Lex Trevor Slattery v Harry Notaras Investments Pty Limited [1986] ACTSC 99 (10 October 1986)

SUPREME COURT OF THE ACT

LEX TREVOR SLATTERY v. HARRY NOTARAS INVESTMENTS PTY. LIMITED
S.C. No. 1821 of 1983
Sub-Lease

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Sub-lease - Wrongful re-entry - Assessment of Damages - No question of principle involved.

HEARING

CANBERRA
10:10:1986

ORDER

There be judgment for the plaintiff in the sum of $34,500.00.

DECISION

By Memorandum of Sub-Lease executed on 23 April 1979 the defendant let to the plaintiff and his then wife a shop forming part of the Wanniassa Shopping Centre for use as a milk bar and coffee lounge. The sub-lease was expressed to commence on 1 October 1978 and to expire on 31 March 1985. On 2 April 1982 with the consent of the defendant the sub-lessees' interest in the sub-lease was transferred to the plaintiff.

2. On Sunday, 6 November 1983, the defendant re-entered the premises, allegedly for non-payment of rent. On 21 December 1983 Blackburn C.J. adjudged the re-entry unlawful and ordered that the plaintiff recover possession. He reserved consideration of damages, an account as to rent, costs and any other declarations that might be sought in relation to the true construction of the sublease. I note that any questions as to the rent payable by the plaintiff to the defendant have been resolved. The sub-lease was not renewed.

3. Damages are claimed under several sub-headings which I set out as follows:-

(a) Loss of income by the plaintiff when out of

possession of the premises following the wrongful
entry;

(b) Loss of income caused thereafter said to be due to
the fact that customers became used to the fact
that the premises were not being used as a milk
bar and coffee lounge during the period from
re-entry to recovery of possession;

(c) Damage to stock caused by spoilage;

(d) Loss of stock and plant not present when
possession was recovered;

(e) Repairs to plant and cleaning costs;

(f) Charges for bank statements flowing from the
denial to the plaintiff of access to the premises
and documents there present.

I take those matters in turn.

(a & b) Loss of income from 7 November 1983 to 22 December

1983 (46 days) and from 23 December 1983 to 30
June 1984.

4. The re-entry took place late in the afternoon of Sunday, 6 November 1983. The evidence is not crystal clear as to the date when the plaintiff recommenced trading. I note, however, that he had a deep freezer repaired on 23 December 1983 and that on the same day he purchased a substantial quantity of iced confections. I accept, therefore, that he commenced trading on that day although I am satisfied that he did so with a limited amount of stock.

5. Mr Johnson, an accountant who prepared the plaintiff's tax returns, gave evidence of the method he used to calculate the loss sustained by the plaintiff. Using a book which set out details of the cash taken by the business week by week from July 1980 to 30 April 1984 and the monthly takings thereafter until the expiration of the lease, he broke each of the four financial years from 1 July 1980 into four periods. The periods were 1 July to 7 November (the first period), 7 November to 24 December (the second period), 25 December to 31 March (the third period) and 1 April to 30 June (the fourth period). He calculated the daily average sales for each of those four periods for each of those four years. As a basis for his further calculation he let the daily average for each first period equal 100, a figure which he described as the "base figure". Having calculated the daily average sales for each of the other three periods in each year he ascertained the number which bore that direct proportion to the base figure which the daily average sales for the relevant period bore to the daily average sales for the relevant first period. These figures he called the "index". His calculations and the method adopted by him appear clearly enough from a document which became part of Exhibit E and was headed "Average Daily Sales - Home Comfort Coffee Lounge". I annex a copy of that document to these reasons, marking it with the letter "A".

6. Unfortunately, I differ from the witness's arithmetical results. Using the method adopted by him I have obtained the results set out in a similar document which I annex to these reasons and mark with the letter "B". I should point out that I accept that others making the same calculations that I have and that resulted in annexure "B" might reach different but not significantly different conclusions. The result would vary according to the approach taken to the dates concerned and the vagaries of the calendar. I think that the possible differences are of no account in such an assessment of damages as that which I am considering.

7. On the basis of the index figures for the second period in each of the first three years, he calculated, using what must have been an arithmetic progression, the expected index figure for the second period of the financial year 1983-1984. His calculated expected index figure was 159.9. He then multiplied that figure by the daily average sales of the first period from 1 July 1983 to 7 November 1983 to reach an average expected daily sale for the second period of that year of $954. He then calculated the loss for the second period which he took to be 48 days at $954 and reached a total of $45,792.

8. Using the same approach he obtained an expected index figure of 133.10 for the third period of the financial year 1983-1984. On this basis the expected average daily sales for the period would have been, on his figures, $796 against an actual $498. By reference to the difference between the two averages, the actual and the expected, he calculated the loss of sales for the third period at $29,204.

9. Again using the same approach for the fourth period of the financial year 1983-1984, he calculated the loss of sales for that period to $24,115. He thereupon concluded that the total takings lost were $99,101.

10. From earlier records and profit and loss accounts he calculated that the average gross profit ratio on sales lost was 29.27%. He found, therefore, that the gross profit lost was $29,010, (29.27% of $99,101).

11. Mr Turner, an accountant called on behalf of the defendant, took a different approach. He calculated the loss of profit for the period of dispossession by taking the daily average of the plaintiff's net taxable profit for the financial year ended 30 June 1983. He took account of continuing costs during the period of the dispossession, treating them as part of the plaintiff's loss. He left out of consideration, rightly as I think, expenses for rent, electricity and wages paid for the period of the dispossession. I am satisfied that the plaintiff paid no wages during that period and, effectively, no rent and there is no evidence to indicate what, if any, charges for electricity were referable to the period of the dispossession.

12. In the result Mr Turner calculated the plaintiff's loss for the period of dispossession to be $2,401 made up of a weekly net loss before tax of $123 and continuing overhead expenses (excluding those for rent, wages and electricity) of $220 per week for seven weeks.

13. Mr Turner, quite understandably, accepted the figures forming part of the plaintiff's accounts incorporated in his income tax returns for the relevant years as representing accurately the accounts of the business for the relevant years. A puzzling feature of those accounts was that the wages paid for the year ended 30 June 1984 totalled $2,880 only. For each of the financial years ended 30 June 1982 and 30 June 1983 the wages bill had been $20,800. Nothing in the oral evidence indicated that wages had ceased to be paid except during the period of dispossession and, no doubt, for a short period therafter while things were brought back to some semblance of normality. The amount said to have been paid for wages, $2,880, represents a weekly wages bill for a little over seven weeks at the rate paid for the two earlier years. But more than eighteen weeks of the financial year ended 30 June 1984 had passed before the re-entry and there is no suggestion whatever that the even tenor of the business had been disturbed by failure to employ the usual number of employees during the period between 1 July 1983 and 6 November 1983.

14. Another puzzling feature of the accounts was that the percentage gross profit on sales for the year ended 30 June 1984, truncated though the figures necessarily were, was 14.86%. Total sales were shown as $187,032.82 while the total cost of sales was shown as $162,829.63 leaving a gross profit of $24,203.19.

15. However, two more facts emerged from the evidence. The first was that the gross sales for the year ended 30 June 1984 were not $187,032.82 but $201,800.72 and the cost of the goods sold was $8,500 less than was shown. The first discrepancy appears from the takings book, Exhibit C, while the second discrepancy appeared during the plaintiff's oral evidence when he agreed that the value of stock on hand as at 30 June 1984 was not $1,500 as shown in the accounts but $10,000. The cost to the plaintiff of the goods sold during the year ended 30 June 1984 should therefore have been shown as $154,329.63 giving a gross profit on sales of $47,542 or a gross percentage profit of 30.8%.

16. I accept as accurately representing the plaintiff's takings the figures set out in Exhibit C, noting, however, that there are inaccuracies in the totals for some of the months of the financial year ended 30 June 1984. I have accepted the weekly figures as correct. No challenge was mounted against their accuracy and I saw no reason not to accept the plaintiff as a witness of truth. The only doubt which arose was whether the takings as shown included the amount of wages paid during each year.

17. I have concluded that the amount of the takings shown did in fact include the wages paid. Such a conclusion seems to me to accord with what must have been the case in the year ended 30 June 1984. When one adds to the figure for wages shown in the accounts, $2,880, the difference of $14,833.18 between the total of the sales actually made and that shown in the accounts furnished with the plaintiff's tax return for that year and the sum of $2,629 representing wages certainly not paid during the 46 days of dispossession, one reaches a total of $19,742, $1,028 short of the usual annual wages bill. This relatively small discrepancy is to be explained, I think, by the fact that it is quite unlikely that the plaintiff began immediately to employ his full staff when he recovered possession. The difference between the total of the sales shown in the accounts accompanying the relevant taxation return and that shown in Exhibit C is therefore, to my mind, satisfactorily dealt with.

18. While accepting the general approach adopted by Mr Turner towards the loss of profits for the period of dispossession, I am unable to accept his starting point on loss of income, the net taxable income earned by the plaintiff in the year ended 30 June 1983. That starting point ignores, I think, the dramatic increase in sales for the first period of the year ended 30 June 1984. That increase was satisfactorily explained, I think, by the plaintiff's evidence that the neighbourhood had settled down into a community which had more money in that year to spare on the luxury items sold in milk bars and coffee lounges than had earlier been the case when the families in the district were young and struggling to establish themselves. Additionally, inflation has to be taken into account. Nor can I accept that in a time of inflation averages for past years furnish reliable guides. I therefore prefer the general approach taken by Mr Johnson in endeavouring to establish the plaintiff's loss.

19. On the basis of the arithmetical conclusions I have reached (see annexure B) I assess the index figure for the second period of 1983/84 at 125. (On a strict arithmetical progression it ought to be in the vicinity of 132 but in taking the figure of 125 I make some allowance for the ordinary contingencies which have to be taken into account in assessing any damages and the unlikelihood of there having been a steady progression each year.) The expected average daily sales would therefore amount to $934 and the gross sales lost for the period to $42,964. Using an index figure of 105 for the third period and 117 for the fourth period, average expected daily sales for those periods would have been $784 and $874 respectively and the expected gross sales for the periods would have been $78,400 and $79,534 respectively. The estimated gross loss for the third period is therefore $29,064 and for the fourth period $23,316. Refer annexure "B".

20. Rounding the expected percentage of gross profit on sales to 30%, a figure which I am satisfied is moderate and accords with the evidence generally, the net estimated loss of profit on sales for the second period of the year ended 30 June 1984 is $12,889, for the third period $8,719 and for the fourth period $6,995.

21. Leaving out of consideration rent, electricity and wages costs, other costs in the year 1983/84 amounted to $13,653. Proportionately for 46 days those costs would have amounted to $1,716, the year being one of 366 days. This amount should be added to the estimated loss of gross profit on sales for the second period, $12,889, to total $14,605. From this there should be deducted, because they were not actually incurred as expenses, the appropriate proportion of wages at $20,800 per annum, and electricity charges for the year ended 30 June 1984 together with the amount of $1,299.15 apparently rebated as rent. The net loss for the second period of the year ended 30 June 1984 may therefore be estimated at $10,573. I see no reason to seek averages from expenditures in past years when details of the actual expenses for the year under consideration are available. Since these figures may be taken as a guide only and to allow for the many contingencies inherent in the situation, I reduce the amount of the net loss to $9,500.00.

22. There must be a question as to whether the loss in the third and fourth periods was due to the wrongful re-entry at all. On the balance of probabilities I am satisfied, to the extent hereinafter indicated, that it was. Restoration of trade to figures consonant with the plaintiff's reasonable expectations must have been difficult because of the closure of the business, the malodorous condition it eventually reached when goods spoiled and the season when it first re-opened.

23. So far as the third and fourth periods of that year are concerned, I can see no reason why any adjustment need be made on account of expenses incurred. If one accepts that the expenditure on wages was of the order of $20,000, all the expenses which would have been incurred in the same part of a normal year seem to have been incurred. It follows, therefore, that the estimated loss of profit on sales for the third and fourth periods ought to be the same as the net profit lost on that account by the plaintiff. The amount, 30% of $52,380, is $15,714. However, I think it would be inappropriate to take that amount as the amount of the actual loss. Although I have been content to accept the gross takings shown in Exhibit C as correct, I cannot be certain that the plaintiff's accounts are accurate. I note, too, that there was a decline in revenue for the nine months ended 31 March 1985, the date when the sublease expired. See annexure B to these reasons. It was not suggested that that decline was due to the wrongful re-entry and no figures were furnished which would enable me to make any finding of a continuing loss for that period of nine months. As well, it seems to me to be appropriate to take some account of general criticism levelled at the operation of the business by Mr Turner and of contingencies. In all the circumstances I think it proper to reduce the amount of the estimated loss of profits for the third and fourth periods in question by one third. I therefore reach a figure of $10,476.

24. For loss of income, therefore, I reach a total of $19,976.00.

(c) Damage to stock caused by spoilage.

25. During the period of the wrongful re-entry the stock in the shop became spoiled due to age and lack of electric power when the electricity was cut off, apparently for non-payment of charges. The plaintiff says that he did not seek to take possession again of the premises once the re-entry had taken place and overlooked the fact that the electricity account might have been present in the shop during the period of the re-entry. As well, he said, stock in the shop spoiled because much of it had passed its shelf life and was unable to be used. I think that the loss of stock was due to the wrongful re-entry in the relevant legal sense because I do not think the plaintiff can be blamed in the circumstances for overlooking the possibility that an electricity account might have been on the premises and payable. Even had the power remained on I do not think that the goods which were spoiled would not have spoiled in any event. The wrongful re-entry continued through much of November and December, two of the hotter months of the year and I am satisfied that the prevailing heat would have caused the sort of damage that was done in an unused shop in any event.

26. I accept that the plaintiff spent what he did to restore the stock to the position it had been in on the day of the re-entry. His approach seemed to me to be moderate. Reference to the invoices, part of Exhibit A, show that he did not attempt to claim for everything he purchased in the period after recovering possession but only in respect of those items which he said were truly replacements. All claims but one are backed by invoices and I accept the plaintiff's evidence in regard to the single claim not so backed. For spoilage of stock I award $4,248.75.

(d) Loss of stock and plant.

27. This claim related principally to items of equipment used in the presentation of stock. I am satisfied that the amount claimed was properly expended in such replacement. Under this head I award $420.00.

(e) Repairs to plant and cleaning costs.

28. For labour and materials under this head I award $535.89.

(f) Charges for bank statements.

29. This claim arose because the plaintiff did not have access to his records which were on the shop premises and needed to obtain bank records to replace them. He gave evidence that these cost $80.00. I award that amount.
Interest.

30. I award interest on the amount awarded in respect of the period of dispossession at the rate of 14% to date from 1 December 1983, a date which I take as the median date of that period. I award interest at the rate of 14% from 27 March 1984 on the damages awarded for the period 23 December 1983 to 30 June 1984, fixing 27 March 1984 as a median date for that period.

31. I award interest at the rate of 14% to date from 12 January 1984 in respect of damages awarded for spoiled stock, for repairs and cleaning costs, for replacement of equipment and for bank charges.

32. The total of damages and interest awarded amounts to $34,716.00 which I round to $34,500.00.

33. There will be judgment for the plaintiff for $34,500.00.