Perpetual Limited v Gelato Ingredients Manufacturers of Australia Pty Ltd [2014] NSWCATCD 25

Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Perpetual Limited v Gelato Ingredients Manufacturers of Australia Pty Ltd [2014] NSWCATCD 25 Hearing dates: 21, 22, 23 October 201328 November 2013 Decision date: 14 March 2014 Jurisdiction: Consumer and Commercial Division Before: D Patten Principal Member Decision: 1. That Perpetual pay Gelato $26,659.00. 2. That Gelato and Mr Di Francesca pay Perpetual $28,500.00. 3. Subject to paragraph 90 no order as to costs. Catchwords: Retail lease - breach of covenant for quiet enjoyment - repudiation by lessee - damages Legislation Cited: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 57 ALR 609 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Cases Cited: Retail Leases Act Category: Principal judgment Parties: Perpetual Limited (applicant) Gelato Ingredients Manufacturers of Australia Pty Ltd (first respondent) Giovanni Di Francesca (second respondent) Representation: Mr D Mobellan (Applicant) Mr G Di Francesca in person RAJ Lawyers (Applicant) File Number(s): COM 14/14518 COM 14/14521

reasons for decision

APPLICATION 1There are two matters before the Tribunal 125109 (the earlier proceedings) in which Perpetual Ltd (Perpetual) is applicant and Gelato Ingredients Manufacturers of Australia Pty Ltd (Gelato) is first respondent and Giovanni Di Francesca (Mr Di Francesca) is second respondent and 125126 (the later proceedings) in which Mr Francesca is applicant and Perpetual is respondent. 2In the earlier proceedings commenced by Statement of Claim in the District Court Perpetual sought return of fit out contribution, interest, arrears of rent, damages and costs in relation to a lease indisputably a Retail Lease within the Retail Leases Act of premises known as shop 3, Parkes Metro Plaza 307-313 Clarinda Street Parkes NSW 2870 (the premises). The earlier proceedings were transferred to this Tribunal by order of the District Court. 3In the later proceedings Gelato sought damages for alleged unconscionable conduct; damages for alleged false and misleading conduct and damages as a consequence of Perpetuals alleged repudiation of the lease. It also sought various forms of declaratory relief. In interlocutory proceedings the claim for damages in respect of unconscionable conduct was dismissed. 4The hearing of the matter occupied four days. Perpetual was represented throughout by Mr D Mobellan of Counsel. I gave leave to Mr Di Francesca to appear for Gelato as well as for himself, as guarantor of the lessee's obligations under the lease, and directed that all evidence be treated as evidence in both proceedings. 5In support of his case Mr Mobellan read the affidavits of Mark Swan 5 December 2012, Nicole Chapman 1 May 2012 and 30 January 2013, Paul Davis 21 December 2012, Jessica Lacey 6 December 2012, Melissa Turton 1 October 2013, Michael Martin 5 February 2013 and Nicholas Kelly 20 December 2012. Mr Swan, Ms Chapman, Mr Davis, Ms Lacey, Ms Turton, Mr Kelly and Mr Martin gave supplementary oral evidence and were cross examined by Mr Di Francesca. 6Mr Swan testified that he is a director of Madley Swan Pty Ltd which from 26 November 2005 had contracted to clean the Shopping Centre known as Parkes Metro plaza at 307-313 Clarinda Street Parkes (the Centre). Mr Swan said that Madley Swan also provides other services at the Centre as required. The cleaning work is personally performed by him or by persons organised by him. 7He said that the premises for some time up to about November 2009 were operated as a kebab shop. Madley Swan was retained to clean up the premises after the kebab business ceased trading and they became vacant. His instructions came from employees of Perpetual, Nicole Chapman, Shayne Cullen and Paul Davis. He was given no authority to make any representations on behalf of his principal. 8In November 2009 he said that an officer of Perpetual asked him to allow a Mr Robert Di Francesca to inspect the premises. Facilitating inspections was a service he regularly performed without remuneration. Shortly afterwards he met Mr Di Francesca and his son Robert at the premises and let them inside. He denied that during the inspection he made any comment as to the nature or quality of them. He also denied describing himself as having any role in the management of the Centre. 9Mr Swan subsequently at the request of Mr Di Francesca prepared a quotation for the fit out of the premises involving plumbing, electrical and ceiling works and was later told by him that the quotation was accepted. Mr Swan arranged for the work to be carried out by various sub contractors. 10The state of the air conditioning unit in the premises looms large in these proceedings. Mr Swan's affidavit makes limited reference to the problem which later arose: 49.As part of the fit out works, Madley Swan replaced the ceiling in the Premises and put in a new ceiling. 50.At that time there was no overflow tube from the air conditioning unit. I believe Madley Swan sub-contracted with the same plumber we used when conducting a clean up of the Premises after Ispa Kebab ceased trading. To the best of my recollection, the plumber informed me that there was no overflow tube from the air conditioning unit. 51.As part of the fit out works the plumber ran a tube from the air conditioning unit up in the cavity of the ceiling of the Premises into the gutter outside the front of the Premises. This would allow condensation from the air conditioning unit to be pumped through the over flow tube into the gutter and then to run away down the gutter down pipe. Prior to the overflow tube being installed, the air conditioning unit relied on an internal drip tray to capture condensation. 52.The plumber informed me that the drip tray would fill up. In which case, to the best of my recollection, the plumber informed me that he had installed a bigger drip tray when Ispa Kebab was the tenant. So as part of the fit out works when I was replacing the ceiling, my plumber installed an overflow tube as note above. 11Under cross examination Mr Swan acknowledged that he replied in the affirmative at the first inspection when asked whether the air conditioning was working. He said that he was aware that it was a unit which serviced only the premises and conceded that he did not specifically point that out. 12In her first affidavit Ms Chapman testified that from July 2007 to June 2011 she was the Retail Manager of the Centre. On 1 July 2011 she became the Centre Manager. She identified a copy of lease AF 590585 T as the lease of the premises from Perpetual to Gelato for a term of 5 years commencing 7 December 2009. It might be observed that the lease comprises some 59 pages many of which seem to me more relevant to the lease of a large supermarket rather than an ice cream parlour having a floor space of only a few square metres. However some provisions of the lease have particular relevance to this case: The permitted use of the provisions "Retail sale of Gelato ice cream and the sale of coffeee tea cakes soft drinks and all related gelato / ice cream products e.g. gelato shakes, milk shakes and fruit juices." Provisions regarding fit out: Fitout means the works to be performed by the Tenant and approved by the Landlord to fully refurbish and/or fitout the Premises to meet the Tenant's occupational requirements in accordance with this Lease, and in particular this Special Provision 1. 1.4. Tenant's Works to Conform The Tenant shall submit its shop fitout plans for the Landlord's approval prior to the commencement of the Tenant's Fitout Works. The Tenant's Fitout Works shall be carried out in accordance with the terms of this Lease (including Special Provision 1) and to the standard and according to the requirements set out in the Fitout Manual or any requirements reasonably imposed by the Landlord. Without limiting any other provision of this lease, the Tenant's Fitout Works must be not commenced or carried out by the Tenant prior to obtaining the Landlord's written consent to: (a) the design of; and (b) the materials to be used in carrying out, (c) the Tenant's Fitout Works. 4.1. Defined terms In this Lease: Fitout Contribution means $20,000.00 plus GST. Fitout Cost means the actual GST exclusive cost to the Tenant of the Fitout. Purchase Event means if: (a) the Lease is terminated by reason of a default by the Tenant, and Landlord gives notice that it wishes to exercise its rights under this clause; (b) the Tenant ceases to trade or threatens to cease to trade from the Premises and the Landlord gives notice that it wishes to exercise its rights under this clause; (c) the Tenant assigns, underlets, parts with possession of the Premises or any part of them, or purports to do so, without the consent of the Landlord; or (d) the Tenant breaches the obligation of confidentially in Special Provision 4.7 and the Landlord gives notice that it wishes to exercise its rights under this clause. 4.4. Landlord to pay Fitout Contribution Subject to Special Condition 4.5, the Landlord will pay the Fitout Contribution to the Tenant within a reasonable time (and no less than 30 days) after the Tenant completes the Fitout in accordance with this Lease. 4.8. Fitout Landlord's property Notwithstanding anything in this Lease: (a) if the Landlord pays to the Tenant the Fitout Contribution, the Landlord may nominate items of the Fitout to the value of the Fitout Contribution, which will be: the shop front, ceiling, lighting, air-conditioning unit, and flooring (Nominated items). (b) if the Landlord makes a nomination under this clause, the Nominated items will: (i) become the absolute property of the Landlord; and (ii) be deemed to be part of the Landlord's Property. 4.9.Transfer of ownership of Nominated Items (a) If a Purchase Event occurs during the first five years of the Term, on the date that the Purchase Event occurs the Tenant will purchase and the Landlord will sell the Nominated Items at a price determined as follows: (i) if the Purchase Event occurs during the first year of the Term, 100% of the Fitout Contribution; (iii) if the Purchase Event occurs during the second year of the Term, 80% of the Fitout Contribution; (iv) if the Purchase Event occurs during the third year of the Term, 60% of the Fitout Contribution; (v) if the Purchase Event occurs during the fourth year of the Term, 40% of the Fitout Contribution; and (vi) if the Purchase Event occurs during the fifth year of the Term, 20% of the Fitout Contribution. (b) Subject to Special Provision 4.9(a), if at the expiry or sooner determination of the Term the Nominated Items remain in the ownership of the Landlord and if required by the Landlord, the Nominated Items specified by the Landlord will be transferred to the ownership of the Tenant at the instant in time immediately prior to the expiry or sooner determination of the Term for a nominal value of $1.00 (if demanded). The definition of services: Services means the services provided to or for the benefit of the Centre, including Common Area Electricity, gas, water, sewerage, lifts, escalators, air conditioning, sprinkler systems, fire protection and control, essential services, security equipment, rubbish storage and removal and communication together with all plant and equipment relating to those services and includes services provided by the Landlord, authorities and others. 13.5 The Tenant's quiet enjoyment The Landlord must allow the Tenant to occupy and use the Premises without the Landlord interrupting or disturbing the Tenant, except where this Lease allows the Landlord to do so. 13.6 The Landlord's Services If the Landlord supplies any Services to the Centre (for example: airconditioning, elevators), the Landlord must do all the Landlord reasonably can to ensure that they are working efficiently during the Centre's trading hours. However, if any of the Services do not work efficiently, unless the Act applies and provides otherwise, the Landlord is not liable to compensate the Tenant and the Tenant cannot end this Lease if the Landlord does not. 14.2 When the Landlord does repairs or building work (a) When the Landlord does repairs, maintenance or building work to the Premises or the Centre, the Landlord must cause as little disruption to the Tenant's use of the Premises as is reasonable in the circumstances. (b) If the work referred to in clause 14.2(a) is likely to adversely affect the Tenant's business at the Premises, the Landlord must give the Tenant notice of the proposed works at least 2 months before the Landlord commences the work. (c) The Tenant cannot make a claim for compensation or pursue any other remedy for any occurrence if the Landlord drew the Tenant's attention to the likelihood of the occurrence before the Lease was entered into. 18.1 Interpretation In this clause: (a) Guaranteed Money means all money that the Tenant is or may at any time be liable (actually, prospectively or contingently) to pay to the Landlord under or in connection with: (i) this Lease (including the Tenant's default); and (ii) the Tenant's occupation of the Premises, (iii) and includes money which the Tenant would be liable to pay but for its insolvency. (b) Guarantor Assets means all debits and liabilities owed by the Tenant to the Guarantor and any security the Guarantor holds over the Tenant's assets. (c) Lease includes any holding over under it and extension and renewal of it. 18.3 Guarantee The Guarantor irrevocably and unconditionally guarantees to the Landlord that the Tenant will: (a) pay the Guaranteed Money on time; and (b) comply on time with the Tenant's obligations under this Lease and in connection with the Tenant's occupation of the Premises. 18.5 Indemnity As an additional obligation of the Guarantor which the Landlord may enforce separately from the guarantee in clause 18.3, the Guarantor irrevocably and unconditionally indemnifies the Landlord against and undertakes as principal debtor to pay the Landlord on demand a sum equal to all liability, loss, penalties, costs, charges and expenses directly or indirectly arising from or incurred in connection with (a) the Tenant not paying the Guaranteed Money on time; (b) the Tenant not complying on time with the Tenant's obligations under this Lease or in connection with its occupation of the Premises; and (c) the Landlord not being able to recover all of the Guaranteed Money from the Tenant or enforce all of the Tenant's obligations under this Lease or in connection with the Tenant's occupation of the Premises for any reason. whether or not the Landlord or the Guarantor knew or should have known about a fact or circumstance that gives rise to a claim under this indemnity. It is not necessary for the Landlord to incur expense or make a payment before enforcing this indemnity. 20.2 If the Tenant breaches this Lease (a) If the Tenant breaches this Lease the Landlord may do any one or more of the following: (d) re-enter and take possession of the Premises; (ii) end this Lease (see clause 11.10); (iii) recover from the Tenant or the Guarantor any loss the Landlord suffers due to the Tenant's breach; (iv) use the bank guarantee (see clause 9.1(c)) to recover any loss the Landlord suffers due to the Tenant's breach; or (v) exercise any of the Landlord's other legal rights. 20.3 What the Landlord may do if the Tenant breaches an essential term (a) If the Tenant breaches an essential term of this Lease and the Landlord re-enters and takes possession of the Premises, the Landlord may recover all money payable by the Tenant under this Lease up to the Expiry Date. The Landlord must take all reasonable measures to minimise the Landlord's loss. (b) The essential terms for this clause are Part 4, Part 5 and clauses 3.1, 6.1, 7.1, 7.4(c), 7.5(b), 8.1(b), 8.2, 8.3, 8.4, 9.1(a), 9.1(b), 9.1(e), 10.4, 11.1, 11.2, 11.3(e), 11.4(a), 11.5 and 17.1. Rule 1.5 The Landlord's standards for Premises (a) The Tenant must get the Landlord's consent before the Tenant does any thing that affects the quality and standard of the Premises and its presentation. The Tenant must comply with the Fitout Manual and the Landlord's reasonable requirements and standards of design, quality, style and appearance. (b) The Tenant must observe the maximum load weights throughout the Centre. Rule 1.11 Cooling and heating of Premises The Tenant must get the Landlord's consent before the Tenant uses any services for cooling or heating the Premises other than those the Landlord supplies (for example: lighting, cooling, heating or circulating air). 13In rule 1.5 reproduced above and in cl 11.8 of the lease itself there is reference to "the Fitout Manual" and to the lessees obligation to comply with it. The Fit Out Manual is described within it as prepared "to assist the Tenant, Tenant's Designer and Fit Out Contractor in understanding the responsibilities and criteria which must be followed to ensure the successful completion of each shop fitout". The document contains a "Summary of Responsibilities" including against "air conditioning" an indication that the lessor is responsible for the cost "to suit open plan and for lighting and equipment head load up to 55 watts / m² and occupancy of 7.7 m² / person. Includes plant ducting and air registers". 14The Fit Out Manual stipulates that at the lessee's cost are "Alterations to ducting and air registers to suit lessees' layout. Alterations to system for increased heat loads and / or occupancy carried out by lessors' contractors." 15It is a pity that such a lengthy and detailed document as the lease in this case, when dealing with the subject of air conditioning was not particularly apt to the situation where the premises rely on a stand alone unit rather than upon the system which air conditioned virtually the whole of the rest of the Centre. 16Ms Chapman went on to state in her affidavit that on 10 March 2011 she caused a Notice of Breach of Covenant to be served on Gelato and upon Mr Di Francesca alleging arrears of rent outgoings etc. She said that on 22 March Gelato ceased trading from the premises and removed its stock fixtures and fittings. She said that Gelato repudiated the lease on 24 March by stating that it did not intend to reoccupy the premises or pay the outstanding debt. Perpetual was invited to take back the keys. 17According to Ms Chapman, Perpetual accepted the repudiation re entered possession of the premises and became entitled to damages. I will need to return to this subject. Likewise I will need to return to Ms Chapman's second affidavit which for the most part as with her oral evidence was directed to the damages case mounted by Gelato. 18Mr Davis was a Leasing Executive employed by Macquarie Real Estate Management Services Pty Ltd and was at relevant times responsible inter alia for the leasing of the Centre. In November 2009 he wrote to Mr Di Francesca enclosing a tenancy proposal for the premises. The proposal recorded a use of "Retail sale of Gelato ice cream and the sale of coffee and tea" and listed other terms and conditions of the proposed lease. Under the heading Fit Out the following appeared: FIT OUT Fitout period: The Tenant will be given 4 weeks in which to carry out the Tenant's fitout works from the lease start date. Landlord's works: Refer attached Tenancy Fitout Guide. Tenant's works: The Tenant must obtain the consent of the Landlord to its plans and specifications for the Tenant's works. All works are to be undertaken in accordance with the Tenancy Fitout Guide. Alterations to Landlord's works: If the Tenant's works require any alteration to the Landlord's works to the Premises, or work to other parts of the Centre, then all such works must be performed by the Landlord at the cost of the Tenant. The Landlord may choose not to perform such works until their estimated cost has been paid by the Tenant.