ACN 079 830 596 Pty Ltd v Wallis Lake Fishermans Co-Operative Ltd [2010] NSWADT 30 (1 February 2010)

Last Updated: 1 February 2010

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL

CITATION:
ACN 079 830 596 Pty Ltd v Wallis Lake Fishermans Co-Operative Ltd [2010] NSWADT 30


DIVISION:
RETAIL LEASES DIVISION

PARTIES:
APPLICANT
ACN 079 830 596 Pty Limited

RESPONDENT
Wallis Lake Fishermans Co-Operative Limited



FILE NUMBERS:
085205

HEARING DATES:
30 March 2009

SUBMISSIONS CLOSED:
30 March 2009



DATE OF DECISION:
1 February 2010

BEFORE:
Olsson E, SC - Deputy PresidentWard R - Non-Judicial Member





LEGISLATION CITED:
Retail Leases Act 1994

CASES CITED:


TEXTS CITED:


APPLICATION:


MATTER FOR DECISION:



REPRESENTATION:
APPLICANT
In person
RESPONDENT
R Colquhoun, barrister


ORDERS:
The Tribunal orders :
1.The respondent pay the applicant the amount of $36,778.00 damages (paragraph 36 of the Reasons for Decision)
2. The respondent to pay the applicant the amount of $5,781.10 being loss of drink sales, equipment and re-location costs (paragraph 37 of the Reasons for Decision)
3. The respondent to pay $6,000.00 to the applicant for damages for unconscionable conduct (paragraph 38 of the Reasons for Decision)
4. The Tribunal will take written submissions from the parties on the question of interest and costs. Any submissions should be filed and served within 28 days of the date hereof.


Reasons for Decision:

REASONS FOR DECISION

Background

1 The applicant brought proceedings in this Tribunal in 2007 for relief under the Retail Leases Act 1994 (‘the Act’) in relation to a tenancy claim and an unconscionable conduct claim.

2 The (amended) application alleged that the Respondent breached its obligations under the Act in a number of respects including the unlawful termination of a lease and that it conducted itself in a manner which was unconscionable.

3 The primary remedy sought was damages suffered as a result of the unlawful termination of a lease.

4 The Tribunal heard the matter on 2 and 3 April and 21 June 2007. The Tribunal found that in April 2000 the Applicant commenced to operate a takeaway fish and chip shop at the Respondent’s premises pursuant to an agreement between the then General Manager of the Respondent and Mr Kerry James (‘Joe’) Morris, the principal of the Applicant company. The business was known as "Jolly Joe’s Take Away".

5 The Tribunal found that as a result of some discussions and exchange of correspondence Mr Morris thought his company had a lease under which he had secure tenure to conduct the business from April 2000 until April 2009. He paid rent and had exclusive possession of an area set aside for a take away business. The Respondent however considered that the Applicant occupied the areas set aside for the take away business as a licensee with no security of tenure and that his occupation could be terminated at will. The disparity between beliefs, both of which were genuinely held, arose because the Respondent’s entitlement to occupy the premises had been granted by the Crown pursuant to a lease many decades earlier, which lease had ceased prior to 2000 and had not been renewed. Consequently, the Respondent occupied the premises pursuant to a Licence, a term of which was that it could not grant possession to any other person.

6 Both parties were of the view that a new Crown Lease would be granted in which case the Applicant’s lease would be formalized.

7 However, in 2006 a new General Manager was appointed to the Respondent and on the morning of 2 August 2006 he arranged for the Applicant to be locked out of the premises.

8 The Tribunal made findings as to the existence of a lease and as to its unlawful repudiation by the Respondent and proceeded to assess damages. The Tribunal awarded the Applicant the sum of $249,561.00 for the retail tenancy claim and $6,000.00 for unconscionable conduct pursuant to section 72(1)(a) of the Retail Leases Act.

9 The Respondent unsuccessfully appealed to the Tribunal’s Appeal Panel only in respect to the monetary compensation allowed in relation to the retail tenancy claim.

10 The Respondent appealed to the Supreme Court. The Respondent does not seek to disturb the findings in relation to the existence of lease or unlawful repudiation, although both parties have made some submissions about unconscionable conduct. The appeal related solely to the assessment of compensation for what was treated as a claim for economic loss for breach of contract.

11 The Court held "The Tribunal was required to assess losses suffered by the [Applicant] caused by the [Respondent’s] breach of contract. The [Applicant] was a company. The task confronting it was not one of assessing whatever loss may have been suffered by Mr and Mrs Morris (whether it be as shareholders or in some other capacity). Mr and Mrs Morris chose to conduct a business through a corporate vehicle. In the circumstances, it was the loss suffered by the [Applicant] by reason of the breach of contract that was recoverable. It was erroneous to proceed to assess damages on the basis that the existence of the corporate vehicle could be disregarded. The incongruity of the result reached by the President may be illustrated by the observation that what was being allowed as company loss of profits included that which could be expected to be claimed as business deductions." (paragraph s 23 and 24 of the reasons for decision).

12 The matter of assessment of damages has been remitted to the Tribunal for determination according to law.

Submissions

13 Written submissions were received from both parties and were briefly supplemented by oral submissions.

14 The Applicant, now unrepresented, essentially repeated the submissions it made to the Tribunal.

15 The Respondent submitted that either damages should be assessed as nil since the company made a loss in the 2006 year of trading, or alternatively that the evidence of its expert accountant, Mr Mark Edmunds, in his later report of 7 May 2008 be accepted. It also made submissions about unconscionable conduct, the thrust of which were that the conduct of the Respondent was not unconscionable, but that even if it was, the corporate vehicle of the Applicant could not have suffered loss.

16 The question for the Tribunal is how to assess the value of the loss to the Applicant.

17 The power of the Tribunal to make an order for compensation is expressed in the same terms for a retail tenancy claim as it is for an unconscionable conduct claim -sections 72 and 72AA respectively of the Act.

18 The Tribunal may make "an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person."

19 It is plain that whilst this power is expressed in general terms it must be intended that it be exercised in accordance with general law principles. The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which so far as money can, represent a fair and adequate compensation for the loss or injury sustained by reason of the defendant’s wrongful conduct.

Findings

20 The finding that a lease had been created in the terms contended by the Applicant was not challenged on appeal and the Tribunal is entitled to accept and endorse that finding. The lease was terminated on 2 August 2006.

21 The first matter in the assessment of damages is to consider whether any loss should be treated as having arisen from the inability to trade from 2 August 2006 until the end of the lease on 31 March 2009 (accepted by the parties as a period of 2.7 years) or from the loss of opportunity to sell the business as a going concern.

22 Both alternatives give rise to question of the whether or not the Applicant exercised the option to renew the lease in 2004 for a further period of 5 years or whether it continued in possession pursuant to a ‘holding over’ type of arrangement.

23 The facts which gave rise to the Applicant’s possession of the premises were unusual in that although both parties plainly intended to execute a formal lease, for one reason or another it was never achieved. Further, because of the cordial and long-standing relationship between Mr Morris and Mr Lynch, much of the negotiation and the day-to-day issues regarding the business were not reduced to writing. Both parties however seemed to accept that the Applicant had exercised the option to continue the ‘lease’ for a period of 3 years in 2001.

24 In the absence of any evidence to the contrary, the Tribunal is persuaded that the probabilities are that the Applicant exercised the further option in 2004 to extend the ‘lease’ until 2009. There was no evidence from the Respondent which would support any other finding; in particular, there was no evidence of any discussions which might indicate that the occupation was going to continue on a month to month basis after 2004.

25 Therefore, the Tribunal finds that the Applicant continued in occupation after 2004 on the same terms as the original agreement to lease and had every expectation that it would be able to continue to trade until the end of March 2009.

26 The next question to be addressed is what loss, if any, the Applicant suffered when it was locked out on 2 August 2006.

27 Having found that the Applicant had every expectation of being able to continue to trade, ceteris parabus, until 2009, the Tribunal accepts that the Applicant suffered a loss which was commensurate with the profit it could have expected to make as well as other incidental losses particularized in paragraph 38 of the affidavit of Mr Morris sworn on 28 September 2006.

28 Mr Morris gave evidence and was cross-examined extensively on his business practices, record keeping and business turnover. His answers tended to reveal that, like many other small, family run businesses, record keeping left something to be desired. There is also no doubt that cash payments were taken and not properly recorded and cash payments were made to staff and possibly for goods and were similarly not properly recorded. Some of the answers Mr Morris gave do not reflect well on him. He did not tender his tax returns or financial statements which might have been able to verify his claims regarding the viability of the business.

29 Be that as it may, the Tribunal is satisfied that the business, although struggling from time to time, remained a going concern in 2006 despite the conduct of the Respondent in limiting access to the frozen store and moving the waste oil bins and so on. It is likely that the business was affected by increased competition by other larger fast food retailers as suggested by Mr Morris in his affidavit of 30 March 2007, but its position in the Co-Op premises may have given it a competitive edge in the sense that it implied the products being cooked were freshly caught, the fact that Mr Morris was an experienced fish and chip provedore and the fact that the larger retailers such as KFC and Dominos Pizzas did not directly compete in product line all suggest that it was a business which should have been capable of holding its own in the market place.

30 Accordingly, the Tribunal is satisfied that it is appropriate to assess damages for the business over the period of the 2.7 years it is likely to have remained in the premises as a going concern.

31 Turning to the evidence of the accountants Mr Edmunds and Mr Atkinson, the Tribunal overall prefers the analysis and evidence of Mr Edmunds. His methodology seemed to most closely record what the likely (or at least maintainable) net profit of the business would have been had it continued after 2 August 2006 and the Tribunal adopts his figures.

32 In terms of methodology, Mr Edmunds (in his 2007 report) reported that the accounting treatment of ‘payments to others’ via loan accounts belonging to Mr and Mrs Morris was inadequate and did not properly reflect the true position of the business. Therefore he looked at NSW Award Wages for a full time manager and halved the figure to account for a part time manager (that is, Mr and Mrs Morris’s contribution to the business) then brought that ‘wages’ figure into the books together with the ‘payments to others’ so that one offset the other. The resultant figure was then treated as an expense of the business.

33 This process sought to regularize the treatment of cash and loan payments which had not hitherto been properly recorded.

34 Then, Mr Edmunds took the net profit before tax figures for each of the years 2004, 2005 and 2006. He noted that 2006, prepared after the case started, recorded a ‘remarkable increase’ in gross profit and whilst he speculated that there might have been an element of bringing hitherto ignored cash transactions to account in this year, he was prepared to accept that the change was due to better business practices.

35 Given that he then averaged the profits for the years and applied a high capitalization figure, any anomaly between the 2006 year and the earlier years was diluted.

36 The figures which he then applied were revised in his report of 7 May 2008 so that the net profit figure before tax was $52,644.60 (being the average net figure of $19,498.00 x 2.7 years). After tax of 30% (company tax rate), the figure became $36,778.00 and it is that amount the company lost by reason of its inability to trade after 2 August 2006.

37 In addition, in paragraph 38 of Mr Morris’s affidavit of 28 September 2006 affidavit, he swore that he lost a total of $6,575.00 (being loss of drink sales, drinks and equipment and relocation costs) and owed the Respondent the sum of $793.90 for sales, giving a total loss of $5,781.10 and the Tribunal proposes to allow this figure subject to any other submission by the parties.

38 With respect to the claim for damages for unconscionable conduct, the Tribunal rejects the Respondent’s argument that it cannot award damages to a company and that there was no unconscionable conduct in the present case. Without repeating the findings made by the learned Tribunal in earlier proceedings, this Tribunal is satisfied that the Respondent’s conduct in acting so as to impede the Applicant’s ability to conduct its business, its refusal to provide Mr Morris with documents to which he was plainly entitled (such as the Crown lease/licence) and the fact that it had the upper hand in negotiations by virtue of its position amounted to unconscionable conduct. Moreover the Tribunal observes that the Respondent had been content to accept the presence in its premises of the Applicant’s business (a factor which had no doubt attracted business and attention to the Co-Op, to its advantage) and the payment of its rent but failed to act fairly in finalizing a lease or anything else which reflected the tenure which had undoubtedly been promised if not expressly then impliedly by its representations and conduct to the Applicant.

39 It follows that the Tribunal sees no reason to depart from the finding as to damages for unconscionable conduct and awards $6,000.00 to the Applicant.

40 The Tribunal will hear submissions from the parties on the question of costs and interest and also anything which they wish to agitate as a result of the findings as to damages and loss (referred to in paragraphs 36, 37 and 38 herein).