Vale v Rosychamp [2008] NSWSC 1373 (19 December 2008)

Last Updated: 22 December 2008

NEW SOUTH WALES SUPREME COURT

CITATION:
Vale v Rosychamp [2008] NSWSC 1373


JURISDICTION:
Equity

FILE NUMBER(S):
2238/07

HEARING DATE(S):
19-23 May 2008, 26-30 May 2008

JUDGMENT DATE:
19 December 2008

PARTIES:
David Vale v Rosychamp Pty Ltd

JUDGMENT OF:
White J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff: In person
Defendant: D Hogan-Doran with J Shepard

SOLICITORS:
Plaintiff: na
Defendant: Bernard Chiu


CATCHWORDS:
LANDLORD AND TENANT – retail and commercial tenancies legislation – unconscionable conduct – lessor refused to negotiate for a new lease with a prospective purchaser of the lessee’s business – lessee alleged lessor wanted building vacant to maximise sale price – lessor feared potential disputes with a new tenant and a proposed redevelopment if new lease were granted - legitimate to have regard to commercial self-interest
CONTRACT – damages – breach of term to maintain air-conditioning system – no attempt by plaintiff to quantify its loss – many other factors also eroded plaintiff’s profits – impossible precisely to ascertain loss caused by breach – damages assessed at $10,000

LEGISLATION CITED:
Retail Leases Act 1994 (NSW)
Civil Procedure Act 2005 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Waterhouse v Waugh [2003] NSWCA 139
Vale v Rosychamp Pty Ltd [2006] NSWSC 1341
Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co NSW Ltd (1970) 2 BPR 9562
Alcatel Australia Ltd v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349
JLW (Vic) Pty Ltd v Tsiloglou [1994] VicRp 16; [1994] 1 VR 237

TEXTS CITED:


DECISION:
Refer to paras 203-206 of judgment.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


WHITE J

Friday, 19 December 2008


2238/07 David Vale v Rosychamp Pty Ltd

JUDGMENT

1 HIS HONOUR: The plaintiff, Mr Vale and two other applicants commenced these proceedings on 25 May 2006 in the Administrative Decisions Tribunal (“the Tribunal”) seeking relief under the Retail Leases Act 1994 (NSW). The other applicants were Woodfire Pizza Consultancy Pty Ltd (“Woodfire Pizza Consultancy”) and Woodfire Pizza Company Pty Ltd (“Woodfire Pizza Company”). They have both since been wound up and their liquidators have discontinued their proceedings. In the application to the Tribunal Mr Vale sought a declaration that a notice of determination of a lease issued by the defendant, Rosychamp Pty Ltd (“Rosychamp”), on 22 May 2006 was invalid or ought not to be enforced because it was unconscionable; a declaration that Rosychamp was not entitled to deny him possession of the leasehold premises and damages for unconscionable conduct. Rosychamp applied to the Tribunal for a declaration that Mr Vale, his brother Mr Michael Vale, and Woodfire Pizza Company, were liable to pay the rental arrears due under the lease and damages. On 29 March 2007, the proceedings were transferred to this court pursuant to s 76A of the Retail Leases Act.

2 Rosychamp was the owner of a building at 70-76 Alexander Street, Crows Nest. Mr Vale is a shareholder and was a director of Woodfire Pizza Consultancy. In May 2000 Woodfire Pizza Consultancy purchased the business of a tenant of shops 1-5 at 70-76 Alexander Street and took an assignment of the lease. Woodfire Pizza Consultancy conducted a restaurant business known as the Red Centre Restaurant and an associated takeaway business.

3 Woodfire Pizza Consultancy did not exercise its option of renewal, but the parties agreed on the terms of a new lease from 1 May 2002. The lease was governed by the Retail Leases Act. Section 39 of that Act limits the grounds on which a lessor may withhold consent to the assignment of a retail shop lease. Relevantly, s 39 provides:

“39 Grounds on which consent to assignment can be withheld

(1) The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances):

(a) if the proposed assignee proposes to change the use to which the shop is put,

(b) if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,

(c) if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),

(d) the circumstances set out in section 80E.”

4 Woodfire Pizza Consultancy was unable to keep up payments of rent from the business. In February 2004 arrears were cleared after Mr Vale raised a home loan of $300,000. Notwithstanding this, rent was almost constantly in arrears.

5 Woodfire Pizza Consultancy went into administration on 12 July 2005. Mr Vale was a secured creditor. He took control of the company’s assets. He sought Rosychamp’s consent to an assignment of the lease to Woodfire Pizza Company, a company of which he was the shareholder and director. That consent was not forthcoming, but thereafter Rosychamp treated Mr Vale as the lessee. Mr Vale contends, and Rosychamp denies, that the lease was novated to him from 13 July 2005.

6 Mr Vale’s allegations fall into three broad categories. First, he says that Rosychamp refused to consent to attempted assignments of the lease until arrears of rent were brought up to date, although it was not entitled to refuse its consent to an assignment on that ground. He alleges that Rosychamp encouraged him to assume that a new lease of premises would be negotiated or offered to a proposed purchaser and contends that Rosychamp is estopped from departing from this assumption. I have not understood the legal basis for the estoppel claim, but in essence, Mr Vale says that Rosychamp acted unconscionably by refusing to negotiate a new lease with potential purchasers. He also complains that Rosychamp interfered in his negotiations with prospective purchasers of the business. He complains that on 8 September 2006 he was evicted from the premises and that Rosychamp thwarted his last attempt to sell the business and assign the lease. He alleges that Rosychamp acted unconscionably, in breach of s 62B of the Retail Leases Act.

7 Mr Vale alleged that Rosychamp had plans for the redevelopment of the whole building and that it frustrated his attempts to sell the business from which arrears of rent were to be cleared because it wanted the premises kept empty. Mr Vale alleges that this was unconscionable conduct. In a way which is not clear to me, it is also said that this constituted misleading and deceptive conduct.

8 Secondly, although it was not clearly pleaded, Mr Vale contended that Rosychamp was estopped from relying upon the non-payment of rent as a ground for terminating the lease because it induced an assumption on his part that arrears of rent could be paid from the proceeds of sale of the business.

9 The third broad area of complaint concerns the air-conditioning. Rosychamp was required to use reasonable endeavours to ensure that the air-conditioning was operational and functional during “Business Hours” (as defined). Mr Vale alleges that Rosychamp breached the lease by failing to use such reasonable endeavours. He also says that it acted unconscionably in this respect. The complaints extended from 2001 to 2006 with particular focus on the period from September 2005 to March 2006.

10 Rosychamp says that it terminated the lease on 22 May 2006. It sues Mr Vale and Mr Michael Vale as guarantors under the lease to Woodfire Pizza Consultancy. It claims arrears of rent under that lease up to its termination and damages including unpaid rent and outgoings for the balance of the term. Mr Michael Vale was served but did not appear.

11 Mr Vale alleged that Rosychamp failed to mitigate its damages by not taking reasonable steps to re-let the premises after vacant possession was obtained on 8 September 2006.

12 This is a somewhat over-simplified summary of the principal contentions. Mr Vale, who did not have legal representation, ascribed various labels to the claims against Rosychamp: unconscionable conduct; misleading and deceptive conduct; estoppel; negligence; negligent misrepresentation; breach of an implied contractual term of good faith; tortious interference with contract; intentional infliction of economic loss. The precise grounds of his causes of action were not clearly defined. Counsel for Rosychamp identified the following main issues:

“The main issues which arise in the proceedings are:

a. In what capacity does Mr Vale bring his claim and in what capacities are he and Michael Vale sued for amounts owing under the Lease?

b. Is the defendant entitled to succeed on its cross-claim against Mr Vale and Michael Vale for unpaid rent pursuant to the Lease and for what amount?

c. Is Rosychamp estopped from denying that it ‘induced and encouraged’ an understanding that it would offer or negotiate a new lease of the Premises with a proposed purchaser of the Business and, further, did it represent, in April 2005, that it would negotiate a new lease with a proposed purchaser of the Business such that it has engaged in misleading or deceptive conduct within the meaning of section 62D RLA and section 52 TPA?

d. Did Rosychamp conduct itself unconscionably within the meaning of section 62B RLA in its dealings with potential purchasers of the Business and, in particular, with Craig Macindoe in February/March 2006?

e. Did Rosychamp have an intention, in the period 2004 to 2006, to cause the Premises to be unoccupied during the proposed redevelopment of the building such that it engaged in misleading or deceptive conduct within the meaning of section 62D RLA and section 52 TPA by failing to disclose that intention?

f. What was the content of Rosychamp’s obligations to maintain the air conditioning system and did Rosychamp act in breach of them such that it was in breach of the Lease, or in breach of a duty of good faith?

g. Did Rosychamp act unconscionably or in breach of a duty of good faith in failing or refusing to deal with an application of assignment to a Mr Simoniam at 2.32pm on 7 September 2006?

h. To what damages or relief is Mr Vale entitled, if any?”

13 That is a useful distillation. An additional issue which arose as a result of an amendment to Mr Vale’s pleadings during the hearing is whether Rosychamp failed to act reasonably to mitigate its damage by failing to take reasonable steps to re-let the premises after it had terminated the lease or obtained vacant possession.

14 I will deal with these issues as they arise chronologically.

15 Part of the purchase price paid by Woodfire Pizza Consultancy in May 2000 was applied by the outgoing tenant to rental arrears.

16 Rosychamp engaged Colliers Jardine (NSW) Pty Ltd and later Colliers International (NSW) Pty Ltd as its managing agent for the building. The precise identity of the managing agent at different times is not material. I will call them both Colliers.

17 By the end of May 2001, rent was in arrears in an amount of $49,209.89 of which about $2,500 was in dispute. Mr Vale advised Colliers that he had sold his house with settlement to take place on 20 June 2001 and would repay all outstanding rental from the settlement of the sale of his house. On 27 June 2001, he advised Colliers that the business was experiencing catastrophic turnover levels which brought it to no more than a break-even point. He provided figures for the turnover of the business for the period from November 2000 to June 2001. As at April, May and June 2000, turnover was represented to be $108,000 to $105,000 per month.

18 Notwithstanding the sale of Mr Vale’s house, the rental arrears were not cleared. As at 9 November 2001, the account was in arrears in the amount of $44,444.77. On 26 November 2001, Colliers reported to the lessor that the lessee was seeking assistance from the lessor by a reduction of ten percent of net rental and the grant of a further five-year lease option term on top of the existing terms. Colliers summarised trading figures provided by the lessee showing a substantial month on month drop in turnover which Colliers summarised as showing an overall reduction of about 20 percent in trade. The lease was due to expire on 30 April 2002. There was a five-year option of renewal. Although the terms of the then lease were not in evidence, it was common ground that the option for renewal needed to be exercised by at least November 2001, and that it was not exercised.

19 On 22 January 2002, Mr Vale wrote to Mr Strain at Colliers advising that the lessee wished to take up its option but noting that he had been told by his solicitor that that notice should have been given by November the previous year.

The Lease

20 The parties agreed on terms for a new lease to commence on 1 May 2002. The lease was for a term of five years with an option for a further five-year term. Clause 8.11 provided that if the lessee exercised the option of renewal, then immediately upon the exercise of the option of renewal it was required to carry out a full refurbishment of the interior and exterior of the leased premises by replacing all floor coverings, window coverings and blinds and replacing ceilings, fixtures and fittings, decorations, tables, chairs, bars, kitchen areas and appliances.

21 Clause 8.10 also required the lessee to redecorate the premises throughout to the reasonable satisfaction of the lessor before 30 April 2007 and again before 30 April 2012.

22 By clause 17.2 the lessee acknowledged that the lessor had or was likely to pursue, adopt and carry out a redevelopment proposal with respect to the building affecting the whole or various parts of the leased premises. The “Redevelopment Proposal” was defined to mean a proposal by the lessor to lodge a development application with the relevant authority for the redevelopment of the building either to convert the commercial accommodation on the upper floors of the building and/or to add additional floors to the building to allow additional commercial and/or residential accommodation.

23 By clause 17.3 the lessor reserved the right at any time during the term or any renewal thereof to carry out the “Building Works”. These were defined to mean the design, building and all works to be carried out for the purpose of the “Redevelopment Proposal” including any extension, addition to, reduction, variation, modification, redecoration or refurbishment of the building in any manner and the construction of additional improvements on, in, over or under any part of parts of the building and the land. The lease provided that the lessee would not interfere with or make any objection to the lessor carrying out the Building Works or make any claim in respect of such works and give all consents and approvals in the form required by the relevant statutory authority or the lessor.

24 Clauses 17.5(b) required the lessor to use its reasonable endeavours to ensure that all works were carried out with a minimum of inconvenience to the lessee’s business.

25 Clause 17.6 provided that if the lessee’s business experienced a trading downturn solely and directly as a consequence of the “Building Works” during the term, the rent and any other money payable periodically under the lease would abate until the “Building Works”, in the reasonable opinion of the lessor, no longer affected the lessee’s business. There was provision for the appointment of an expert to determine the amount of the abatement if the parties could not agree.

26 Clause 12.3 provided:

“Services

The Lessor shall use reasonable endeavours to ensure the Services are operational and functional during Business Hours. Outside those hours:

(a) (air-conditioning) air-conditioning to be provided to the Premises at the request and at the Cost of the Lessee; and

(b) (access to the Building) access to be available through a nominated entry and exit point for the Lessee and the Lessee’s nominated staff and in accordance with the operations of the Lessor’s security system for the Building;

but should any of the Services be inoperative or fail to function, or should the Lessor, by reason of the need to repair or maintain or replace any Service or by reason of the operation of any Laws or Requirements, be compelled to shut off or remove any Service, or should the Lessor exercise its rights under clause 7.5(b) to close the Building, the Lessee shall not be entitled to terminate this Lease by that reason alone nor shall the Lessee or any of the Lessee’s Employees have any Claim against the Lessor in that respect.”

27 “Business Hours” was defined as being between 11.30 am to 6.00 pm.

28 “Services” was defined to mean “all services or systems of any nature from time to time provided to the Building ... and includes the provision of ... air-conditioning.”

29 During submissions, Mr Vale complained that the terms of the lease were onerous. Woodfire Pizza Consultancy would not be entitled to any relief because the terms of the lease might be onerous from its perspective. Nor is Mr Vale in a better position. The lease was entered into between commercial parties dealing with each other at arm’s length. Rosychamp was entitled to seek to protect its interest in redeveloping the building in which the leased premises were situated. The lease contained provisions to protect the lessee in respect of works carried out during a redevelopment. In fact no such works were carried out. The fact that prospective purchasers of the business were deterred from taking assignment of the lease because the obligations of the lessee included an obligations to redecorate, and to refurbish the premises if the option for renewal were exercised, does not mean that Rosychamp acted unconscionably in negotiating those terms. Nor did Mr Vale plead that Rosychamp acted unconscionably by insisting on those terms. Although Mr Vale submitted that the terms were unfair, that complaint, if made good, would produce no legal consequence.

30 Mr Vale pleaded that from May 2002 to early 2003 Rosychamp failed to execute the lease while at the same time placing the building on the market for sale, thus placing Woodfire Pizza Consultancy in a position of peculiar vulnerability. This raises a factual issue which was not explored during the hearing. There was no evidence as to whether Rosychamp placed the building on the market for sale during May 2002 to early 2003 or, if it did, whether that adversely affected Woodfire Pizza Consultancy. Moreover, the lease was signed on 10 October 2002. No doubt Woodfire Pizza Consultancy was in a vulnerable position until the lease was signed. That was because it had not exercised the option for renewal in the previous lease assigned to it. There is no substance to the claim that Rosychamp engaged in unconscionable conduct in this respect.

Demands for Payment of Rent

31 The account continued in arrears. On 17 November 2003, the solicitors for Rosychamp, Allens Arthur Robinson, made a demand on Woodfire Pizza Consultancy for $118,333.59 being arrears in rent and car parking license fees. They threatened that legal action would be taken if the arrears were not paid. On 10 December 2003, Mr Vale advised Allens Arthur Robinson that he had arranged a home loan through RAMS Mortgage Corporation Ltd for $300,000 and that a cheque for the rental arrears would be provided on settlement of the loan. On 26 February 2004, all of the arrears were cleared.

Proposal for a New Lease

32 At a meeting between Mr Vale and Colliers in April 2004, confirmed by letter dated 21 April 2004, Mr Vale proposed separating the take-away/home delivery portion of the business from the main restaurant with the plan of selling the main restaurant and keeping the take-away/home delivery business. Mr Vale proposed that there be a separate lease for the shop for the take-away/home delivery business and that the lease for the restaurant remain the same except for the excision of that area. He proposed a new five-year lease with a five-year option for renewal for the shop.

33 The lessor rejected the proposal. On 11 May 2004 Colliers advised that:

“The owner feels that as the building is likely to be redeveloped that there is no point granting a new lease to new tenants as Woodfire Pizza is currently in an existing lease and our client feels that should they agree to a new lease for a new tenant that potential disputes may arise over the redevelopment with new tenants.”

34 In the light of this advice, Mr Vale could not reasonably have assumed that Rosychamp would be willing to grant a new lease to a prospective purchaser were Woodfire Pizza Consultancy to sell the business.

35 Woodfire Pizza Consultancy quickly fell behind again in making rental payments. As at 1 June 2004, it owed $42,304.32. On 20 September 2004, Mr Vale acknowledged that the outstanding balance was $53,307.37.

Proposals for Sale of the Business

36 In September 2004 Woodfire Pizza Consultancy received an offer to purchase the business for $450,000 from a Mr and Mrs Fishwick. Mr Vale did not proceed with that proposal because he had a proposal from the restaurant’s then chef, Mr David Salisbury, to purchase a half-share in the business for $245,000. Mr Vale deposed that had he known that the landlord did not intend to offer a new lease or had he known that the landlord intended to stand in the way of an assignment he would have immediately caused the Fishwick offer to be accepted.

37 On 26 October 2004, Mr Vale advised Colliers that a contract for the sale of the business had been prepared and that once exchanged he would send the information and documentation necessary for the assignment of the lease. The proposed sale of the business was to a new company to be owned equally by Mr Salisbury and Mr Vale.

38 On 27 October 2004, Mr Fairbairn of Colliers advised that the landlord would only consider approving the assignment of the lease after:

“... the following has been achieved by you as the tenant:

1. Satisfactorily fulfill the requirements under clause 9 of the current lease between Rosychamp Pty Ltd & Woodfire Pizza Consultancy Pty Ltd

2. Provide detailed information on the proposed purchaser (including: name, financial references, such as accountant and bank manager, trading history in the food industry etc)

3. Reduce all current arrears to $0.00 keeping in mind that November rent is due on 1-November-2004

4. Provide a security deposit in lieu of a new bank guarantee totalling three months gross rent inclusive of GST on Retail Rent & Car Parking equal to $48,447.57. Upon the sale of the business the security deposit will be released once the new bank guarantee has been received.”

39 The reference to clause 9 of the lease was to a clause dealing with assignment and subletting. Clause 9.2 reflected s 39 of the Retail Leases Act. It provided:

“9.2 Assignment

The Lessee shall not assign or transfer this Lease without the consent of the Lessor, which shall not be withheld unless:

(a) (change of use) the proposed assignee proposes to change the Permitted Use;

(b) (inferior resources) the proposed assignee has financial resources or retailing skills that are inferior to those of the Lessee; or

(c) (breach of procedures) the Lessee has not complied with clause 9.3.”

40 Clause 9.3 set out the procedure for obtaining consent to assignment including the provision to the lessor of such information as it might reasonably require concerning the financial standing and business experience of the proposed assignee.

41 Rosychamp was not entitled to impose the conditions to a consent to the assignment of the lease set out in paras 3 and 4 of Mr Fairbairn’s advice of 27 October 2004 (s 39 of the Retail Leases Act and clause 9.2).

42 A written application for consent to assignment was sent on 19 November 2004. On 22 November 2004, Colliers responded by confirming that the landlord had not approved the assignment of lease “at this stage”. It said that there was insufficient information and documentation provided and sought financial references for Mr Salisbury. It also sought full payment of rental arrears of $69,713.55. Later that day, Mr Vale advised that he would obtain the financial references for Mr Salisbury and suggested that Colliers hold off submitting anything to the landlord’s solicitor until this was completed. On 17 December 2004, Colliers sent a lease assignment form to Mr and Mrs Vale to assist them with the information required for the assignment of the lease. This included particulars of the proposed assignee, credit references and statements of assets and liabilities of the applicant.

43 The proposed sale of the business did not proceed. On 10 February 2005, Colliers asked for an update on how things were progressing with the proposed sale and asked Mr Vale to organise for payment of some of the arrears. Mr Vale replied on 10 February 2005 advising that he was hoping to be in a position to exchange contracts the next week but was waiting for Mr Salisbury to organise his finances. The proposal fell through and the request for an assignment of the lease was not proceeded with. The reason for that had nothing to do with the lessor’s wrongful stipulation that arrears of rent be paid. The proposal fell through because Mr Salisbury was unable to arrange the finance that he would have needed to acquire a 50 percent shareholding in the new company that was to acquire the business.

44 There is no corroboration of Mr Vale’s evidence referred to in para [36]. I do not accept that evidence. Mr Vale’s evidence is contradicted by his actions at the time. He was advised by Colliers on 27 October 2004 that as a condition of considering an application for assignment of the lease the landlord required all current arrears to be paid. Whilst Rosychamp was not entitled to impose that condition, there was no protest or query about the imposition of the condition. There is no evidence that Mr Vale took any steps to accept the offer from Mr and Mrs Fishwick. In any event, there is no evidence as to the terms of the offer save as to price. There was no evidence as to whether Mr and Mrs Fishwick would have been content to accept an assignment of the lease.

Further Demands for Rent

45 By 29 June 2005, the arrears of rent had increased to $98,806.83. On that day Colliers demanded payment of half of the arrears ($49,403.42) by 15 July 2005 and the balance of the arrears by 31 July 2005 in addition to the July rent. Mr Vale responded on 5 July 2005 by advising that he had appointed an additional business broker (BCI Crows Nest) along with Mr Feszt of Feszt & Feszt Restaurant Business Brokers to sell the business. He had advertised the business for sale at $485,000. He advised that he would drop the offered selling price to $450,000 to attract offers. He advised that as soon as a buyer was found the full outstanding rental arrears would be paid on settlement. He said that as the current lease had approximately seven years left (including an option period) a potential buyer might be more interested if a new lease of five years plus a five-year option term was offered. At that time there was no specific proposal put to Rosychamp for its consideration.

Administration of Woodfire Pizza Consultancy

46 By July 2005, Woodfire Pizza Consultancy’s financial position was dire. It had not prepared financial statements for the year ended 30 June 2004 or 30 June 2005. On 29 June 2005, the Australian Taxation Office issued a creditor’s statutory demand claiming a debt of $238,285.24. This debt related to unpaid superannuation guarantee charges, and a running balance account deposit for GST and PAYG instalment deductions. On 12 July 2005, the company was placed into voluntary administration. At the second meeting of creditors it was resolved that the company be wound up. Mr David Vale was a secured creditor for $490,000. He held a registered charge over the company’s assets dated 19 January 2004. There was no issue as to the validity of the charge.

47 On 13 July 2005, Leonard Dean Lawyers, acting for the directors of Woodfire Pizza Consultancy, wrote to Mr Chiu of Allens Arthur Robinson who acted for the lessor. Leonard Dean Lawyers said that Mr Vale had been appointed controller of the company’s assets pursuant to the deed of charge and had licensed the business of the Red Centre Restaurant to a company called Woodfire Pizza Company Pty Ltd. Leonard Dean Lawyers sought the lessor’s consent to the assignment of the lease from Woodfire Pizza Consultancy to Woodfire Pizza Company. They advised that their client’s strategy was to sell the business as soon as possible and on settlement of the sale to pay all outstanding rental arrears to the lessor.

48 On the following day, Mr Vale wrote to Mr Fairbairn of Colliers, advising that Woodfire Pizza Consultancy had been placed into voluntary administration and that as a secured creditor of the company he had been appointed controller of its business. He referred to his solicitor’s correspondence to Allens Arthur Robinson seeking approval for a deed of assignment of the lease from Woodfire Pizza Consultancy to Woodfire Pizza Company in order to conduct an orderly sale of the business.

49 Mr Vale complains that Allens Arthur Robinson did not respond to the letter from Leonard Dean Lawyers of 13 July 2005. There is nothing in that complaint because on 18 July 2005 Colliers responded directly to him. Colliers advised that the landlord’s approval was not given for a deed of assignment of the current lease. Colliers demanded full payment of arrears then totalling $99,296.88. Mr Vale pleaded for more time and said that he and his brother were trying very hard to sell the business and had no doubt that it would be sold in the next few months. Some payments were made later in 2005 to reduce the arrears.

50 The creditor’s resolution to wind up Woodfire Pizza Consultancy was passed on 17 August 2005. This was an event of default under clause 13.1 of the lease which would have entitled Rosychamp to determine the lease. However Rosychamp did not exercise that power. Notwithstanding that it did not consent to an assignment of the lease to Woodfire Pizza Company, it treated Mr Vale as if he were the lessee.

51 On 30 November 2005, Colliers wrote to Mr Vale at “The Red Centre” and advised that:

“... we are writing to reiterate the point that to prevent repossession of your tenancy due to non-payment of rental we require your complete adherence to this offer put forward by Rosychamp Pty Ltd.”

52 Colliers advised that they were instructed by the landlord that they must receive a payment of $20,000 towards the arrears of rent, then totalling $98,276.98, within the next two weeks in addition to the current rental payments due on 1 December 2005. They advised that “Failure to make these payments will result in lease termination without any further notice being given and the landlord repossessing the premises due to non-payment of rental.” They advised that if that payment plan were adhered to the remaining arrears could be reduced by payments of $4,604.53 each month in addition to the regular rental charges. They sought Mr Vale’s acknowledgment of the letter by his signing and returning it.

53 Mr Vale signed and returned his acknowledgment of the letter. He advised he was looking forward to selling the business and was confident to have an assignment of the lease sooner rather than later. He stated that since July 2005 all monthly rental payments had been met notwithstanding what had been a difficult trading period for retailers. The letter was sent under letterhead of “The Red Centre Restaurant”. He signed as “David Vale Director” but did not state any company for which he was purportedly acting as director.

54 Mr Vale pleaded that the lease to Woodfire Pizza Consultancy was novated as and from 13 July 2005 to him or to Woodfire Pizza Company.

55 I do not accept that there was a novation of the lease. A novation involves the discharge of the obligations of the original parties to the lease, that is Rosychamp and Woodfire Pizza Consultancy, and the substitution of new parties. Rosychamp did not assent to Woodfire Pizza Consultancy being discharged from continuing obligations under the lease. However, Rosychamp did accept Mr Vale personally as a lessee of the premises from about 13 July 2005. Rosychamp admitted that on or about that date, Mr Vale entered into possession of the premises and operated the business known as the Red Centre Restaurant. Although it pleaded that the business was the business of Woodfire Pizza Consultancy, it accepted that the plaintiff in his own right took possession of the premises. Rosychamp denied that Mr Vale acquired Woodfire Pizza Consultancy’s rights under the lease and pleaded that:

“... the Plaintiff’s [i.e. Mr Vale’s] interest as lessee in the Premises arises in the following circumstances:

i. The Premises have and continue to be a retail shop, in that they were and are used wholly or predominantly for the carrying on of a business of a restaurant, namely the Red Centre Restaurant, within the meaning of s 3 and Schedule 1 of the Retail Leases Act 1994 (“Act”);

ii. The Plaintiff entered into possession of the premises as and from 13 July 2005;

iii. The Plaintiff assumed the obligations of Woodfire Consultancy under the lease;

iv. The Lease is a retail shop lease to which the Act applies within the meaning of sections 3 and 6 of the Act;

v. The plaintiff part-performed the Lease in terms of making payments pursuant to the Lease.”

56 Rosychamp admitted that “The Plaintiff [Mr Vale] has rights as lessee pursuant to the Lease as and from 13 July 2005, such rights being subject to the corresponding obligations under the Lease as and from 13 July 2005.” Rosychamp admitted accepting rent from Mr Vale as payment owing in accordance with the terms of the lease but denied that the lease was novated to him.

57 Counsel for Rosychamp submitted that its admission that Mr Vale had an interest from 13 July 2005 as lessee was to be understood as a reference to his being a lessee within the meaning of the Retail Leases Act, being a person who had a right to occupy a retail shop under a retail shop lease. A “retail shop lease” is defined by s 3 of the Retail Leases Act to mean “any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop” whether or not the right is a right of exclusive occupation. Hence, counsel for Rosychamp submitted that Rosychamp had not agreed to give exclusive possession of the premises to Mr Vale under an agreement for lease at the same time as the lease to Woodfire Pizza Consultancy remained on foot.

58 I accept that the admissions in Rosychamp’s defence are to be understood in the light of the definitions in the Retail Leases Act. Nonetheless, I consider that the arrangements made from 13 July 2005 involve the grant by Rosychamp of a lease of the premises to Mr Vale concurrently with the existing lease to Woodfire Pizza Consultancy. As Rosychamp pleaded, Mr Vale entered into possession of the premises and assured the obligations of Woodfire Pizza Consultancy. He paid rent and was treated by Rosychamp as the lessee. Rosychamp made no further demand on Woodfire Pizza Consultancy.

59 In Waterhouse v Waugh [2003] NSWCA 139, Handley JA, with whom Giles JA and Young CJ in Eq agreed said (at [27]-[28]):

“[27] ... The nature of a concurrent lease is described by Woodfall's ‘Law of Landlord and Tenant’, 28th ed, 1978 at p 246:

‘A concurrent lease is one granted for a term which is to commence before the expiration or other determination of a previous lease of the same premises to another person. Such a lease is said to take effect in reversion expectant upon the earlier term, which may be either shorter or longer than the concurrent term. But it should be observed that the concurrent term takes effect at once from the time limited for its commencement, and operates as an assignment of the reversion during such time as the two terms run concurrently ... It entitles the lessee, as assignee of part of the reversion, to the rent reserved in the previous lease, and to the benefit of the covenants therein contained, which are to be respectively paid and performed during the then residue of the term granted by the first lease, and the continuance of the concurrent lease’.

[28] In the absence of a contrary intention a concurrent lease passes to the concurrent lessee the concurrent lessor's accrued rights under the existing lease. See Cole v Kelly [1920] 2 KB 106 CA and London & County Ltd v W Sportsman Ltd [1971] Ch 764 CA, 781-2. This accords with the second limb of s117(1) [of the Conveyancing Act 1919 (NSW)]. However the section operates subject to any contrary intention expressed by the parties ...”

60 Here, the parties clearly intended that the arrears of rent owed by Woodfire Pizza Consultancy were not assigned to Mr Vale. Nonetheless, from the time of the lease of the premises to Mr Vale, future rent owed by Woodfire Pizza Consultancy was owed to Mr Vale and not to Rosychamp. In turn, Mr Vale, but not Woodfire Pizza Consultancy, owed rent to Rosychamp from the time he leased the premises. It follows that Mr Vale and Mr Michael Vale are liable as guarantors of the rent owed by Woodfire Pizza Consultancy up to the date of the concurrent lease to Mr Vale except to the extent such arrears in rent were subsequently reduced or discharged. Mr Vale was liable for rent under his lease from Rosychamp. That was a personal liability and not a liability as surety of Woodfire Pizza Consultancy. It is admitted on the pleadings that a lease to Mr Vale was entered into on or about 13 July 2005.

61 At that time the rent was in arrears of $99,296.88. The arrears were reduced by 29 July 2005 to $89,296.88. Colliers did not keep a separate ledger for the rent owed by Woodfire Pizza Consultancy and the rent owed by Mr Vale. They kept a single running ledger. It showed that rental arrears were reduced to $73,720.93 as at 1 January 2006 and as at 17 January 2006. This reflected an additional payment made on 14 December 2005 (albeit by post-dated cheques) to reduce the earlier arrears. There were no other payments to reduce the rent owed by Woodfire Pizza Consultancy as at 13 July 2005.

Attempted Sale of the Red Centre Restaurant Business to Mr Craig Macindoe

62 Prior to Christmas 2005, Mr Craig Macindoe met with Mr Vale in response to an advertisement for the sale of the business for $350,000 plus stock at value. They conducted negotiations during January 2006. On 13 February 2006, Mr Macindoe made an offer of $350,000 for the purchase of the business and all assets of the restaurant. The offer was conditional on, amongst other things, his securing two additional five-year options at a satisfactory rent, vendor finance for $150,000 for 12 months, and assurances by the landlord that additional building works, if any, would not interfere with trade.

63 Mr Vale responded on 21 February 2006 advising, amongst other things, that the sale price would be $350,000 plus stock at cost price, that vendor finance was not available, and that questions of the lease and assurances from the landlord (together with a requested assurance that additional tenancies would not be able to complain about noise), should be taken up with the landlord.

64 On 22 February 2006, Mr Vale wrote to Mr Copley at Colliers advising that an offer had been made to purchase the business of the Red Centre Restaurant for $350,000 which had been accepted, subject to the purchaser being approved by the lessor. This was not an accurate statement of the position. Mr Vale had made a counter-offer to Mr Macindoe. Mr Vale asked Colliers to post to him the appropriate assignment of lease application form to give to the prospective purchaser.

65 Mr Vale’s solicitor was Mr Bacina of Leonard Legal. On 17 March 2006, Mr Bacina sent an email to Mr Copley of Colliers confirming a telephone conversation he had had with Mr Copley in which Mr Copley advised that the landlord’s position was currently that it would not entertain an assignment of the lease without all arrears being paid. Mr Bacina advised that full payment of arrears of the lease would be made on settlement of the sale of the Red Centre Restaurant. He proposed that a “valid assignment” be prepared and that all necessary steps be taken pursuant to clause 9 of the lease and that on settlement the lessor consent to the assignment of the lease simultaneously with being paid arrears of rent.

66 On 20 March 2006, Mr Bacina asked Mr Copley to obtain urgent instructions regarding Mr Vale’s proposal regarding assignment and payment of arrears of rent on settlement of the sale of the business and the provision of an updated lessor disclosure statement. Mr Bacina asked Mr Copley in effect, although not in precisely these words, to identify what provision of the lease gave the lessor the right to withhold consent to the assignment other than clause 9.

67 There was no explanation as to why Mr Vale, through his solicitor, sought Rosychamp’s consent to an assignment of the lease to Mr Macindoe. It was clear from Mr Macindoe’s offer that he required a new lease, not an assignment of the existing lease. Notwithstanding this, on 22 March 2006, Mr Bacina wrote to Mr Copley at Colliers and formally requested an assignment of the lease between Rosychamp and Woodfire Pizza Consultancy. He asked Colliers to forward necessary documents so that the matter could be expedited.

68 On 22 March 2006, Mr Copley sent to Mr Bacina a copy of an application for assignment, as had previously been provided to Mr Vale. He advised that he was still awaiting instructions from the lessor.

69 On 3 April 2004 Mr Ben Connery of Connery Partners wrote to Mr Copley as follows:

“We confirm we act on behalf of Craig McIndoe [sic] who is proposing to purchase The Red Centre Restaurant. The purchase however is subject to a new Lease being granted to him for 5 years with two 5 year options on terms substantially similar to those in force between the landlord and vendor subject to the following amendments:-

(a) Amend the business hours on page 2 to read ’11.30am to midnight’.

(b) Personal guarantees being limited to a total of $50,000.

(c) Delete Clauses 7.6, 8.5, 8.10 and 8.11.

(d) Amend the notice period in Clause 17.5 to 6 months.

(e) In Clause 17.6 delete the words ‘solely and directly’. Further an escape clause needs to be added to this clause for our client’s benefit. We will provide same shortly.

(f) Delete Clause 18.7 of the Lease.

Please obtain instructions from your client. What additional information do you require?”

70 Mr Connery subsequently advised that Mr Macindoe sought the deletion of clause 7.6(d) and not the whole of clause 7.6. Clause 7.6(d) was a covenant by the lessee not to use or operate any sound or picture producing equipment in the premises if audible or visible from outside the premises. Clause 8.5 related to alterations or refurbishments of the building by the lessor which might adversely affect the lessee’s business. Clauses 8.10 and 8.11 imposed obligations on the lessee to redecorate the premises by 30 April 2007 and 30 April 2012 and to carry out a full refurbishment of the interior and exterior of the premises if the option of renewal were exercised. Clause 17.5 required the lessor to give the lessee two months’ notice in writing of proposed building works. Clause 17.6 dealt with rent abatement if the lessee’s business experienced a trading downturn solely and directly as a consequence of the building works. Clause 18.7 provided for the appointment of the lessor as the lessee’s attorney after exercise of the power of re-entry.

71 Rosychamp refused Mr Macindoe’s request for a new lease. There was no negotiation about the proposed changes, but rather a flat rejection of the proposal. There is no reason to think that the refusal was based on any reservations as to Mr Macindoe’s suitability as a tenant. He had extensive restaurant experience. Rosychamp did not raise any query about Mr Macindoe’s experience as a restauranteur, or his financial position.

72 On 26 April 2006, Mr Vale wrote to Mr Copley regarding the arrears of rent. He said that trading had been very difficult since February of that year. He said that $15,000 of additional rent paid in December towards arrears was a loan from his wife’s parents. He said that he was unable to make any more payments. He said that all rental arrears would be paid at settlement of the sale to Mr Macindoe.

73 Mr Stephen Wong, the ultimate beneficial shareholder of Rosychamp, instructed Colliers to give notice that the lease would be terminated if the arrears were not paid. On 27 April 2006, he instructed Mr Copley as follows:

“My position is very firm, please proceed this letter as soon as possible without further delay. I am patient enough to take the action until now. Even though the potential buyer Craig has approached me, I would not discuss anything until we clear up the mess.”

74 On the same day, Colliers served notice on Mr Vale that the total arrears were $113,691.08. Colliers noted that the repayment program set out in their letter of 30 November 2005, which had been accepted by Mr Vale on 2 December 2005, had not been adhered to. They advised that:

“In accordance with the terms of your lease and due to failure to adhere to the aforementioned repayment program, we have been instructed by the owner to inform that unless payment of the full arrears is received within 14 days from the date of this letter we will be forced to determine the lease and take possession of the premises without further notice.“

75 Mr Vale responded on 7 May 2006. He asserted that the purchaser had had direct responses with Rosychamp and was under the impression that a new five-year lease with a five-year option would be granted, but required written confirmation from Rosychamp before he signed the contract with Mr Vale. Mr Macindoe gave no evidence of having received such confirmation. To the contrary, he said that he was informed by Mr Copley that the landlord did not agree to his requests for a new lease. Mr Vale’s correspondence misstated the facts.

76 In his letter of 7 May 2006, Mr Vale asserted that he had adhered to s 39 of the Retail Leases Act and if Rosychamp was not willing to negotiate terms and conditions of a lease to Mr Macindoe, it would be acting unconscionably in contravention of s 62B of the Retail Leases Act.

77 Mr Vale had submitted an application for consent to an assignment of the lease. However, Mr Macindoe was not seeking an assignment of the lease. Mr Vale’s assertion that the landlord was failing to comply with s 39 of the Retail Leases Act by withholding consent on grounds not permitted by that section was an attempt to create a plausible ground for legal complaint. However, there was no factual basis for that complaint because even had the consent sought by Mr Vale been forthcoming it would not have enabled him to sell the business to Mr Macindoe. Mr Macindoe required a new lease, not an assignment of the existing lease. That had been made known to Rosychamp by April 2006. In deciding whether or not to give a new lease to Mr Macindoe, Rosychamp was entitled to have regard to its own interests.

Termination of the Lease

78 On 22 May 2006, Colliers served written notice that the lessor determined the lease as the time for payment of rental arrears specified in their letter of 27 April 2006 had expired. The arrears had not been paid. Colliers advised that in accordance with the lease, termination was effective from the date of the notice and the lessor required the premises to be vacated within seven days. The lease referred to in the notice was the lease to Woodfire Pizza Consultancy. Although not separately addressed to Mr Vale, the notice was understood by all parties to terminate any right of Mr Vale to remain in possession of the premises. At no time did Mr Vale assert that he was entitled to keep possession under a separate concurrent lease. The question whether there were separate leases was not considered by any party.

79 On 24 May 2006, Mr Bacina wrote to Rosychamp’s solicitor, Mr Bernard Chiu, and to Colliers, asserting that the attempt to “precipitously force our client from the premises” was unconscionable and evinced a collateral and improper purpose. Mr Bacina asserted that the defendant’s failure to respond within 42 days to a formal request for a consent to the assignment of the lease meant that Mr Vale was entitled to proceed on the basis that consent had been given. Of course that was of no avail to Mr Vale because his proposed transaction with Mr Macindoe was not premised upon Mr Macindoe’s taking an assignment of the lease.

80 Mr Bacina foreshadowed the institution of proceedings in the Administrative Decisions Tribunal for interim orders to restrain the defendant from taking possession of the premises. In the course of the letter Mr Bacina asserted a number of matters which were incorrect, including that the only proposed variation of the lease sought by Mr Macindoe was in relation to trading hours. He referred to Mr Vale’s having informed Mr Copley that both Mr Macindoe and Mr Arena (Mr Vale’s business broker) had been informed by Mr Wong that Mr Wong saw no problem in granting a new lease as requested. This was wrong. No such representation was made by Mr Wong.

Institution of Proceedings in the Administrative Decisions Tribunal

81 Mr Wong deposed that he was contacted by Mr Arena in April 2006 and asked to consider granting a new lease for the term of five plus five years, extending the trading hours and removing the demolition clause. Mr Wong refused to meet with Mr Arena and told him that he would consider granting a new lease once he had sorted out the mess with David Vale and his company. Mr Wong also told Mr Macindoe that “I will not be interested to further discuss the terms of the new lease until the mess created by David Vale is resolved and settled.” Mr Wong did not tell either Mr Arena or Mr Macindoe that he was willing to grant a new lease or had agreed to grant a new lease to Mr Macindoe.

82 Mr Vale and Woodfire Pizza Company instituted proceedings in the Tribunal on 25 May 2006. On 9 June 2006, the Appeal Division of the Tribunal made an order that Rosychamp not disturb the possession of the premises by Mr Vale and that Mr Vale pay rent by weekly instalments of $3,805.40. This was the then current weekly rent. That rent was paid to 27 June 2006. As a result of Mr Vale’s failure to make the instalment payment of $3,805.40 due on 4 July 2006, Rosychamp applied to the Tribunal for the discharge of the order of 9 June 2006. On 9 July 2006, the Tribunal varied the orders and ordered the plaintiff to pay rent in the sum of $3,805.40 from 18 July 2006. It accepted that the plaintiff was unable to pay rent for the period from 27 June to 18 July and did not consider that to be a sufficient basis for discharging the injunction.

Negotiations for Sale of the Business to Mr Michael Moore

83 Mr Vale continued his efforts to sell the business. The advertised price was reduced to $250,000. Mr Vale’s broker, Mr Feszt, received a number of serious inquiries. Many other calls were received from persons who did not wish to take the matter further because of the limited lease and the obligation in the lease to refurbish the restaurant by the following April. One interested prospective purchaser was a Mr Michael Moore who said that he had been involved in the establishment of the restaurant 16 years previously and thought that he could turn the business around quickly. On the evening of 28 August 2006 Mr Bacina forwarded to Mr Chiu an email asking for the particulars the defendant would require to consider an application for assignment of the lease to Mr Moore. He asked that Mr Chiu and the defendant refrain from contacting Mr Moore or his solicitor at that time. He gave no reason for that last request.

84 On 29 August 2006, Mr Chiu sent an email to Mr Moore attaching the Colliers standard lease application form document. Mr Chiu said:

“I act for Rosychamp Pty Ltd, the lessor of the premises presently occupied by the Red Centre Restaurant. I understand from copies of emails provided to me yesterday at the Administrative Decisions Tribunal that you have expressed interest in purchasing that business and taking an assignment of the existing lease.

It would assist in the expeditious determination by my client of any application for consent to an assignment that you complete the enclosed application, and provide it to my office together with information relevant to your financial standing and business experience, preferably by 4pm on Wednesday 30th August 2006. This will enable my client to determine the application for consent to an assignment within 7 days of receipt.

I will also forward a copy of the existing lease to you by separate email for your convenience.

I am copying this email to your solicitor and the lessee’s solicitor.

...”

85 Mr Bacina complained that notwithstanding his request of 28 August 2006, Mr Chiu had contacted the potential purchaser. Mr Vale’s complaint is that in his communication to Mr Moore, Mr Chiu referred to the fact that there were proceedings on foot in the Tribunal between Rosychamp and Mr Vale.

86 Later that day Mr Chiu sent Mr Moore a copy of the existing lease in respect of the Red Centre Restaurant. Mr Moore’s solicitor, Mr Cominos, sent an email to Mr Bacina asking to what the Administrative Decisions Tribunal proceedings related. Mr Bacina replied that the proceedings related to arrears of rental and the failure of the landlord to provide air-conditioning services. On 6 September 2006, Mr Moore’s solicitor advised that Mr Moore would no longer proceed with the proposed sale. According to Mr Feszt’s email of 8 September 2006 Mr Moore decided to withdraw “due to some lease and development concerns”.

87 Mr Vale submits that Rosychamp, through Mr Chiu, acted unconscionably in contacting Mr Moore. As I understand his complaint, he says it was unconscionable for Rosychamp to put Mr Moore on notice that proceedings were pending in the Tribunal between Mr Vale and it. Mr Bacina complained on 30 August 2006 that the litigation in the Tribunal concerned allegations made by Mr Vale of the lessor’s bad faith and allegations that the defendant had prevented Mr Vale from making a sale of his business. Mr Bacina contended that in those circumstances it was improper for Mr Chiu to have contacted Mr Moore or his solicitor.

88 If the nature of the allegations made by Mr Vale against Rosychamp was material to Mr Moore’s decision, there is every reason Mr Moore should have been advised of those matters. It is implicit in Mr Vale’s submission that the fact that proceedings were pending in the Tribunal was relevant to a decision by Mr Moore whether to proceed with a proposed purchase of the business and assignment of the lease, and that he was prepared to enter into a contract with Mr Moore without revealing those facts. In essence, Mr Vale’s complaint is that it was unconscionable for Mr Chiu to disclose relevant matters to the proposed purchaser which Mr Vale wished to keep secret.

89 I see nothing unconscionable in Mr Chiu’s correspondence with Mr Moore. Even if Mr Chiu’s intentions went beyond seeking to expedite an application for approval of the assignment of the lease, there was still nothing unconscionable in his communications. Mr Vale’s position is that he could have procured an assignment of the lease to a purchaser who was kept in the dark about matters relevant to his decision. If Mr Vale had been dealing honestly with Mr Moore, he would have disclosed the fact that he was in dispute with the lessor. The lessor had an interest in ensuring that any assignee could not complain that he had been induced to take an assignment of the lease through misleading and deceptive conduct, or the non-disclosure of material facts.

90 As it was, Mr Chiu’s correspondence with Mr Moore did no more than state the fact that there were proceedings in the Tribunal. There is no reason he should have assumed that Mr Moore would have been kept ignorant of those proceedings. In any event, such evidence as there is as to the reasons which prompted Mr Moore not to proceed is that his decision was motivated by concerns as to the lease and the proposed development works.

Negotiations for Sale of the Business to Mr Krikor Simoniam

91 On 4 September 2006, Mr Vale attended a meeting with Mr Feszt and a Mr Krikor Simoniam. Mr Simoniam said that he was very interested in buying the business. Mr Feszt telephoned Mr Copley of Colliers and told Mr Copley that a purchaser would like to meet with him to discuss taking an assignment of the lease and moving into the premises. On that day Mr Bacina sent an email to Mr Chiu advising that Mr Copley had declined to meet with the potential purchaser as the matter was in litigation. Mr Bacina asserted that Rosychamp was obliged to act in good faith with respect to Mr Vale’s sale of the business and contended that there was no possible ground on which Mr Copley could properly refuse to meet with a potential purchaser. That afternoon Mr Chiu advised that Mr Copley denied having refused to meet with the potential purchaser. Mr Chiu confirmed that no such instruction had been given to Colliers. Mr Chiu said that the plaintiff should ensure that an application for consent to assignment, together with necessary information as to the financial standing of the potential lessee was forwarded for consideration as a matter of priority. Mr Chiu stated that the plaintiff had refused to pay rent for his continued occupation of the premises.

92 After further email correspondence Mr Chiu repeated his request for the provision of details concerning the financial standing and experience of Mr Simoniam. He said that it was not clear why a face-to-face meeting was required as Mr Vale was saying that the parties were in a position to effect an immediate exchange of contracts and to seek consent to the assignment of the lease. Mr Chiu said that given the level and nature of disputation between the parties it was appropriate that any queries the potential purchaser might have concerning the lease and the assignment be put in writing. On the following day, Tuesday, 5 September 2006, Mr Bacina repeated his request that a meeting be arranged between Mr Simoniam and the landlord or the landlord’s representative.

93 Between 4 and 6 September 2006 there were inconclusive telephone discussions and email correspondence between Mr Feszt, Mr Vale and Mr Copley. Mr Feszt and Mr Vale were trying to arrange a meeting between Mr Copley and Mr Simoniam. Mr Copley asked for an application for assignment and supporting financial information to be provided to him.

94 On 6 September 2006, Mr Chiu was provided with telephone contact details for Mr Simoniam. In an affidavit sworn on 6 September 2006, Mr Chiu deposed:

“I spoke with Mr Simoniam at about 11am today, during which conversation I asked him ‘do you want an assignment of the lease’ and he said ‘no I have a steakhouse in mind like the “Hurricane”’ and ‘Vale’s business is going down and his concept does not work’. I said ‘so you are not buying David Vale’s business as such’ and he said, ‘No, I may just buy the equipment, but yes, not the business he is running.’ and ‘I intend to spend about $400,000 to refurbish the premises.’ I asked ‘have you received any paperwork for example the existing lease and a lease application form?’ and he said ‘I have not received any documents’. He also said ‘At this stage my concern is whether I can get a long lease because if I am going to invest so much money in the premises, it is in my interest to secure a long term lease, which will allow me to change the restaurant into a steakhouse.’ He said ‘Would the landlord be prepared to grant a new lease on refurbishment? That’s why I want to meet with the landlord, to discuss the concept of a steakhouse and a new lease’. He said ‘only if the landlord agrees to my new concept and the refurbishment will I proceed with the purchase’. I asked him ‘have you agreed with David Vale on the asking price yet?’ and he said ‘No, but I can fix him up easily. This is not the issue. At this stage, I just want to ensure that I will get a secured long lease in order to make my investment worthwhile’.”

95 Mr Chiu was not challenged on this evidence and I accept it.

96 Mr Chiu also deposed on 6 September to having spoken with Mr Simoniam’s solicitor, Mr Edward Teng, at 2.30 pm on that afternoon. Mr Chiu deposed:

“I spoke with Mr Edward Teng, Mr Simoniam’s solicitor when he returned from Court at 2.30pm, and he said ‘I have a draft contract for sale of business and disclosure statement.’ He also said ‘I don’t have a lease application form’. In answer to my question, ‘what is the contract price on the draft?’ he said ‘$350,000 but there will have to be negotiations on the price’. I said ‘if your client wants to refurbish the premises and run a steakhouse, he will not be taking an assignment of the existing lease’ and he said ‘That’s correct’. I then asked ‘Have you reviewed any of the documents including the lease?’ He said ‘No, my client asked me to put the matter on hold while he speaks to the vendor and would get back with further instructions’.”

97 Mr Chiu was not challenged on this evidence and I accept it.

98 The proceedings were before the Tribunal on 7 September 2006. Acting Judge Chesterman discharged the injunction which had restrained Rosychamp from taking possession of the premises. Mr Vale sought leave to amend his allegations of unconscionable conduct to plead that Rosychamp procured the order discharging the injunction by false evidence of negotiations with a prospective replacement tenant. For reasons I gave at the time, I refused that leave.

99 Immediately following the conclusion of the hearing on 7 September, Mr Vale asked Mr Feszt to arrange a meeting that afternoon with Mr Simoniam. Before meeting with Mr Simoniam, Mr Vale attended with Mr Bacina. In Mr Vale’s presence, Mr Bacina sent an email to Mr Chiu at 2.32 pm on 7 September 2006 in the following terms:

“Dear Bernard,

This email is a formal request in writing pursuant to Clause 9.3(a) of the Lease for an assignment of the lease to Mr Krikor Simoniam.

Please confirm that the only information reasonably required by the landlord is that information requested by the Colliers form.

We anticipate this being provided to your shortly.

...”

100 I do not infer from the fact that this email was sent that at this time Mr Simoniam was seeking merely an assignment of lease. A similar request had been made by Mr Bacina on behalf of Mr Vale in respect of the proposed sale of the business to Mr Macindoe notwithstanding that Mr Macindoe’s request was not for an assignment of the lease but for a new lease. Later that afternoon, Mr Vale attended a meeting with Mr Feszt and Mr Simoniam. Mr Feszt told Mr Simoniam that Mr Vale was prepared to drop the price lower than the previously advertised price of $250,000 plus stock at value in order to have a “real quick deal”. Mr Feszt said that they had to have an exchange immediately. Mr Simoniam and Mr Vale discussed the price and agreed on a price of $150,000 plus stock at value. They discussed the fact that Mr Simoniam needed to bring along an application form which he had for the assignment of the lease. There was discussion about the duration of the lease and the gross rental.

101 On the following morning, 8 September 2006, Mr Vale again re-entered the restaurant, notwithstanding that the locks had been changed. He met Mr Krikor Simoniam and Mr Gary Simoniam at the restaurant that morning. They provided him with a completed application for lease assignment form. The form stated that the proposed assignee was a company called Gplex & Associates Pty Ltd but the applicants for the assignment were described as Mr Krikor Simoniam and Mr Garrabet Simoniam. In the section entitled “Plan of Red Centre Restaurant” they stated that the expected change to the restaurant was to renovate and refurbish to make the restaurant look more modern, to change the menus, and to carry out marketing and aggressive promotions. The purchase price of the business was stated to be $100,000 (not $150,000), being the price for fixtures and fittings with nil value for stock or goodwill. At 10.12 am on 8 September 2006, Mr Bacina sent a scanned copy of the completed assignment form to Mr Chiu to accompany his formal request for an assignment sent at 2.32 pm the previous day. He advised that contracts “will be exchanged today for the sale of the Red Centre.” At 11.45 am that morning, Mr Bacina sent a further email to Mr Chiu advising that a contract had been signed by Mr Vale and the purchaser and the deal had been concluded. Mr Bacina contended that there could be no question that there was a validly requested assignment and a valid purchaser. He sought confirmation that the landlord would not take any steps to interfere with Mr Vale’s possession of the premises until 24 hours after the landlord had determined the “assignment question”.

102 The position was that the lease had been terminated, the Tribunal had lifted the injunction restraining Rosychamp from taking possession of the premises, Rosychamp had already taken possession of the premises, but Mr Vale had got back into the premises.

103 Notwithstanding Mr Bacina’s email of 11.45 am, contracts for the purchase of the Red Centre Restaurant business were not exchanged as at 11.45 am. At 12.35 pm on 8 September, Leonard Legal sent to Mr Teng a faxed copy of a front page of a contract for sale of business naming Mr Vale and Woodfire Pizza Company Ltd as vendors. The page was signed by Mr Vale. At 2.59 pm on 8 September 2006, Mr Teng sent a fax to Leonard Legal stating that he enclosed special conditions for annexure to the contract which he had been specifically instructed to add. At 3.24 pm, Mr Bacina sent an email to Mr Teng stating that the changes as discussed in the contract relating to special conditions were acceptable to his client and asking Mr Teng to fax the signed copy of the contract to his office forthwith. At 3.33 pm, Mr Teng sent a fax to Mr Bacina enclosing a copy of the purchaser’s signed front page of the contract together with a copy of the ten percent deposit cheque for the purpose of exchange. The signed front page stated that the vendor was Mr Vale (not Mr Vale and Woodfire Pizza Company) and the purchaser was Gplex Associates Pty Ltd. It was signed by Mr Krikor Simoniam and Mr Garrabet Simoniam as directors. The purchase price was $100,000 plus trading stock allocated as nil dollars for goodwill and $100,000 for equipment. The price for trading stock was said to be a maximum of $20,000.

104 There was no evidence as to what was contained in the special conditions.

105 Mr Chiu was not in his office to receive Mr Bacina’s email correspondence on the morning of 8 September 2006. He was at the restaurant. Mr Vale attempted to give him copies of the correspondence relating to the exchange of contracts with Mr Simoniam, but Mr Chiu did not look at the documents. At about lunchtime on 8 September, Mr Wong caused the electricity supply to the restaurant to be cut. An unknown person severed the electricity cables so that the electricity could not be reconnected. This meant that the restaurant had to be vacated. There was smoke throughout the restaurant from the ovens. Later that day Rosychamp resecured possession of the premises using security guards. An application was made that afternoon by Mr Vale to the duty judge seeking an order that the defendant not disturb his possession of the premises. Palmer J refused to make the order sought. The application was brought pending determination of an application for leave to appeal from the decision of Acting Judge Chesterman of 8 September 2006 to the Appeals Panel of the Tribunal. On 11 September 2006, the summons filed in this court was dismissed (Vale v Rosychamp Pty Ltd [2006] NSWSC 1341). On the same day, the Appeal Panel of the Tribunal refused leave to appeal from the order of Judge O’Connor of 7 September 2006 discharging the injunction granted on 9 June 2006.

106 On 14 or 15 September 2006, there was an auction on site of the lessee’s equipment and fittings and any saleable stock. The vendor was Woodfire Pizza Company. The proceeds, inclusive of GST, amounted to $25,786. After agent’s commission and expenses were deducted the amount realised was $14,303.26.

107 In February 2007, the defendant listed the property for sale. The building was sold at auction on 29 March 2007.

108 On 19 March 2007, the proceedings in the Tribunal were transferred to this court.

Rosychamp’s Application for Development Approval

109 Mr Vale pleaded that Rosychamp acted unconscionably in contravention of s 62B of the Retail Leases Act in connection with his attempts to sell the business from 2004. One of the particulars of unconscionable conduct was that “[Rosychamp] positively conveyed that it had in contemplation that the building would be occupied pursuant to tenancies in the usual commercial course during the work associated with the proposed redevelopment by proposing clauses in the lease of the premises dealing with the right of the lessee to make claims during the proposed redevelopment works.” It is not clear what is said to follow from this allegation.

110 No such representation was made. The lessor’s disclosure statement delivered on 27 March 2002 stated that Rosychamp intended to lodge a development application for the redevelopment of the building either to convert the existing commercial accommodation on the upper floors and/or to add floors to the building to allow additional commercial or residential accommodation. The lessee was required to acknowledge the likelihood of disturbance and disruption to its business during the redevelopment. No representation was made as to the lessor’s intentions in relation to the occupation of other parts of the building.

111 In any event, Mr Vale did not do anything or fail to do anything in reliance on the alleged representation.

112 On 28 February 2006, the North Sydney Council approved a development application by Rosychamp in respect of the premises. The development application had been lodged on 23 December 2004. The building plans submitted as at 28 November 2005 included a plan for the demolition and replacement of a wall which formed part of the men’s toilet facilities in the Red Centre Restaurant. Mr Vale was not notified of that proposed change to the leased premises.

113 Mr Vale submitted that it was unconscionable for Rosychamp to have included in its development application a provision for extending the foyer of the building in a way that would knock down part of the wall of the leased premises even though an area would be added somewhere else. As no construction work was carried out which affected the leased premises, I do not understand how the approval of the development application affected Mr Vale or Woodfire Pizza Consultancy. In any event, the lease expressly provided that the lessor could carry out a redevelopment proposal which might involve the extension, addition to, reduction, variation, modification, redecoration or refurbishment of the building in any manner and that such works could affect the whole, or various parts of the leased premises.

114 Mr Vale said that it was unconscionable for the defendant not to inform him of the proposal in the development application because he was unable to object. However, clauses 17.1, 17.2 and 17.4 of the lease would have precluded any objection. Such a change was covered by clause 17 of the lease. There was nothing unconscionable in Rosychamp lodging the development application which included those matters when the possibility of the leased premises being affected by a redevelopment proposal was expressly raised before the lease was entered into and provisions were inserted into the lease to protect the lessor’s position. That was part of the quid pro quo for the grant of the lease.

115 Rosychamp did intend that the building should be partially occupied during the redevelopment. It intended to redevelop the upper floors of the building. The two upper floors had been leased to Brambles Australia Ltd (“Brambles”). Those floors were planned for redevelopment. Brambles vacated the premises in 2004. Mr Vale complains that the floors were not subsequently re-let. One can understand that it would be desirable for the owner of a restaurant in the building that the building be fully occupied. However, there was no provision in the lease requiring Rosychamp to lease all of the parts of the building or use its best endeavours to do so. As it intended to redevelop those floors, it was not unconscionable for it not to lease them after Brambles vacated that area. In any event, instructions were given to Colliers to attempt to find a potential tenant to fill the areas left vacant by Brambles.

116 Mr Vale criticised the adequacy of Rosychamp’s attempts to find alternative tenants for that area. He also criticised Rosychamp’s attempts to find a tenant for a vacant ground floor shop. Attempts were made to find a tenant for those areas. Advertisements were placed. Colliers were instructed to attempt to find a tenant.

117 However, Mr Vale had no right to insist on Rosychamp letting out the rest of the building. That is particularly so given Rosychamp’s declared intention to redevelop.

118 The principal significance of the redevelopment of the building is that Mr Vale submitted that Rosychamp hoped to have the building empty because it considered that would maximise the price it could obtain on selling the building with the benefit of development approval. He submitted that Rosychamp refused to deal with potential purchasers of the Red Centre Restaurant business because it wanted to obtain vacant possession of the leased premises. He submitted that this was unconscionable.

Conclusions on Allegation of Unconscionable Conduct in Dealings with Prospective Purchasers of the Restaurant

119 Section 62B of the Retail Leases Act provides:

“62B Unconscionable conduct in retail shop lease transactions

(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.

(2) A lessee must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.

(3) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to:

(a) the relative strengths of the bargaining positions of the lessor and the lessee, and

(b) whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and

(c) whether the lessee was able to understand any documents relating to the lease, and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and

(e) the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and

(f) the extent to which the lessor’s conduct towards the lessee was consistent with the lessor’s conduct in similar transactions between the lessor and other like lessees, and

(g) the requirements of any applicable industry code, and

(h) the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, and

(i) the extent to which the lessor unreasonably failed to disclose to the lessee:

(i) any intended conduct of the lessor that might affect the interests of the lessee, and

(ii) any risks to the lessee arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and

(j) the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and

(k) the extent to which the lessor and the lessee acted in good faith.

(4) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessee has contravened subsection (2) in connection with a retail shop lease, the Tribunal may have regard to:

(a) the relative strengths of the bargaining positions of the lessee and the lessor, and

(b) whether, as a result of conduct engaged in by the lessee, the lessor was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessee, and

(c) whether the lessor was able to understand any documents relating to the lease, and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessor or a person acting on behalf of the lessor by the lessee or a person acting on behalf of the lessee in relation to the lease, and

(e) the amount for which, and the circumstances under which, the lessor could have granted an identical or equivalent lease to a person other than the lessee, and

(f) the extent to which the lessee’s conduct towards the lessor was consistent with the lessee’s conduct in similar transactions between the lessee and other like lessors, and

(g) the requirements of any applicable industry code, and

(h) the requirements of any other industry code, if the lessor acted on the reasonable belief that the lessee would comply with that code, and

(i) the extent to which the lessee unreasonably failed to disclose to the lessor:

(i) any intended conduct of the lessee that might affect the interests of the lessor, and

(ii) any risks to the lessor arising from the lessee’s intended conduct (being risks that the lessee should have foreseen would not be apparent to the lessor), and

(j) the extent to which the lessee was willing to negotiate the terms and conditions of any lease with the lessor, and

(k) the extent to which the lessee and the lessor acted in good faith.

(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person institutes legal proceedings in relation to that lease or refers to arbitration a dispute or claim in relation to that lease.

(6) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person fails to renew the lease or issue a new lease.

(7) For the purpose of determining whether a lessor has contravened subsection (1) or whether a lessee has contravened subsection (2):

(a) the Tribunal must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and

(b) the Tribunal may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.

(8) A lessor or lessee, or former lessor or lessee, who suffers loss or damage by reason of unconscionable conduct of another person that is in contravention of this section may recover the amount of the loss or damage by lodging a claim against the other person under section 71A.

(9) If the matter of such loss or damage arises in connection with a matter the subject of proceedings in the Tribunal, the Tribunal may proceed to decide it, and in so doing may award such sum as it thinks fit.

(10) In this section:

lessee or former lessee includes a person who is a guarantor or covenantor under a lease or former lease.”

120 In Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557, Spigelman CJ said:

“[119] ... Over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard.

[120] Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what ‘fairness’ or ‘justice’ or ‘good conscience’ requires in the particular circumstances of the case. As Deane J put it in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 616:

‘... [P]roprietary rights fall to be governed by principles of law and not by some mix of judicial discretion ... , subjective views about which party ‘ought to win’ ... and ‘the formless void of individual moral opinion’ ... Long before Lord Seldon’s anachronism identifying the Chancellor’s foot as the measure of Chancery relief, undefined notions of ‘justice’ and what was ‘fair’ had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law. The mere fact that it would be unjust or unfair in a situation of discord for an owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other ...’

To similar effect are the observations of Deane J, with whom Gibbs CJ, Mason, Wilson and Dawson JJ concurred, when rejecting the proposition that the common law recognised a tort of unfair competition. His Honour described the concept as ‘a cause of action whose main characteristic is the scope it allows, under high sounding generalisations, for judicial indulgence of idiosyncratic notions of what is fair in the market place.’ (Moorgate Tobacco Co Ltd v Phillip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414 at 445–446.)

[121] The Ministerial Second Reading speech, quoted [above], indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s 62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s 51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was ‘fair’ or ‘just’, it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of ‘unconscionability’ would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.”

121 His Honour said (at [123]) that a finding that a lessor’s conduct was “quite unacceptable ... having regard to normal industry standards and practices” would not justify a finding of unconscionable conduct.

122 In my view, Rosychamp would not have engaged in unconscionable conduct within the meaning of s 62B if it refused to enter into new leases with prospective purchasers of the Red Centre Restaurant business because it wished to have the premises vacant so as to maximise the price it would receive on a sale of the building. I hasten to add that Rosychamp denied that this was its intention. But if it were its intention, as Mr Vale alleged, Rosychamp would not on that account have been acting unconscionably by preferring its own commercial interest to Mr Vale’s interest in being able to secure a purchaser of the business.

123 Of course, if a sale of the business were to be effected by an assignment of the existing lease, as distinct from the grant of a new lease, Rosychamp could not refuse its consent to an assignment for any such reason (s 39 of the Retail Leases Act).

124 As noted in para [73], Mr Wong instructed Mr Copley on 27 April 2006 that he would not discuss a lease with the potential buyer, Mr Macindoe, until “we clear up the mess”. At about that time, Mr Wong told the broker, Mr Tony Arena, “I will consider granting a new lease once I have sorted out the mess with David Vale and his company”. He said the same thing directly to Mr Macindoe. Mr Wong denied that his reason for taking this position was that he did not want a tenant in the premises at all. However, if that were so, his refusal to have any negotiation with Mr Macindoe is inexplicable, unless he was acting out of malice towards Mr Vale. If, as Mr Wong said, he was happy to have a tenant in the premises, and if he were satisfied as to the solvency and acumen of Mr Macindoe, and if it were possible that they might agree on terms that were acceptable to Rosychamp, then it would make no sense for Rosychamp to refuse to enter into any negotiations with Mr Macindoe, when it was only by that means that Mr Vale was holding out the prospect of being able to pay the arrears of rent.

125 I do not conclude that in refusing to negotiate with Mr Macindoe, Mr Wong was acting out of malice towards Mr Vale. Indeed, that was not put to him. The explanation for Rosychamp’s position is that explained by Colliers in their email of 11 May 2004 referred to in para [33], namely, that Rosychamp feared that potential disputes might arise over the redevelopment with new tenants if a new lease were granted. That was a legitimate commercial consideration. It was not unconscionable for Rosychamp to prefer its own interests even though in so doing it reduced the opportunity for Mr Vale to sell the business. It was still open to Mr Vale to sell the business if he could do so by assigning the lease to an assignee with sufficient financial resources and retailing skill and the assignment involved no proposed change of use. But Mr Macindoe was not interested in such an assignment.

126 Nor did Mr Vale establish that had Rosychamp been prepared to negotiate with Mr Macindoe, it was probable they would have agreed on terms that would have resulted in Mr Macindoe’s purchasing the business. Neither Mr Wong nor Mr Macindoe was cross-examined to establish the terms to which each might have agreed. Therefore, even if Rosychamp had been required to negotiate the terms of a lease with Mr Macindoe, Mr Vale has not established any damages arising from Rosychamp’s refusal to negotiate.

127 For the reasons already given, Rosychamp did not engage in unconscionable conduct by reason of Mr Chiu’s communications with Mr Moore or his solicitor.

128 It is also to be borne in mind that at the time of the negotiations for sale of the business to Mr Moore and to Mr Simoniam, the lease had already been terminated. Mr Vale had no ground for disputing the validity of the termination of the lease. He might have been entitled to an order for relief against forfeiture of the lease so that the lease could be assigned to a purchaser of the business. However, it would be a condition of an order providing relief against forfeiture that the outstanding rent, interest and costs be paid (Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co NSW Ltd (1970) 2 BPR 9562). Unless Mr Vale could obtain an order for relief against forfeiture, he had no lease to assign after 22 May 2006. The purchase price being offered by Mr Simoniam was less than the outstanding rent. Mr Vale did not have the means to pay the outstanding rent even with the moneys to be provided by the Messrs Simoniam. He therefore could not have obtained an order providing relief against forfeiture and therefore did not have a lease to assign to them.

129 Moreover, I am not satisfied that the sale of the business to the Messrs Simoniam would have proceeded had Rosychamp not retaken possession of the premises. It is not clear that a contract was entered into, or, if so, what were its terms. The front page of the contract signed by Mr Vale named both himself and Woodfire Pizza Company as vendors. The front page of the contract signed by the Messrs Simoniam named only Mr Vale as vendor. The contract contained special conditions which were not in evidence. Nor were the whole of the standard printed conditions in evidence. It is possible that it was a condition of the sale that Rosychamp agree to give a new lease to the purchaser. There may have been other conditions which would have made completion of a sale problematic. In any event, even if the sale provided for an assignment of the lease, Mr Vale was in no position to assign the lease because it had been terminated.

130 I therefore conclude that Mr Vale has not made good his principal claim that Rosychamp engaged in unconscionable conduct in contravention of s 62B of the Retail Leases Act by the manner in which it responded to requests to approve an assignment of the lease or to negotiate a new lease with prospective purchasers of the restaurant business.

131 Mr Vale also contended that Rosychamp breached a duty of good faith in failing to negotiate with prospective purchasers. Rosychamp did not dispute that it was an implied term of the lease that the lessor would perform its obligations and exercise its rights under the lease in good faith (Alcatel Australia Ltd v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349 at 369). The lease imposed no obligation on Rosychamp to negotiate terms of a new lease with a prospective purchaser of the lessee’s business. In my view, there was no implied contractual duty that it do so. In any event, even if there were such a duty, it would not be a breach of good faith for Rosychamp to prefer its own interests. For the same reasons as it did not act unconscionably in refusing to negotiate with Mr Macindoe (see para [125]) it did not act in bad faith.

Estoppel Based on Mr Vale’s Assumption that Arrears of Rent could be Paid by the Sale of the Business

132 In an affidavit sworn on 11 September 2006, Mr Vale deposed:

“There were arrears consistently from 2001 until the present. Since the inception of (the lease I executed in 2000) [sic] there has been no demand to pay all of the arrears or to reduce the arrears until November 2005. There were no letters from or on behalf of the respondent apart from standard computer monthly print outs raising the issue of arrears and apart from letters dated February 2003, November 2003, and October 2004 when there was a request for an assignment of the lease.”

133 That evidence is not correct, but even if it were correct, it would not give rise to any estoppel.

134 Whilst Mr Vale expected that he would be able to pay the arrears of rent from the proceeds of sale of the business, Rosychamp did not represent or in any other way induce an assumption on his part that rent need not be paid in full as required by the lease, or, that Rosychamp would not exercise its rights under the lease in the event of non-payment of rent. Colliers wrote regular letters, frequently more than once a month, drawing attention to the arrears of rent and requiring the arrears to be paid. In some cases, Colliers threatened legal action if payment were not made. There were numerous demands for payment of rent. Rosychamp’s solicitors also made demands from time to time for outstanding rent and threatened to take legal action if payment were not made.

135 As noted earlier in these reasons, from time to time agreements were negotiated with Mr Vale for him to bring arrears of rent up to date by instalments. Nothing was done or said by Colliers or Rosychamp which could reasonably have induced a belief that Rosychamp was waiving or relaxing its entitlement to rent.

136 Moreover, Mr Vale did not act to his detriment on the basis of the assumption he made that he could clear the arrears from the proceeds of sale of the business. All that resulted from his adopting that assumption was that he attempted to sell the business. In that, he was unsuccessful. But that is not a relevant detriment.

Air-Conditioning

137 Between 2001 and 2006, Woodfire Pizza Consultancy and Mr Vale experienced difficulties with the air-conditioning of the restaurant. Mr Michael Vale, who was a director and shareholder of Woodfire Pizza Consultancy, deposed that between 2001 and 2005 he telephoned Colliers on numerous occasions to complain that the air-conditioning system was not working properly. He deposed that during that period the air-conditioning system would not cool the restaurant adequately when the weather was very hot and the restaurant was crowded. The restaurant was crowded most Friday and Saturday nights. The managers of the restaurant also deposed that during the periods of their employment (which in the case of Mr Brown dated back to about 2000) they observed that the restaurant was not adequately cooled on hot days. I accept that evidence.

138 Mr Vale and the managers gave evidence as to the position in particular from September 2005 to March 2006. A Ms Krick deposed that during that period she worked for approximately five days or nights per week and the temperature in the restaurant was uncomfortably hot. She received at least three complaints every second day or night from customers about it being too hot. There were also complaints from members of staff who on occasion asked to go home early due to the heat. Mr Vale deposed in his affidavit of 10 August 2006 that he observed during the period beginning in September 2005 that the ambient temperature in the restaurant was uncomfortably hot. I accept that evidence. It is consistent with the records of maintenance of the air-conditioning system considered below.

139 On 20 February 2001, Colliers reported to Rosychamp that the air-conditioning unit serving both the Red Centre Restaurant and another restaurant, the Rangoon Racquet Club, would require renewal within the next 12 months. They reported having requested the contractors to investigate repairs to both units to stretch the time for renewal as long as possible. The air-conditioning contractor, Grosvenor Air-Conditioning and Maintenance Services (“Grosvenor”), reported that the air-conditioner for the Red Centre Restaurant was in very poor condition and its replacement was recommended. This would have been at a then quoted capital cost of $30,000.

140 On 21 September 2001, Colliers reported to Rosychamp that the air-conditioning for the Red Centre Restaurant was starting to show signs of deterioration and that the compressor had failed. Rosychamp gave instructions to proceed with the supply of a reconditioned compressor. Colliers noted at the time that the lessee’s operation was “dramatically under serviced with air conditioning at the present time”.

141 A report from Grosvenor dated 28 December 2001 records that firm having investigated the air-conditioning unit for the Red Centre Restaurant on 20 December 2001. The system was running at 50 percent capacity as one compressor was not working. It was replaced. There were other deficiencies with the system but after repairs were completed on 24 December 2001 the two refrigerant circuits were operational and operating at 100 percent capacity. The technician recommended that the system be replaced due to its age and condition. On 3 January 2003, Grosvenor recommended that the Red Centre air-conditioner be replaced as the unit was beyond its usable life and might fail without warning. The cost of replacement was estimated to be $30,000.

142 A reconditioned compressor was supplied by 5 November 2001. Given that any claim for trading losses attributable to faulty air-conditioning suffered prior to 13 July 2005 would be recoverable by Woodfire Pizza Consultancy as the lessee then trading in the premises, the principal focus of the air-conditioning complaint was on the period from September 2005.

143 Grosvenor’s work summary report for 18 March 2004 recorded a technician’s attendance to inspect the Red Centre Restaurant air-conditioning unit on 19 March 2004. His report states “Arrived on site and found that the compressor had burnt out. A hoist, contactor, driers, high/low pressure controller are required. Found supply fan contactor is faulty and replaced as required. Please note: Client approval is required to carry out further works.” On 20 May 2004, a compressor fault was again reported. A technician arrived on 2 June 2004 and the compressor was replaced with a reconditioned compressor. Grosvenor reported to Colliers that the unit was in poor condition and had reached the end of its economical life and replacement was strongly recommended as Grosvenor suspected other components within the air-conditioner might fail in the near future. It appears that some other work was done to associated equipment.

144 The Grosvenor work summary report for 1 September 2005 referred to a reported compressor fault. It was not specifically identified as being a compressor fault for the air-conditioning unit servicing the Red Centre Restaurant. The report said that the compressor was tripping on high pressure. A summary of the report to Colliers stated:

“Snap lock couplings on condenser water pump had broken off. Replaced as per wo56093. First stage compressor was found burnt out. Adjusted wiring to allow second stage to operate.”

145 Mr Vale contends that it should be inferred that the burnt out compressor was the compressor for the air-conditioner for the Red Centre Restaurant. Counsel for Rosychamp submitted that even if the diagnosis in the report was correct, there was no evidence that the compressor in question was for the air-conditioner for the Red Centre Restaurant as distinct from any other of the shops or areas in the building, and it should be inferred in fact that the compressor in question was not one for the Red Centre Restaurant. The service manager of Grosvenor, Mr Hodgson, gave evidence for Rosychamp. In his affidavit sworn on 13 May 2008, he deposed:

“On 13 September 2005, Grosvenor conducted an inspection of the airconditioning that revealed that one of the two compressors was faulty. There is no record of this compressor being replaced by Grosvenor therefore we can assume that this was a misdiagnosis as on a service call the following the month there is no record of the fault and the technician has noted as tested before departure. No further service calls were received for this tenancy till the following Cooling Tower fault which affected the whole building was received in December 2005.” (Emphasis added.)

146 Neither Mr Hodgson nor any other witness for the defendant said that the compressor the subject of the technician’s report of 13 September 2005 concerned a compressor for an air-conditioning unit for another tenancy. To the contrary, it is clearly implicit in the paragraph quoted, and in particular Mr Hodgson’s reference to there being no further service calls received for “this tenancy” that the service call the subject of Grosvenor’s inspection on 13 September 2005 was a service call for the Red Centre Restaurant tenancy.

147 As noted above, one of the grounds on which Mr Hodgson opined that the report of 13 September 2005 contained a misdiagnosis was that the following month there was no record of the fault and the technician had noted having tested the unit before departure. I do not accept Mr Hodgson’s opinion that such an inference can be drawn from the lack of any reference to a burnt out compressor in the subsequent maintenance reports. I consider Mr Hodgson’s opinions should be treated with caution. He exhibited a degree of partiality in his evidence instanced by his description of the report of 13 September 2005 as revealing that one of the two compressors was “faulty” when in fact the report was that the first-stage compressor was found to be burnt out. Mr Hodgson acknowledged in his oral evidence that if the compressor was burnt out it would not be operational. The summary of the invoice for maintenance carried out in October 2005 simply stated that the technician commenced and completed “maintenance as required.” Statements to the same effect had been made on earlier occasions times at which a compressor had been identified as being out of operation. Thus on 20 September 2001, the technician found that a unit was running only at 50 percent capacity and found that a compressor would not start. This led to the replacement of a compressor with a reconditioned compressor in November 2001. Yet the invoice for maintenance for October 2001 simply stated “completed maintenance as required” without separate reference to the compressor which had been identified as not working the previous month and was replaced in the following month.

148 A report of a service call on 4 October 2005 reporting that the Red Centre Restaurant was too hot states the following:

“First stage compressor was short cycling, no access to roof. Left message with property manager.

...

Dropped legs off compressor to stop damage. Chilled water pump not running. Found no power at isolation switch, checked MSSB on level 2, circuit breaker had been turned off. Tested phases, contactor. Turned on, checked and verified pump and found operation all satisfactory. Rewired compressor for centre and tested operation before departure.”

149 It was submitted for Rosychamp that this report showed that as at 4 October 2005 the first-stage compressor which had earlier been reported to have been burnt out was in fact operational although it was “short cycling”.

150 Mr Hodgson said that the reference to a chilled water pump was a mistake and should have been to a condenser water pump. He said that it appeared that the cooling tower condenser water pump circulating coolant throughout the building had had a fault and therefore the unit could have been cutting in and out from a high-pressure safety switch. He interpreted the report as saying that the technician, Mr Hay, had fixed the problem with the condenser water pump and got it operational so as to reinstate coolant. The reference to obtaining access to the roof was to obtain access to the condenser water pump. In his affidavit, Mr Hodgson did not refer to this entry as indicating that there was an error in the report of 13 September 2005 in its statement that what was then the first-stage compressor was burnt out. The effect of adjusting the wiring of the air-conditioning unit to allow the second-stage compressor to operate would have been that what was the second-stage compressor was operating as the first-stage compressor. I do not accept that it can be inferred from the reports of 4 and 5 October 2005 that the compressor identified in September as having been burnt out was in fact operational.

151 The technicians who made the inspections were not called. They were in Rosychamp’s camp, and it can be inferred that their evidence would not have assisted Rosychamp.

152 Mr Vale relied on reports of 6 December 2005, 14 February 2006, 22 February 2006 and 23 February 2006 in relation to faults in the cooling tower. On 6 December 2005, Mr Hay reported having found that neither of the fans in the cooling tower were running and after maintenance, one of the fans seized so that the cooling tower was operating with one fan. The function of the cooling tower was to deliver cooled water to the air-conditioning units of the separate tenancies. The cooling tower motor needed to be replaced. It was not replaced until 22 February 2006. In his oral evidence, Mr Hodgson said that he assumed that the reason for the delay was that the parts were not available over the Christmas, January and February periods. That was not the explanation advanced in his affidavit. In his affidavit he said that:

“The cooling tower serviced the entire building, however, with the majority of the building being vacant, the operational loads did not require urgent replacement of the cooling tower fan to provide the required temperature water supply to the retail tenants. Therefore these works were conducted on 27 February 2006.” (Punctuation and spelling corrected.)

153 Mr Hodgson gave evidence that the only function of the fans in the cooling tower was to provide condenser water to the air-conditioning units in the tenancies. In other words, the cooling tower merely cooled the water that served the individual air-conditioning units in the tenancies. Mr Hodgson opined that given that the building was largely empty, it was likely that the cooling tower would have performed that function in supplying cooled water to the air-conditioning unit for the Red Centre Restaurant notwithstanding that one of the fans was out of operation. I accept that evidence.

154 On 3 January 2006, Grosvenor responded to a service call where the reported problem was that air-conditioning was not starting or running. The technician’s report of 3 January 2006 stated:

“Checked A/C for site and found evaporator fan tripped out on unit supplying Rancoon [sic] restaurant. Reset and all working OK. Red centre [sic] unit found with no gas in circuit 2 and compressor linked out. Quote for new unit to be supplied by Project Team Leader. Checked all equipment on site all working OK.”

155 Mr Hodgson made no reference to this report in his affidavit. In my view, it supports the inference that one of the two compressors for the Red Centre Restaurant was out of operation. As there was then no gas in circuit 2, there was no air conditioning at the time. In the works summary report under the heading “Description of Work” the technician reported that “A/C unit not working at all”.

156 As quoted in para [145] above, Mr Hodgson expressed the opinion that there was an error in the report of 13 September 2005 because there was no record of the compressor being replaced by Grosvenor. The fact that the compressor was not replaced by Grosvenor does not justify the conclusion that the compressor was not burnt out. Mr Hodgson himself deposed having attended the Red Centre Restaurant on 11 July 2006 and observed that “one of the two compressors was not on line.” That compressor was replaced on 12 July 2006. This visit and the replacement of the compressor followed a service of a written notice by the plaintiff’s solicitor on 7 June 2006 requiring rectification of defects in the air-conditioning system. (Section 34 of the Retail Leases Act would have entitled the lessee to reasonable compensation for any loss or damage suffered as a consequence of any failure of the lessor to rectify the defect in air-conditioning. No such written notice had been given prior to 7 June 2006 although the evidence establishes that there were frequent oral complaints made to Colliers.)

157 It was submitted for Rosychamp that had the compressor been found burnt out in September 2005, a quote would have been provided to Colliers for the supply of a replacement compressor. It was submitted that there was no such quote and therefore it should be inferred that the compressor was not burnt out as had been reported. Reference was made to a Grosvenor report dated 31 March 2006 which listed “quotes awaiting client approval” the latest of which was dated 20 April 2005 and related to the replacement of filters on the air-conditioning unit serving the Red Centre Restaurant. I do not accept that submission. The submission assumes that if the compressor had been burnt out, a quote for a replacement compressor would have been issued and also assumes that if such a quote had been issued it would have been referred to in the client report of 31 March 2006 as being a quote awaiting approval. The report of 3 January 2006 which reported there being no gas in circuit 2 and that a compressor was linked out, said that a quote for a new unit was to be supplied by the project team leader. It would be reasonable to assume that any such quote, if it were given, would have been given by the end of March. No such quote as that indicated in the works summary report was referred to in the invoice of 31 March 2006. It follows that it is not safe to draw the inferences contended for by Rosychamp.

158 The uncontradicted evidence from Mr Vale and the managers of the restaurant as to the air-conditioning problems experienced between September 2005 and March 2006, that is, during the summer months, is consistent with one of the compressors being out of action. There were two compressors: one with capacity of 46 kilowatts and the other with a capacity of 28 kilowatts. It is more likely than not that at a time when both compressors were operational the larger compressor would have been the stage-one compressor. Mr Hodgson explained that the stage-two compressor would be activated when the temperature in the space to be air conditioned exceeded the stipulated temperature notwithstanding the operation of the first-stage compressor. He said that it would make sense that the compressor with the larger capacity operate as the first-stage compressor.

159 I conclude that from the period from 14 September 2005 until 12 July 2006, the only air-conditioning supply to the restaurant was through the compressor with the lower capacity. This would not mean that the restaurant was always without adequate air-conditioning. But if that compressor failed, the restaurant was without any air-conditioning. Also, there was no back-up system to add additional air-conditioning in the hotter weather.

160 Counsel for the defendant relied on evidence given by the two restaurant managers that for the entire period of their employment there was no discernable difference in the performance of the air-conditioner. They both said that the air-conditioner did not adequately cool the restaurant on hot days. I do not consider that their generalised observation as to the performance of the air-conditioning system over a long period of time carries any significant weight in deciding the question of whether one of the compressors was out of operation from September 2005 to July 2006. Moreover, there were numerous problems with the air-conditioning system in the earlier years even though a compressor was not completely out of operation for an equivalent length of time.

161 Clause 12.3 of the lease has been set out at para [26] above. The defendant did not plead that the concluding words of clause 12.3 provided a defence to the plaintiff’s claim for damages as a result of lack of air-conditioning services. In any event, reading the clause as a whole, the concluding words would not apply if the reason the services were inoperative or failed to function was that the lessor was in breach of its obligation to use reasonable endeavours to ensure the services were operational and functional during “Business Hours”.

162 It was submitted for the defendant that the defendant complied with its obligations under clause 12.3 by retaining Grosvenor to provide monthly maintenance services and to attend to problems as they arose in the interim. However, the defendant through its agent Colliers was on notice from 14 September 2005 that one of the two compressors in the air-conditioning unit servicing the Red Centre Restaurant was burnt out. No steps were taken to replace the burnt out compressor for almost ten months. In my view, that was a clear breach of clause 12.3.

163 The defendant pointed to clause 4.7 of the lease which provided:

“Cost of Services

The Lessee shall promptly pay all Costs for all Services, including for all sources of energy, electricity, gas, oil, water and telephone separately supplied, metered, consumed or connected (as appropriate) to, in or on the Premises.”

164 The fact that the lease provided for the lessee to be responsible for the cost of air-conditioning services is irrelevant to whether the defendant was in breach of its obligation under clause 12.3. Rosychamp was not excused from complying with clause 12.3 because it did not seek to charge the lessee with the costs of the air-conditioning services.

165 Rosychamp’s obligation under clause 12.3 was to use reasonable endeavours to ensure the services were operational and functional during “Business Hours”, defined as being from 11.30 am to 6.00 pm. The restaurant served dinner and was open until late at night. The same air-conditioning system was used before and after 6.00pm. Rosychamp’s failure to use reasonable endeavours to ensure the air-conditioning services were operational and functional during Business Hours (as defined) meant that there was inadequate air-conditioning capacity at all hours the restaurant was open. Again the fact that under clause 12.3(a) (as well as clause 4.7) the lessee was responsible to meet the cost of those services supplied outside Business Hours did not diminish the lessor’s obligation under clause 12.3.

166 Mr Vale contended that Rosychamp acted unconscionably and in bad faith in not repairing the air-conditioning system. Mr Vale’s position would not be advanced if this allegation were made good. He is entitled to damages for breach of clause 12.3 of the lease. He would not be entitled to a greater sum for breach of an implied term of good faith or for breach of s 62B of the Retail Leases Act. In any event, it is not every breach of a lease that amounts to bad faith or unconscionable conduct. It was not shown that Rosychamp, as distinct from its agent Colliers, knew of the defects. After formal notice of the defects was given on 7 June 2006 the compressor was replaced on 12 July 2006. I am not satisfied that Rosychamp breached s 62B or an implied term of good faith in not repairing the air-conditioning earlier than it did.

Damages for Breach of Clause 12.3

167 It is impossible to quantify accurately the effect of the defective air-conditioning on customer numbers, sales, or gross profits. This is due to numerous reasons. Mr Vale made no attempt to quantify any decline in customer numbers, sales, or gross profits, for each month in the period from mid-September 2005 to mid-July 2006 compared with corresponding periods in previous years. A Mr Warwick Finney, a chartered accountant, reviewed working papers produced by Mr Vale including a cashbook for the business for the period from January 2003 to July 2006. He was unable to verify the accuracy of the figures in the cashbook as he was not provided with any credit card records or till records for the period. No financial statements were produced. The only month-on-month analysis provided by Mr Finney was for the month of February 2003, 2004, 2005 and 2006. This showed total sales as follows:

February 2003 $107,586

February 2004 $118,008.30

February 2005 $105,652.95

February 2006 $97,399.18

168 Neither Rosychamp nor Mr Vale provided me with any such analysis for other months, although a valuer, Mr Ozich, made calculations of decline in revenue referred to below.

169 The defendant submitted that Mr Vale had not attempted to prove his expenses. That is correct. Particular reference was made to the uncertainty of Mr Vale’s wages expense. A number of employees were paid cash and there was no record of what the wage expenses were. I do not consider that that is material to the quantification of damages. There is no basis for saying that but for the defective air-conditioning, more staff would have needed to be employed to deal with the extra custom. Of more significance is that there was no evidence of the direct cost of sales, and therefore of gross profit margins. A reduction in gross profit, insofar as it was caused by the defects in the air-conditioning, would represent Mr Vale’s damages. However, there is no evidence which would allow such a reduction to be quantified accurately. No financial statements for the restaurant business were produced.

170 A further complication is that there are many factors which affected the declining popularity of the restaurant. That there was a decline in its popularity can be seen from the customer numbers extracted by Mr Finney when a comparison is made with the corresponding months of preceding years. Set out below are those customer numbers arranged by month:

July 2003 3,208

July 2004 3,055

July 2005 2,926

July 2006 2,095

Aug 2003 3,032

Aug 2004 2,823

Aug 2005 2,450

Sep 2003 3,163

Sep 2004 2,849

Sep 2005 2,354

Oct 2003 2,847

Oct 2004 2,853

Oct 2005 2,157

Nov 2003 2,515

Nov 2004 2,641

Nov 2005 2,258

Dec 2003 3,769

Dec 2004 3,610

Dec 2005 3,132

Jan 2003 3,185

Jan 2004 3,016

Jan 2005 2,709

Jan 2006 2,496

Feb 2003 2,531

Feb 2004 2,509

Feb 2005 2,400

Feb 2006 2,024

Mar 2003 2,798

Mar 2004 2,440

Mar 2005 2,783

Mar 2006 2,144

April 2003 2,949

April 2004 2,553

April 2005 2,617

April 2006 2,061

May 2003 3,144

May 2004 3,223

May 2005 2,869

May 2006 2,155

June 2003 2,847

June 2004 2,830

June 2005 2,594

June 2006 2,285

171 Although there are some exceptions, generally the figures show declining custom from 2003 to 2006. That cannot all be attributable to the defects in air-conditioning. It is noteworthy that there was a decline in patronage not only in the summer months compared with the summer months of the preceding year, but also in winter. The complaint about air-conditioning was that the restaurant was unbearably hot on hot days in summer.

172 It is common sense, supported by expert evidence of a registered valuer, that there are many factors which would have affected the patronage of the restaurant of which the air-conditioning was only one. The most important of these was prevailing economic conditions. Mr Ozich, reported in August 2006 that the majority of food retail businesses had experienced downturn in trade over the preceding 12 months, particularly over the previous six months, caused by rising fuel costs, increases in interest rates, and resulting lower disposable incomes. Other factors which are likely to have contributed to the declining custom was strong restaurant competition, lack of advertising and promotion, and need for refurbishment. I accept Mr Ozich’s evidence that there was strong restaurant competition nearby which included popular Italian pizzerias. During 2005, Mr Vale and Woodfire Pizza Consultancy had not done any marketing promotions. Mr Vale wrote to Mr Macindoe on 6 April 2006 and said that “I deliberately have not done any recent marketing promotions.” Mr Ozich said that “With ever-increasing competition, [advertising and promotions] is one area where money needs to be regularly spent.”

173 By 2005 and 2006, the decor of the restaurant was looking tired. Mr Macindoe observed in 2006 that there appeared to have been no redecoration or updating of the furniture in the restaurant for the last ten years.

174 When Mr Macindoe was negotiating a potential purchase of the business with Mr Vale in about March or April 2006, he raised with Mr Vale that takings were down $10,000 for the monthly figures from December 2005 to February 2006 compared with the same periods 12 months earlier. Mr Vale did not say that the reason or a reason for the decline was due to difficulties with the air-conditioning. The reason for the decline in figures advanced by Mr Vale in his letter of 6 April 2006 was that he had not done any recent marketing and had not increased prices for over a year. Whilst not raising prices would affect the profit margins on the business, it is not a factor which explains the decline in revenue.

175 Not too much should be made of the fact that Mr Vale did not identify problems with air-conditioning as a reason for the decline in sales. He was dealing with a potential purchaser of the business and could be expected not to have wished to highlight that problem.

176 Mr Ozich also analysed sales figures in 2005 and 2006. He said that they showed that over the hottest months, namely between November 2005 and February 2006, there was a downward trend in sales compared with the equivalent months in the preceding year of between 3-11 percent at an average of 7.5 percent. He said that this compared to an average drop in sales of 20 percent for the balance of the months analysed. He noted that sales in June, July and August 2005 compared with sales in the equivalent months in 2004 showed a drop of between 4.7 percent and 7.2 percent. There was no challenge to Mr Ozich’s calculations.

177 A further complicating factor is that the restaurant included an outdoor dining area. Mr Macindoe said, and I accept, that in his frequent observation of the business:

“most people who eat there usually prefer to eat in the outside area so as to enjoy the al fresco dining, which is very popular in Crows Nest ... I have noticed that when people come to the Restaurant and see that the outside is full, they just leave.

This is also partly, in my experience and observation, ... due to the fact that there appears to have been no redecoration or updating of the furniture in the Restaurant ...”.

The problems with air-conditioning would not have affected this part of the restaurant.

178 The fact that there are other contributing causes to the decline in the restaurant’s revenue does not mean that Mr Vale is unable to recover any damages. It is sufficient that he demonstrate that the breach of clause 12.3 of the lease was a cause, not the sole cause, of the loss. Nonetheless, he must demonstrate that the absence of air-conditioning was a material cause of the loss suffered.

179 As a matter of common sense, and consistently with the opinions of Mr Feszt, Mr Ozich and Mr Vale himself, I accept that where the defects in the air-conditioning system made the restaurant uncomfortably hot, that is likely to have been a contributing factor to the restaurant’s declining popularity. However, I do not consider that the defects in air-conditioning can be regarded as a material cause to the whole of the decline in revenue. It had its greatest impact in the summer months of November 2005 to February 2006. Total sales between November 2005 and February 2006 were $476,846. Given that this was a decline of 7.5 percent from the corresponding months in the previous year, it follows that the decline was in the order of $38,663. This is a decline in revenue, not gross profit. It was not all caused by Rosychamp’s breach of the lease. It has not been established that any declining sales before November 2005 or after February 2006 were caused by the breach of clause 12.3 of the lease.

180 Mr Vale has established that some damage was caused by the breach. The difficulty of quantification is partly due to his failure to lead evidence of his direct costs. But it is also due to impossibility of determining how much of the decline in trade was caused by the breach of clause 12.3. It is a nice question whether this means that Mr Vale is only entitled to nominal damages (JLW (Vic) Pty Ltd v Tsiloglou [1994] VicRp 16; [1994] 1 VR 237 at 241-242). I have concluded that rather than say that no particular amount of damage has been proved, I ought to assess the damages as best I can, recognising that the amount chosen is necessarily arbitrary within the parameters I have identified. I assess the amount of damages as being $10,000. This amount will be set off against the rent and damages which Rosychamp is entitled to recover from Mr Vale.

Mitigation of Damages by Rosychamp

181 Mr Vale submitted that Rosychamp failed to mitigate its damages. He submitted that Rosychamp did not look for a tenant. It did not advertise the premises for lease. It did not approach Mr Macindoe or Mr Simoniam who had both expressed interest in leasing the premises. He submitted that Rosychamp had no intention of leasing the premises but wanted to keep them vacant.

182 Mr Wong gave evidence before the Tribunal that he had received a proposal to lease the premises from a Mr Kenneth Leung through his company Kepa (Australia) Pty Ltd (“Kepa”). I refer below to this proposal. Mr Vale submitted that Mr Wong’s evidence about this proposal was apocryphal and that the proposal was a charade. He submitted that neither Mr Wong nor Mr Leung ever intended that a lease would be entered into. Mr Vale submitted that the proposal was invented to defeat Mr Vale’s attempt before the Tribunal to hold onto the interlocutory injunction restraining Rosychamp from retaking possession.

183 Although there are puzzling aspects about the evidence given by Mr Wong and the email correspondence between him and Mr Leung, I am not persuaded that I should find that the evidence advanced by Rosychamp concerning negotiations with Mr Leung and Kepa was contrived.

184 However, my finding on the issue of mitigation does not depend upon that. Rosychamp did not have a duty to mitigate its damage. Rather, it is not entitled to recover damages for loss it could reasonably have avoided. The onus lies on Mr Vale to show that Rosychamp’s loss of rent to the end of the lease could have been reasonably avoided by re-letting the premises to somebody else. Even if Rosychamp had adduced no evidence of dealings with Mr Leung and Kepa, Mr Vale would still need to have shown that Rosychamp failed to take reasonable steps to attempt to mitigate its loss, and that had such steps been taken, it is probable that its loss, or part of its loss, would have been avoided.

185 Rosychamp’s loss was a loss of rent to 30 April 2007. The only way in which it is suggested that loss could have been avoided is by securing a replacement tenant. But in determining what steps were reasonable to obtain an alternative tenant, regard must be had to Rosychamp’s legitimate commercial interest in redeveloping or selling the building. In its negotiations in 2002 with Mr Vale, Rosychamp had secured favourable lease terms which prevented Woodfire Pizza Consultancy from objecting to the redevelopment. To show that the loss could have been avoided had Rosychamp taken reasonable steps, Mr Vale would need to establish that there was an alternative tenant who would have been prepared to lease the building on similar terms.

186 Mr Macindoe was only prepared to lease the premises if he were granted a new term of five years and a five-year option and was permitted to redevelop the restaurant area. Rosychamp could reasonably have declined such a proposal. Mr Simoniam’s intentions were not clearly established. As noted earlier in these reasons, the terms of his contract for the purchase of the Red Centre Restaurant business were not proven and it is not known what special conditions may have been included. Mr Chiu gave evidence that Mr Simoniam’s solicitor, Mr Teng, told him that one of the conditions of the sale was that the lessee have exercised the five-year option. Mr Simoniam did not give evidence. He swore an affidavit, but I refused leave to Mr Vale to read it because Mr Simoniam was not available for cross-examination. There was no evidence that Mr Simoniam remained willing to take a lease of the premises from Rosychamp, and if so, on what terms. Mr Simoniam must have known that Rosychamp had retaken possession of the premises and made its termination of the lease effective. Had he had a continued interest in leasing the property, it might be expected that he would have approached Mr Wong or Colliers to take a new lease directly from the landlord.

187 The effect of the Retail Leases Act is that no new lease could have been entered into for the use of the premises as a retail shop for less than five years (Retail Leases Act, s 16). If, as Mr Vale submitted, Rosychamp wanted to maximise its return on the sale of the building by having the space empty, that would be a legitimate commercial consideration on which it was entitled to act. I do not consider that reasonable steps by way of mitigation would have required it to enter into a new retail lease under which the tenant would be entitled to at least five years’ tenure. In short, Mr Vale has not established that a new tenant could have been obtained, or that it would have been unreasonable for Rosychamp not to have sought another tenant.

188 On the other hand, Rosychamp denied that it intended at that time to keep the premises empty. It contended that it had taken reasonable steps to secure another tenant and that it was not its fault that it failed in that endeavour.

189 For the hearing before the Tribunal on 7 September 2006, Mr Wong swore an affidavit in which he deposed that in July 2006, he had been approached by a Mr Kenneth Leung as a possible substitute tenant for the premises. He deposed that on 31 August 2006 Mr Leung’s company, Kepa, submitted a formal tenancy proposal and paid a security deposit equivalent to three months’ gross rent to Colliers. He deposed that Colliers was holding a cheque in escrow and would bank it when the new lease took effect after the plaintiff gave up vacant possession of the premises. The leasing proposal appears to have been prepared by Colliers and was for a lease for a term of five years for the premises to be used as a Japanese restaurant including a sushi train. The lease commencement date was described as “as soon as possible as requested by the lessee but subject to vacant possession of the premises being obtained by the lessor.” The proposal provided under a section headed “Deposit”:

“To secure the premises, subject to lease documentation and for the lessor to remove the premises from the market and instruct solicitors to prepare suitable documentation a rental deposit equivalent to one month’s gross rental is to be paid to Colliers International Trust Account. Should the lessee decide not to proceed, the lessor’s reasonable legal costs will be deducted from the deposit with the balance to be refunded.”

190 Kepa drew a cheque in favour of Colliers in an amount of $48,600. Contrary to Mr Wong’s evidence before the Tribunal that the cheque would be banked when the new lease to Kepa took effect, the cheque was deposited on 12 September 2006 but was dishonoured. A new cheque dated 25 September 2006 was provided by Mr Leung to Mr Wong in late September for $48,600. That cheque was not banked until 15 November 2006. The premises were vacant from at least 22 September 2006 if not a week previously. On 21 October 2006, Mr Wong sent an email to Mr Leung saying that the premises had been vacant since 22 September and asking whether he accepted the present conditions as vacant possession. He asked when Mr Leung would be ready to finalise the lease agreement. There was no written reply to that communication until 15 November 2006. Mr Leung said that it was good that the premises were vacant but “the internals still have a lot of thing and very dirty”. He said that he could not accept the condition of the premises and asked that they be cleaned and put into an acceptable condition. He said that he had prepared layout plans but they had not been submitted to council because he was waiting for Mr Wong to have the shop ready. He said they needed to discuss a final lease agreement and mentioned a number of items which he said needed to be resolved before the lease agreement could be finalised.

191 Although Mr Wong said that he had had telephone conversations from time to time with Mr Leung, it did not appear that anything was said during those telephone conversations to progress the taking of the lease. It was not until 23 and 24 January 2007 that the matters were taken further. Mr Wong sent an email on 24 January 2007 saying that he did not accept Mr Leung’s proposal of 15 November 2006 and that if agreement were not reached by the end of the month he would have no alternative but to terminate the leasing heads of agreement dated 31 August 2006 and put the property on the market for another potential tenant. On 23 January 2007 Mr Leung wrote that if his proposal was not accepted the leasing proposal would have to be terminated.

192 On 31 January 2007 Rosychamp wrote to Mr Leung threatening to forfeit the deposit. On 7 February 2007 it gave notice that the deposit would be forfeited. On 22 February 2007 Colliers sent a cheque for refund of the deposit to Rosychamp asking that it be forwarded to Kepa, but on 28 February 2007 Rosychamp advised Kepa that it had forfeited the deposit. The cheque for $48,600 was deposited into Rosychamp’s bank account on 7 May 2007. Although the proposal provided that the balance of the deposit after deduction of Rosychamp’s reasonable legal costs was to be refunded, it appears that Rosychamp has implemented its threat to forfeit the whole of the deposit. It adduced no evidence of having returned any part of the deposit.

193 In early February 2007 Mr Wong discussed leasing proposals for the building with Colliers. Colliers recommended a leasing strategy to secure tenants for a period expiring on 31 August 2010 to ensure that all leases expired at a fixed date in the future. That would preclude the granting of leases for retail shops.

194 Mr Macindoe made a proposal to Mr Wong on 19 January 2007 for a lease of five years with three five-year options with written assurances from the landlord that additional building works would not interfere with trade, together with changes to the earlier lease as he had previously sought. Mr Wong met with Mr Macindoe and there were discussions about the terms of a possible lease, including a rent-free period. However in early February Mr Wong decided to sell the building. The property was marketed for sale during February and sold at auction on 29 March 2007.

195 Mr Leung was not called. However, the defence to Rosychamp’s claim for damages that it had failed to act reasonably to mitigate its damages was only raised and allowed late in the hearing. I do not consider that any adverse inference should be drawn against Rosychamp for the failure to call Mr Leung.

196 I accept Mr Wong’s evidence as to his discussions with Mr Leung. I accept that the correspondence between Mr Wong and Mr Leung reflected genuine, albeit protracted, negotiations. As counsel for Rosychamp submitted, the duty of an innocent party to mitigate is not a high one and Rosychamp was not obliged to do anything other than in the ordinary course of business. I do not consider that it failed to take reasonable steps to mitigate its loss. Indeed, Rosychamp mitigated its loss by obtaining a deposit of $48,600 from Kepa which, on it’s evidence, it forfeited without complaint from Kepa.

Quantification of Rosychamp’s Claim for Rent and Damages

197 Clause 16.2 of Woodfire Pizza Consultancy’s lease provided:

“Guarantee

The Guarantor unconditionally and irrevocably guarantees to the Lessor:

(a) (Rent) the payment of Rent and any other money payable under the Tenancy Agreement;

(b) (obligations) the performance and observance by the Lessee of the Lessee’s obligations contained or implied in the Tenancy Agreement; and

(c) (damages) the payment by the Lessee of any damages payable by the Lessee for failure to fulfil or delay in fulfilling any of the Lessee’s obligations contained or implied in the Tenancy Agreement.”

198 The “Guarantor” was defined to mean each of Mr Vale and Mr Michael Vale. Had the lease run its full term it would have expired on 30 April 2007. Rosychamp claimed rent and outgoings up to 22 May 2006 and damages being the rent and outgoings to which it would have been entitled for the balance of the term. It also incurred costs of retaking possession of the premises of $8,833.

199 The obligation to pay rent and other moneys under the lease was expressed to be an essential term. Having terminated the lease for failure to pay rent, Rosychamp is entitled to damages which will put it in the same position as it would have been in had the lease been performed. It is entitled to damages in the same amount as the rent and contributions to outgoings it would have been entitled to receive. Rent and outgoings were payable by equal monthly instalments in advance on the first day of each month. Rosychamp sold the premises on 24 March 2007, but in the ordinary course that contract would not have been completed until after rent and outgoings for the month of April 2007 would have become payable if the lease was still on foot.

200 Colliers prepared a payment schedule up to October 2006. The last charge for rent and outgoings on the schedule is for 1 September 2006 in respect of the month of September. As at that date the amount outstanding for rent and outgoings (including GST) was $186,861.45. (This of course includes as rent moneys which were not due as rent because the lease had been terminated, but which would have been due had it not been terminated and which were recoverable as damages.) The monthly rent and outgoings were $15,377.89 plus GST. Mr Wong’s calculation of unpaid rent and outgoings to the end of the term on 30 April 2007 was $305,271.20. That calculation is not challenged. There is to be added to the damages the costs of repossession of $8,833. The sum of $10,000 as damages payable by Rosychamp to Mr Vale for breach clause 12.3 of the concurrent lease with Mr Vale is to be set off against the sums payable by Mr Vale. Damages are also reduced by $48,600 being the quantum of loss avoided through forfeiture of Kepa’s security deposit. The result is that Rosychamp is entitled to judgment against Mr Vale in the sum of $255,504.20 plus pre-judgment interest.

201 The claim against Mr Michael Vale is more complicated because Rosychamp was not entitled to rent from Woodfire Pizza Consultancy for the period from 13 July 2005 to the termination of the lease on 22 May 2006. It is entitled to damages after the termination of the lease, but of course must give credit for the moneys paid by Mr Vale after that date. As noted in para [61], after 13 July 2005 the earlier arrears were reduced to $73,720.93. As at 22 May 2006 when the lease was terminated, the arrears recorded by Colliers in its payment schedule totalled $130,181.13. Of this amount only $73,720.93 represented arrears of rent under the Woodfire Pizza Consultancy lease, a difference of $56,460.80. Rosychamp is entitled to judgment against Mr Michael Vale for $73,720.93 in respect of unpaid rent. It is also entitled to recover from Mr Michael Vale the damages for which Woodfire Pizza Consultancy is liable as loss of bargain damages following termination of the lease and the costs of taking repossession. That amount is $305,271.20 plus $8,833, minus $130,181.13, and minus $48,600, namely $135,323.07. Thus the sum for which Mr Michael Vale is liable before pre-judgment interest is $209,044.

202 Rosychamp is entitled to interest on those sums pursuant to s 100 of the Civil Procedure Act 2005 (NSW) at the prescribed rates. It would be possible to calculate interest precisely from the date each amount of rent and outgoings fell due, or would have fallen due but for the termination of the lease, and to calculate interest separately on the payment of $8,833 as costs of retaking possession and on the damages payable to Mr Vale, and to adjust for the receipt of $48,600 on 7 May 2007. Rosychamp allowed arrears to accumulate without bringing proceedings and cannot complain if it does not recover interest for all the time it has been out of pocket. I think that justice would be done by taking the simpler approach of calculating interest at the prescribed rates from 22 May 2006 (being the date of termination of the leases) on that part of the judgment sums as represent unpaid rent and outgoings, and from 30 April 2007 on that part of the judgment sums as represent damages.

203 Accordingly, I direct that judgment be entered for Rosychamp against Mr Vale in the sum of $255,504.20 plus interest at the prescribed rates on the sum of $130,181.13 from 22 May 2006 and on the sum of $125,323.07 from 30 April 2007. I order that Mr Vale’s claims for relief be dismissed.

204 I direct that judgment be entered for Rosychamp against Mr Michael Vale in the sum of $209,044 plus interest at the prescribed rates on the sum of $73,720.93 from 22 May 2006 and on the sum of $135,323.07 from 30 April 2007.

205 The exhibits may be returned after 28 days.

206 Mr Michael Vale did not defend the proceedings, and was not responsible for the transfer of the proceedings to this court. He should not be ordered to pay costs. Mr Vale will be liable to pay costs of the proceedings at least from the time of their transfer from the Tribunal. I will hear the parties as to the appropriate costs order of the proceedings in the Tribunal.

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LAST UPDATED:
19 December 2008