Miljus v Guests Cakes & Pies Pty Ltd [2011] NSWADT 193

Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Miljus v Guests Cakes & Pies Pty Ltd [2011] NSWADT 193 Hearing dates: 31 January 2011 & 21 March 2011 Decision date: 11 August 2011 Jurisdiction: Retail Leases Division Before: K Rickards, Judicial Member Decision: 1. Guest Cakes Pty Ltd, Simon Goldman and Beverley Goldman are to pay the sum of $17,355.08 to Milan Miljus. 2. Unless either party files and serves any submissions within 14 days of the date of these orders seeking an order for costs, there will be no order as to costs. If submissions seeking costs are filed by either party, the other party may file and serve submissions in reply within 14 days, following which the issue of costs will be determined upon the basis of the papers filed. Catchwords: Pre-lease representations; compensation Legislation Cited: Retail Leases Act 1994 Cases Cited: Tate v Unanderra Heights Pty Ltd [2005] NSWADTAP 5; D & D Ventures Pty Ltd v Evans & anor. [2004] NSWADT 130 Category: Principal judgment Parties: Milan Miljus (Applicant in 105035, Respondent in 105173) Guests Cakes & Pies Pty Ltd (Respondent 105035, Applicant in 105173 Simon Louis Goldman (Second Respondent) Beverley Carol Goldman (Third Respondent) File Number(s): 105035; 105173

REASONS FOR DECISION 1These proceedings relate to the lease of retail premises at Shops 2 and 3, 361-363 Crown Street, Wollongong as a cake and pie shop, and involve a claim for unpaid rent and outgoings by the lessor Milan Miljus against the lessee Guests Cakes & Pies Pty Ltd and its guarantors Simon and Beverley Goldman, together with a cross claim by the lessee for expenses incurred and for loss of income said to have been caused by the lessor's breaches of the lease agreement. 2The lease commenced on 15 January 2007 and was subject to an initial rent free period of one month. 3The lessor ultimately issued a notice of termination on 20 November 2009 and then took possession of the premises on 1 December 2009. 4The lessor primarily relies upon the terms of the lease agreement and various documents, ledger records and correspondence admitted into evidence in support of his claim for: a)Unpaid rent to the date of vacation of the premises in the sum of $35,397.74; b)Rent due for the balance of the term of the lease from 1 December 2009 to 14 January 2010 in the sum of $5,402.22; c)Unpaid outgoings comprising $1,373.20 for water rates, $850.17 for trade waste charges, and $912.60 for grease trap charges; this comes to a total sum of $3,135.97; and d)Interest upon unpaid rent at the rate of 12% per annum as specified within the lease agreement. 5The lessor and the guarantors originally claimed that the lessor had engaged in unconscionable conduct, but this claim was abandoned prior to the commencement of the hearing. 6In summary, the claims presented by the lessee and guarantors at the hearing were that: a Although the calculations of rent arrears due and payable may be arithmetically correct, there is no liability on the part of the lessee due to the unfitness of the premises for the agreed purpose of preparation, sale and consumption of cakes, pies and other items; b The amounts claimed for outgoings may also be arithmetically correct, but the lessor has not proved that payments have or have not been made, or by whom; c Because of a number of other problems, including non-repair of electrical faults, defects in operation of the grease trap and drainage system, inoperability of the water pump to the grease trap and an unsafe step, the lessees have been impaired in their ability to trade, and should be compensated by the lessor; d Specifically because of the unavailability of water at one of the two shops due to the inoperability of the water pump, the lessee was put to additional expense in paying staff to collect and transfer water, for which the lessor is liable. e Because of the leaking which occurred from the awning at the street front of the premises over a period of time, the entry of customers into the shop was made difficult, detracted from the visual amenity of the shop, and inhibited the use of the footpath area under the awning for consumption of food and drinks; this led to loss of sales for which the lessor is liable. 7The hearing of these proceedings took place over 2 days on 31 January and 21 March 2011. The lessor was legally represented and the lessee and the guarantors were represented at the hearing by the guarantor Mrs Goldman. Mr Goldman was also present at the hearing but did not participate or give evidence apparently due to ill health. 8Due to the lessee and the guarantors not being legally represented, some latitude was extended in relation to the form and manner in which evidence was introduced and submissions made, and the hearing of the proceedings necessarily took longer than what may otherwise have been the case. There was a significantly large amount of detailed affidavit material placed into evidence on behalf of the lessee which raised and sometimes duplicated a number of different complaints against the lessor. 9The lessee's claims effectively involve a claimed right of compensation for pre-lease misrepresentations made by the lessor pursuant to section 10 of the Retail Leases Act 1997 ("the Act"), non disclosure of important and material facts relevant to the premises (which to a degree is governed by section 11 of the Act), and a claim for compensation for disruption to trade caused by the actions and failures of the lessor pursuant to section 34 of the Act. 10The lessor and his agent Ms Tracey Preston gave oral evidence during the hearing and their affidavits were also admitted into evidence, together with various accounts and schedules relating to rent and outgoings. 11On behalf of the lessee and guarantors, oral evidence was given by Mrs Goldman, Ms Lisa Stibbard and Mr Paolo De Luca, and their respective affidavits were admitted into evidence together with various annexed documents. At this point, it should be stated that, annexed to Mrs Goldman's affidavit sworn on 30 August 2010 (Exhibit G), was some "without prejudice" correspondence which had followed on from mediation and which had been clearly directed toward possible settlement of the proceedings and should not have been introduced into evidence. This correspondence has been disregarded for the purpose of reaching a decision in these proceedings. 12It is appropriate to review the lessee's case first, and in particular the affidavit of Mrs Goldman sworn on 30 August 2010. 13Mrs Goldman asserts within the above affidavit that the lessor told her and her husband at the time of their first inspection that the premises were "all in working order and is food approved (sic) with the authorities for all types of food business". The lessor denies making any such representation. 14 Having commenced occupation of the premises, Mrs Goldman says that she telephoned the lessor in mid to late January 2007 and told him of a number of problems: the hot water system within the bakery area was not working; there was brown rusty water coming through the tap and the two sinks in the baker area could not be used because they did not drain water away; the wash basin inside the bakery area did not have a pipe attached which caused water to flow onto the floor when the tap was turned on; the grease trap did not have a motor attached; water and waste was therefore building up due to the absence of a pump and producing a smell which went through the premises. Mrs Goldman also asserts that she also then told the lessor that these problems were obviously pre-existing and that he had "obligations". 15The lessee then arranged for its solicitors AR Yates & Co to write to the lessor's solicitor on 22 January 2007 and again on the following day. From within the above list of problems that are said by Mrs Goldman to have been relayed by her in her telephone call to the lessor at about that same time, the only problem from within that list which was brought to the attention of the lessor by the lessee's solicitors within these two letters was that the complaint that the grease trap did not have a motor. 16The second letter from the lessee's solicitors on 23 January 2007 also then indicated that the lessee had in fact installed a working motor for the grease trap at a cost of $800. A credit was sought for this expenditure and for the cost of repair to the air conditioning system on behalf of the lessee, in the form of a further two weeks' rent-free period. This request was subsequently declined by the lessor, but his solicitors advised that the motor would remain the property of the lessee. 17The fact that a pump motor had been installed, and a credit sought for the cost of installation, sits at odds with the assertions of the lessee that the sinks in the bakery area continued to be unusable due to the absence of a pump, and this absence caused various problems for the lessee right through until at least mid 2009; see, for example, paragraphs 8 - 25 of Mrs Goldman's affidavit sworn 30 August 2010. 18The variety of problems described by Mrs Goldman within her affidavits was also not supported by the letters sent by the lessee's solicitors to the lessor's solicitors over the ensuing months, nor were such problems mentioned by Mrs Goldman when she wrote to the lessor's agent on 24 January 2009 seeking a rent reduction which she asserted to be due to poor trading performance of the business caused by global economic problems (annexure C to Mrs Goldman's affidavit sworn 30 August 2010). 19By letter sent to the lessor's agent on 27 April 2009 (annexure D to the same affidavit), Mrs Goldman somewhat enlarged the representation claimed by her to have been made by the lessor during the initial inspection visit prior to the lease being entered into. This letter also set out for the first time in writing a number of the problems which were claimed to be preventing the premises being able to be used for the preparation and sale of food. By the time that this letter was sent, the rent payable by the lessee was significantly in arrears and had been chronically so over the course of the term of the lease. Specifically, this letter asserted that the lessor had represented that "the whole premises was (sic) in working order and fully compliant as a food premises including plumbing, electrical, mechanical and structural". 20The above description of the pre-lease representations said to have been made by the lessor is at odds with the other evidence provided on behalf of the lessee described above, and also contradicts the express terms of the clause 6.1.4 of the subject lease agreement, which required the lessee to "comply with all laws relating to strata schemes and all other laws regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the lessee's business there". 21 The problems raised by Mrs Goldman in her letter dated 27 April 2009 included complaints that: the water in the bakery area could not be used because of the absence of a pump; there were broken tiles outside and inside the shop; the electrical power boards and various power points were defective; the awning was leaking; there was rubbish in the communal area at the rear of the premises; doors and windows needed to have screens attached as required by Wollongong Council; gas points were not properly capped, the air conditioning in the bakery was not working at all and in the caf area was not working properly; the front and back doors of the caf had dropped and needed attention; the keys given at the commencement of the lease in early 2007 did not operate the locks apart from the front door lock; it had taken until May 2007 to identify which garage could be used by the lessee; there was rubbish in outside store rooms at the time of commencement of the lease; the cool room at the premises had not been able to be easily removed as promised; an electrical insect repellent system was not working, and; at least at the time of commencement of the lease, the toilets had not been in working order. 22 The agent Tracey Preston says that it was not until about this time late April 2009 that Mrs Goldman first complained to her about the leaking awning. The lessor denies that any previous complaint was made by the lessee to about the leaking awning. 23Mrs Goldman sent a further letter to the agents on 20 June 2009 (Annexure E to her affidavit sworn 30 August 2010). In this letter, she complained that "we have had another couple of weeks of rain and our business has suffered. In the past two weeks, three people have slipped over in the front of our premises - one person had to be taken away in an ambulance ... nothing has changed except our business has suffered terribly ...". 24 The letter went on to say that a plumber and an electrician had been to the premises, but nothing had been done about the leak in the awning and that at times when the rain was very heavy people had been unable to enter the business or use the outside table and chairs. It was claimed that this had driven customers away to the caf next door whose awning did not leak. A further complaint was made that there had twice been a flood at the back door first caused by a sewerage blockage and that refuse had been wrongly thrown into the lessee's rubbish bins by someone else. There was also a complaint that there was now an infestation of tiny "black flies" which Mrs Goldman had been told was caused by them breeding and hiding in outside wet areas and drains. All of this information was provided as the basis for a request that, in relation to payment of ongoing rent and arrears , there be only a weekly payment of $750 per week by the lessee. 25In support of the lessee's contentions regarding the premises, evidence was received from Tara Stibbard who was employed at the relevant time by the lessee as a store manager, in which she related having difficulties herself with slipping near the front of the shop in the vicinity of the leaking awning when it had been raining, as well as customers. Understandably, she could not exactly say how many times that she had observed customers during these rainy times go next door to the rival caf. Ms Stibbard also testified that she had spent a lot of time during her employment carrying water between the bakery and caf area of the premises. 26The lessee indicated an offer to vacate the premises through a letter from its solicitors dated 1 July 2009. On the following day, presumably at the request of the lessee, a WorkCover inspector attended at the premises to inspect various areas of concern. 27A letter was then sent by the lessee's solicitors to the agents on 3 July 2009 advising that the offer to vacate the premises was withdrawn, that the WorkCover inspection had revealed that the electrical work at the premises was non-compliant and needed to be rectified immediately, and that WorkCover had also indicated that the leaking awning was an occupational health and safety issue causing a risk of electrical malfunction because of the proximity of leaking water to electrical wiring. This letter also raised issues of broken tiles existing at the premises as at the date of commencement of the lease, steps between the two shops being unsafe, and that existence of a number of uncovered light globes. This letter requested rectification of these problems and also threatened action against the lessor in the event that it persisted with his expressed intention to lock the lessee out of the premises. 28In response to the above letter, the agents advised in a letter sent to the lessee's solicitors that the first report of a leak within the awning had been received by them on 22 April 2009, and that this report had in turn been relayed to the managing agent of the body corporate for action because the awning was common property and not part of the leased premises. The agent's letter also stated that the strata manager had confirmed by letter dated 29 June 2009 that the awning had been repaired. The agents took issue with the assertions made by the lessee in the 3 July 2009 letter concerning responsibility for the other matters relating to food safety; it was pointed out that these were matters which should have been addressed by the lessee prior to entering into the lease and commencing trade, as set out within the terms of the lease agreement. 29It is apparent from the charts provided and the affidavit evidence that there was a significant amount of winter rainfall particularly during 2009, and it is also apparent that the leaking of water from the awning continued right through to the time that the lessees vacated the premises. Toward the end of the lease term, the lessees also engaged the attention of Wollongong Council to the premises and then sent a letter to the agents dated 30 October 2009 stating that there was now a requirement for provision of hand basins with a particular type of hot and cold water connection, provision of smooth sealing and smooth based covers to ceiling lights, and provision of screens on all doors and windows. The letter also stated that the lessee still sought eradication of a problem with flying insects which was said to be caused by water leaking from the toilets. 30Consideration of the above matters, as well as the items set out within paragraphs 14, 21, 24 and 27 of this decision, illustrates a diverse, often belated, and somewhat changing series of complaints made by the lessee over time in relation to the premises. 31Evidence was given on behalf of the lessee by Mr Paolo De Luca who had operated a business manufacturing and selling pavlovas at the premises over a period of some eighteen months prior to the time that the lessee commenced its business at the premises. Mr De Luca confirmed that during the time that he and his partner had occupied the premises there had been problems with broken light fittings, broken fly screens and that, in particular, the awning at the front of the premises had leaked during times of rainfall which had created difficulties with access by customers and had prevented their use of tables and chairs outside the premises. Mr DeLuca testified that these problems were notified to Mr Miljus, but nothing was done. Having observed Mr De Luca give evidence within the context of the other evidence admitted in the proceedings including the evidence of Mr Miljus, the Tribunal accepts that he was a truthful and reliable witness, and that the above stated problems had been notified to the lessor during the time that Mr De Luca occupied the premises. Accordingly, the Tribunal is satisfied that the lessor was well aware at the time of introducing the lessee and guarantors to the property that there was a problem with the leaking awning which had the capacity to interfere with patronage on rainy days. 32Having stated the above, there is no evidence establishing that there was any actual misrepresentation made by the lessor prior to the time that the lease was entered into. Relevantly, section 10 of the Act provides as follows:- "Section 10 - Right to Compensation for Pre lease Misrepresentations (1) A party to a retail shop lease is liable to pay another party to the lease ( the injured party ) reasonable compensation for damage suffered by the injured party that is attributable to the injured party's entering into the lease as a result of a false or misleading statement or representation made by the party, or any party acting under the party's authority with knowledge that it was false or misleading. (2) The giving of a lessor's disclosure statement to a prospective lessee under a retail shop lease is considered to be the making of a representation by the lessor to the lessee as to the information in the disclosure statement." 33In relation to the subject lease, pursuant to section 11(2) of the Act, the rights of the lessee where, as in the circumstances of this matter, the lessor had not provided a disclosure statement, were limited to a right to terminate the lease at any time within six months of the date of commencement of the lease, subject to certain exceptions; see paragraphs 35 to 38 of the Appeal Panel Decision in Tate v Unanderra Heights Pty Ltd (2005) NSWADT AP5. 34As discussed earlier within this judgment, there is some discrepancy within the lessee's own evidence as to exactly what representations are said to have been made by the lessor prior to the time that the lease was entered into. On balance, it is accepted that a conversation probably did take place between Mr and Mrs Goldman and the lessor in mid January 2007 at the time of first inspecting the premises during which Mr and Mrs Goldman indicated that they wanted to set up a bakery caf and the lessor indicated that he knew that the premises had been used for similar purposes and had been approved by relevant authorities for such use. This is the clear import of the conversation alleged to have taken place by Mrs Goldman as set out at paragraph 5 within her affidavit dated 30 August 2010. As required by section 10 of the Act, such a statement or representation by the lessor, in order for the lessee to rely upon it in seeking compensation for damage, must be shown to have been knowingly false and misleading and to have been relied upon by the lessee in deciding to enter into the lease. The lessee has not discharged this onus of proof. The statement made by the lessor at the time of inspection did no more than indicate his knowledge that the premises had been used for preparation and sale of food and that such business had been conducted with apparent approval of relevant authorities. The clear and express terms of the lease required the lessee to obtain all necessary approvals for the conduct of their bakery caf business. 35The significant problem which had occurred during the term of occupation of the premises by Mr De Luca and his partner, and which continued to occur during the term of the subject lease, was that of the leaking awning at the front of the premises. In order for the lessee to successfully rely upon any misrepresentation under section 10 of the Act, the lessee must establish that the lessor made a false and misleading representation that the roofing in the area of the awning was waterproof or weatherproof and that if the lessee had been aware of the leaks in the awning it would not have entered into the lease. In this regard, the facts in this matter are somewhat analogous to those dealt with by the Tribunal in D & D Ventures Pty Ltd v Evans & Anor [2004] NSWADT 130, where the Tribunal found as follows: "82 Our finding that neither the lessors, nor any person on their behalf, represented to the lessee that the roofing over the outside area was waterproof or weatherproof is however sufficient to dispose of this claim. We note also that the lessee did not bring forward evidence to the effect that, if it had been aware of the leaks in the roof, it would not have entered into the lease ... both these matters are listed as necessary ingredients of a claim under section 10 in the judgment of Bryson JA (with whom Beasley and IPP JJA agreed) in Golden Harvest (Aust) Pty Ltd v Paing [2004] NSWCA 85 at (32)." 36 The alternative basis for the lessee's claims is section 34(1)(d) which relevantly provides as follows: "(1) A retail shop lease is taken to provide that if the Lessor ...(d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor's control ... and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage ... suffered by the lessee as a consequence." As outlined above within this judgment, there is no satisfactory evidence of any false misrepresentation having been made by the lessor which induced the lessee to enter into the subject lease agreement. There is also, based upon the chronology of events as disclosed by the evidence, no failure by the lessor to rectify problems at the premises which were within his responsibility, within a reasonable time after written notice had been given in accordance with the provisions of the Act, other than in relation to the leaking awning. 37In relation to the awning, it is clear that the lessor had knowledge that it leaked and that very little, if anything, had been done to rectify the problem. It is suggested on behalf of the lessor that at some stage toward the end of the term of the subject lease, this problem was referred to the body corporate responsible for the entire building of which the premises were a part, and that this step on the part of the lessor discharged his obligations to the lessee. This submission is not accepted. Regardless of the involvement of the body corporate in meeting or monitoring claims made which related to common property, the lessor had a clear obligation under the Act to take reasonable steps to rectify the obvious disturbance to trade at the premises presented by this problem. 38It is clear that the lessor had knowledge of the leaking awning and the problems which it caused to customers of any business occupying the shop premises well before the time that the lease commenced. What emerges from the evidence is that there was no written request made by the lessee to rectify the problem until 27 April 2009. Given the state of knowledge of the lessor at that time, rectification should reasonably have been undertaken almost immediately. Given the problems which were clearly caused by the leaking awning and which had been endured by the lessee over quite a period of time, it is considered appropriate that the Tribunal should make an order in accordance with section 72 of the Act. 39The lessee in its cross claim seeks compensatory damages for the alleged water problems within the bakery and in relation to the leaking awning. The basis for these claims, and the manner of their calculation are set out within the affidavit of Mrs Goldman sworn 28 September 2010. 40In relation to the claim based upon water problems in the bakery, these problems are of uncertain source, particularly given the inconsistency of evidence regarding the provision of a pump. Further, as discussed previously within this judgment, there is no evidence of any relevant misrepresentation by the lessor prior to the time that the lease was entered into. No subsequent action was taken by the lessee in relation to any alleged non-disclosure of this problem, particularly given the absence of a disclosure statement and if, contrary to the lessee's own correspondence, no pump was in fact ever procured, there has been an obvious failure to mitigate loss on the part of the lessee in relation to any such problem. Accordingly, this component of the lessee's cross-claim is not accepted. 41In relation to the cross-claim for compensation arising from the leaking awning, by reason of section 34(1) of the Act, any such claim can only run from 27 April 2009 being the date when the lessee notified the lessor in writing of the problem. 42In paragraphs 8 through to 13 of her affidavit sworn on 28 September 2010, Mrs Goldman set out a method whereby the amount of $29,690 was calculated as being the loss to the lessee caused by the leaking awning. The method of calculation used can be safely described as somewhat vague and rudimentary, and does not provide any source material upon which the calculations have been based. As such, it is an entirely unsatisfactory basis upon which to establish any loss arising from the leaking awning. 43As a consequence of the above findings, the lessee has not satisfactorily proved its claimed losses said to have arisen from breaches of the lease agreement by the lessor. However, it is accepted that the leaking awning did cause disruption of patronage on a great number of days when rainfall had occurred, and that there were also a number of other problems at the premises contained within the letter sent to the lessor on 27 April 2009 which then continued without remedy for varying periods of time. In all of the circumstances, given the apparent knowledge of the lessor as to the major problem with the leaking awning, as well as the indication that there had been problems previously raised concerning absence of screens at the premises and deficient electrical fittings and the recommendations of the local council inspector regarding these matters, it is considered that there should be a total abatement of rent payable for the premises as and from 27 April 2009. 44It is accepted that the amount of $14,900 was owing in respect of rent arrears as at 12 September 2008. The amount of rent subsequently due and payable for the period 15 September 2008 to 14 January 2009 comes to $13,000 based upon the rate of $3,250 per calendar month as per the terms of the lease; as and from 15 January 2009, the rent payable was $3,683.33 per calendar month which means that an amount of $12,891.66 was payable for the period of 3.5 months until 27 April 2009. The total amount of rent payable for the period to 27 April 2009 was therefore $40,791.66 and the amount actually paid by the lessee was $29,500 leaving the sum of $11,291.66 as being due and payable. The lessee and guarantors are therefore jointly and severally liable to the lessor for payment of rent arrears in the sum of $11,291.66, outgoings in the sum of $2,442.54, and interest calculated at a rate of 12% per annum to date in respect of the above sums in the amount of $3,620.88, making a total of $17, 355.08 due and payable. 45In relation to costs of the proceedings, the presumption is that there will be no order made as to costs unless the Tribunal is satisfied that it is fair to make an order in favour of one party. Given the period of time which has transpired since the hearing, the parties will be given an opportunity to make any written submissions in respect of costs, failing which there will be no order made.