Uckan v Verdi Pty Limited (No 3) [2011] NSWADT 226 (22 September 2011)

Last Updated: 23 September 2011

Administrative Decisions Tribunal New South Wales

Case Title:	Uckan v Verdi Pty Limited (No 3)
Medium Neutral Citation:	[2011] NSWADT 226
Hearing Date(s):	25, 28, 29 March 2011, 10 and 11 May 2011
Decision Date:	22 September 2011
Jurisdiction:	Retail Leases Division
Before:	D Patten, Deputy President N Fagg, Non judicial member
Decision:	1.Declaration that rent be abated by 30% from 10 November 2009. 2.Direct parties to bring in Short Minutes of Order reflecting reasons at 9.30am on 13 October 2011
Catchwords:	Abatement of rent - breaches of covenants in lease not proved - relief against forfeiture granted.
Legislation Cited:	Retail Leases Act Strata Schemes Management Act
Cases Cited:	Eliezer v Residential Tribunal & Ors [2001] NSWSC 1092; 53 NSWLR 657 Edex International Holdings Pty Ltd v Marmalade Films Pty Ltd [2003] NSWCA 8; (2003) 56 NSWLR 63 McPherson v Minister for Natural Resources (1990) 22 NSWLR 687 Grundt v Great Boulder Pty Gold Mines Ltd [1937] 59 Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557
Texts Cited:
Category:	Principal judgment
Parties:	Metin and Cetin Uckan (Applicant) A & J Verdi Pty Ltd (Respondent) Alexander Verdi (Respondent) Julianne Verdi (Respondent)
Representation
- Counsel:	Counsel G Rich (Applicant) R Horsley (Respondent)
- Solicitors:	RMB Lawyers (Applicant) Queens Street Chambers (Respondent)
File number(s):	105113, 115032
Publication Restriction:

REASONS FOR DECISION

1. This somewhat complicated case is regrettably, in my opinion, marked by the failure of some of those involved to perform their roles with competence and a reasonable regard for the rights of others. There were a number of failures on both counts. Moreover all those involved seem to have adopted intransigent positions in relation to what, initially at least, was a relatively minor issue seemingly capable of amicable resolution.

2. For the most part the facts are not in dispute.

3. Metin Uckan and Cetin Uckan (the Applicants) were at material times the owners and lessors of premises being Lot 16 Strata Plan 69822 known as 16/54-58 Cliff Road Wollongong (the premises). A & J Verdi Pty Ltd was the lessee and its obligations were guaranteed by the principals of the company, Mr and Mrs Verdi. It is convenient to refer to the company and Mr and Mrs Verdi collectively as the Respondents. They conducted in the premises a caf business.

4. In order to understand the problems, which the Tribunal is now required to resolve, it is necessary to say something of the background. In March 2000 Wollongong Council issued a Development Approval to PR Design & Co. Architects in respect of the adjoining properties known as 54-58 Cliff Road Wollongong and 41-45 Corrimal Street Wollongong. The approved development was the erection of "2 x 8 Storey Residential Units and 2 ground-floor Cafes ...." as shown on certain identified plans and drawings. Amongst the approval conditions were:-

"8. Approval is granted for the construction only of 2 cafes. No approval is expressed or implied for the intended use of those cafes.

9. A new development application must be submitted to and approved by Council for the use of the cafes prior to their occupation".

5. In due course buildings were erected in accordance with the approval and Strata Plan 69822 was registered in or about March 2003. Thereafter the Applicants became the registered proprietors of Lots 16 and 17 in the Strata Plan, the two lots which were designated as "cafes".

6. On 28 August 2003 the Applicants leased (the premises) to Renato Vasquez for a term of 5 years commencing 25 August 2003 and expiring 24 August 2008. The lease contained an option for renewal by the lessee for a further term of 5 years. The terms of the lease permitted use of the premises for "light meals and coffee shop". Covenants required the lessee to keep the premises open for business not less than 9am to 5pm, six days per week and to comply with all relevant regulations, ordinances, and by-laws including those arising by virtue of the Strata Plan.

7. It seems that Mr Vasquez also became the lessee of Lot 17 in Strata Plan 69822 and for a period conducted cafes or restaurants in both Lot 16 and Lot 17, which adjourned each other. In or about July 2005 A & J Verdi Pty Ltd purchased the business hitherto conducted by Mr Vasquez in Lot 16 (described in the Sale Agreement as "caf") and entered into a deed with the Applicants and Mr Vasquez dated 1 July 2005.

8. The deed (which also contained guarantees by Mr and Mrs. Verdi) provided for the assignment of the lease of the premises to A & J Verdi Pty Ltd with the consent of the Applicants. The deed contained mutual releases between the Applicants and Mr Vasquez in respect of any outstanding claims or liabilities.

9. It has been claimed by the Applicants, the Owners Corporation and the Council (in separate proceedings), although not proved by any direct evidence before me, that until recently no application was made to the Council in respect of the use of either Lot 16 or Lot 17 in the Strata Plan, notwithstanding the condition in the Development Approval quoted above. Curiously, attention was not drawn to this omission when a Final Occupation Certificate dated 29 July 2003 was issued by the Principal Certifying Authority, Mr Lyall Dix prior to occupation of the building in early 2003, nor was the matter raised with the Respondents during any of what, according to Mr Verdi, were frequent inspections of the premises by Council officers. However, as between the parties to these proceedings, I think an issue estoppel arises from the finding of a Judicial Member of the Tribunal in determining two separate issues in proceedings to which I will refer hereafter. The finding at paragraph 5 of reasons published on 30 September 2010 was "Following completion of construction no application was made to the Council for use of the premises prior to the time that occupation and use under the subject lease commenced. There has still been no such application made".

10. Mr Verdi testified that solicitors who acted for the Respondents on the purchase of the business from Mr Vasquez, did not draw his attention to any need to ensure that the use of the premises as a caf met with the Council's approval.

11. The Respondents purported to exercise the option for renewal of the lease for a term of 5 years by email dated 20 May 2008. Although no fresh lease was subsequently executed or presented there has been no assertion that the option was not validly exercised.

12. In the proceedings, which were commenced in the Tribunal on 30 July 2010, the Applicants sought an order for possession of the premises on the basis that the lease had been lawfully terminated by them, an order for the payment of arrears of rent, and other orders arising from alleged breaches of the lease. The Respondents admitted that certain rent remains unpaid but asserted that by virtue of the conduct of the Applicants they had been relieved of the obligation to pay it.

13. They denied other breaches of the lease and any liability arising there from. They cross-claimed for damages in respect of alleged breaches by the Applicants of their obligations under the lease. They also sought a variety of orders and declarations, including relief against forfeiture and damages for unconscionable conduct.

14. In his affidavit sworn 29 July 2010 the applicant, Mr Cetin Uckan, identified some of the issues which the Tribunal is required to determine. As to rent, he asserted that none had been paid since November 2009. He claimed that contrary to the terms of the lease the Respondents had jeopardised the building's insurances or had rendered the premiums payable liable to be increased; that failure to obtain operational approval from the Council constituted a breach of the lease; and that use of the premises by the Respondents as a licensed restaurant constituted a breach of the obligation not to use the premises other than for "Light meals and coffee shop" as varied with the Applicants' consent to "Light meals and coffee shop - Licensed premises".

15. In his affidavit, he gave further particulars of these matters as follows:

19) Interference with insurance.

It is a term of the lease [6.18] that the tenant shall not at any time do or permit to be done ...any act, matter or thing in the Premises or the common areas whereby any insurance policies may be vitiated or rendered void or voidable or whereby the rate of premium on any such insurance policy shall be liable to be increased.

..........................................

"11) Conduct by the respondent has interfered with the cost and availability of compulsory insurance relating to the premises. The conduct includes:

a) the failure by the lessee to obtain operational development approval from Wollongong Council for the premises;

b) the installation and operation of deep fryer cooking equipment which has increased the fire and safety risk to the premises resulting in increase premiums, increased excess penalties and loss of insurance;

c) the installation of an ATM machine without approval consent of council, the body corporate or the applicants.

Failure to obtain operational development approval from Wollongong Council

12) No operational development approval has been obtained from Wollongong Council by the respondent for the use of the Premises and the use of the premises without approval

are unauthorized activities.

.

13) The applicants have not been asked by the respondent to consent to any application made or to be made by the respondents for operational development approval.

14) The permissible use of the Premises by the first respondent pursuant to clause 5.01 of the lease is for "light meals and coffee shop". At the request of the first respondent consent was given to a variation of the permitted use in the lease on 23 March 2006 to "Light meals and coffee shop-licensed premises".

15) The premises are operated as a licensed restaurant between the hours of .... I estimate that the restaurant seats approximately 80 patrons.

16) The meals served are not "light meals". Exhibited and marked "4" is a copy of the menu.

17) The use of the premises as a restaurant is inconsistent with the permitted use of the premises referred to in the lease. Increased risk from installation and operation of deep-fryer cooker."

16. Under cross-examination Mr Uckan conceded, as I understand his evidence, that in November 2005 he became aware that an application was made by the Respondents to the Owners Corporation for permission to connect their caf to the ducted ventilation and that he was happy with the consent given. He agreed that he also became aware that a ventilation hood in the caf was connected to the ventilation ducting but disconnected on 10 November 2009 by the Owners Corporation. He told Mr Horsley, counsel for the Respondents, that he understood the ventilation ducts were "non compliant" and that such non-compliance had created insurance problems. He agreed that he had never suggested to the Owners Corporation that as the ducts were on common property it should do such work as was required to make them compliant.

17. He was asked by Mr Horsley about a meeting he attended with his agent prior to 9 November 2009, also present being Mr Don Driscoll and Mr Geoff Pickford, members of the Owners Corporation Executive Committee. He acknowledged that the meeting agreed to write to the Respondents requiring removal of the deep frying equipment from their premises by 9 November 2009 and threatening that if this were not done the ventilation ducts servicing the cafe would be decommissioned without further warning on 11 November. Although this was agreed by the meeting, Mr Uckan claimed that he dissented and urged the meeting not to threaten disconnection. He said that his position was that it was a matter between the Owners Corporation and the Insurance Broker.

18. In answer to Mr Fagg, Mr Uckan said that when the option for renewal was exercised he, in effect, was happy that this had been done.

19. The second witness called in the Applicants' case was Mr David Stott, an insurance adviser who had sworn an affidavit on 11 August 2010. In the affidavit he said that he is an authorised representative of major Insurers CHU, CGU, QBE and Allianz. He was retained in 2008 by the Owners Corporation to negotiate its insurance requirements, including statutory insurances. Initially all insurances were effected with CGU.

20. In about September 2009, he said that he was notified by the Owners Corporation that the Respondents were carrying out deep frying operations in the premises; that they had no current operational development approval from the Council; and that they had, without approval, connected the premises to the ventilation ducting which serviced the two cafes. He conveyed this information to CGU which, on 3 November, wrote to the Owners Corporation in the following terms:

"We recently received information from David Stott of David Stott Insurance Services that two Restaurants are operating from the premises. It is understood that the use of the two designated commercial units does not comply with the Wollongong city Council building code and planning guidelines. Furthermore, the tenancy of the two commercial units falls outside of the Body Corporate's constitution of acceptable commercial occupancies.

In view of this disclosure of Important Information, we must inform you that the insurance on this property is no longer acceptable to us. We therefore wish to notify you that we are cancelling this insurance in accordance with the policy provisions contained in your policy under the heading of "Important Information on page 48.

21. Mr Uckan made no mention in his affidavit of the issue which occupied much of the hearing, namely the connection by the Respondents of a ventilation hood in their caf to the ventilation ducting system forming part of the common property in the building and apparently designed inter alia for the purpose of ventilating the premises. Nor did he mention the subsequent disconnection of the ducting system from the caf by the Owners Corporation, if not with the acquiescence of the Applicants, at least without apparently much objection by them or any consultation with the Respondents.

22. Mr Stott deposed that he entered into negotiations with CGU regarding the letter and during the course of those negotiations the Owners Corporation disconnected the ventilation ducting from the outlet in the Respondents' cafe. In addition Mr Stott sent to the Owners Corporation on 23 February 2010 on his letter-head, a document which commenced "As per your request the policy described below has been altered in accordance with your instruction". In the body of the document it was specified that "with effect from 21 December 2009 a $500,000 excess will replace the standard excess for any fire claim that occurs directly or indirectly from the lot occupied by the Verdi Cafe". According to Mr Stott this was an increase of the excess from $100 to $500,000.

23. On 19 April 2010 Mr Scott Di Michiel, an officer of CGU, sent an email to Mr Stott in these terms:

"Hi David,

Many thanks for the considered email you have provided. I have given this further thought and still conclude that in the circumstances we must maintain our renewal declinature. Although there appears to be significant progress the fact remains that non-compliant ventilation is in place and will remain so until the proposed timetable of action becomes a reality (which from past experience does not always correlate). Given the serious nature of the non-compliance we cannot take the risk that this work might be delayed further. I am pleased that you have been able to find another market for this risk, and I am also pleased that our action has spurred the Insured toward meaningful progress.

We appreciate the strength of our relationship with you, and in this context the decision to decline renewal has not been taken lightly.

Please do not hesitate to contact me if you wish to discuss further. Regards - Scott Di Michel"

24. Mr Stott said that he arranged insurance with CHU at a substantially higher premium than that required by CGU and for a period of 6 months only which expired in October 2010. He said, from the witness box, that this insurance was later renewed for a further 6 months.

25. Cross-examined by Mr Horsley, Mr Stott said that although he did not disclose the existence of the cafes to CGU until about September 2009, he did not know what information it had before then. He said that what the Owners Corporation disclosed to him was that the Strata Plan provided for two delicatessens and that the ventilation ducting was purely an air ventilation system and not one suitable for a commercial kitchen. He conceded to Mr Horsley that he was told that the general consensus of the unit holders in the building was that they would prefer no restaurants in the complex.
26. Shown the letter from CGU to the Owners Corporation dated 3 November 2009 quoted above, Mr Stott agreed that the key issue raised was that two restaurants were operating and that there was no reference to ducting. There was then this exchange:

"Q. But the key reason is that they have been told there are restaurants operating here?

A. I wouldn't say that would be the key reason in the letter, I was unhappy with that letter when it was first prepared. It was done in a rush, in fact it was sent back to CGU a couple of times but due to time restraints something had to be released and sent out so that one could meet their obligations under the Insurance Contracts Act and provide notice of cancellation in a timely manner and so this was the final draft that we went with. It specified a reason, it may not have been the most important reason for them"

Q. I think you said before that you don't know whether the existence of any commercial kitchen type activities had been disclosed previously?

A. That's correct.

Q. In fact you don't even know if had been disclosed that there was anything to do with food as opposed to just shop.

A. Yeah, that would be correct. Yeah.

Q. CGU themselves would know though, wouldn't they?

A. They would presumably have something on file, yes, from either a survey that was carried out or the original application was provided."

...................................................

....................................................

"Q. When you said that, the draft of the 3 November letter that was published was the one we went with?

A. Yes.

Q. Was the drafting of the letter a process to which you and someone in CGU contributed?

A. No, I didn't contribute to it. My role is simply to pass on the insurers decisions onto my client but I recall that the first draft just didn't match up correctly with some of the clauses in the policy wording and I asked them to correct it and this would have been the final draft that they came back to me with and they said it sti ll wasn't perfect but they didn't have time to amend it again."

................................................

...................................................

Q. You're not suggesting, are you, that CGU has a blanket policy of not insuring premises with deep-fryers?

A. Certainly not, I have a number of risks insured with them of deep frying cooking on site.

Q. Is the difference here that the ducting wasn't compliant?

A. Difference is probably with those other risks we're unaware of whether the ducting is or is not compliant. It is assumed that it is until someone puts their hand up and suggests that something is amiss and then that's then when the underwriting comes into play to look at what would be satisfactory and whether it meets those requirements.

Q. Is a fair paraphrase of that to say that the difference here is that the ducting was credible believed or known to be noncompliant?

A. Correct. Once it was pointed out to us that it was disclosed to CGU that it may be noncompliant and that it represented a fire risk.

Q. In your experience, had the ducting been compliant and appropriate the deep frying would not of itself been a problem?

A. Correct.

Q. But if the premises were not compliant that should be pointed out to them, correct?

A. Correct."

27. Later in the cross-examination, Mr Horsley showed Mr Stott a plan of the ventilation ducting constructed through the car park of the units (Exhibit 7). Mr Stott agreed that the duct work was described as "two hour fire rated" and that it seemed to indicate a rate of exhaust of 1,000 litres a second". There followed:

"Q. If you were asked to quote on operation of building with those specification would you regard that as designed for kitchen use?

A. Yes, if a new property was presented to me and I was asked to secure insurance. If a plan was given to me showing that there was ducting in place I would presume that that was sufficient ducting for the activities of a commercial kitchen unless someone pointed out otherwise. I've never had anyone do that.

Q. The information you would give to an insurer would reflect that and the quote would be expected to reflect that, correct?

A. That's correct. We'd disclose to the insurer anything they need to know. They wouldn't require us to disclose things that they don't need to know which was that the premises are compliant, so generally that wouldn't be an issue that we point out to them."

28. Two further witnesses in the Applicants' case, namely Ms Tracy Preston and Mr John Driscoll provided affidavits and gave oral evidence.

29. Ms Preston is, and was at material times, the manager of the commercial management and leasing department of Martin Morris and Jones (MMJ) and was responsible for the management of the property interests of the Applicants. She testified in her affidavit sworn 29 July 2010 that no rent had been paid by the Respondents since December 2009 and I interpolate that there is no issue as to that being the position at the time she swore her affidavit. Annexed to her affidavit marked B was a letter dated 31 October 2005 to an employee of MMJ whereby the Respondents sought approval to their application for a liquor licence. "Owners approval granted" was endorsed on the letter:

"Dear Linda

We are currently looking at providing liquor for our customers and have gathered the relevant information necessary for application to the licence board.

We are at this time requesting from our landlord permission for the above in the form of a letter. Could you please forward this on at your earliest convenience?

As the executive committee of the strand are meeting on 8 November to discuss the other issue of fitting an exhaust fan in the car park ducting system, for the removal of heat and cooking fumes from shop 16, it would be helpful if a letter of approval from our landlord was provided to help with the Owners Corporation consent.

Yours sincerely

Alex Verdi"

30. Annexed to Ms Preston's affidavit was an "Improvement Notice" issued by Workcover dated 10 June 2009. The notice related to the cafe conducted by the Respondents and also the adjoining cafe. It was addressed to the Applicants and gave "Reasons for Issue" and " Measures to be taken" in these terms:

"Persons may be exposed to the risk of injury due to the potential fire risk posed by the build up of flammable cooking contaminants such as grease and oil within the ducting connected to the kitchen exhaust ventilation systems of the Aqua and Verdi Restaurants. There is inadequate access for the purpose of inspecting, cleaning and removing oil from within the ductwork. The ductwork does not appear to be designed and constructed for the purpose for which it is being used. i.e. The Aqua and Verdi Restaurants have kitchen exhaust ventilation systems installed on the premises which connects to ductwork located in the enclosed carpark of the Strand Apartment complex. There is the potential for build-up of flammable cooking contaminants and the risk of ignition of a build-up because the ducts are unable to be adequately cleaned, inspected and maintained due to the lack of required access hatches.

Measures to be taken

1. You must ensure the health and safety of persons by developing, implementing and maintaining safe systems to ensure the risks associated with fire are eliminated or controlled in particular the build-up of oil and grease in the exhaust ventilation ductwork.

2. You must ensure that the kitchen exhaust ventilation system's ducting is assessed by a suitably competent person to determine if the ducting associated with the system is designed and constructed so as to prevent or control the risk of fire.

3. You shall ensure that control measures are implemented, taking into account the assessment of the kitchen exhaust ventilation system ducting by the competent person that will prevent or control the risk of fire.

4. You must ensure that the ductwork associated with the kitchen ventilation system is inspected, cleaned and maintained in a safe operating condition in accordance with a periodic maintenance program.

5. Your attention is drawn to clauses 8, 34-38 of the Occupational Health and Safety Regulation 2001.

6. Your attention is drawn to the Building Code of Australia

7. Your attention is drawn to Australian Standard 4254-2002 Ductwork for Air Handling Systems in Buildings.

8. Your attention is drawn to Australian Standard 1668.1:1998 the Use of Ventilation and Air Conditioning in buildings."

31. The notice required the alleged contravention to be remedied by 4pm on 9 July 2009.

32. Ms Preston took until 2 July to notify the Respondents of the notice. She did so by letter of that date as follows:

"We refer to Improvement Notice 7-182469 (copy attached), dated 10 June 2009, issued by Workcover NSW, to C &M Uckan, Lessor of the demised premises occupied by you, at 54-58 Cliff Road.

The notice states that "Persons may be exposed to the risk on injury due to the potential fire risk posed by the build up of flammable cooking contaminants such as grease and oil within the ducting connected to the kitchen exhaust ventilation systems of the Aqua and Verdi Restaurants."

Accordingly, a suite of measures are contained in the order, which must be complied with. Failure to do so may result in further action being taken by Workcover, including closing of your business.

In accordance with Clause 5,05 of your Lease, you are responsible to:

"observe perform and fulfill all the requirements of any statutes regulations ordinances or by laws....so far as they may apply to the demised premises or to any business being conducted therein and in particular...shall comply with the requirements of all such statutes, regulations, ordinances and by-laws relating to health water supply sewerage file (save and except such of them as may require structural alterations or additions to the demised premises unless such alterations or additions be occasioned by the nature of the Tenant's business).

Given this, the Lessor advises that you are responsible to comply with the directions on Workcover's Improvement Notice as it relates to the operation of your business from the demised premises.

As an initial measure, the kitchen ventilation system ducting must be cleaned, to remove the build up of grease and oil in the exhaust ventilation ductwork.

As time is of the essence, on your behalf, we have obtained a quote from Grosvenor Engineering to carry out the required cleaning and maintenance works to the. duct work and to perform maintenance on the system as required (copy of quote attached). You shall be liable for 50% of the cost of this and any subsequent variation. It is possible that should the contractor find the grease and oil in the system to be 'excessively moist'. Additional time may then be needed to carry out the works. Should this be the case the price will vary accordingly and 50% of the variation levied to you.

Arrangements have been made with the Body Corporate so that the Contractor may access the Common Areas and areas occupied by other strata occupiers' premises, through which the ductwork runs.

Works are scheduled to take two to three days, commencing Monday, 6 July 2009.

Access will be required to your tenancy throughout the cleaning process, exact timing of which will be determined on site at commencement of the works.

You will need to make access available to your tenancy from 8.00am Monday.

Should you have any concerns in relation to this matter, please make them known in writing, immediately, but no later than 3pm, Friday 3 July 2009, by email to tracv,preston(c5.mmi,com.au, facsimile to 42262040 or by hand to MMJ, Ground Floor, 6-8 Regent Street, Wollongong.

We trust that you understand the serious nature of this matter and thank you in advance for your cooperation.

Yours sincerely

Martin Morris and-Jones

Tracy Preston

on behalf of C & M Uckan

attached,

copy Workcover Notice 7-182469 (2 pages)

Quote No. 20319 Grosvenor Engineering Services."

33. I observe that it is not immediately obvious how ventilation ducting owned by the Owners Corporation and located within the common property could become the responsibility of the Respondents under the lease.

34. MMJ wrote a further letter to the Respondents on 6 November 2009:

"Dear Alex and Julie

RE:

Demised Premises:

Notice to cease use of deep-fryers from demised premises

Lot 16, SP69822, 'The Strand' 54-58 Cliff Road, Wollongong

We note that a counter top, double basket deep-fryer is used within your demised premises.

Unfortunately, the use of deep fryers in commercial applications poses a significant fire risk.

Albeit that the risk is minimised with the use of smaller fryers (as that which is being used upon the demised premises) the risk is still considered to be greater than if no deep-fryers were being used at all.

We refer to Clause 6.18 of the Lease Memorandum as follows: -

"6.18 CONDUCT VOIDING INSURANCE:

The tenant shall not at any time do or permit to be done or omit to do by any act matter or thing in the demised premises or the common areas whereby any insurance policies may be vitiated or rendered void or voidable or whereby the rate of premium on any such insurance policies shall be liable to be increased,"

We have been advised by the Building Insurer that the Building Insurance has been rendered void and shall cease to be provided, effective Monday 9 November 2009, as a result of the policy not covering the use of deep-fryers.

We must therefore insist that you cease and desist from using deep-fryers upon the demised premises, effective no later than close of trade, Sunday 8 November 2009.

In the event that you wish to continue to make use of deep-fryers, application will need to be made to the Insurer to do so and you would be liable under your Lease for any costs associated with the increase in the insurance under Clause 3.04 of the Lease Memorandum, which provides that:

"3.04 The tenant shall pay to the Landlord upon demand all extra or excess premiums for insurances on the demised premises or the Building required because of the use of the demises premises by the Tenant"

We trust that you understand the importance of this matter and thank you in anticipation for your co-operation to ensure that neither the Building owners or you are exposed to the serious risk should the Building Insurance be voided as proposed by the Insurer.

We shall visit your demised premises on Monday 9/11/09 to ensure that the fryers have been removed from the

kitchens.

Morris Martin and Jones

Andrew Burrows"

35. In my opinion, the letter, deliberately or otherwise, significantly misstated the position of the insurer as evidenced by the correspondence quoted above. That the use of deep fryers of itself was not an issue was made manifest during the cross-examination of Mr Stott extracted earlier.

36. Amongst the documents identified by Ms Preston and annexed to her affidavit is an email sent 9 November 2009 from the secretary of the Owners Corporation, Mr Driscoll to Mr Uckan, Ms Preston and her colleague Mr Andrew Burrows. The email strengthens the suggestion made during the hearing that the motive of the Owners Corporation was primarily to shut down the two cafes altogether. This suggestion is further reinforced by two notices each dated 16 November 2009 served on the Respondents through MMJ and issued by the Owners Corporation.

37. The first notice alleging a breach of by-law 19 was relevantly in these terms:

"NOTICE TO COMPLY WITH BY-LAW

Strata Schemes Management Act - Section 45

Name/s of owner/occupier; Babic and Verdi

Address: Lots 16 and 17 54-58 Cliff Road Wollongong

The Owners Corporation of strata plan number 69822has decided to Issue you with this notice because it believes you have broken by-law number 19. A copy of the by-law is attached.

The owners corporation believes that you have broken this by-law by: (state action causing breach and give dates & details. Example: On (date) you parked your motor vehicle (reg no.) on common property without permission)

You have not advised the owner or the Owners Corporation of deep frying, This has caused a high level of fire risk plus obnoxious odours throughout the complex. Further this action has resulted in cancellation of our insurance.

You must comply with the by-law immediately bys (state action required stopping breach. Example: Removing motor vehicle (reg No.) from the common property driveway].

You must cease all deep frying immediately and remove all deep frying apparatus from your premises.

You must stop breaking this by-law and obey it now and in the future. If you do not comply with the by-law, the owners corporation may apply to the Strata Schemes Board to impose a penalty on you of up to $500.00"

38. Again I interpolate that the notice, as it appears to me, seriously misrepresents the attitude of the insurer.

39. The second notice alleged a breach of by-law 3. It relevantly provided:

"NOTICE TO COMPLY WITH BY-LAW

Strata Schemes Management Act - Section 45

Name/s of owner/occupier; Babic and Verdi

Address: Lots 16 and 17 54-58 Cliff Road Wollongong

The Owners Corporation of strata plan number 69822 has decided to Issue you with this notice because it believes you have broken by-law number 3 . A copy of the by-law is attached.

The owners corporation believes that you have broken this by-law by: (state action causing breach and give dates & details. Example: On (date) you parked your motor vehicle (reg no.) on common property without permission)

Both businesses regularly place tables, chairs, heater, umbrellas and/or menu boards on common property or the public footpath on the eastern side of your lots (see Attached photographs)

You must comply with the by-law immediately by (state action required stopping breach. Example:

Removing motor vehicle (reg No.) from the common property driveway].

Keeping all items including those described above completely within the boundaries of your lot.

You must stop breaking this by-law and obey it now and in the future. If you do not comply with the by-law, the owners corporation may apply to the Strata Schemes Board to impose a penalty on you of up to $500.00"

40. The two by-laws referred to are as follows:

"3. OBSTRUCTION TO COMMON PROPERTY

An owner or occupier must not obstruct lawful use of common property by any person

....................................................

19. CHANGE IN USE OF LOT TO BE NOTIFIED

An occupier of a lot must notify the owners corporation if the occupier changes the existing use of the lot in a way that may affect the insurance premiums for the strata scheme (For example, if the change of its use results in hazardous activity being carried out on the lot, or results in the lot being used for commercial or industrial purposes rather than residential purposes)."

41. No evidence was before me as to the obstruction of the lawful use of the common property, nor is it apparent how the installation of a domestic deep-fryer in what was a licensed caf constituted a change of use.

42. Mounting a two-pronged attack against the Respondents, MMJ, over the hand of Mr Burrows, wrote to them on 13 December 2009 conveying complaints allegedly received from the Owners Corporation. This letter presumably written with the authority of the Applicants referred to unspecified breaches of "operating hours" restricted by the by-laws; "oil spillages around the garbage bin area"; "general tidiness (sic) of the area in front of the restaurants" etc.

43. Somewhat patronisingly the letter, adopting the role of policeman for the Owners Corporation, contained the paragraph:

"We understand that you are trying to operate and run a business but the By-Laws must be adhered to at all times and consideration must be given to the surrounding owners/occupiers. We must strongly advise that if the owner of shops 16 and 17 are to receive any breach notices or fines associated with these breaches further action may need to be taken".

44. What seems to me to verge on outright harassment continued, when on 5 February 2010 MMJ wrote to the Respondents noting that they had installed an ATM machine in the cafe which, so it was claimed, constituted a breach of the Respondents' covenant in respect of the use of the premises and needed to be removed. How this, to me, somewhat startling proposition, could be so remains unexplained.

45. Mr Driscoll, the secretary of the Owners Corporation swore an affidavit on 29 July 2010. He annexed the Development Approval containing the conditions previously mentioned as to a development approval being required in respect of the cafes. He also annexed the by-laws of the Owners corporation which included by-law 24

" (a) Each of lots 16 and 17 shall "be used only for the purposes of deli/cafes which may sell liquor or permit its consumption but only to or by patrons of those deli/cafes consuming meals at the time of such liquor sale or consumption and not utilizing any live or amplified music and/or entertainment.

(b) The deli/cafes referred to in the preceding sub-clause shall not be open for business between, the hours of 10.30 pm , on any day and 7.00 am on the following day.

(c) All garbage refuse and . recyclable materials emanating from lots16 and 17 shall:-

(i) be stored in a hygienic and odour free manner and be stored within the boundaries of the storage room located at-the south east comer of building "A" basement level and,

(ii) be responsible for the total cost of one of the three weekly garbage disposal services."

46. Mr Driscoll's affidavit boldly stated in relation to the two cafes "No development consent has been obtained". He did not provide any basis for this assertion which, in all the circumstances of this case, I would regard as requiring strict proof. However, as I have said there seems to be an issue estoppel. Mr Driscoll made no mention in his affidavit of the act of the Owners Corporation in disconnecting the premises from the ventilation ducting on 10 November 2009.

47. The oral evidence was supplemented by the tender of a number of documents to some of which I have already made reference.

48. Exhibit 7, referred to earlier, which bears no date but has the notation "Proposed Residential Apartment 54-58 Cliff Road Wollongong" may be inferred to have been in existence prior to the erection of the building. It describes itself as "Mechanical Services Block A, Basement Floor Plan Ventilation". The plan depicts 2 lots respectively described as cafe 1 and cafe 2. It depicts what is described as "2 hours fire rated ductwork" leading from each of the 2 cafes through common property to an exhaust tower.

49. Exhibits 1, 2 and 3 are respectively reports of Grosvenor Engineering Group Pty Ltd, Abacus Engineering Pty Ltd and Illawarra Building Certifiers relating to the basement exhaust systems. Abacus Engineering in particular addressed the adequacy of the ducting ventilation as installed. Its conclusions seem to be summarised in paragraph 4.02 and following of the report:

"4.0.2 Ductwork

The ductwork that is installed within the car park does not comply with the Australian Standards listed in Clause F4.12 of BCA

As 4254 clause 2.1.2 states Liquid-tight cleanouts, easily accessible and large enough to enable access to clean the internal surfaces of the duct or plenum, shall be provided -

(a) at each change in direction of ductwork;

(b) at each duct junction

(c) in horizontal runs at intervals of not more than 3m; and

(d) at such other positions as may be specified.

Horizontal ducts shall be installed with a rise in the direction of airflow of at least 1 in 200.

Liquid-tight cleanouts are not installed and duct does not rise in the direction of airflow. The ducts are not fire rated in accord with the notation on drawing MO2 of the design documentation by Hyder. Where unprotected duct passes through individual lock-up garages combustible material is stored adjacent the duct and presents a fire risk outside the duct.

Duct does not rise but falls in the direction of airflow. Oil and grease will accumulate within this lower duct and add to the fire risk within the duct.

Fans form oil and grease traps where they are installed lower than the ducts they connect to.

The transition from square to round ducts at the fans are lined with porous material that absorbs grease and oil. Oil is leaking from the pockets where oil is trapped and an external sealing has been applied in an effort to prevent leakage onto cars and driveway.

4.0.3 Discharge

The obnoxious discharge (under AS 1668.2 Table 3.3) is located within 5m of the nearest opening into the home unit portion of the building and 8m from the side boundary.

Clause 3.3.7 of that standard requires that discharge should occur above the roof. Discharge may be allowed at low level if it is located more than 15m away from any adjacent higher structure.

5.0 Recommendations

5.0.1 Fire Risk

The existing fire risk identified in this report can be substantially reduced by complying with the codes and standards listed in BCA 2008 Section F4.12.

On inspection of the kitchen exhaust duct within the carpark, that extend for 1 off 50m and 1 off 40m of duct runs, I am of the opinion that it will be most difficult to upgrade the system to that which complies. There is insufficient headroom in the carpark to accommodate a duct with 250mm minimum fall and clear the structural beams.

Alternatively the ductwork and fans could discharge up through the roof of each caf thus eliminating the fire hazard in the carpark.

5.0.2 Obnoxious Discharge

Locating the discharge point over the caf area will provide the 15m clearance from the lower portion of the building. This location will be close to the side and front boundary of the site. Council may approve this arrangement if charcoal filtration is provided to reduce odours to an acceptable level."

50. Exhibit 5 comprises a letter dated 27 February 2008 written by MMJ to the Respondents in happier times reminding them of their entitlement to exercise an option for a 5 year renewal "on our part we would be happy for the association to continue and we look forward to receiving your correspondence on the above matter". The exhibit includes an email by the Respondents sent on 20 May 2008, which seems to have been accepted as an exercise of the option.

51. In the Respondents' case, two witnesses provided affidavits upon which they were cross-examined, Mr Alexander Verdi and Mr Brett Goodyer.

52. In all, 5 affidavits were sworn by Mr Verdi and read by his counsel, 4 August 2010, 23 August 2010, 29 September 2010, 24 March 2011 and 25 March 2011.

53. The first affidavit, much of which I held to be inadmissible, primarily dealt with the action of the Applicants in excluding the Respondents from the premises on or about 26 July 2010. Agreement was reached between the parties in respect of this particular dispute and I need say nothing further about it.

54. In his affidavit of 23 August 2010, Mr Verdi referred to the purchase by A & J Verdi Pty Ltd from Mr Renato Vasquez of the business then called Emporio Del Mar conducted at the premises. The business was described as a "cafe" and the purchase price was $100,000, all of which was attributed to "Equipment". Although Mr Verdi's affidavit purported to annex a copy of the agreement, what was annexed was an unsigned draft. However, as the assignment of lease was dated July 2005 presumably the purchase agreement was entered into about the same time.

55. Mr Verdi explained that at the time of the purchase agreement, Mr Vasquez not only operated a cafe business on the premises known as Emporio Del Mar but had until a month or so earlier operated a cafe business in the adjoining premises under the name Aqua, which continued to operate under that name. Mr Verdi changed the name of his business to Verdi's House of Fine Food and Coffee.

56. Mr Verdi described how he came to purchase the cafe business.

"16. I have lived in Wollongong continuously since 1999 and that since early 2003 I observed that a building had been constructed on the development site now known as the Strand 54-58 Cliff Road Wollongong "the Building". I also observed that two cafes had been built, but not fitted out. In fact as I had a long involvement with the hospitality industry my interest was initially aroused in seeking to buy or lease one of the cafes. I also observed that people had moved into the residential part of the building and later in the year I saw that the cafes were being operated. Thereafter based upon my own personal observations I became aware that the building had become occupied.

17. In mid- 2005 I read an advertisement in the local Mercury newspaper that Aqua was being offered for sale through Conti business brokers but on enquiring found that it had been sold. Subsequently the other cafe business became available for purchase and I had a meeting on site with Enzo Conti and Vasquez. At that meeting Vasquez showed me where the exhaust ventilation ducting system was in a continuous run connected to the main ducted ventilation system for the building located in the common property garage area and needed only removal of a metal plate within the premises to become operational. Vasquez said to me words to the effect "I did not need to use it [referring to the ducting] because we did our main cooking in Aqua which also has a ducting system connecting to the main ducting system in the garage, but both cafes are the same and you can do the same cooking in here as in Aqua. All you have to do is remove the plate and put in a canopy to feed into the ducting which has always been there for that reason"."

57. According to Mr Verdi's affidavit, between 1 July 2005 and about March 2008, Council inspectors made regular inspections of the cafe and made no complaint to him. He said that after operating the business for some months he decided to utilize the ducting system and he installed in the cafe an exhaust canopy and a fan system. He applied to the Owners Corporation for consent and annexed to his affidavit minutes of a meeting of its Executive Council held on 8 November 2005 which included:

"Identified Items of Business

4. 1 Request by Emporium Cafe to install an exhaust fan in kitchen.

Letters were received from both the Aqua and Emporium business owners on the positives and negatives of permitting the installation of an exhaust fan to the existing ducting in the Emporium Cafe. In summary the OC agreed to the installation as long as the installation complied with Council regulations best building practices and that the work was carried out at Emporium's cost. Should the "Exit" sign be blocked then it would also have to be moved.

Significant discussion was held in relation to the possible extension of the kitchen and the potential impact it would have on the wellbeing of residents. The OC would like to note in these minutes that it would be unlikely to agree to any proposal that would negatively impact residents, such as increased traffic, garbage, cooking smells etc."

58. As indicated earlier on 23 March 2006 the Applicants consented to the Respondents' request for a change of permitted usage to "light meals and coffee shop - licensed premises".

59. For reasons unexplained, in August 2007 Wollongong Council decided to take action against what it regarded as the illegal use of the 2 cafes. On 29 August it sent to the Applicants a notice:

" Notice of Intention to give an Order - No 1 (a) under Section 121B of the Environmental Planning & Assessment Act 1979 (the Act)

This notice relates to premises at

Location Lot 16 and 17 SP 69822 Lot 22OP 1047028 known as 54-58 Cliff Road, Wollongong NSW 2500

This notice is given to you as the owner of the premises.

Council has become aware that Lots 16 and 17 within Strata Plan No 69322 are being used for cafes but that no development consent has previously been obtained for the uses.

Development Consent No DA-2000/822 issued for the development includes Condition No S which states:

"Approval is granted for the construction only of 2 cafes. No approval is expressed or implied for the intended use of those cafes."

Condition 9 of the Consent states:

"A new development application must be submitted to and approved by Council for the use of the cafes prior to their occupation:

a) access and facilities for people with disabilities must be provided in accordance with the building code of Australian requirements and AS 1428: and

b) Consideration will not be given to any live or amplified music and/or entertainment in the cafes.

Development Consent does not appear to have been obtained for the use of the building for caf purposes as required by conditions 8 and 9 of the original development consent for the development.

In February 2007 Wollongong City Centre Local Environment Plan 2007 was gazetted. This plan prohibits cafes in the R1 General Residential zone which applies to the land. Accordingly, the cafes appear to be operating without consent and are not capable of being approved under the new City Centre plan.

Accordingly, Council proposes to give you an order requiring you to cease use of the premises for caf purposes.

You will be required to comply with the order within a period of 60 days after the order is served on you."

60. Presumably this notice was directed to the Respondents' attention, as on 28 September 2007 Cardno Forbes Rigby, Town Planners, wrote on behalf of the Applicants and the Respondents to the Council referring to a meeting with its officer and proposing various solutions which would permit the 2 cafes to remain in operation.

61. There followed correspondence involving the Council, Cardno Forbes Rigby, and solicitors then acting for the Respondents, Colbron & Associates.

62. On 25 October 2007 the Council, in a letter, noted that the Applicants proposed to submit an application under s96 of the Environmental Planning and Assessment Act to modify the original Development Consent to the construction of the unit complex. The letter pointed out that the application would require the consent of the Owners Corporation. A formal application for s96 modification was completed by Cardno Forbes Rigby in February 2008 (at a cost in excess of $10,000), its objective being "to legalise the operation of the cafes". Essentially the application was to modify the original Development Consent by substituting for conditions 8 and 9 quoted above:

"8. Approval is granted for the construction and use of the 2 cafes on the ground floor.

9. The 2 cafes must be operated in accordance with the operational plan prepared by Cardno Forbes Rigby dated January 2008".

63. The application was consented to by the Owners Corporation and duly submitted to the Council.

64. On 14 April 2008 the Council wrote to Cardno Forbes Rigby requiring additional information. Perhaps of significance is the paragraph of the letter under the heading "Health Matters":

"Council's Health Project officers have observed from previous food safety inspections that the need for adequate space provisions........................ has increased due to increased business trading."

65. There is evidence as to the detailed response by Cardno Forbes Rigby on 18 May 2009 to the Council's request for further information but by notification dated 3 June 2009 the application under s96 was refused for these stated reasons:

"1. Pursuant to the provisions of Section 79C (l)(a)(i) of the Environmental Planning and Assessment Act 1979, it is considered that the proposed development fails to provide sufficient information to enable Council to be satisfied that the proposal exhibits design excellence, in accordance -with clause 2(2) (e) and clause 22B of Wollongong City Centre Local Environmental Plan 2007.

2. Pursuant to the provisions of Section 79C (1) (a)(1) of the Environmental Planning and Assessment Act 1979, it is considered that the proposed development is inconsistent with the following objective of the K.1 General Residential zone under Wollongong City Centre Local Environmental Plan 2007:

"To allow some diversity of activities and densities if there will be no significant adverse impact on the amenity of any existing or proposed development nearby".

3. Pursuant to the provisions of Section 79C (l)(b) of the Environmental Planning and Assessment 9, the proposed development fails to provide sufficient information to enable Council to fully assess the visual, environmental and social impacts of the development. In particular, information has not been submitted detailing:

Method and location of alterations to the kitchen exhaust ductwork (Part F4 of the Building Code of Australia)

Method of protecting the opening between the shops (Class 6) and car park (class 7a) (Part C Building Code of Australia)

Signage location, wording and colour

4. Pursuant to the provisions of Section 79C (l)(e) of the Environmental Planning and Assessment Act |1979, approval of the development is not consistent with the public interest.

Notes

1. Section 96 of the Environmental Planning and Assessment Act confers on an applicant who is dissatisfied with the determination of a consent authority a right of appeal to the Land and Environment Court.

2. The development consent issued by Council on 6 October 2000 (as amended 23 October 2001) remains in force to the extent as set out in that consent."

66. The Council followed up this notification to Cardno Forbes Rigby with a letter to the Respondents dated 17 June 2009 requiring them to cease using the premises as a cafe.

67. There followed submissions to the Council by Colbron & Associates which, ultimately, seem to have led to the Council placing the matter before an Independent Hearing and Assessment Panel on 18 November 2009.

68. In the meantime on 10 June 2009 Workcover had issued the "Improvement Notice" referred to earlier in relation to the ventilation ducting of both cafes. This notice was complied with at the joint expense of the Respondents and the current lessee of Lot 17. The notice, of course, primarily required work on the ducting owned by the Owners Corporation located on common property outside any premises leased to the Respondents.

69. On 11 November 2011 after the premises had been disconnected by the Owners Corporation from the ventilation ducting, Colbron & Associates wrote a letter to the Corporation complaining in strong terms of "what can only be described as a vendetta". This produced a letter from Mr Driscoll on behalf of the Owners Corporation to MMJ:

"In response to the Colbron & Associates letter dated 11 Nov 09

(attached), and received by email from our Strata Manager at 9.47am this morning, we make the following comments: -

1. Our insurer, CGU Insurance wrote to us on 3 November 2009, advising us that at 4 pm on Tuesday 10 November 2009, insurance cover would cancelled (sic) because the insurance is no longer acceptable.

2. Discussion with our Insurance broker, David Stott, revealed that the insurer's concerns related to the presence of the cafes using deep-fryers, and the associated fire risk concerning non-compliant exhaust ducts running through the car park beneath the Strand residential building, and that the only short term solution was to dispense with the deep-fryers.

3. We arranged an urgent meeting with the owner of the lots and the Managing Agent (MMJ), which took place on 5 November 2009, where all parties agreed that MMJ will advise both premises on Friday 6 November, 2009 "...that they must cease use of said fryers and remove them from the kitchens by no later than commencement of trade, Monday 9 November 2009.'

4. We remained in contact with MMJ and reminded them of the need for verifiable action well before insurance was due to be cancelled.

5. One of the Cafes readily complied and ceased use of the deep-fryer.

6. The other operator refused to discuss with MMJ, nor comply with this mandatory insurance condition.

7. The overriding obligation of the Executive committee is to ensure the safety of our residents, and the continuation of our mandated insurance.

8. In the total absence of communication and cooperation of the Cafe in question, there was no alternative than to decommission the duct on Tuesday 10 November 2009,prior to CGU's 4 pm deadline.

9. As ever, we remain open to re-instating the duct, on the

following conditions:-

a. Verdi's are to dispense with the deep-fryer and prove that it is off site.

b. Verdi's are to make prior payment to the Strand for the total costs in decommissioning and re-installing the duct and its associated electrics.

c. Verdi's to give a written undertaking not to use deep frying.

Would you please urgently convey this correspondence to

Colbron & Associates, and notify us then (sic) this is done."

70. Although the material before me contains no detailed record of what transpired at the Independent Review on 18 November 2009, Mr Verdi states in his affidavit that he was unsuccessful. Notwithstanding, it appears that further discussions and correspondence ensued between all parties to what had become a very complicated, and if I may say so unnecessary dispute. Parties included the Council, the Applicants, the Respondents, the Owners Corporation, and the lessee of Lot 17. The dispute remained unresolved when the hearing commenced before me on 23 March this year. However, I was informed that by that date proceedings initiated by the Council were pending in the Land and Environment Court.

71. Mr Verdi's affidavit deposes to the fact that although the ventilation ducting servicing his cafe was disconnected on 10 November 2009 and remained disconnected when he swore his affidavit, it had not ever been disconnected from the Aqua Caf, which continued to use it in conjunction with a deep-fryer.

72. Mr Verdi described the deep-fryer which the Respondents had brought into the premises as a "2.4kw bench top domestic deep-fryer unit which until the ducting was disconnected ........ vented through the common exhaust ducting system as originally installed at time of occupation of the building".

73. According to the affidavit and Mr Verdi's oral evidence, the disconnection of the ventilation ducting from his cafe meant that in summer the interior of the cafe, particularly those parts close to the kitchen, became unusable with resultant financial loss.

74. Following discussion with Mr Burrows of MMJ at the end of November 2009 in which he raised the question of a rent abatement, Mr Verdi said that he stopped paying rent. Although Mr Burrows told him that he would seek instructions from the Applicants, it is clear that there was never an agreement by the Applicants to abate the rent or any part of it.

75. In his affidavit sworn 29 September 2010, Mr Verdi annexed a copy of the Summons filed by the Council in the Land and Environment Court on, or about, 28 August 2010. The Applicants and the Respondents are joined as parties and the Council seeks relief in effect by orders requiring the use of Lot 16 as a restaurant to cease. The case in the Land and Environment Court was still pending at the hearing of these proceedings. Nothing said in these reasons is, of course, intended to affect their outcome. I am concerned solely with issues between the Applicants and the Respondents.

76. Annexed to Mr Verdi's affidavit of 29 September 2010 is a copy of a document issued by Dix Gardner Pty Ltd, an accreditation body. Dated 29 July 2003 it is described as a "Final Occupation Certificate" in respect of the building 54 Cliff Road Wollongong. The certificate is addressed to the Council and describes the property as "mixed commercial/residential development with basement car parking". So far as I can discern, it makes no reference to any requirement for a further development approval in respect of the two cafes. This may be an issue for determination in the Land and Environment Court proceedings.

77. Mr Verdi's affidavit of 25 March 2011 deals with the consequences to his business of the disconnection by, or on behalf of, the Owners Corporation of the ventilation ducting servicing his cafe. The affidavit contained these paragraphs:

"4. After the disconnection of the exhaust ducting to the premises on 10 November 2009, I noticed that the temperature in the internal seating area of the cafe was much higher than outdoors. It was extremely hot, and much hotter than it had been prior to the disconnection of the exhaust ducting. In order to monitor the temperature in the internal area of cafe, an electronic thermometer was placed adjacent to the cash register in the premises on top of the wine glasses. Another thermometer was placed in the kitchen on the back wall and a third thermometer was placed on the shelf where plates are stored between the kitchen and the serving area.

5. The staff were instructed by Julianne and me to record the temperature every day between 10am and 2pm together with food wastage in the diary kept near the cash register.

6. On each page of the diary, the staff, or my wife Julianne, recorded the temperature of the internal area of the cafe. The temperatures were generally taken from the thermometer closest to the cash register. In August last year Julianne transferred those figures, for dates from 11 November 2009 to 5 August 2010, onto a table, a copy of which is annexed and marked "A".

7. The extreme heat experienced in the premises affected the ability of the refrigeration equipment in the premises to operate efficiently or at all. As a consequence, there was quite a degree of food wastage from food perishing in the refrigerators. I had staff record the food wastage figures as a dollar value in the Cafe diary. The calculation was performed by the chef on duty by noting what food was thrown out, at the end of each day, because it was no longer safe for use in a commercial setting; and calculating the cost of that food by reference to the invoice price of those goods. The figure that the chef arrived at was then written into the diary.

8. During the first week of January 2011, it was very hot in Wollongong. The temperature inside the premises was almost unbearable. During that week, a number of employees of the company resigned including one of the Casual employed Chefs.

In addition, the refrigerators in the premises (which until that stage had been cutting out for periods of 1 - 2 hours because of the heat) stopped working completely and could not be restarted until they were repaired as described below.

9. On 10 January 2011, all the company could do was offer coffee and cakes to customers because the refrigerators were not working and we could not hold any other perishable stock. I was genuinely concerned for the health and safety of the cafe staff as it was so hot and oppressive.

10. On 11 January 2011, I arranged for Alpine Refrigeration to examine the refrigerators to get them working. They took away the condenser and the refrigeration unit from the top part of the fridge. I believe that they cleaned the units thoroughly and returned them to the cafe that day. The service mechanics recommended that we put dry ice in the refrigerators to help keep them within operational temperatures. We did this for a number of days.

11. On 14 January 2011, the refrigerators broke down again due to the heat. We shifted the fans inside the kitchen around so that they were cooling the refrigerator's motor. Pans of ice were placed on the condenser unit and dry ice was placed within the refrigerator. It was difficult to operate the caf's unreliable refrigerators. When the refrigerator motor cooled sufficiently, the safety switch could be overridden and the unit switched on.

12. On 14 January 2011 another employed Chef resigned due to the working conditions in the heat."

78. The affidavit of 25 March 2011 also deposed to the fact that on 17 February 2011 Wollongong City Council issued a Development Consent for the operational use as a licensed caf of Lot 17 in the Strata Plan. However, as it appears from the affidavit of Mr Verdi sworn 14 March 2011, the Respondents own application for a Development Consent was refused. The reasons for refusal dated 8 February 2011 were given as:

1. Pursuant to the provisions of Section 79C (l)(a)(iv) of the Environmental Planning and Assessment Act 1979 it is considered that in the circumstances of the case, strata (owners) consent has not been provided in relation to works on common property.

2. Pursuant to the provisions of Section 79C (1) (a) (iii) of the Environmental Planning and Assessment Act 1979, it is considered that the proposed development is inconsistent with the provisions of Wollongong City Council's Development Control Plan 2009 with respect to waste servicing.

3. Pursuant to the provisions of Section 79C (1)(c) of the Environmental Planning and Assessment Act 1979, it is considered that the proposed development site is not suitable for the proposed development due to inadequate waste servicing arrangements.

4. Pursuant to the provisions of Section 79C (l)(d) of the Environmental Planning and Assessment Act1979, it is considered that having regard for public submissions, the development is unsuitable with respect to waste servicing.

5. Pursuant to the provisions of Section 79C (1) (d) of the Environmental Planning and Assessment Act 1979 it is considered that in the circumstances of the case, approval of the development would set an undesirable precedent for similar inappropriate development and is therefore not in the public interest."

79. Mr Verdi was cross-examined on his affidavits at some length by Mr Rich, counsel for the Applicants, but in my opinion the effect of his evidence was not significantly undermined. I found him to be an honest and credible witness and I accept his evidence that the business in the caf, particularly during summer months, was very substantially affected as a result of the disconnection of the ventilation ducting. For substantial periods I am satisfied the premises were virtually unusable for the purposes for which they were occupied under the lease, viz as a licensed cafe.
80. The only other witness in the Respondents' case was Mr Brett Goodyer. His evidence was given as an expert forensic accountant, his report being dated 21 December 2010. Professionally, Mr Goodyer is a Certified Practicing Accountant.

81. Mr Goodyer assumed that the business was a licensed cafe with internal and external seating; that financial information provided to him was true and accurate; that the business had operated without interruption since 1 July 2005, 7 days a week between 7am and 10.30pm; and that the exhaust ducting servicing the premises was removed on 10 November 2009. He supplemented daily lists of temperature readings provided to him with his own observations on two occasions in December 2010. On each occasion he observed that customers of the business were seated outside and that there was a significant variation between the internal and external temperatures. He observed that patrons of the adjoining Aqua Cafe were seated both inside and outside.

82. Comparing Business Activity statements as an average for the period up to the end of September 2009 with statements for subsequent periods up to the end of September 2010, he calculated that there was a variance downwards in the figures of "Sales less Purchases" for the whole period of $122,224.55 which he extrapolated to 23 December 2010 as $153,937.88, with a potential further loss occurring at the rate of $377.30 per day. Recording that the Respondents paid no rent during the period 1 December 2009 to 25 August 2010, he said that if this rent were written back as a "purchase" item the loss would be increased by $37,517.02 to the sum of $1991,454.60.

83. Although Mr Goodyer was cross-examined by Mr Rich and his assumptions and methodology challenged, I accept that part of his evidence summarised above.

84. Before coming to a consideration of the issues debated before me, it is necessary that I refer to an earlier decision of the Tribunal which on 10 September 2010 declared that "the present use by (the Respondents) of (the premises) was not in breach of the terms of the lease between the parties and that (the Respondents) were responsible "for obtaining all necessary development approval for the use of the premises". The latter declaration was subject to an unsuccessful internal appeal and as I have said earlier contained a factual finding which gave rise to an issue estoppel. These matters were determined as separate issues pursuant to directions of the Tribunal

85. It should also be mentioned that the Respondents unsuccessfully called on the Owners Corporation to restore the connection of the subject cafe to the ventilation ducting in the common property. Exhibit 14, a letter from the Respondents' then solicitors, Colbron & Associates, to MMJ dated 8 February 2010, calls for the reconnection as does a letter from RMB Lawyers to BCS Strata Management Pty Ltd dated 11 January 2011.

86. On the face of it, the act of disconnection of the ventilating system by the Owners Corporation on 10 November 2009 was a breach of s62 of the Strata Schemes Management Act. As it seems to me, if the ducting did not comply with the relevant standard and was impacting upon insurances taken out by the Owners Corporation, there was an obligation on the corporation to remedy the non-compliance, rather than act in the very high handed way it did without even bothering to consult with the Respondents. I have more than a suspicion that it was pursuing an agenda to close down the Respondents' caf in whatever way possible. However, I hasten to add that that the Owners Corporation is not a party to these proceedings and I have had no opportunity to hear any submissions on its behalf.

87. Although there is no evidence to counter Mr Uckan's assertion that he played no part in the decision of the Owners Corporation to act as it did, he was present at the meeting where the decision was taken and so far as the evidence relates did nothing to overcome its effect.

88. It is not disputed that the Respondents paid no rent for the period from December 2009 to August 2010 during which $42,437.07 accrued. Although Mr Verdi faintly suggested that there was an agreement for abatement of rent, as stated earlier, the evidence fell well short of evidencing such an agreement. At best, the Applicants' agent said that he would obtain instructions about an abatement but failed to do so.

89. However, the Respondents rely on s36 of the Retail Leases Act in these terms:

"(1) A retail shop lease is taken to provide for the following if the shop or the building of which the shop forms part is damaged:

(a) The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage.

(b) If the shop is still useable under the lease but its useability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage.

(c) If the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee may terminate the lease by giving not less than 7 days notice in writing to the other and no compensation is payable in respect of that termination.

(d) If the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor in writing to do so, the lessee may terminate the lease by giving not less than 7 days notice in writing of termination to the lessor.

(e) Paragraphs (a)-(d) do not affect any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which those paragraphs apply.

(2) A retail shop lease must not contain any provision the effect of which is to limit any liability of a party to the lease to pay compensation to another party to the lease in respect of damage to the shop or the building of which the shop forms part.

(3) Nothing in this section prevents the parties to a lease from terminating the lease by agreement if the shop or the building of which it forms part is damaged or destroyed."

90. It will be observed that relief under s36 is not dependent upon it being established that the landlord bore any responsibility for the damage (Compare the decision of McClellan J in Eliezer v Residential Tribunal & Ors [2001] NSWSC 1092; 53 NSWLR 657 - proceedings based upon an alleged breach of a covenant for quiet enjoyment).

91. Although I was not referred to any authority on the point, and my own researches failed to reveal one, it seems to me that the act of the Owners Corporation in disconnecting the ducting from the cafe "damaged" the premises within s36. The fact that the damage was caused by a deliberate act as opposed to an accidental or unforeseen event seems to me besides the point. The Act was analogous to disconnection of water or electricity services.

92. Although it is plain on the evidence that the premises remained useable, their useability, on the evidence of both Mr Verdi and Mr Goodyer, was much diminished. The Respondents, in my opinion, under s36 (1)(b) are entitled to an abatement of rent in proportion to the reduction in useability caused by the damage. As the cause of the abatement arose on 10 November 2009 and the parties have been in disputation since, I am satisfied that such rent as has been paid in the meantime has been paid under protest and the difficulty which confronted the lessee in Edex International Holdings Pty Ltd v Marmalade Films Pty Ltd [2003] NSWCA 8; (2003) 56 NSWLR 63 does not arise.

93. As to the extent to which the rent should be abated, it is impossible to be precise. The useability of the premises varied according to the season and also to the weather on a particular day. Doing the best I can on the evidence, I would assess the Respondents as entitled to an abatement of 30% of the rent otherwise payable since 10 November 2009. This abatement will continue until a suitable ventilation system is reconnected to the premises or the lease is terminated.

94. The Respondents remain in occupation of the premises and, accordingly, an account will need to be taken. If, on balance, further rent is due I would grant relief against forfeiture conditional upon all outstanding rent being paid within 30 days with interest at the rate prescribed by the lease. ( McPherson v Minister for Natural Resources (1990) 22 NSWLR 687 ).

95. What I have said disposes of the Applicants' claim in so far as it relied on a failure to pay rent. There were, however, a number of other matters raised by the Applicants, which I will need to consider.

96. The first matter raised is the allegation that the Respondents breached clause 34.1 of the lease by failing to comply with by-law 19 of the Strata Plan. Those two provisions are as follows:

"Lease clause 34.1

34.1 The Tenant acknowledges that the demised premises is Strata Title and the Tenant covenants to comply with the Strata Corporation By-Laws in respect of Strata Plan 69822 as in force from time to time."

By-Law 19 Strata Plan (set out above)

19 CHANGE IN USE OF LOT TO BE NOTIFIED

An occupier of a lot must notify the owners corporation if the occupier changes the existing use of the lot in a way that may affect the insurance premiums for the strata scheme (For example, if the change of its use results in hazardous activity being carried out on the lot, or results in the lot being used for commercial or industrial purposes rather than residential purposes)."

97. In my opinion, it was not established that there was a breach of clause 34.1 of the lease. As it seems to me, the only arguable change of use was when the use "Light meals and coffee shop" as provided in the lease was altered to "Light meals and coffee shop - licensed premises". This occurred with the express approval of the Applicants and they are, in my opinion, estopped from relying on the change as constituting a breach of the lease. By-law 24, of course, as set out above expressly contemplated a licensed caf. In any event, the change of use would not persuade me on the evidence that it had the potential to affect the insurance premiums for the strata scheme. Nor do I think it was established, particularly in light of Mr Stott's evidence quoted above, that the installation of a domestic deep-fryer, of itself, affected the insurance premiums. The correspondence involving Mr Stott and the insurer is quite equivocal. The real cause of the insurer's concern seems to be the inadequacy of the ventilation ducting for which the Owners Corporation was responsible.

98. It was next submitted on behalf of the Applicants that the alleged carrying on of the business without a Development Consent constituted a breach of clause 5.05 of the lease:

"5.05 REGULATIONS ORDINANCES AND BY-LAWS

The Tenant shall observe perform and fulfil all the requirements of any statutes regulations ordinances or by-laws (including where applicable, the provisions of the Strata Title Act and any by-laws of any Strata Plan of which the demised premises comprise the whole or part of any Lot or Lots) so far as they may apply to the demised premises or to any business being conducted therein and in particular (but without limiting the generality of the foregoing) shall comply with the requirements of all such statutes, regulations, ordinances or by-laws relating to health, water supply, sewerage and fire (save and except such of them as may require structural alterations or additions to the demised premises unless such alterations or additions be occasioned by the nature of the Tenant's business)."

99. On the basis that no Development Consent was obtained this was, initially, at least, the responsibility of Mr Vasquez, but the Applicants must have been aware of the situation as their consent would have been required. Mr Uckan's affidavit is silent on the subject as is the deed entered into on assignment of the lease. Nor so far as the evidence relates was the subject raised during the application for a liquor licence which, incidentally, was required to be notified to the Council.
100. In my opinion, estoppel by convention prevents the Applicants from relying, in these proceedings, upon the failure of the Respondents to obtain a Development Consent for the use of the premises as a caf. The estoppel was created by the applicants granting a lease to Mr Vasquez, becoming a party to the deed of assignment with the Respondents, accepting rent thereafter, and agreeing to the validity of the exercise of the option for renewal by the Respondents. The relevant principles are stated by Latham CJ in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; [1937] 59 CLR 641 at 657 omitting references:

"Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted. The relevant principle is that stated by Scrutton L.J. in Verschures Creameries v Hull and Netherlands Steamship Co. (1): "A person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage. That is to approbate and reprobate the transaction". So in Thompson v Palmer (2), the general principle upon which estoppel in pais is based was expressed by Dixon J in the following words: "The object of estoppel in pais is to prevent an unjust departure by on e person from an assumption by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct".

101. It follows from what I have said that the applicants have failed to prove that the Respondents (except in respect of the payment of rent) breached the lease.

102. I turn to the matters raised in the Respondents' application. First of all I note that the claim for unconscionable conduct was not pressed in the submissions of Mr Horsley, counsel for the Respondents. In my view, he was correct in this connection as there was, in my view, no evidence of the type of conduct referred to by Spigelman CJ in Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557.

103. It was submitted, however, that the Applicants are liable for damages in respect of the defective ducting. This claim is put on the basis that the ducting has always been defective; that the Owners Corporation was bound to rectify the defect and that the Applicants had a duty to exercise their rights under s138 of the Strata Schemes Management Act to require the adjudication of any dispute with the Owners Corporation.

104. It is true that the letter to MMJ dated 8 February 2010 from Colbron & Associates, referred to earlier, included this paragraph:

"We now, on behalf of our client company call upon your principals to take the necessary steps to ensure re-instatement of the ductwork, regularization of development compliance of the premises and restoration (sic) our client's quiet enjoyment lease."

105. I doubt whether that notice was sufficient for the purposes of s34 of the Act, in that the damage to the premises was not within the Applicants' control even though they had rights under the Strata Scheme Management Act. But, in any event, damages are, in my view, adequately encompassed by an abatement of rent. For the same reason it is unnecessary to consider Mr Horsley's proposition that the Applicants had a duty at Common Law, "to do all things reasonably necessary to allow the other party to have the benefit for which they contracted". I doubt whether that obligation goes so far as to require the Applicants to embark on complicated and potentially expensive procedures under the Strata Schemes Management Act.

106. In the result the only order I make in this litigation is an order that the rent be abated by 30% as from 9 November 2009. If necessary I will grant relief against forfeiture conditional upon the payment of any rent outstanding within 30 days with interest thereon as provided in the lease.

107. I direct the parties to bring in minutes of order reflecting these reasons at 9.30am on 13 October 2011. Unless the parties can agree in respect of costs, I will reserve costs for further submissions, a subject which should be dealt with in the minutes of order. Any decision on costs will be made on the papers. If the minutes of order are agreed, they can be filed in the Registry.

108. Although I have constituted the Tribunal in this matter I have been much assisted by the knowledge and experience in retail leasing of Mr Neil Fagg. I express my grateful thanks.

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