere to the 1 October agreement. 24 On 1 November David Nissim faxed to Mr Hearn a letter which refused consent to the assignment on two quite separate grounds- firstly because of the inferior financial or retailing skills of the proposed assignee, and secondly "consent is rejected on the grounds that Mr and/or Mrs Stamboulidis have threatened to breach or assist their daughter to breach essential terms and conditions of the retail lease referred to above, should their daughter become a party to it". 25 This was a reference to the Stamboulides' apparently continued assertion that, as they had paid for the fixtures, fittings and equipment in the shop, it was their property to take as and when they pleased. 26 The second ground of rejection is understandable in view of David Nissim's concern to retain the items within the shop, but as a matter of law, was entirely misconceived. 27 Having heard Rhoda Stamboulidis in evidence I am satisfied that she had sufficient retailing skills and in this sense was not inferior to the proposed assignor, and that leg of the rejection was contrary to law in any event. 28 The most difficult aspect of the matter is the applicant' rejection because of Rhoda's inferior financial resources. The respondent, on David Nissim's evidence, had some $200,000 in the bank after her purchase, but (apparently) no other assets. I was not made aware of the evidence of Rhoda's financial worth, but the tenor of the evidence was that she had less. Section 39(i)(b) gives the Lessor a right to refuse in the case of inferior financial resources. If there were to be third party guarantees, such would have to have a limit of approximately $200,000.00 to be equivalent to the assignor's financial resources. The Applicant's demand of unconditional personal guarantees by Rhoda's parents, they, on the evidence, being persons of real estate substance well in excess of $200,000, was a demand for much more than the financial worth of the respondent. 29 However, in the give and take of the negotiations of 1 October, as evidenced by David Nissim's letter of 5 October, the applicants gave up their rights in that regard and settled for something different which was apparently of value to them:- the right to retain the fixtures fittings and equipment in the shop. That having been done, and the proposed assignees having made an attempt to comply with those agreed requirements, it seems to me that the applicants could not (without at least some warning) withdraw and purport to reassert their statutory right as they did by their 1 November letter. 30 Be that as it may, what the applicants did was to reassert their demand for personal guarantees which were far in excess of that which was their right, and that, in the end is why their claim must fail. 31 The Act very clearly limits the Lessor's discretion to refuse assignment, creates a right in the Lessee and a concomitant duty in the Lessor. The agreement of 1 October must be seen in that light. The applicants' response to the submission of the bank guarantee and insurance evidence should have been to the effect of: "upon submission of corrected bank guarantee, certificate of currency of insurance, and satisfactory resolution of the text of the variation to ensure that the fixtures fittings and equipment remain within the shop, the assignment can proceed." 32 The matter did not end with the (improper) rejection of 1 November, Mr Hearne made an offer of conference on 5 November, forwarded letters on 10 November, 19 November and 23 November, all of which were responded to by the applicants' letter of 28 November. This offered to "lift" the rejection of Rhoda subject to: 1. proof of insurance (which seems to have been a demand for a policy document), 2. the original (corrected) bank guarantee, 3. variation of the Lease to impose highly onerous terms giving complete control of the fittings fixtures and equipment to the lessor, falling only just short of claiming full title. 33 Further, in less than a spirit of compromise, the correspondence accompanied a formal demand for the payment of a 3-month outstanding $147.00 waste collection bill, noting the failure as a breach of covenant and threatening to terminate the Lease. 34 The respondent's reply was the submission of the text of a variation to the proposed Deed which would have achieved that result, and fully conceded the applicants' right to control the items, but the letter which enclosed it on 2 December used a slightly different set of words: "(b) the Assignee has agreed that she is prepared to sign a document which would have the effect that she would not remove the fixtures, fittings and equipment from the subject premises provided that she has the right to do so on expiration or prior to termination of the Lease, or in the event that the Assignee having negotiated the sale of the business you unreasonably withhold consent to an assignment of the Lease to a purchaser who would otherwise satisfy the requirements for assignment." 35 John Levy's evidence was that this caused concern, and when asked which part of that caused him concern, his response was to refer to the words: "prior to termination". He went on to say: "That had been dealt with previously and they again put it to me that they wanted to be able to remove everything before the lease terminated and we just couldn't agree to that." 36 This ignored the actual proposed text, which did not assert "prior to". I am satisfied that the 2 December letter, considered as a whole, required a request for clarification, followed by consent, not rejection. 37 The Stamboulides' solicitor's letter of 2 December, forwarded to Mr Hearne, and onforwarded to the applicants on 8 December, states the Stamboulides' position fully: "The Lessor has indicated that the Lessor may consent to the assignment of the Lease if the Lessee agreed not to remove the fixtures and fittings in the premises, including the fixtures and fittings belonging to the Lessee without the prior written consent of the Lessor which consent could be withheld at the Lessor's discretion. We are instructed that this condition is not acceptable to our clients". 38 In the alternative, we understand that it was suggested that Mr Nissim might accept personal guarantees from Mr and Mrs Stamboulidis limited to a period of twelve months. Mr and Mrs Stamboulidis are not prepared to provide such guarantees. 39 I am satisfied from all of the evidence that the Stamboulides' withdrew because the applicants reinstated their initial request for personal guarantees and in effect, returned to their original (improper) assertion of a right to control the things in the shop. I am satisfied that the "reinstated" conditions were unreasonable and were in excess of the applicants' Section 39(1)(b) rights. Because the applicants did not consent, proper and reasonable terms having been proposed to and accepted by them, they are liable in damages to the respondent. 40 It has been held previously in this Division (Zaoud v Musico & anor [2000] NSW ADT 107) that in relation to retail shop leases, the effect of Sections 39 and 42 reversed the previous law. By specifically limiting to three the grounds upon which consent may be refused, section 39 creates a positive right of assignment. The words used in Section 39(1): "the lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances)" seem to me to admit of no other interpretation. This is underscored by section 42 which does not include "assignment" in the list of things which may be refused in the Lessor's absolute discretion. 41 The legislative intent is quite clear and all of the learning referred to in Yared v Spier (1979 2 NSWLR 291) to confirm that there is no right to a claim for damages flowing from an unreasonable withholding of consent, is irrelevant in circumstances such as these, save that the Section 43 retention of the rights given by section 133 B of the Conveyancing Act may give the wronged proposed assignor, as an alternative, the right to assign despite the absence of consent. But the obvious disadvantage is (and there are judicial observations recognising) that an assignee may well be rightly reluctant to enter into a long-term relationship with a landlord in such inauspicious circumstances. If the proposed assignee does not accept such an assignment, then the remedy of the Lessee of a retail shop is in monetary damages. 42 Perhaps as an aside, it is appropriate to indicate that it was conceded that the procedure for obtaining consent to an assignment prescribed by section 41 was complied with as regards sub-sections (a) & (b). Of course that did not bring about the deemed consent effected by sub-section (d) because that sub-section only operates where the lessor has not "given notice in writing to the lessee" either consenting or withholding consent. 43 Mr Tregenza, on behalf of the respondent, argued that, in any event, because of the discrepancies between the disclosure statement and the lease relating to fixtures, fittings and equipment, the disclosure statement fell within Section 10 to give rise to right of compensation flowing from the misrepresentation. This argument fails because I was satisfied that the misleading representation was not made with knowledge that it was false or misleading; it was all done innocently. 44 Mr. Tregenza quite separately argued that the same discrepancy gave rise to a right of recision under Section 11 (2). That may well be so but I am satisfied that the evidence established that, within the relevant six month period, and before the respondent terminated, the discrepancy had been noted, and it had been acknowledged by the applicants that property in the fixtures, fittings and equipment was in the respondent, and that, I am satisfied placed the lessee: "in substantially as good a position as the lessee would have been if the failure had not occurred" well before there was any attempt as recision. Mr Treganza, in effect, argued that once there had been such a failure the lessor could do nothing in the intervening six month period to correct the situation; I am satisfied that this is not so. However, I also think it is clear, that, had the respondent elected to rescind immediately on discovering the discrepancy, then the Lease would have been properly ended. 45 The respondent, on her cross claim, is entitled to compensation- $30,000 being the bargain that she lost as a result of the applicant's failure to consent, less the funds which she recovered on the sale of the fixtures, fittings and equipment- being $2,500, and so I order the applicants to pay to the respondent the sum of $27,500 pursuant to Section 72(1)(a). 46 At this point is appropriate to clear up an issue which occupied a substantial part of the evidence, being the condition of the shop as vacated. I am satisfied that the respondent's agents took only that which was the respondent's and that although the premises were not left in a pristine condition, the applicant had no reasonable complaint about the state of the shop when possession was retaken. 47 This was a 3-day hearing, and, despite the limitations enacted by Section 88 of the Administrative Decisions Tribunal Act, the question of costs has caused me some difficulty. This is not a circumstance where the successful party has made an offer of settlement more generous than the result achieved, nor is it a case where the unsuccessful party presented a case which had little or no merit at all. In the present circumstance, I am satisfied that each party, in respect of most of the various matters raised, had an arguable position. However, that does not apply in relation to the issue of the condition of the shop, and the evidence which was lead in that regard, and in regard to the cost of re-establishing the shop with similar fixtures, fittings and equipment. On considering the transcript, I am satisfied that, had these matters not been raised, the matter could have been disposed of in two days with written submissions to conclude, and the hearing day so wasted is within the "special circumstances" ambit, although I am not satisfied that the long-term preparation of the matter would have been greatly different had the applicant not pursued this aspect of the matter. It follows that it is proper that the applicant pay the respondent's costs of the second day's hearing and the cost of preparing for that day incurred after the first day's hearing. 48 In relation to the question of interest I am not limited by the requirement for special circumstances, and it seems to me to be fair that interest follows the event. The applicants must pay interest on the award from the date of improper rejection, being 1 November 1999 to date.