New South Wales Supreme Court CITATION : Kiem Dang Investment Pty Ltd v Jewel Food Stores Pty Ltd & Ors [2009] NSWSC 870 HEARING DATE(S) : 11, 12, 13, 14, 15,19, 20,21, 22 May 2009 19 June 2009 JUDGMENT DATE : 28 August 2009 JUDGMENT OF : Patten AJ DECISION : See paragraphs 176 and 178 LEGISLATION CITED : Conveyancing Act 1919; CATEGORY : Principal judgment Hawkesbury Nominees Ltd v Battick Pty Ltd [200] FCA 185; CASES CITED : Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313; Lucott v Wakely and Wheeler [1911] 1KB 62 Kiem Dang Investment Pty Ltd - Plaintiff PARTIES : Jewel Food Stores Pty Ltd - First Defendant Zian Fu - Second Defendant Cheng Yao - Third Defendant FILE NUMBER(S) : SC 20427/2007 Mr C Freeman - Plaintiff COUNSEL : Mr D Knoll - First Defendant Mr A Canceri - Second and Third Defendants Than & Co - Plaintiff SOLICITORS : NOT Lawyers - First Defendant Byles Canceri Lawyers - Second & Third Defendants IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Patten AJ 28 August 2009 No: 20427 of 2007 Kiem Dang Investments Pty Limited v Jewel Food Stores Pty Limited – First Defendant Zian Fu – Second Defendant Cheng Yao – Third Defendant JUDGMENT INTRODUCTION: 1 This action concerns premises known as 2 Winnima Way Berkeley NSW (the premises). At all material times they were owned by the Plaintiff, which acquired them in June 1999. 2 Previously, they were owned by Dean Fleming Pty Ltd, which by registered lease 3957946 (the lease) leased them in 1997 to the First Defendant for a term of 12 years, which commenced on 18 March 1997 and terminated on 18 March 2009. 3 In 2000, the First Defendant assigned the balance of the term of the lease to the Second Defendant (Zian Fu) and his wife, the Third Defendant (Cheng Yao). The assignment was effected by deed (the Deed of Assignment) to which the Plaintiff was a party. The First Defendant expressly remained liable upon the covenants in the lease notwithstanding the assignment. 4 In the action, the Plaintiff claimed loss arising from breaches of the covenants in the lease by the Second Defendant and Third Defendant and for damages following the termination of the lease before the expiration of its term. It claimed that the First Defendant is also liable for such loss and damages. Each of the defendants denied the Plaintiff's entitlement and it will be necessary to return to the basis upon which the Second Defendant and Third Defendant did so. 5 There was a Cross Claim by the Second Defendant and Third Defendant whereby they sought damages for alleged breaches of the lease by the Plaintiff. Again, I will need to return to this and the defence to it. There was also a Cross Claim by the First Defendant against the Second Defendant and Third Defendant but, for reasons which will shortly appear, I need not presently concern myself with this. 6 When the matter was called on for hearing, Mr C. D. Freeman appeared for the Plaintiff, Mr D Knoll for the First Defendant, and Mr A Canceri for the Second Defendant and Third Defendant. During the third day of hearing, Mr Knoll informed the Court that the proceedings between his client and the Plaintiff had been settled, although it would remain necessary for him to be present when judgment is delivered. He was excused from further participation in the trial THE PLEADINGS 7 In essence the breaches of lease and the basis of the Plaintiff's claim are set forth in paragraphs 8 to 13 of the Statement of Claim as follows: "8. From 25 August 2007 to 11 October 2007 the second and third defendants failed to: (a) Pay rent and outgoings due to the plaintiff in accordance with clauses 4 and 8 of the Lease totalling $81,860.; (b) Trade in accordance with clause 9.20 of the Lease in that the premises were not open for business at any material time. 9. On 17 October, the plaintiff served: (a) On the second and third defendants a Notice of Breach of covenant dated 17 October, 2007 (Notice) requiring them to pay to the plaintiff the outstanding rent and outgoings referred to in paragraph 8(a) herein and to trade in accordance with clause 9.20 of the Lease; (b) A copy of the Notice on the first defendant. 10. The second and third defendants failed within 21 days after receipt of the Notice to comply with the Notice and to: (a) Pay to the plaintiff the outstanding rent and outgoings referred to in paragraph 8(a) herein; and (b) Trade in accordance with clause 9.20 of the Lease. 11. In the premises, the second and third defendants breached clauses 4, 8, and 9.20 of the Lease and were in default under the Lease. 12. By Notice of Termination of Lease dated 16 November 2007 served on the second and third defendants, the plaintiff terminated the lease. 13. On 19 November 2007 the plaintiff made a demand of the first, second and third defendants for payment of the outstanding rent and outgoings up to 17 November,2007 together with costs and expenses pursuant to clause 15.2 of the Lease." 8 The Plaintiff's claim for damages encompassed outstanding rent, outgoings, and legal fees, up to 17 November 2007, amounting to $145,761.48 and damages for loss of the benefit of the lease for the balance of the term quantified in the Amended Statement of Claim at $641,281.50. 9 By their defence the Second Defendant and Third Defendant raised the following matters: That a fire at the premises on or about 4 February 2007 rendered the premises substantially unusable for their business. That the Plaintiff failed to repair the premises following fire damage within a reasonable time. That in breach of the lease the Plaintiff failed to keep the roof of the premises in good repair and condition. That in breach of the lease the Plaintiff filed to maintain the air conditioning system in the subject premises in good repair. That the Plaintiff in breach of its covenant of quiet employment permitted tradesperson to carry out work within the subject premises. That the Plaintiff unreasonably withheld its consent to assignment of the balance of the term of the lease or a sublease to Food Work Pty Ltd. That by reason of its breaches the Plaintiff repudiated the lease. That from 4 February 2007 to at least 11 October 2007 the subject premises were substantially unusable for the business of the Second Defendant and Third Defendant with the effect that rent and outgoings abated for that period. That by virtue of continuing breaches of the lease on its part, the Plaintiff was not entitled to give notice to the Second and Third Defendants terminating the lease on 16 November 2007 and such notice constituted a repudiation of the lease by the Plaintiff, which in their defence the Second Defendant and Third Defendants purported to accept. That the Plaintiff failed to mitigate its loss. 10 In their Cross Claim, the Second Defendant and Third Defendant sought damages for the Plaintiff's alleged breaches of the lease referred to above. 11 The Cross Claim also raised a separate issue by pleading; "8. From about August 2000 Advanced First Supermarket Pty Limited (ACN 094 448 601) owned and operated a grocery store from the premises which traded as Jewel Country Fresh (the Business). 9. At all material times, the cross claimants were directors and shareholders of Advanced First Supermarket Pty Limited. 10. At all material times, the cross defendant knew that Advanced First Supermarket Pty Limited owned and operated the Business. 11. As shareholders of Advanced First Supermarket Pty Limited, the cross claimants were entitled to receive dividends from the net income of the Business and ultimately would have enjoyed the net sale proceeds of the Business, if it were sold. 12. At all material times, all net profits earned by the Business would be wholly distributed to the cross claimants by Advanced First Supermarket Pty Limited." 12 As to this cross-claim, the Plaintiff pleaded: "The cross-defendant does not admit paragraph 8 of the Cross-Claim and says that if Advanced First Supermarket Pty Limited CAN 094 448 601 (Company) was operating the grocery store from the premises (which is not admitted): (a) The cross-defendant had no prior knowledge of the company operating the grocery store from the premises; (b) The cross-defendant did not consent to the Company operating the grocery store from the premises; (c) The cross-claimants did not comply with clause 14 of the Lease in that they did not first obtain the consent in writing of the cross-defendant for the transfer or assignment of the Lease to the Company." THE LEASE. 13 A number of provisions of the lease are relevant to the issues raised: "4.1 The Lessee must pay the annual base rent specified in item 2 of the Schedule (as increased from time to time in accordance with this lease) to the Lessor or as it directs by equal calendar monthly instalments in advance on the first day of each month. ……………… 8.1 In addition to the annual base rent the Lessee must pay its proportion of the Lessor's annual outgoings with respect to the premises, the Lessee's proportion comprising the percentage specified in item 5 of the Schedule. 8.2 For the purposes of this lease the Lessor's annual outgoings with respect to the Premises include the following components, unless the recovery of such components is excluded under item 5 of the Schedule or by statute (or other mandatory Code or regulation) together with such other outgoings (if any) listed in item 6 of the Schedule. (a) municipal rates; (b) water rates, excess water and any other levies or charges imposed by the Water Board or municipal or governmental authority; (c) land tax payable by the Lessor on the basis that the Land is the only property of the Lessor subject to land tax and is not the subject of a special trust; (d) the premiums payable by the Lessor for: (i) insurance covering damage to the Premises (including consequential loss); (ii) public risk insurance in respect of the Premises; (iii) workers' compensation insurance covering all workers employed at the Premises; (iv) loss of rent insurance; provided that the Lessor must place its insurance with an insurer nominated by the Lessee in writing if such insurer and the terms of cover satisfy the conditions specified in clause 10.2. 8.3 The Lessee must reimburse the outgoings to the Lessor within 14 days of receiving from the Lessor request for payment together with a copy of the relevant invoice to which the outgoing relates. ………………………………. 9.1 The Lessee must use the Premises for the purpose specified in item 7 of the Schedule and must not allow the premises to be used for any other purpose. 9.2 The Lessee must obtain development consent for its use of the premises and obtain and comply with all legal requirements in the layout, partitioning, standard of finish and use of the premises provided that the Lessor must at its own cost install and maintain all fixtures and fittings (other than tenant's fixtures and fittings) which are necessary for the commencement or continuation of the Lessee's business at the Premises and carry out all structural work necessary for the continued operation of the Premises for their permitted use. Examples of the fixtures and fittings for which the Lessor is responsible under this clause are toilets, sinks, lighting, hand-basins, washbasins and grease-traps.. Examples of tenant's fixtures are refrigeration equipment, walk-in cool-room and shelving. 9.3 The lessee must maintain its business at the premises as a going concern and not vacate the premises. ………………………………….. 9.11 The Lessee must fully maintain, repair and keep the Premises including the Lessor's and Lessee's plant, fixtures and fittings in good and substantial repair, working order and condition having regard to their condition at the commencement of the Lease and provided that: (a) the Lessee is not obliged to effect any capital replacements, or structural repairs or repairs to the roof; (b) the Lessee's obligations under this clause do not extend to damage caused by fire, flood, lightning, storm, tempest, earthquake, explosion, riot, civil commotion, act of god or other similar event, or to reasonable wear or tear. …………………………………. 9.20 The Lessee may trade whenever it thinks fit provided that: (a) its trading hours conform to all legal requirements; (b) it must trade at least for the following times: Monday – Wednesday 9.00am – 5.00pm Thursday 9.00am - 8.00pm Friday 9.00am – 5.00pm Saturday 9.00am – 4.00pm Sunday 10.00am – 4.00pm ……………………………………….. 11.1 The Lessor must maintain the following policies of insurance: (a) public risk insurance covering injury to person and property on the Land for an amount of not less that $10,000,000 (or such greater amount as the Lessor considers reasonable in the circumstances) arising out of any one single accident or event; (b) a policy of insurance in respect of damage to the premises and to the fixtures and fittings therein (other than lessees' fixtures and fittings) on a replacement and reinstatement basis; (c) a policy of loss of rent insurance which indemnifies the Lessor against loss of rent in respect of all of the premises within the Premises for a period of at least one year; ……………………………. 12.1 The lessor covenants with the Lessee that the Lessee paying the rent and other money payable under the lease and performing the covenants on its part to be performed, the Lessee may peacefully and quietly enjoy the premises without any interruption or disruption from the lessor or any person claiming through or under the Lessor. 12.2 Subject to clause 9.11, the Lessor must maintain, repair, replace and keep in good order and condition the Premises so as to ensure that they are maintained in their condition as at the commencement of the first lease entered into between the parties in respect of the premises provided that the Lessor's obligations do not extend to the conduct of any work that is expressly required by the Lease to be performed by the Lessee and the Lessor is not liable to the Lessee for a breach of this clause unless the Lessor had failed to comply with this covenant within a reasonable time after written notice to comply has been given by the lessee to the Lessor. ……………………………… 13.1 If the Premises (or neighbouring land) are damaged so as to render the Premises substantially unusable by the Lessee for its usual business purposes or to deny the Lessee's customers reasonable access to the car park, or to the premises, the rent and outgoings abate, depending upon the nature and extent of the damage, until such time as the Premises (or neighbouring land) are restored. …………………………………. 13.3 The Lessee must continue in use and occupation of the Premises unless the damage is such that the premises are substantially inaccessible to the public or the premises cannot reasonably be used for the use permitted under the Lease. 13.4 If requested in writing by the lessee within 30 days of the date of the destruction or damage the Lessor must, subject to approval by the relevant council and any other necessary statutory bodies being granted, rebuild and reinstate the premises in the same design, size and layout (subject to any variations which may be agreed between the parties) as existed before the damage and destruction and shall proceed with such restoration with due speed and expedition. If the Lessor fails or neglects to do so, other than by reason of the relevant council or other statutory bodies refusing to provide their consent to the necessary works, or if the Lessor does not serve on the Lessee a notice of its intention to reinstate the Premises within three (3) months of notice from the Lessee to reinstate and thereafter fails to reinstate as soon as reasonably practicable thereafter, the Lessee may by notice in writing to the Lessor terminate this Lease, but without prejudice to its rights to obtain damages for breach of this clause. ……………………………………… 13.7 If the Lessee has not issued a request under clause 13.4 and the Lessor does not rebuild and reinstate the Premises within a reasonable time of the destruction and damage (having regard to the time necessary to obtain all necessary planning demolition and building consents and approval, to place tenders and to commence and to complete the necessary work) then either party may by notice in writing to the other determine this lease. ………………………………. 14.1 the Lessee must not transfer or assign this lease without first obtaining the written consent of the Lessor, such consent not to be unreasonably withheld if, at the time of seeking consent and at the time of completion of the proposed transfer or assignment, the Lessee is not in default of its obligations under this Lease ……….. ……………………………. 14.6 The lessee may not sub-let the Premises or part thereof without the prior written consent of the Lessor, such consent not to be unreasonably withheld. ………………………………………. 15.1 If: (a) the Lessee fails to pay rent, outgoings or other money by the due date and such failure continues for twenty one business days following written notice by the Lessor to the Lessee of such failure; (b) the Lessee breaches any other obligation under the Lease or fails to perform any act which it is required to perform under the Lease and such breach or failure if capable of remedy is not remedied within the time specified by the Lessor for the breach or failure to be remedied; (c) an Insolvency Event occurs in relation to the Lessee; then the Lessor may: (i) re-enter the Premises and determine the Lease, by notice in writing determine the Lease or take any other action available to it to determine the Lease; (ii) by notice in writing to the Lessee convert the term into a monthly tenancy as if the Lessee was holding over upon the expiration of the Term at the monthly rent current on receipt of the notice; (iii) take any action it considers necessary or desirable in order to give effect to its rights under this Lease; (iv) elect to treat the conduct or failure to perform as a repudiation of the Lease by the Lessee; and (v) recover from the Lessee an amount equal to the damages or loss it sustains or may sustain thereby. ……………………………………. 15.3 In any case in which the Lessor re-enters the Premises or otherwise determines the Lease or accepts a repudiation pursuant to its rights under clause 15.1 or otherwise, the Lessor (in addition to any other of its rights and remedies) is entitled to recover as damages from the Lessee the rent, outgoings and other money it would have been entitled to receive from the Lessee for the balance of the Term of the Lease had the re-entry, determination or acceptance of repudiation not occurred, together with all of its costs incurred in re-letting or attempting to re-let the Premises, but subject to the lessor's obligation to mitigate its loss. 15.4 Acceptance by the Lessor or arrears of rent or other money or of any breach of the Lease by the Lessee does not constitute a waiver of the Lessor's rights. 15.5 If the Lessee fails to pay any money to the Lessor by the due date for payment the Lessee must pay to the Lessor interest thereon calculated on a daily basis from the due date or dates for the payment until the date of actual payment at a rate of interest which is two per cent (2%) more than the rate of interest charged by Westpac Banking Corporation on overdraft accounts in excess of $100,000.00 from time to time. Schedule: ……………………. Item 5. Lessee's Outgoing Obligations: (Clause 8.1) Lessee's floor area percentage as of commencement date is 100% Item 6. Additional Outgoings; Clause 8.2 - Nil Item 7. Permitted Use of Premises (Clause 9.1) Supermarket including the sale of fresh produce. THE PLAINTIFF'S CASE THE EVIDENCE OF KIEM DANG 14 The principal witness for the Plaintiff was its director Mr Kiem Dang, an accountant. In his affidavit sworn 13 May 2008, Mr Dang said that the Second Defendant and Third Defendant took possession of the premises on 1 August 2000 and thereafter carried on there an "IGA supermarket". At about midnight on 21 January 2007, Mr Dang deposed that he was telephoned by a woman who introduced herself as "Jackie". She told him that she had purchased a business from the Second Defendant three months earlier and proceeded to complain that she had been given incorrect sales figures to induce the purchase. Mr Dang responded that he knew nothing about the transaction. 15 The following day, according to his affidavit, Mr Dang telephoned the Second Defendant and this conversation followed: "Myself: Last night I received a call from a lady named Jackie. She told me that she bought the business from you and there was a break and enter at the shop. What's going on there? Fu: Jackie Chen. She rented the business from me for one year and it was approved by Metcash. She breached the contract. She must run the business for one year. She is not experienced. She is very bad and she ran the business down. Lots of customers have turned away now. She has run the business for three months but then left the keys at the newsagent and contacted me. She asked me to collect the keys. I told her that she had breached the contract. She must operate the business for one year. The shop was closed on Friday. Myself: You should have obtained my consent before leasing or renting to other parties. You are in breach of the lease. Fu: No. You are not the owner of the building. I know that you have sold the building to someone else. This is my business. I can rent it or lease it to whoever I want. I pay you rent. I don't need to ask for your consent. Metcash has approved her and has opened an account for her to trade. Metcash approved about the renting of the business too. It's all okay. Do you understand? Myself: No;;, I don't understand and do not agree to what you've just said. I am the director and shareholder of the company that owns the shop. Nothing has been changed. I can take you to court for breach of the lease. Fu: You can go to court if you like I don't really care." 16 Mr Dang said he had a further conversation with the Second Defendant on 24 January 2007: "Myself: Christine from Metcash went to Berkeley and confirmed that the shop had been closed. What are you going to do about it? Fu: I am negotiating with Jackie Chen to clear her stocks, then I will reopen the shop again. The shop is very messy. I still own the business. I just contracted her to manage it. I still pay your rent. Let me sort it out with her." 17 According to Mr Dang, on the morning of 5 February 2007 he became aware there had been a fire at the premises. He telephoned the Second Defendant: "Myself: There was a fire at Berkeley store. Why don't you go down there to help the Police? Have the police contacted you? Fu: Yes they have contacted me and I have given them Jackie's telephone number. Myself: Jackie! Why Jackie? You are the owner of the business not Jackie. Fu: Jackie is the manager. I contracted her to run the business. She must be responsible for all of this. Myself: Isn't that she has returned the keys to you. You must go down there to help the police stop people from looting all the goods in the store. Fu: Okay, okay, I'm going to Berkeley now. 18 Later in the day he had a further telephone conversation with the Second Defendant: Myself: Are you in Berkeley? Fu: Yes. Myself: How are things? Fu: I met the police. They've just gone. They gave me the report. Computer systems are all gone. It's messy and wet everywhere. Myself: Was there fire inside the store: Fu: Yes it started in the computer and security rooms. All the computers are gone. No electricity. I had to close the door manually. Myself: Is there any damage to the building? Fu: No damage to the building. Myself: Did you sell the business to Jackie? Fu: No, I didn't sell the business to Jackie. I contracted her as manager to run the business. This is what happened: I contracted her to manage the business from 1 October 2006. She pays rent for the shop. She managed the business badly. She paid very little to the employees. I paid the manager $600.00 per week, she only paid $200.00. All employees are gone. She ruined the business and lost all the customers. She closed the shop two weeks ago. She left the keys at the newsagent. I have just picked up the keys from the newsagent in order to close the doors and have returned the keys to the newsagent. I don't keep the keys with me. My solicitor has written to her solicitor regarding her breach of the contract. We are sorting out our problem and I will reopen the business. I am organising someone to restore the security system at the store." 19 Mr Dang inspected the fire damage on 9 February 2007 and again in company with loss assessor, Mr Mike Pearson, on 15 February 2007. He noted fire damage in the loading dock area, the computer room and the amenities room. There was no electricity supply; there was extensive smoke discolouration; and some evidence of damage by looters. 20 The Plaintiff's insurer Allianz Australia Ltd accepted the Plaintiff's insurance claim and appointed Mr Pearson's firm GAB Robins Australia Pty Ltd (Robins) to review, approve and oversee repair works. A letter to the Plaintiff from Robins dated 29 March 2007 contained these paragraphs: "The first issue that requires attention is the reconnection, make safe and further assessment of the electrical supply. A quote for these works has been received from Greenfield electrical Services, in the amount of $4,130.00 plus GST. A copy is attached for your information. ……………………. Please note the following important point: You have to contact the repairer to get repairs started. The repairer is Greenfield Electrical Services (Patrick Greenfield) and their contact telephone number is 4226 1871 or 0412 422 858." 21 The Plaintiff received another letter from Robins dated 30 March 2007 which gave details of an acceptable quotation from Ice Tech Air to repair "visible damage to the heating, ventilation and air conditioning systems". Mr Dang was asked to contact Ice Tech Air so that the repairs could commence. The letter also contained this paragraph: "We confirm that we have also made a recommendation for a progress payment in respect of Loss of Rent up until 1 May 2007 as set out below: February (23 days @ $1,057.57/day) $24,324.11 March 07 29,612.01 April 29, 612.01 Total (excluding GST) $83,548.13 We have recommended that the Insurer deduct the policy excess ($1,000) from the rent loss payment. You should receive the insurer's settlement cheques shortly." 22 By 30 March, Robins had obtained a "scope of works" from Sergon Building Consultants (Sergon) and was able to seek a quotation from builder, C J Duncan Pty Ltd (Duncan) 23 On 10 April, the Plaintiff, having received cheques from Allianz in favour of both Greenfield Electrical Services and Ice Tech Air, requested those firms to commence and complete the work for which they had quoted. 24 On 8 May the Plaintiff entered into a contract with Duncan for the building work specified by Sergon. The contract price was $147,473.15, which excluded from the original quotation electrical work carried out by Greenfield Electrical Services and replacement of floor covering. 25 On 30 May, Mr Pearson sent an email to Mr Dang which included these paragraphs: "As discussed, I have re-inspected the premises in company with the builder. Following this re-inspection it has been determined that the original repair method involving the removal and replacement of the existing roof sheets to allow for cleaning of smoke affected insulation is not warranted. This has been determined following the restoration of the lighting in the premises and partial removal of the suspended ceiling tiles. This has allowed a closer inspection of the underside of the roof than was available to the Building Consultant who prepared the original scope of works. The builder is of the view that this part of the repair can be achieved by cleaning from below, once the ceiling tiles have been removed. Also, it has been determined that, due to the heavy build up of soot and smoke to the underside of the loading roof sheets (directly over the seat of the fire and not insulated), replacement of the roof cladding and fixtures in this area is the appropriate repair option. We concur with the builder's opinion in this regard. A revised re-instatement quote allowing for these variations, as well as some other minor items which we have agreed with the builder is now to hand and is attached for your information. You will note that the variations have reduced the overall price from $147,473.00 incl. GST to $131,269.00 incl. GST. Repairs by the above method will also shorten the expected repair timeframe, thus reducing the loss of rent claim. In light of these factors it is our intention to recommend to your insurer that the revised costing be accepted as a basis for settlement. As far as the refrigeration wiring and switchboards in the premises are concerned, it is currently my interpretation that these all fall within the scope of the term "refrigeration equipment" contained in the final sentence of clause 9.2 (page 11) of the lease. This being the case any repairs to these items would be the tenant's responsibility, with your responsibility ending at the refrigeration sub-main on the main switchboard. This has already been checked and restored by Greenfields. I confirm that loss of rent cover will continue up until the completion of repairs." 26 Progress claims by Duncan on 20 June and 23 July were approved and paid. 27 In relation to the flooring, Mr Dang deposed that shortly after 7 August 2007 he received a copy of a quotation of that date from Great Western Carpets to Robins: "1) To supply and install new 3mm vinyl tiles only to computer room, meals room and office. Also 1.5m ² to outside of office. To audit and repair floor as required and supply & fit vinyl skirting. 34m² Total with GST $2366.00 2) Supermarket area, to make good floor and repair as required to have new 3mm vinyl tiles. To supply and install new 3mm vinyl tiles around 900m². Total with GST $47,860.00 28 On 14 August, after the quotation had been approved, Mr Dang was told by Mr Dimilia of Great Western Carpets that his firm should have the work completed by Friday, 24 August. 29 On the same day, in a telephone conversation Mr Dang said to the Second Defendant: "The work will be complete by 24 August, 2007. You should go down to the store to organise cleaning the shelves and refrigerators. The keys will be handed over by 24 August, 2007. You can contact the cleaner and builder to clean for you if you like. It's better and convenient and probably cheaper. 30 The Second Defendant replied: "Okay, Okay, Okay and thank you." 31 On 21 August, the Plaintiff's solicitors wrote to the Second Defendant and Third Defendants' solicitors (omitting formal parts): "We refer to the above matter and advise that our client has been informed by its insurer that repairs to the fire damages will be completed on 24 August 2007 and that the keys of the premises will be handed to your client on that date. We would be pleased if you would advise your client to contact our client's insurer's coordinator to arrange for collection of the keys. We understand that your clients have contact phone numbers of the insurer's coordinator. We enclose a copy of the tax invoice dated 19 June, particulars of which have been provided to your clients, and would be pleased if you would advise your client to pay such invoice as matter of urgency. If payment is not received within seven days from the date of this letter, we are instructed to commence legal proceedings in the local court to recover the sum stated therein. We would be please if you would advise your clients to provide our client a bank guarantee in accordance with the requirement set out in the deed of assignment of lease. Failure by your client would force our client to commence proceedings seeking specific performance of the deed. If this course of action is taken, it will no doubt result in further unnecessary cost and expenses." 32 The invoice which accompanied the letter from the Plaintiff to the Second Defendant and Third Defendant specified a debt due of $6,336 "Costs of Legal Works (per clauses 14.1(b) and 18.2)" 33 Mr Dang deposed that he was informed by a Mr Baxter of Duncan that all repairs were completed on 28 August and that he, Mr Baxter, delivered the keys of the premises to the Second Defendant on that date. 34 According to Mr Dang's affidavit, no rental has been received from other parties to the action for any period subsequent to 28 August 2007, nor have the Second Defendant and Third Defendant re-entered possession of the premises. 35 On 17 October 2007, the Plaintiff's solicitors sent a Notice of Breach of Covenant to the Second Defendant and Third Defendant. The notice alleged breaches of the covenant to pay rent, the covenant to pay outgoings, and the covenant to maintain the trading hours specified in clause 9.20 and required the Second Defendant and Third Defendant to remedy them. This notice was admitted on the pleadings. 36 There was no response to the notice and on 16 November, the Plaintiff's solicitor wrote to the Second Defendant and Third Defendant: "As a consequence of your failure to remedy each of the breaches of the covenants in the Lease set out in the Notice of Breach of Covenant dated 17 October, 2007 and to comply with such Notice, the Lessor hereby terminates the Lease. The Lessor reserves all of its rights with respect to the recovery of damages by reason of your breaches of covenants of the Lease." This notice was also admitted on the pleadings. 37 Following the termination of the lease, Mr Dang said that he has attempted to relet the premises through Messrs Martin Morris and Jones Real Estate Agents (MMJ) but to date without success. 38 In a second affidavit sworn 19 August 2008 in reply to an affidavit by the Second Defendant, Mr Dang said that he had regular contact with the Second Defendant after he and his wife became lessees of the premises and always believed that the business Jewel Country Fresh was owned and operated by them. He recalled that sometimes cheques for rent were drawn on the account of Advanced First Supermarket Pty Ltd and sometime on the account of Advance International Trading (Aust) Pty Ltd. He did not regard this as of any significance. 39 On 17 February 2006, according to Mr Dang, he received a letter from the Second Defendant complaining that the roof of the subject premises was leaking. He went to the premises and had a conversation with the store manager: "Myself: I am the director of the landlord and was informed that there had been water leaking from the roof. Would you tell me where it is? Store Manager: Two in the chips aisle, one in the lolly section, one in the fruit and vegies and one in John's office. Myself: How serious the leaks are? Manager: Drippings." 40 Mr Dang thereupon contacted a roofing contractor, Geoff Reynolds Metal Roofing who provided a quotation of $6,415 for: "1. Replacement section of rusted box gutter and replace with new zincalume box gutter …….. approx 191/m 2. Reflash mechanical penetration and reseal overflashing. 3. Remove flashing at step in roof and replace with new zincalume flashing ………. approx 36 1/m" 41 On 22 February, Mr Dang said that he authorised the work and was subsequently informed that the repairs were commenced on 28 February and completed on 2 March. He has not since had any conversation with either the Second Defendant or Third Defendant about water penetration. 42 Mr Dang denied the alleged conversations said to have been held with him by the Second Defendant and Third Defendant regarding the management agreement with Mr and Mrs Zalloua or that he said to the Second Defendant "Now I understand. You did tell me last year that you had found a manager for the business". 43 Mr Dang conceded that in August 2002, he had a conversation with the Second Defendant wherein he expressed concern that Bi-Lo intended to open a store near the premises which potentially could affect his business. Thereafter Mr Dang said he had several conversations with the Second Defendant regarding the Bi-Lo project and also with officers of the council and others. Experts were engaged, the expense of which was shared between the Plaintiff and the Second Defendant and Third Defendant. Notwithstanding, a Bi-Lo store was opened near the premises in July 2004. I have no doubt that this had a significant adverse impact upon the business conducted in the premises. 44 Thereafter, there were occasions when the defendants were late in paying rent, which the Second Defendant attributed to competition from Bi-Lo. There were conversations between Mr Dang and the Second Defendant about a reduction in the rent as a result of which the rent was reduced by $40,000 p.a. conditionally upon it being paid on time. According to Mr Dang, this did not occur and subsequently the Plaintiff demanded the original sum 45 As to events which occurred about the time, according to the Plaintiff, the subject premises were restored following the fire damage, Mr Dang deposed: "I had regular contact with Mr Fu concerning as to when he was to reopen the business, payment of rent and providing me with a replacement bank guarantee. At about 3 September 2007, Mr Fu attended my office and I had a conversation with him in words to the effect: Fu: Foodlands (I later learned that he meant Foodworks) is interested in buying my business. Would you consent to the transfer of lease? Myself: Yes, but I have to see their application and proposal first. Fu: If Foodland does not buy my business, I will open a bargain store business. Do you support my plan? Myself: I am happy to support you either of the two options. Fu: I will decide quickly whether to sell the business to Foodland or to set up a bargains store. I will pay your rent as normal. I will get the people from Foodland to contact you". Soon after the meeting with Mr Fu, I received a telephone call from a man who introduced himself as Neil Corrigan from Foodworks and wanted to have a meeting with me on 13 September 2007, at 9.00am in my office. During the meeting on 13 September 2007, I had a conversation with Mr Corrigan in words to the effect: Corrigan: What is the current position of the lease? Myself; The lease will expire on 17 March 2009 with Metcash remains responsible under the lease. I then provided him with information including current rent, outgoings and floor area of the shop. He took copies of them. Corrigan: I think you have a very good rent. I will get back to you after the expiry of the lease. Myself: Hold on. I'm happy and willing to consider a lower rent. If you give me a reasonably workable plan and are prepared to be committed then I would negotiate with Mr Fu for a surrender of the current lease before the expiry date. Corrigan: I am going on a few weeks holiday. Will come back in mid October and I will contact you then for further discussion." On 15 October 2007 I telephoned Mr Corrigan and I had a conversation with him in words to the effect: Myself: Neil, have you got a proposal for Berkeley yet? Corrigan: I haven't had a chance yet. I am going to study the lease and will contact you mid next week. John Fu's just called me this morning from China. On the following week, I called Neil Corrigan a few times but was unable to speak to him. I left messages for him to return my calls. Mr Corrigan later returned my call and I had a conversation with him in words to the effect: Myself: Neil I am still waiting for your proposal. Corrigan; I have sent few possible operators to inspect the areas but no one expressed any interest. I think most of the independent operators are scared of Bi-Lo. The market is very tough down there. I have not hear from Mr Corrigan or anyone else on behalf of Foodworks since the date of the above telephone conversation." 46 Mr Dang denied in his affidavit sworn 19 August 2008 that he had conversations with Mr Fu regarding the replacement of an allegedly faulty compressor in the air conditioning system and he maintained this position when cross-examined upon the subject, at least up to about August 2007. 47 Cross examined by Mr Knoll, Mr Dang agreed that the sum of $116,446 included in the Plaintiff's schedule of damages for "Removal and Disposal of Fit Out" had not been spent. 48 Mr Dang agreed with Mr Canceri that from time to time there was a problem with water leaking through the roof. He told Mr Canceri: "Every time there is any call from Mr John Fu or his staff since he took over the business in 2000, every call about the leaking or dripping, I always attended and repaired it immediately." 49 He also agreed that the plumber he invariably sent to deal with the problem was Mr Paul Adams and that from 2000 Mr Adams went to the premises "on several occasions". Mr Adams was also employed, so Mr Dang testified, to provide regular maintenance to the roof, unrelated to any specific complaint by the defendants. 50 In my assessment, Mr Dang was an honest witness doing his best to assist the court. Nonetheless, it seemed clear although he did not use an interpreter that English was not his first language and many of his answers to questions in cross-examination were unresponsive. To that extent he was not a particularly satisfactory witness. However, much of his testimony was supported by incontrovertible documentation and the evidence of other witnesses. For the most part, the only conflicts I need to resolve are the respective versions of conversations between himself and the Second Defendant. I will return to this subject. THE EVIDENCE OF ANTONIO DI PIETRO 51 Mr Di Pietro was the Managing Director of Ice Tech Air Pty Ltd. and he had sworn an affidavit on 13 May 2008. His company specialises in the design, installation and servicing of air conditioners. He has relevant professional qualifications and has been engaged in the industry since completing a TAFE course in 1982. 52 In his affidavit he deposed to his inspection of the premises for the first time on or about 7 March 2007: "I observed: (a) The air conditioning system which was damaged by fire was a ducted split system air-conditioning (Ducted Split air-conditioner). This ducted Split Air-conditioner had two separate units. The fan coil unit was located under the roof and above the ceiling of the staff amenity room adjacent to the computer room and the condensing unit was located on the roof. This unit was only serving the staff amenity and computer rooms. (b) Another air-conditioning system was located on the roof towards the Southern end of the building, servicing the main part of the supermarket, which was well away from the fire damaged area. It was my understanding at the time that the fire had started in the computer room and spread out to the adjacent amenities and staff rooms before it was contained. I observed these areas at the time of my first inspection of the Premises on 7 March 2007 and observed fire damage in each of these areas." 53 Thereafter, Mr Di Pietro said that he prepared and sent to Robins an assessment report and quotation for work totalling $4,460 for repairs to the ducted split air conditioner and the ventilation. Having seen no evidence of fire damage to the other unit (the PAC unit), he did not inspect it or include it in his report and quotation. 54 His quotation was accepted and, according to the affidavit, work was completed on or about 26 June 2007. 55 Later he was asked by Mr Dang to inspect the PAC unit which he did on 23 August 2007. As to that unit, Mr Di Pietro said that it was "an ALC Air Unit which had been damaged due to lack of maintenance over a long period". He provided a provisional quotation of $16,850 for repairs "the final quotation could not be completed until such time as the evaporator fan belts have been replaced enabling the PAC to run for further testing". 56 Mr Dang accepted his second quotation following which, as Mr Di Pietro's affidavit relates: "On or about 4 September 2007, I attended the Premises and replaced the evaporator fan belts to the PAC Unit and tested the compressors and condenser fan motors. On or about 11 September 2007, I carried out a further inspection of the PAC Unit and identified all additional spare parts required in order to complete the repairs. Following my inspection, I returned to my Office and prepared on the same day a final quotation for $18,066.80 plus GST (Final quotation). I caused the Final Quotation to be sent to the Plaintiff on the same date. On or about 11 September 2007, Mr Kiem Dang accepted the Final quotation and authorised works to be commenced. On 19 October 2007, l advised Mr Kiem Dang that the repair works had been carried out and there was a need for replacement of a reversing valve at the cost of $500,00plus GST which had not been discovered earlier. Mr Kiem Dang agreed to the additional cost and authorised me to proceed." 57 On or about 7 November 2007 an updated report on the repairs was emailed to Mr Dang. The report referred to was in these terms: "Dear Kiem Progress of repairs as 1. New condenser fan assembly installed 2. New compressor installed 3. Compressor contactor replaced 4. Defrost controller Avion 2 replaced 5. Fan belts replaced 6. Filters ordered waiting on delivery 7. Condenser fan motor replaced 8. New compressor circuit has been flushed out this will give the new compressor the best running life 9. New TX Valve has been installed since the old one was blocked and rusted. On the start up and commissioning of the new compressor it was noted that the reversing valve had jammed part way mainly due to rubbish or rust from the previous (sic) and we were unable to start the compressor. The valve now needs to be replaced and then this circuit has all new refrigeration components installed. To complete the works a. New reversing valve to be installed b. New filters to be installed c. Commissioning of unit. We would expect that we can complete this work towards the end of next week." 58 Mr Pietro agreed with Mr Knoll in cross-examination that the PAC unit which, in his opinion, had not been damaged by the fire but was defective due to lack of maintenance, needed to be repaired before the supermarket could re-open. 59 He was cross-examined by Mr Knoll about problems faced during the repair of the PAC unit and agreed that it was not finally operational until 12 March 2008. 60 To Mr Canceri, Mr Di Pietro said that he estimated the PAC unit was about 15 years old and said that with proper maintenance it would have an expected life of between 15 and 20 years. THE EVIDENCE OF PATRICIA WARE 61 Mr Di Pietro was followed into the witness box by Ms Patricia Ware, employed as Commercial Property Manager by MMJ. She is responsible for overseeing the leasing of the premises, on behalf of MMJ which entered into an "Exclusive Leasing Agency Agreement, Commercial and Industrial" with the Plaintiff on 26 November 2007. Pursuant to that agreement the premises and its surrounds were tidied and cleaned in preparation for leasing. 62 In her affidavit sworn 12 May 2008, in effect, Ms Ware said that since November 2007 she has taken all reasonable steps to find an appropriate lessee. She provided details of her attempts: " On or about 2 January I showed the Premises to Mr Geoff Dakers of Hope Outreach Centre for a potential use as a church. Mr Dakers made an offer to rent of the whole Premises of $100,250 per annum. I conveyed the offer to Mr Dang who indicated to me that the offer was too low. I requested Mr Dakers to increase his offer so that I could submit it to the owners again but he declined to make any further offer. On or about 7 February 2008, I showed the premises to Mr Michael Gazal of Trade Secrets. Mr Gazal returned and inspected the Premises again on 13 March 2008 but has not made any offer to lease. On or about 12 February 2008 I showed the premises to Mr Wayne Pickford of the Anglican Church. Mr Pickford indicated that his church would be interested in leasing an area of 1,000.00 (sic) square metres. I have discussed the offer with Mr Dang who indicated that he would be willing to partition the premises if the Anglican Church proceeded with the lease. I have been informed by Mr Pickford and verily believe that the Anglican Church is still interested in the offer but has yet made any decision (sic). It appears increasingly difficult to lease the Premises to another Supermarket operator due to the fact that there is another Bi-Lo Supermarket across the road from that of the premises. I recommended to Mr Dang to obtain quotations for removal of the existing tenant's fixtures and make good the premises in readiness for leasing to potential non-supermarket operators. Mr Dang accepted my recommendation and requested me to obtain quotations for such removal." 63 In a later affidavit sworn 5 May 2009, Ms Ware testified that she remains responsible for overseeing the leasing of the premises, which have remained listed on the internet as available for lease. A "For lease" billboard is affixed to them. Notwithstanding, she has, since her previous affidavit, received only one inquiry, namely from a Mr Kirton, who made an inspection and later said that the premises were not suitable for his intended business. 64 After noting that several retail areas near the premises have been vacant for some time, Ms Ware opined, "I do not believe it is likely that a tenant will be found for the premises in the near future". 65 Ms Ware was cross-examined by Mr Canceri. She agreed with him that on any basis the rent payable under the lease will not be achieved from a new lessee, although she admitted to being unaware of the rent paid by the Second Defendant and Third Defendant. She, in effect, regarded that information as irrelevant to her negotiations. 66 Ms Ware told Mr Canceri that although quotations had been obtained for removal of the previous tenants' fixtures and fittings and that she had recommended this work be done as an aid to the leasing of the premises, Mr Dang had not yet authorised the work. She had been told that this was for financial reasons. 67 She said that she had advised Mr Dang that in order to lease the premises a low rent would need to be sought and a rental incentive would need to be offered in addition to removal of previous tenants fixtures and fittings. THE EVIDENCE OF TRACEY PRESTON 68 Ms Tracey Preston has been, since May 2007, the Department Manager of the Commercial Management Division of MMJ and has considerable experience in the leasing of premises such as the premises. Ms Ware reports to her. Her affidavit of 12 May 2008 contains these paragraphs: "It appears increasingly difficult to lease the Premises for many reasons. From my experience as a Shopping Centre Manager, I understand that it would be unlikely that another Supermarket operator would lease the Premises given the fact that there is another Bi-Lo Supermarket across the road from that of the Premises. I also understand that the demographics of the local population from which any user of the premises would seek to attract its main patronage, is skewed towards incomes of the lower social and economic demographics, thus also making the Premises more difficult to lease. In my opinion, any likely Lessee of the premises would have to operate as "destination" rather than relying on passing or local trade only. It appears that the premises is also increasingly difficult to lease due to the stigma attached to local area as being undesirable due to social problems in the immediate locality. Such social problems result in a high incidence of vandalism in the area that the premises is located. There is a high vacancy rate of retail premises in the suburb in which the premises is located. Given the size of the Premises, it is most likely that the Premises could only be used by a small number of users, including Supermarkets, Discount Department Stores, Discount Stores, however, given the location of the premises it will be difficult to find a tenant for the premises and will take a considerable amount of time and effort to do so." 69 Cross-examined by Mr Canceri, Ms Preston agreed that she advised Mr Dang in November 2007 to remove the tenants' fittings and fixtures in order to render the premises more suitable for leasing. "A. Yes. We made that recommendation on the basis that it would be easier to let the premises if the fit-out was gone, however, we understood there to be considerable costs in relation to removing that fit-out, and the costs versus what we could actually get for the premises in its current state was quite cost prohibitive to our client. Q. And to your knowledge the plaintiff has not yet made good the premises or removed the tenants' fixtures and fittings? A. That's correct. Q. That's the case, isn't it? A. Sorry, Mr Dang has not removed it? Q. The plaintiff, sorry. I've been referring to Mr Dang, I'm sorry, but the plaintiff, so Mr Dang is the director of the plaintiff? A. Mr Dang has made attempts to remove some of the fit-out at low cost to himself, or rather, at no cost to himself, however, the costs to remove the fit-out, given the quotes that we had, were too expensive for Mr Dang to do that at the time, given that we had no tenants to go into the premises? …………………………… Q. If the premises were tidy inside and made good do you think you would have a better chance of securing a tenant for the premises? A. The premises were tidy in terms of being able to show somebody through the premises. You could safely walk somebody through the premises and the premises could safely be seen for the purposes of renting. As far as the actual fit-out being gone, yes, it would be preferable if it was gone, however, we don't believe that the existence of the fit-out being there stops any potential user from looking at it and seeing the potential of the space. Q. If the premises were tidy inside you would agree that it would be easier for you to lease the premises? A. If the premises had the fit-out removed it would be easier for us to let it. Q. If the premises had been made good inside - leaving aside the fixtures and fittings - if the premises were cleaned inside you would agree that it would be easier to find a tenant for the premises? A. The premises I do believe were cleaned inside for the purposes of letting." 70 As to the possible subdivision of the premises, there was this exchange with Mr Canceri: "CANCERI: Q. As part of the strategy in relation to that property, did you consider a subdivision of the property? A. Yes, we did. Q. Did you recommend that to Mr Dang? A. In conversation with Mr Dang I believe there was one party who did wish to have less than the two thousand square metres. From my recollection I think that was one of the Churches. We had considered, I think they wanted around about a thousand square metres. We had considered the options of how that thousand square metres split would be done, and given that there would be considerable cost to electricity, water splits, air-conditioning splits, and so on, it was deemed that it was probably more beneficial to just offer them the entire space. In so far as a strategy to actually break up the tenancy into much smaller tenancies, given the vacancy across the road at the Berkeley Centre and how long those vacancies had been there we wouldn't recommend to any client in this market they spend considerable money to make that space available such that they make that space available. Q. But did you make that recommendation to Mr Dang about subdividing the premises? A. We didn't make a formal recommendation to Mr Dang in that regard. However during discussions with Mr Dang and especially in the initial conversations that I had with him in giving him our first proposal to manage and market the premises that would have been discussed. " 71 Ms Preston told Mr Freeman in re-examination that a subdivision of the premises would involve costs with air conditioning and electricity supply, and also expense and considerable delay in obtaining approval of the local council. THE EVIDENCE OF BRENT BAXTER 72 Mr Brent Baxter is employed as a Project Supervisor by Duncan for whom he has worked since March 2004. 73 Duncan tendered for the work required to reinstate the premises after the fire damage of 5 February 2007. Its tender was accepted and a contract was entered into on or about 8 May 2007. The start of work was delayed while arrangements were made for the removal of rubbish and rotten food from the premises. These arrangements were made between Mr Baxter and the Second Defendant. 74 Reinstatement work by Duncan commenced on or about 2 June 2007 and was completed on 24 August. He notified both Robins and Mr Dang of this. He personally handed the keys of the building to the Second Defendant on 28 August. 75 Pressed by Mr Canceri as to the date upon which the building work commenced, there was this exchange: "Q. You say that following the signing of the contracts you inspected the premises and formed the opinion that C G Duncan could not immediately carry out the works due to rotten food deposited in the main area of the building and tenant merchandise lying in the premises hindering access. Do you say that you could not start any work whatsoever as a result of items in the premises? A. Yes. No they were all -- Q. None at all? A. No. Q. No brickwork? A. No, nothing. Q. Nothing. No preparation work at all? A. No. It was just, yeah, it was actually unhygienic to be even in there, rotten food, most terrible -- Q. What type? A. Everything, vegetables, meat, everything. Q. Where was the meat located? A. In the freezer, the fridge. There was rotten food on the shelves. Q. So no work whatsoever could be carried out? A. No, definitely not. " 76 In relation to the removal of rubbish and rotten food, Mr Baxter told Mr Canceri that initially, about 16 May 2007, he asked the Second Defendant to attend to it. When there was about a weeks delay, Mr Baxter telephoned him and suggested that he, Mr Baxter, should arrange for a cleaning contractor on the Second Defendant's account to clear the premises. This was agreed to and is what occurred. 77 Mr Canceri asked Mr Baxter about vinyl floor tiles which required replacement. He said this was in his company's original quotation but was removed and in his understanding dealt with separately between Robins and another contractor. However, he said that the vinyl tiles in his recollection had not been replaced by 24 August 2007 but were replaced within the next week or fourteen days. 78 Mr Baxter said that the seat of the fire was at the rear of the store in an office area where the damage was concentrated "fire smoke damage went all through all the whole building basically so hence why we replaced the ceiling tiles". 79 Mr Baxter agreed with Mr Canceri that his contract time was eight weeks and that the job occupied a little longer, "extra two, maybe". THE EVIDENCE OF GREGORY LAU 80 The final witness in the Plaintiff's case, Mr Gregory Lau, was a roofing contractor, Director of Geoff Reynolds Metal Roofing Pty Ltd who swore an affidavit on 20 August 2008. He has worked in the industry since 1986. 81 Mr Lau said that in February 2006, Mr Dang requested him to make an urgent inspection of, and effect repairs where necessary, to the roof of the premises. When he went there, a woman, who introduced herself as the store manager, indicated the site of 4 ceiling water leaks. On inspection, he found that a box gutter was rusted; there was water penetration to the roof flashing; and there was water penetration to the "step in roof". Otherwise, he said, "the whole roof was in a reasonable and serviceable condition given its age". 82 In his affidavit, Mr Lau expressed an opinion regarding water penetration: "I formed the opinion at the time that all the leaks were apparently caused by minor flashing defects due to rusting except the one directly above one of the middle aisles. This leak was more severe due to water penetration to the step-in-roof section. To the best of my observation and opinion, the leakage from this section would fill half a bucket during heavy rain." 83 Mr Lau said that following his inspection he prepared a quotation in the total sum of $6,415.00, which he faxed to Mr Dang who, on the same day, accepted it by telephone. Mr Dang asked him to carry out the repairs as soon as possible. The repairs were in fact, so Mr Lau deposed, completed on 3 March 2006. 84 On the completion of the repairs, Mr Lau said that he gave the store manager his business card and asked her to telephone him if any further problems were experienced. He received no further contact. 85 Questioned by Mr Canceri, Mr Lau said that when he first attended the premises, he was shown four areas of water penetration, one of which he described as "a bad Leak". The rest, he said, "were very minor". He also observed a damaged ceiling tile. CASE FOR THE DEFENDANTS Mr JOHN FU 86 Mr John Fu, the Second Defendant was the first witness in the case of his wife and himself. He said that through a corporate structure they acquired the Jewel Food Barn in Colyton in January 2000 and thereafter both worked in the business until they acquired the Jewel Country Fresh Store, conducted in the premises in August 2000. He had primary responsibility for the business in the premises and his wife, the business at Colyton, which was sold in late August 2007. 87 According to Mr Fu's affidavit, a company Advanced First Supermarket Pty Ltd of which the Second Defendant and Third Defendant were shareholders and directors owned and operated the business conducted in the premises. Although, as I have indicated, the Plaintiff was aware of the existence of such a company, there is no evidence that it came into any legal relationship with the Plaintiff. 88 Mr Fu raised, in his affidavit, the matter of the leaking roof. He said that he complained to the Plaintiff "many times" upon the subject and that "on several occasions the Plaintiff arranged for a plumber, Paul Adams Plumbing, to carry out repairs to the roof". 89 Mr Fu did not contend that his complaints were ignored but did assert that the problem kept recurring every time it rained, to the extent that staff would need to occupy themselves mopping up rainwater, placing buckets under the worst leaks, and moving stock away from potential damage. 90 Mr Fu's assertions about the leaking roof are supported by evidence of some 15 invoices to the Plaintiff between November 2000 and November 2005 from Paul Adams Plumbing, which seem to relate principally, if not wholly, to roof leaks. 91 The affidavit of Mr Fu also raised the subject of air conditioning: "About one month after taking possession of the Premises, I discovered that the air conditioning system was not working after a number of customers had complained about the store being too cold. Accordingly, I organised for an air conditioning technician to check the air conditioning system. The air conditioning technician discovered that only one compressor out of four compressors was working. I had the air conditioning technician put in one new compressor. I forwarded the invoice for the new compressor to the plaintiff, as the compressor was faulty when my wife and I took possession of the premises. The new compressor cost about $10,000. Upon receiving the invoice, the plaintiff returned it to me. In the end my wife and I paid for the new compressor. ………………………………………………. On several occasions during the currency of the lease, I spoke to Kiem Dang to tell him that he should replace the two faulty compressors. I cannot remember every occasion when I spoke to Kiem Dang about the faulty compressors. However, the substance of our conversation relating to the air conditioning system was normally as follows: I would say to Kiem Dang words to the effect of: "When are you going to fix the air conditioning system? You know that some of the compressors are not working". Kiem Dang would say to me words to the effect of: "It is going to be expensive, but I will fix it." 92 Mr Fu's affidavit also dealt with what he called a "Management Agreement" entered into between Advanced and Jacqueline and Dominic Zalloua. He said that the agreement for a term of one year was entered into in September 2006 because he wanted to concentrate on other projects. 93 However, according to Mr Fu, Ms Zalloua, on or about 19 January 2007, closed the store and handed the key to the newsagent next door. Seemingly the business in the premises has not traded since. 94 Mr Fu claims that he told Mr Dang that Mr and Mrs Zalloua had agreed to assume management of the business, an assertion inconsistent with Mr Dang's evidence as to his first telephone conversation with "Jackie" (presumably Mrs Zalloua), about midnight on 21 January 2007. 95 Mr Fu said that he was first informed about the fire at the premises by a police officer about midnight on 5 February 2007. He claimed that when he visited the premises later that morning he only observed fire damage in the office area near the loading dock. As far as he was aware, the rest of the premises were not damaged. Generally, Mr Fu disputed other evidence as to the extent of the fire damage, putting himself into conflict with Mr Baxter as to the extent of the damage and as to what needed to be done. 96 The tenor of Mr Fu's affidavit was that after the fire he was extremely anxious to resume possession of the premises, an attitude not entirely consistent with Advanced's arrangement with Mr and Mrs Zalloua and his failure to resume possession in the period between Mrs Zalloua abandoning the business and handing over the keys of the premises and the date of the fire, a period of about 2 weeks. Mr Fu gave oral evidence supplementing his affidavit. In relation to water penetration, he said that the roof "leaked from day one" and that he instructed his staff to put buckets on the floor to catch the water in five particular places. 97 Cross-examined by Mr Freeman, Mr Fu agreed that the description of the leaks in his affidavit matched word for word the description in his wife's affidavit. Nonetheless, he maintained, in effect, that he played no role in influencing what his wife said. He acknowledged, however, that while his attentions were mainly directed to the business in the premises, she worked 6 or 7 days a week at Colyton. 98 Mr Fu agreed that Mr and Mrs Zalloua assumed the management of the business at the beginning of September 2006 and that by January 2007, he was in dispute with them, they alleging that he had misrepresented its financial position. He claimed that Mrs Zalloua complained to him about water penetration and defective air conditioning but agreed that he made no mention of this in his affidavit. 99 Mr Fu told Mr Freeman that his then solicitor wrote letters prior to February 2007 complaining about the air conditioning but he was not able to produce or identify any such letter. He agreed with Mr Freeman that in October 2000, the air conditioning contractor, Chill Factor, serviced the PAC unit and subsequently replaced a compressor. The unit was serviced in May 2001. According to his evidence "it worked really well within (sic) five years". 100 On the subject of alleged damage suffered by the Second Defendant and Third Defendant as a result of water penetration, Mr Fu agreed that the business was open for trading on every day except public holidays from August 2000 to at least 30 September 2006. In particular, the supermarket was never closed because of a leaking roof, although he claimed that on some occasions areas were "roped off", a circumstance which he agreed was not mentioned in either his affidavit or his wife's affidavit. He also conceded that his manager, Mrs Azzopardi did not mention the roping off in her affidavit. He then recalled that the roping off of an area occurred at about 4pm on 23 January 2006: "A. INTERPRETER: I clearly remember because there was a council meeting on that day and the council has some usage on this property. Q. Is there any reason why you didn't put the evidence you have just given in your affidavit? A. INTERPRETER: You mean the roped off? I measured 30 percent of the area were affected. Do I have to mention that again? Q. Is there any reason why you didn't put in your affidavit that on a date in January 2006 an area of the supermarket had to be roped off? A. INTERPRETER: You know there were 365 days in a year, that's only one of what? 365th of a portion. So how can I measure a date in my affidavit? Q. That's the answer you're giving to the Court, is it? A. INTERPRETER: Yes sir, exactly. Q. Did you remember the date in January 2006 when you swore your affidavit of 8 July 2008? A. INTERPRETER: I, yes, I remember the date but I do not want to mention that date instead of 6 years involved. Q. Sorry, you're saying that on 8 July 2008 when you swore your affidavit you remembered this event in January of 2006 but you decided not to include it in your affidavit, is that your evidence? A. INTERPRETER: Yes, correct. It was one day. It's a small thing. Q. Mr Fu, it is untrue that the area was roped off in January of 2006, isn't it? A. INTERPRETER: No. It's true. I can swear that on my integrity and I again swear on God. " 101 As to whether there was any maintenance to the air conditioners after May 2001, Mr Fu told Mr Freeman that he arranged for All Care of Albion Park to provide annual maintenance. He was unable to provide invoices, which he said were destroyed by the fire. 102 Mr Freeman cross-examined Mr Fu upon the financial records of Advanced. He agreed that in the period from 2001 to 2007, the highest profit achieved from the business conducted in the premises was $19,015 in 2004. There was a loss of $145,248.86 in 2005 and very small profits in the other years, including $648 in 2006 and $511 in 2007. 103 Mr Freeman put to Mr Fu a letter from Messrs Atkins & Jones, solicitors acting for Mr and Mrs Zalloua, dated 12 January 2007 which recited that financial documents produced to their clients showed gross income for the year ended 30 June 2006 as $3,155,560.30 and gross profit $947,621.35. Net profit was recorded as $167,411.36 and gross sales at $60,683 per week. The letter claimed that gross sales in fact approximated only about $20,000 per week. 104 Although Mr Fu's evidence on the subject was somewhat equivocal, in essence, as I understand it, he contended that the Atkins & Jones letter did not accurately state the figures he had given to Mr and Mrs Zalloua. However, it appeared that in a letter to Atkins & Jones, Mr Fu's solicitors, Boyle Associates on 16 January 2007 accepted that draft accounts had been given to Mr and Mrs Zalloua which indicated a gross income for the 2006 year of $3m although it also claimed that this included income from the business at Colyton. There was then this exchange: "Q. You do accept, do you not, that draft accounts were provided by yourself to Mrs Zalloua which contained a figure for sales of $3 million? A. INTERPRETER: No, this is, this is not what I mean because I want to let her know if we deliver the goods to the other shop we can increase the sales number but we receive payment from them (witness indicated). Q. The question I asked, Mr Fu, was that, do you concede that you did provide draft accounts to Mrs Zalloua for 30 June 06 which contained an amount for sales of $3 million, yes or no? A. WITNESS: No. A. INTERPRETER: My answer is no. Q. But you have already said that an amount, that the draft accounts that were handed over had an amount of $3 million on them? A. WITNESS: No. A. INTERPRETER: No. I supply a 2 million figure. A. WITNESS: Yeah. Q. So your solicitor is wrong in paragraph B on page 26 when he says that there was included the - there was an amount of $3 million in those drafts? A. INTERPRETER: Yes, it's true because we do have some language difficulties." 105 There was the following further exchange in relation to the assertion by Atkins & Jones that the net profit for 2006 was claimed to be $167,411.36: "Q. The allegation that she was, that Mrs Zalloua was told that the net profit was 167,000 is not disputed anywhere in this letter commencing at page 25? A. INTERPRETER: Yes, in, yes, that's right. However, we have said because she have been in t he shop for a whole month and all our numbers are open to, for her to know we cannot lie to her. And also the shop have managers as well. It's not up to me. She didn't get the information from me she can get it from someone else as well. Q. Is there any reason why the allegation that she was informed the net profit was 167,000 for 2006 was not disputed by Mr Boyle? A. INTERPRETER: Can I have a read through the letter? Q. If you need the interpreter to read it to you, you should do so. A. INTERPRETER: No, I don't want to waste time. I understand in the letter we are, we have, we clearly state that she used the 16 th – 167,000 figure to just want to get out of the agreement. Q. The question I'm asking you, that I asked you, is there any reason why the $167,000 figure was not disputed in Mr Boyles's letter of 16 January 2007? A. INTERPRETER: But we, I want to, Mr John Boyle have already dispelled the fact that she claimed that we misrepresented the numbers so he have the general, in general sense. Q. So are you saying that it had been disputed prior to 12 January 2007, is that what you're saying? A. INTERPRETER: Yes we had. Q. That's untrue, isn't it Mr Fu? A. INTERPRETER. I just, I want to state that I would not lie at Court and I would not lie here. …………………………………………… Q. I ask you again, can you give any reason why in the letter of 16 January 2007 of Mr Boyle he does not dispute that Mrs Zalloua was given a net profit figure of some $167,000? A. INTERPRETER: But Mr John Boyle have strongly disputed the whole letter. Even he did not mention this particular number. Q. Can I put to you that in no correspondence of Mr Boyle's that is exhibited to Mr Dang's affidavit or to your affidavit there is any statement by him disputing that Mrs Zalloua was given a net profit figure for 30 June 2006 of some $167,000? A. INTERPRETER: I understand, but however we have already disputed her allegation and we understand why she did do it. So we mention in a number or not, it's not important. Q. That's the answer you give, is it? A. INTERPRETER: Yes, but we have disputed her motivation levelling at the means of her living. That's what we have disputed.15 - .45 106 Mr Fu agreed with Mr Freeman that when the Bi Lo store opened nearby business suffered and staff was reduced to meet the situation. He also agreed that at that time a BWS Liquor store was operating from within the supermarket and that he and his wife received $200,000 in January 2006 when they agreed to its relocating to the Bi Lo store. This caused a further drop in sales in the supermarket. 107 Mr Freeman put to Mr Fu that after the fire he, in truth, had no intention of reopening the supermarket. This assertion was denied and Mr Fu maintained that he intended to reopen the business after the premises were reinstated. It was suggested by Mr Freeman that this was inconsistent with the paragraph in Mr Boyle's letter to Atkins & Jones of 13 February 2007: "Our client does not intend re-opening the shop. At this time your client's actions in having abandoned the stock belonging to them in the premises, and then refusing, and continuing to refuse, to advise what stock is claimed to be there and when they will remove it, has effectively sabotaged any possibility of the shop re-opening. That is despite my 8 demand letters. " 108 Mr Fu also denied the proposition that the first paragraph of Mr Boyle's letter to Messrs Than and Co, solicitors for the Plaintiff, dated 21 February 2007 was false. That paragraph read: "The store was temporarily closed to customers for a few days to facilitate the change over of management and to arrange a stock take, etc. Mr John Fu was still in daily attendance at the premises to supervise these routine activities. This is entirely a usual business refreshment procedure and does not deserve the involvement or interference of the Lessor. It certainly does not affect any rights or obligations under the Lease." 109 There was cross-examination of Mr Fu about negotiations and correspondence between solicitors in the months of March and April 2007 regarding the removal by Mr and Mrs Zalloua of all stock owned by them on the premises. Mr Fu acknowledged that by 10 April, Mr Dang wanted the premises cleared of stock so that repairs could start. He also acknowledged that it was not Mr Dang's fault that there was still stock in the premises. 110 Asked why the lessees' goods were not removed from the premises before Mr Baxter arranged a cleaner for the purpose sometime after 24 May, he explained that he was personally unable to attend to the matter because he had injured his hand at the end of April. He was questioned on the subject: "Q. Is it your evidence that from 19 April until 24 May 2007 you were unable by reason of your injury to make any arrangements for the cleaning of the premises and the removal of the stock? A. That's correct. Q. What that is not truthful, is it, Mr Fu, it is not a truthful answer? A. That's correct. It is correct. Q. Why couldn't your wife have called somebody to arrange for a cleaner? A. First of all my wife worked 7 days in another supermarket, very busy. The other reason was my wife was on holiday overseas. " 111 Upon the subject of Mr Fu being notified that the premises were ready for re-occupation, there was the exchange set forth hereunder which illustrates some of the difficulties I found in assessing Mr Fu's evidence: "Q. Can we move forward to 14 August 2007. On that day you received a telephone call from Mr Dang, didn't you? A. Which day please? Q. 14 August 2007? A. I did talk to him on the phone during that period. Q. Can I put to you what he told you on 14 August 2007 was that the work would be completed by 24 August 2007? A. I did ask whether the air conditioning had been completed. Her answer was no - sorry, his answer was no. Q. On that day you did not ask him anything about the air conditioning, did you? A. We talk a lot about the air conditioning. Q. I would like to ask you the question again, Mr Fu. On 14 August 2007, Mr Dang informed you that the work would be complete by 24 August 2007. True or false? A. I can't recall it was on 14th or on the other day but one thing was for sure we talk to each other on the phone around end of August. Q. And you are saying the end of August, are you? A. Yes that is correct. Yes, we phone each other. Q. So, come back to 14 August 2007. He also told you on 14 August 2007 that you needed to go down to the store to organise cleaning the shelves and the refrigerators? A. Prior to 24 we spoke Mr Dang on the phone. We talked a lot. Q. One of the things he told you on 14 August 2007 was that you should go to the supermarket premises to organise cleaning the shelves and the refrigerators? A. We talked a lot. One of the things this we mention was the air conditioning. Q. Are you prepared to answer my question or not? A. Yeah, I am answering your questions. Q. One of the matters - - HIS HONOUR: Just listen very carefully to the question. FREEMAN Q. One of the things Mr Dang said to you on 14 August 2007 was you should go down to the supermarket to organise cleaning of the shelves and the refrigerators? A. We did phone each other but he didn't say that. Q. Can I put to you he did say that to you? A. What he said to me to the effect you may go to the premises to have a look, see anything not functioning. Q. Now he also told you on 14 August 2007 that the keys would be handed to you by 24 August 2007? A. Yeah he said that. " 112 When it was suggested to Mr Fu that as at 14 August 2007 he had no knowledge of whether the air conditioning system was working or not, he replied that earlier he had gone to the premises and tested the air conditioning. "We tried the cold and hot function, would not work". 113 A little later the transcript records: "Q. You never rang up Mr Baxter prior to between 24 and 28 August asking for the keys, did you? A. My hand still suffering from the injury and also me to inform him about the key. I don't quite understand your question. Will you say that again please? Q. Well, you didn't call Mr Baxter between 24 and 28 August asking for the keys to the premises, did you? A. It seems to me that was on the weekend to call but if he did deliver it should I call him. Q. By 28 August you had not ordered any stock for the shop, had you? A. It wasn't the question of the stock or not. The problem was the air conditioning not working so they could not operate. Q. You told the Court last Friday that you didn't lose one day's trading between September 2000 and September 2006 because the air conditioning was not working. Do you recall that answer? A. The situation changed later on because it took him nearly 6 months to repair the air conditioning and he said to me he simply just took his time. " 114 Mr Fu complained in his affidavit of the Plaintiff's alleged refusal to consent to an assignment of the lease to Food Works. Mr Freeman put to him that no written application for such consent was ever made. Mr Fu replied, "It wasn't necessary for me because both party got to know each other. It's a business for them". 115 I found Mr Fu a very unsatisfactory witness. Making allowance for the fact that English was obviously not his first language and that he gave much of his evidence through an interpreter, he seemed to have great difficulty in focussing on the questions asked of him. Very frequently, particularly on important issues, his answers to Mr Freeman were unresponsive, evasive, and irrelevant. He was prone to take every opportunity to volunteer matters which he perceived as helpful to his case, whether or not they were relevant to the questions asked. I regard as quite specious his claim that a hand injury hampered his efforts to remove the lessees' goods from the premises before restoration work could commence, and his evidence as to his dealing with Mr and Mrs Zallova, on its face, suggested a lack of commercial morality. In my opinion, he never had a genuine intention to return to the premises after January 2007. As a consequence, where his evidence conflicts with the evidence of other witnesses, especially Mr Dang, I do not accept him as reliable. In particular, I prefer the evidence of Mr Dang in relation to conversations with Mr Fu, including Mr Dang's evidence that Mr Fu did not mention the subject of problems with the air conditioner before August 2007. THE EVIDENCE OF CHEN YAO 116 The Third Defendant (Mrs Chen Yao) in her affidavit sworn 8 July 2008 supported her husband's evidence (in identical terms) as to the location of water penetration into the premises. She described her opportunities for observation: "From about August 2000, when the Business was purchased, I would attend the premises when I had a chance to." 117 Her affidavit and evidence in chief did not significantly extend beyond the subject of water penetration and I would not have expected it to do so as it is clear that most of her energies were involved in the Colyton business. I gained the impression from Mr Freeman's cross-examination that much of what she said about water leaking into the premises was derived from what her husband told her. THE EVIDENCE OF WAYNE WOTTON 118 Mr Wayne Wotton, a real estate valuer and property consultant was qualified by the First Defendant to report on factors and strategies relevant to letting the premises for a period commencing on 28 August 2007He established ample qualifications for this purpose. Mr Wotton inspected the premises and other nearby properties on 26 June 2008 as a result of which his report dated 1 September 2008 set out these assumptions: I inspected 2 Winnima Way Berkeley on 26 June 2008 in company with the Managing Agent for the property. In addition to inspecting this property I also inspected the adjoining properties together with the retail centres at Dapto, Warrawong, Unanderra, Brownsville and Figtree. At the time of my inspection of 2 Winnima Way the property comprised a freestanding single level building that was vacant and unoccupied together with an adjoining bitumen sealed car park. The building appears to be developed on concrete footings with a steel frame masonry walls together with a metal clad roof. Photos of the property are included below. Internally the building was in a rundown state with old shelving, counters and disused packing strewn throughout the building. Externally the building appeared to be in a sound state and there was an open car parking area situated to the immediate north of the building. My inspection of the immediate surround area noted that a new Bi Lo supermarket had been constructed a short distance to the south-west of 2 Winnima Way and a number of smaller speciality shops were constructed around and adjacent to this Bi-Lo supermarket. Several of these shops were vacant while others were occupied. There were also several smaller speciality shops situated adjacent to 2 Winnima Way that were occupied. Berkeley is a mainly residential locality containing a mixture of older style single level residential dwellings together with some medium density residential apartments. A large proportion of the residential accommodation appears to comprise public housing. 119 Mr Wotton's report also contained these paragraphs: From 28 August 2007 to 17 March 2009 (the lease expiry date) provides a period of around 19 months remaining on the original lease term I consider this remaining period, 19 months, to be too short a time frame to secure a single lessee for the premises. The main reason I have formed this view is that the cost to a lessee of fitting out and equipping the premises of the size of the subject, about 2,000.00m², to be too great for the outlay to be recovered within a 19 month period. Also, I consider it would have required a period of 6 to 12 months to secure a lessee and given the time frame remaining on the lease was 19 months then the period available for occupation by a new lessee would have been between 7 to 13 months only. As an alternate to securing a single lessee for the premises, I considered the potential of subdividing the premises into 4 to 6 tenancies and then endeavouring to find 4 to 6 lessees. I considered that while this subdivision is a practical alternative, I consider it would again require a letting up period of around 6 to 12 months to locate lessees; once these lessees were located there would be insufficient time remaining on the original lease term to attract lessees to lease these premises. In my view, the more effective strategy to secure an occupant or occupants would have been to offer a lease over the whole or parts of the building for a period from 3 to 10 years. This time frame would have allowed a lessee sufficient time to recover the costs of establishing a business. 120 After reviewing rentals being paid in respect of the Bi Lo supermarket, several of the specialty shops around it and other supermarket premises in the Illawarra area, Mr Wotton's report continued: I formed the view from considering these rentals that the subject premises, 2 Winnima way, was not as well presented, located in an inferior position and would have difficulty attracting the level of rental achieved at the Bi Lo supermarket at Berkeley. The Bi-Lo supermarket achieved a rental at $159.31 per m² pa net. 2 Winnima Way is not as well presented and I consider it would be likely (sic unlikely) to achieve a rental at this level. The smaller shops within Berkeley are achieving rentals around $280.00 to $330.00 per m² pa net. These shops are much smaller than the subject and the rentals being paid for these shops are unlikely to be achieved within the subject premises. Up until June 2004, 2 Winnima Way was, I have assumed, operating successfully as a supermarket, at which time the Bi Lo supermarket opened. I considered the report on Berkeley prepared by Wollongong Council, part of which has been included above, and formed the view that it is likely that 2 supermarkets may struggle to survive in the Berkeley market. The Retail Study commented on in the Council report on Berkeley notes that "The challenge for this centre is to maintain its viability against Warrawong. This is most likely to be achieved by limiting any enlargement of the centre and reinforcing its role as a convenience centre". I concluded from this that the Berkeley retail centre would provide a number of convenience retail outlets to service the local population. These convenience facilities would likely include a supermarket, newsagent, baker, butcher, pharmacy, dry cleaner, liquor store, video store, café, greengrocer, delicatessen, doctor and similar uses. These users do not require large floor space areas, other than some of the larger greengrocers. ……………………………………………. I formed the view, after giving consideration to other premises both in Berkeley and the surrounding regions that the property would need to be subdivided into 4 to 6 individual tenancies. Each of these tenancies could have then been leased to a Medical Centre, Video Store, Bottle Shop, Hardware Store, Fruit and Vegetable outlet or a similar use. The rental level which the premises would command would have been below the rental level of the smaller shops located in Berkeley and would also have likely been below the level of rental which the Bi Lo supermarket was paying. This is a result of the main retail area for Berkeley being focused on the Bi Lo Centre with its main draw being the supermarket. Rents in nearby buildings would need to be lower than rents within the Berkeley Shopping Centre. I formed the view that having regard to other rentals achieved in the surrounding area that the subject property would have achieved a rental in the regions from $90.00 to $110.00 per m² pa net if divided into 4 to 6 tenancies, each tenancy containing an area around 350.00 to 500.00m². In forming this view on rental I have also considered the comments contained in the Retail Study which sees Berkeley as a Local Centre providing convenience retailing and the bulk of these users not usually requiring floor area greater than 100.00 to 150.00m². In order to achieve lettings at this level of rental I consider some rent free allowances would need to be offered together with a contribution to fit out. The rent free allowance would need to be in the region of 3 to 6 months rent on a 3 to 5 year lease while the fit out contribution would need to be in the region of 10.00% of the rental commitment. In order for occupants to be attracted to the premises at this level of rental the property would need to be placed in a fit state, refurbishment undertaken and the rubbish removed and the property cleaned and made presentable. A market budget of say $15,000 should also be allowed to actively promote the property for letting. 121 In cross-examination by Mr Freeman, Mr Wotton agreed that Council approval would be required for the subdivision of the premises into four to six separate occupancies because of both the change of use involved and the structural building work likely to be necessary. Mr Wotton also agreed that the specialty shops near the Bi-Lo Centre would be advantaged over any other premises because of the pedestrian traffic flow generated by Bi Lo and that this would be reflected in the rental value. 122 Mr Wotton told Mr Freeman that he had read Ms Ware's affidavit and there was nothing in it which he wished to respond to. 123 Mr Freeman questioned Mr Wotton on the subject of the premises being leased to another supermarket operator: "Q. Certainly it's not your opinion, is it, that another supermarket operator would have been found in the period remaining on the lease, that is, in 17 months or 19 months? A. That's correct. I, I believe that period of lease was well too short to find a supermarket operator so yes. Q. Even if a supermarket, even if a new lease was offered such as a 5 x 5, or 10 x 10, there was still in your professional opinion very little prospect of find a supermarket operator who would wish to compete with Bi-Lo? A. That's correct sir. I agree with that, yes. " 124 As to the practical implications of Mr Wotton's advice regarding the reletting of the subject premises, there was extensive cross-examination by Mr Freeman as to likely costs and delays caused inter alia by objections, which likely would have included objections by local residents and also Bi Lo. Mr Wotton accepted that it would have taken to about June 2008 to obtain a Development Approval. There then would possibly be some further time to obtain Construction Consent, although he opined that such consent could have been obtained concurrently with the Development Approval. He agreed that another 2 or 3 months would have been required for the necessary works. However, in the meantime in Mr Wotton's opinion marketing could have commenced, he thought by February/March 2008. He assessed a time frame of 6 to 12 months before suitable tenants were likely to be found. He conceded that this brought the period of reletting up to March 2009: "Q. You've given an opinion a few moments ago that you'd expect, you know, until March of 2009 as to be a reasonable period to get four to six tenants? A. Yes, sir. Q. You have no confidence, do you, that given the existing market in late 2008/early 2009 at Berkeley that the landlord would in fact fill those four to six tenancies? A. The property market has softened considerably over 2008 and into 2009, and particularly the leasing market has become softer. There is less ability to lease space and there are less businesses and people looking around to lease space. So my September 2008 report where I said that at that time I thought it would take 6 to 12 months to secure four to six tenants, I think the transition of time has suggested to me that it will now take a reasonable time longer than that to secure tenants for the accommodation purely because of what's gone on in Berkeley and the general property market throughout Sydney. Q. It is not your evidence that the landlord would have in fact been likely to have obtained four to six tenants by March of 2009? A. My evidence is that I would have thought that he should have been able to secure tenants over that 6 to 12 month period. Q. Should have been able to? A. Should have been, yes. Q. But the market softened? A. Yes. Q. And there are existing vacancies in a more favourable position over the road at Bi-Lo, are there not? A. There are existing vacancies in the Bi-Lo centre, yes, certainly, whether they are more attractive than what would be in a newly refurbished centre, I don't know that I agree with that. Certainly the presence of Bi-Lo would be an attraction to a number of tenants because of the patronage that they would draw and that would need to be weighed up by the tenant going across the road into the old supermarket premises, that they would need to be very cognisant of the fact that there wasn't going to be a lot of patronage, they needed to be able to draw patronage themselves or there needed to be someone else there who was going to assist drawing patronage to the centre. " 125 As to the expense involved in the subdivision of the premises, according to his advice, including obtaining necessary council consents and carrying out appropriate building work, Mr Wotton suggested a sum of $150,000. THE EVIDENCE OF PETER ADAMSON 126 Mr Peter Adamson said that he is a licensed repairer of refrigeration and air conditioning systems and that, as a director of All Care Refrigerators Pty Ltd, he attended the premises on occasions between 2002 and 2006 for the purpose of attending to maintenance of the air conditioning system located on the roof, in evidence referred to as the PAC unit. He identified tax invoices respectively dated 16 August 2002; 28 July 2003; 20 February 2005; and 28 September 2006 as at least in part being related to this maintenance work. 127 Mr Adamson said that when he first inspected the PAC unit, he noticed that it was "very old". He amplified this observation by referring to old panels falling off it, rusted and deteriorated screws, wooden pieces having been inserted to hold back panels and burnt out wiring. 128 According to Mr Adamson when he first saw the unit, he concluded that it had not been maintained in a fashion acceptable to him. However, he was not requested by Mr Fu to provide regular maintenance but was only called to deal with particular problems. 129 On 30 June 2003, he agreed that he found one compressor burnt out. He said he was not asked to replace that compressor and thereafter the unit operated at 75% capacity. Mr Fu said to him when he suggested replacement "not at this stage". 130 In relation to the work covered by his invoice dated 20 February 2002, Mr Adamson said that after he had finished it the unit would have been working at 75% capacity. There was then this exchange with Mr Freeman: "Q. Did you again suggest to Mr Fu that further work needed to be done? A. No. Q. Why? Did you form the view at that time that he would not authorise it anyway? A. Well, I wasn't going to nag him. If he wanted it done he could have. Q. But it wasn't critical that it be done, was it? A. Depends on what time of year it was. Q. This was February of 2005. A. Yeah, this one, December, because the shop used to get - because of all the freezers running, the shop used to get cold. Wasn't a problem. Was more a problem in the wintertime." 131 Apart from the occasions referred to in the four invoices, Mr Adamson said there were other occasions on which he worked on the unit but did not document it. However, he agreed that when he last left on 19 September 2006, the unit was working "if it wasn't I would have stayed there". THE AFFIDAVIT EVIDENCE OF DENISE FRAME AND SHARON AZZOPARDI 132 Ms Denise Frame worked as a packer in the premises from the end of 1991 to January 2007. Her affidavit sworn 7 July 2008 read in part: "From about the mid 1990's, I noticed that various sections of the roof would leak whenever it rained. Light rain for a short period would not cause the roof to leak. Nevertheless, on my observation, there would not have to necessarily be a long downpour for the roof to leak. From August 2000 to January 2007, I noticed that the roof would leak in the following areas: (i) In the delicatessen area; (ii) Near the cash registers at the front of the premises; (iii) In the preparation room of the fruit and vegetable section; (iv) At the back of the store near the plastic doors leading out to the loading dock area; (v) In that section of the store where baby products were sold; (vi) In that section of the store where chips and other similar products were sold. At times when the leaks were heavy, buckets would be placed on the floor to collect rainwater. I, along with other staff, were often required to put up "wet floor" signs on those parts of the floor which had been made wet by the leaking roof. I would say that the roof above the aisle where chips were located was the worst in terms of leaks. It appeared that a section of the ceiling had been damaged by water leaking through the roof. Some of the buckets I would describe as quite large and tray-shaped. These buckets were unsightly and would have been an inconvenience to customers. I say this because some of the buckets took up floor space and prevented access to some items on shelves. At times when it rained and the roof leaked, staff were often required to mop up areas of the floor that had become wet." 133 Ms Sharon Azzopardi gave evidence on affidavit to similar effect in respect of water penetration, she having worked at the subject premises from 1987 until January 2007. Although the roof would not leak in a "light drizzle", she said that it did leak whenever there was a substantial fall. 134 She also supported other evidence by saying that in winter the air conditioning provided an environment which was "quite cold". THE SIGNIFICANCE OF ADVANCED 135 The first mention of Advanced in the pleadings occurs in the Second Defendant and Third Defendants' cross-claim filed 24 July 2008 which I have already quoted. 136 There is no evidence that Advanced became an assignee of the lease and no evidence indeed that Mr Dang knew of its involvement in the affairs of Mr Fu except that he sometimes wrote letters on the letterhead of that company. I accept Mr Dang's evidence on the subject. 137 Although Mr Freeman submitted that it was Advanced which entered into possession of the premises and traded there, I do not accept that proposition. It seems to me that there is no evidence that Advanced entered into possession of the premises and no evidence that it was other than a convenient vehicle for Mr Fu to use for bookkeeping purposes. In my opinion, the position of Advanced should be ignored for the purposes of this litigation. In any event, in my view, it could only be of significance in respect of the cross-claim of the Second Defendant and Third Defendant, a significance which they sought to overcome by pleading their relationship with the Company. THE AGREEMENT WITIH Mr AND Mrs ZALLOUA 138 I think that the agreement with Mr and Mrs Zalloua also has no relevance to this case. Mr Freeman submitted that their "Management Agreement" with the Second Defendant and Third Defendant should be characterised as a document whereby the business was sold to Mr and Mrs Zalloua and there was a parting of possession of the premises to them 139 It is true, as Mr Freeman pointed out, that under the agreement the stock was sold to Mr and Mrs Zalloua; staff were terminated and reemployed; Mrs Zalloua paid utilities which were transferred to her name; and she was liable to pay a monthly fee unrelated to sales. However, the agreement purported to be no more than a management agreement and it was made between Advanced and Mr and Mrs Zalloua. As I have already indicated Advanced, in my opinion, was not shown to have acquired any interest in the premises which would enable it to confer on another party the rights of a lessee or even an occupier. It did not purport to enter into the management agreement as agent for the lessees but only as "owner and operator" of the business. In my opinion, the agreement should be ignored for the purposes of this litigation. 140 The transaction with Mr and Mrs Zalloua does, however, in my view, have some adverse implications for the credibility of Mr Fu. I accept Mr Dang's evidence that he was not aware of Mrs Zalloua's presence at the premises prior to the conversation with her on or about 21 January 2007. I disbelieve Mr Fu's evidence as to his alleged conversation with Mr Dang in about October 2006. Moreover, in my view, the transaction with Mr and Mrs Zalloua tends to support Mr Freeman's submission that, in effect, after September 2006 Mr Fu was disinterested in the business at Berkeley, a disinterest which he maintained up to and beyond the fire on 4/5 September 2007. WATER PENETRATION 141 It is convenient at this point to consider the cross-claim by the Second Defendant and Third Defendant in respect of water penetration into the subject premises. I am satisfied that up to February 2006 this was a significant problem, if largely for its nuisance value, although in my view the extent of it was considerably exaggerated by Mr Fu. However, I accept, in general terms, the evidence of Ms Frame, which I have referred to above, and who was not required for cross-examination. 142 The question is whether the Plaintiff has any liability in respect of water penetration. Mr Freeman submitted that it had no liability in the absence of a written notice under clause 12.2. There is no evidence that before February 2006 any written notice was given to the Plaintiff to repair the roof and there is no reason to think that if Mr Dang had received such a formal notification, he would not have acted as promptly and effectively as he did after receiving the letter of 17 February 2006. There is no evidence of any complaint thereafter, although the affidavits of Ms Frame and Ms Azzopardi suggested that water penetration continued up to January 2007. Although they were not required for cross-examination, I think they may have been mistaken about this date. The probability, in my view, is that there was no water penetration after Mr Lau repaired the roof at the beginning of March 2006. 143 The Second Defendant and Third Defendant argued that the Plaintiff's awareness of water damage in the period from 2000 to 2006 and preparedness from time to time to do something about it, indicated in effect a waiver of the right to receive written notice. In my opinion this was so. 144 That the leaking roof continued from 2000 to 2006 constituted, to my mind, both a breach of the Plaintiff's obligation under clause 12.2 of the lease and a breach of the covenant for quiet enjoyment contained in clause 12.1 within the statement of principle adopted by Hill J in Hawkesbury Nominees Ltd v Battick Pty Ltd [200] FCA 185 at [37]. "There will be a breach of the covenant for quiet enjoyment where the ordinary and lawful enjoyment of the demised premises is substantially interfered with by the acts of the lessor or those lawfully claiming under him, whether or not the title to the land or the possession of the land is otherwise affected. Whether what is complained of amounts to a substantial interference will be a question of fact. A breach may result either from acts of commission or omission by the landlord." 145 I think the Second Defendant and Third Defendant are entitled to succeed on their claim for damages in respect of the breach. As to the quantification of those damages, the evidence was that water penetration caused considerable inconvenience to staff and customers, but never the need to cease trading. Doing the best I can, and taking into account that the problem continued for nearly six years, I would award damages against the Plaintiff in the sum of $50,000 WHEN WERE THE PREMISES FIT FOR OCCUPATION? 146 It is next convenient to determine the date by which the premises were fit for occupation by the Second Defendant and Third Defendant following the fire. There is no doubt that, pursuant to clause 13.1 of the lease, the rent and outgoings payable by the Second Defendant and Third Defendant to the Plaintiff abated until the premises were restored. It is also clear that the letter written by Boyle Associates to the Plaintiff's solicitors on 21 February 2007 constituted notice to the Plaintiff that it was required to restore the premises in accordance with clause13.4 of the lease. 147 In Mr Freeman's submission the premises were restored, in accordance with the lease, by 24 August 2007. As to this, I accept the evidence of Mr Baxter that the building work for which his company was responsible had been completed by 24 August. 148 Mr Canceri however submitted that an essential part of the reinstatement was the replacement of damaged floor tiles for which Mr Baxter had no responsibility. As I have earlier indicated, he acceded to the proposition that when he left the premises the floor tiles had not been replaced. 149 However, there was evidence to suggest that Mr Baxter may have been mistaken about this and it was a subject not put to Mr Dang. In evidence was a quotation from Great Western Tiles dated 7 August 2007 quoting $2,366 for supply and installation of tiles etc. to computer room, meals room, office and area outside office and $47,860 for making good repairing and laying new tiles in supermarket area. 150 The tax invoice of Great Western Carpets, dated 20 August 2007 addressed to the Plaintiff for $47,860 and requiring payment within 7 days, in my opinion evidences that the work was completed by the date it bears. In my view, the probability is that this is what occurred and that Mr Baxter was simply mistaken in his evidence that the floor tiles still required replacement as at 24 August. This was a matter upon which he had no apparent interest and no particular reason to remember. 151 I do not regard as of significance the fact that on 15 August 2007, Mr Pearson of Robins sent the Plaintiff an email, which indicated that as at that date the floor tile contract had not been performed. It seems to me probable that this actually occurred between August 15 and August 20. 152 There is thus, in my opinion, no reason to conclude that outstanding floor tiling work prevented the premises from being fit for reoccupation by the lessees on 24 August. Mr Fu significantly did not assert the contrary in his affidavit. 153 Mr Canceri also contended that the premises could not be re-occupied on 24 August because the PAC unit was not operating. Curiously, Mr Fu asserts that he mentioned this to Mr Dang when Mr Dang telephoned him to tell him that the premises would be ready for occupation on 24 August. I say curiously because, so far as the evidence relates at that time, Mr Fu had not been involved in operating a business in the premises for nearly a year. I do not accept Mr Fu's evidence that he went to the premises and checked the air conditioning himself. 154 The PAC unit was not damaged by the fire and I accept Mr Di Pietro's evidence that its faults lay in lack of maintenance. In my opinion, the responsibility for the PAC unit was placed upon the lessees by clause 9.11 of the lease. The PAC unit was plainly either plant or a fixture, probably the former. 155 Mr Canceri contended that the replacement of a compressor was a capital replacement within clause 9.11 and therefore the responsibility of the Plaintiff. Mr Freeman, on the other hand submitted that replacement of one compressor was a "repair" in the sense of "renewal or replacement of subsidiary parts within the dictum of Buckley LJ in Lucott v Wakely and Wheeler [1911] 1KB 62. In my view, the replacement of one compressor as a matter of construction of clause 9.11 should be regarded as falling within the phrase "maintain and repair" and should not be regarded as a capital item. 156 Although Mr Fu claimed in his affidavit that soon after he took possession he paid for a new compressor to replace the one that had failed, this statement does not accord with other evidence. The invoices in 2000 from Chill Factor appear to relate to repairs to the air conditioning unit on the roof rather than replacement of the burnt out compressor, presumably the same compressor which Mr Adamson found in a burnt out state in 2003. There is no evidence that Mr Fu paid, as claimed in his affidavit, about $10,000 for a new compressor, nor to support the claim made in paragraph 30 of his affidavit that only one compressor out of four was working. In paragraph 34 of his affidavit, Mr Fu claims that he spoke to Mr Dang about 2 condensers not working but there is no evidence that that was ever the situation. The conversation was denied by Mr Dang and I accept his evidence in preference to the evidence of Mr Fu. 157 I am not satisfied that Mr Fu, at any time before August 2007, made either written or oral complaint to the Plaintiff about the air conditioning and I am not satisfied that Mr Fu ever requested the Plaintiff to replace the burnt out compressor referred to by Mr Adamson. When the matter was raised with him about August 2007, Mr Dang took prompt action to deal with it. The first written request was constituted by Boyle Associate's rather unclear letter of 1 November 2007. 158 As at August 2007, there is no evidence to suggest that the PAC unit was operating any differently from the way it was operating at the time of the fire. When Mr Di Pietro inspected it in August 2007, although he identified defects resulting from lack of maintenance, there still, as I understand his reports, was only one compressor out of four which required replacement. 159 Repair of the PAC unit which was not damaged by fire was not, in my opinion, an obligation of the Plaintiff arising under clause 13.4 of the lease. That obligation was no higher than one to restore the premises to their condition at the time of the fire and this, in my opinion, had occurred by 24 August 2007. 160 If it be the case, (which I do not in any event accept, particularly as warmer months were approaching) that the supermarket could not re-open until the PAC unit was repaired, any delay, in my opinion, was entirely the fault of the Second Defendant and Third Defendant in not performing their obligation to maintain the unit in accordance with clause 9.11. The state of the PAC unit did not, in my view, have any impact upon the readiness of the premises for occupation by the lessees on 24 August. RESTORATION WITHIN A REASONABLE TIME? 161 The Second Defendant and Third Defendant pleaded in their cross-claim that the Plaintiff failed to reinstate the premises following the fire damage within a reasonable time. The fire occurred on the night of 4/5 February 2007. The formal written request for re-instatement in accordance with clause 13.4 of the lease was made by Boyle Associates on 21 February 2007. In the meantime, Mr Dang had already been in touch with his insurer and had inspected the property with Mr Pearson of Robins. 162 As it seems, there was then a 6 weeks delay until Robins wrote to the Plaintiff on 29 March 2007 indicating that the insurer accepted liability and the matter could move forward. There was no evidence that this delay was inordinate and it seems to me reasonable that the Plaintiff waited until its insurer accepted liability. 163 As indicated the Plaintiff first needed to arrange safe reconnection of the electricity supply. This was apparently achieved the following week, that is in about the first week of April. Already Ice Tech Air had provided a quotation for repair of the air conditioning unit damaged by fire and this quotation was approved by Robins' letter of 30 March. 164 On 30 March, Robins sought a quotation from Duncan for the building work required in accordance with a Scope of Works prepared by Sergon. This resulted in a building contract being entered into between the Plaintiff and Duncan on 8 May 2007. The contract price was $147,473.15 and time for completion was 8 weeks. According to the evidence of Mr Baxter, the work actually ran about 14 days over time. There was no evidence that either the construction time or the delay was unreasonable and, to my mind, it was certainly not obviously so. Moreover, the evidence suggests that some delay was due to Mr Fu's failure to clear the premises of decaying food and rubbish when requested by Mr Baxter and further delay was caused by inclement weather. 165 In my opinion, the assertion that the Plaintiff did not within a reasonable period re-instate the premises should be rejected. Accordingly, I find that by 24 August 2007, the Plaintiff had complied with its obligation under the lease and the period of abatement of rent under clause 13.1 had ended. TERMINATION OF LEASE 166 The Plaintiff chose, however, not to seek rent for any period prior to 28 August. It is common ground that the Second Defendant and Third Defendant have paid no rent since that date, nor did they re-occupy the premises. Accordingly, on the face of it, the Plaintiff was entitled to give the Notice of Breach of Covenant dated 17 October 2007, which is in evidence. The notice, as stated above, stipulated three breaches, namely, failure to pay rent, failure to pay outgoings, and failure to open the premises for trade during the specified hours. 167 It is common ground that the notice was not complied with. Accordingly, as, in my opinion, the period of 21 days specified in the notice was reasonable for the purposes of s129 of the Conveyancing Act, the Plaintiff, in the absence of any other relevant factor was entitled to terminate the lease as it did by the notice dated 16 November 2007, herein before referred to. 168 Mr Canceri submitted that the Plaintiff's notice of termination given on 16 November 2007 amounted to an unlawful repudiation of the lease. The basis of this submission, as I understand it, is that the Plaintiff's notice of termination was repudiatory because at the time it was in breach, itself, of a fundamental term of the lease, namely the covenant contained in clause 12.2 in respect of air conditioning and water penetration. 169 For reasons already given, I am of the opinion that no breach by the Plaintiff in respect of air conditioning was established. Although I have found breaches in respect of water penetration during the period 2000 to 2006, there is no evidence that any such breach was continuing in October and November 2007. In any event, the breach, in my view, was certainly never of a repudiatory nature even if by October 2007, which I greatly doubt, the lessees were not estopped by their conduct from so alleging. Their remedy lay in damages alone. 170 In my opinion at the time the Plaintiff gave the notice to rectify breaches of covenant in October 2007, there was no subsisting breach by it of any of its obligations under the leases. It was entitled to give the notice and entitled to terminate the lease lawfully when the notice was not complied with. 171 As a consequence, the Plaintiff in addition to the amount owed to it at the date of termination of the lease claimed as $141,264.24, is entitled to damages for loss of its bargain. That loss is particularised in Exhibit A as a total of $1,073,147.39 which includes loss of rent, outgoings which were, or would have been, had not the lease been determined, payable for the period up to 17 March 2009 and certain other outgoings and expenses. I am unclear as to the extent to which the parties have agreed upon the claim which may require further argument. FAILURE TO MINIMISE LOSS 172 The Second Defendant and Third Defendant asserted that the Plaintiff failed to minimise its loss. In my opinion, they failed to discharge the onus upon them to prove this. As Giles JA (Handley JA and Stein JA agreeing) pointed out in Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313 at paragraph 187: "Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did". 173 The evidence of Ms Preston, Ms Ware and Mr Wotton established that the reletting of the premises posed formidable problems particularly because of their size; the nearby location of a Bi-Lo store; and the general economic downturn. The Plaintiff, in my opinion, did all that was reasonably required of it by placing the reletting in the hands of, what I hold to be, a reputable and experienced agent. Moreover, the Plaintiff indicated that it was willing to negotiate in such matters as rental payable, lease term, and the provision of incentives. The evidence of Ms Preston and Ms Ware, in particular, persuades me, on the probabilities, that everything reasonably prudent was done to effect a re-lease of the subject premises prior to March 2009 albeit without success. 174 The evidence of Mr Wotton, whose expertise I do not doubt, did not really suggest any strategy for re-letting not in the contemplation of Ms Preston and Ms Ware. Indeed, when he was tested by Mr Freeman upon his theory that the premises should be subdivided and relet in sections, the ultimate result, as it appeared to me, was that this was not likely to have been achieved much, if at all, before March 2009 at a cost to the Plaintiff of the order of $150,000. 175 I reject the assertion that the Plaintiff failed to minimise its loss. CONCLUSIONS 176 In summary, the principal conclusions I have reached are: 1. The premises were damaged by fire on the night of 4/5 February 2007 and rent abated from that date. 2. The premises were restored and available for re-occupation by the Second Defendant and Third Defendant on 24 August 2007. 3. There was no unreasonable delay by the Plaintiff in restoring the premises. 4. The Second Defendant and Third Defendant as at 17 October 2007 were in breach of the covenants to pay rent, pay outgoings and keep the premises open for business. 5. As at 17 October 2007 there was no subsisting breach of the lease by the Plaintiff. 6. The Plaintiff's notice of 16 November 2007 lawfully terminated the lease. 7. The defendants are liable to the Plaintiff for rent and outgoings and other expenses payable under the lease up to 16 November 2007 and for damages thereafter up to the date the lease would have expired on 18 March 2009. 8. Damages should be quantified by reference to rent and outgoings otherwise payable together with other items properly payable under the lease, including legal expenses and the costs of removing lessees' fittings and fixtures. 9. There was no failure by the Plaintiff to mitigate its loss. 10. The Plaintiff is liable in damages in the sum of $50,000 for breach of covenants to keep premises in repair and for quiet enjoyment in respect of water penetration. 177 In light of the findings I have made it is unnecessary to consider the further submission which Mr Canceri sought to make against the opposition of Mr Freeman on 22 June. 178 The only order I make is that the matter stand over until Friday 4 September 2009 at 9.30 so that the parties might bring in agreed short minutes of order which reflect these reasons. 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.