Boniface Pty Ltd v Premier Pacific (Holdings) Pty Ltd (receivers and managers appointed) [2011] QCAT 629

CITATION: Boniface Pty Ltd v Premier Pacific (Holdings) Pty Ltd (receivers and managers appointed) [2011] QCAT 629 PARTIES: Boniface Pty Ltd v Premier Pacific (Holdings) Pty Ltd (receivers and managers appointed) APPLICATION NUMBER: RSL064-10 MATTER TYPE: Retail shop leases matters HEARING DATE: 9 September 2011 HEARD AT: Brisbane DECISION OF: Sandra G Deane, Presiding Member Greg Clarke, Member Michael Conrad, Member DELIVERED ON: 16 November 2011 DELIVERED AT: Brisbane ORDERS MADE: [1] By consent Boniface Pty Ltd is relieved of any obligation to pay rent and utilities to Premier Pacific (Holdings) Pty Ltd or any successor in title while Boniface Pty Ltd occupies the temporary premises (shop 20) until formal handover of the new premises (shop 32) occurs. [2] Premier Pacific (Holdings) Pty Ltd is to pay reasonable compensation to Boniface Pty Ltd for the period November 2009 up until 30 June 2011 in the sum of $121,453 by 4pm 16 December 2011. CATCHWORDS: RETAIL SHOP LEASE – claim for compensation from lessor Retail Shop Leases Act 1994, ss 43, 83, 103 Cattanach v Melchior (2003) 215 CLR 1 Cameron v Cavric P/L t/a Cavalier Homes Mackay [2010] QCAT 114 APPEARANCES and REPRESENTATION (if any): -- 1 of 7 -- 2 APPLICANT: Boniface Pty Ltd represented by Mr Steven Attrill, director RESPONDENT: Premier Pacific (Holdings) Pty Ltd represented by Ms L Kozak of Minter Ellison REASONS FOR DECISION Background [1] Boniface: a) is a lessee at the Middle Park Shopping Village (“Centre”) owned by Premier Pacific; b) operated as a Civic Video franchisee until Civic Video terminated that franchise agreement on or about 8 July 2010. The dispute between Boniface and Civic Video is the subject of court proceedings in the New South Wales Supreme Court; c) has been operating at the Centre for some time; d) was requested to relocate to temporary premises in the Centre to facilitate a redevelopment of the Centre by Premier Pacific, which has not been completed; e) agreed to relocate temporarily prior to relocating to new premises within the redeveloped part of the Centre, practical completion of which was due November 2009. Fit out was to then occur and the premises were proposed to be opened in December 2009; f) surrendered the lease of the original premises on 1 March 2009; g) has occupied the temporary premises gross rent free since March 2009; h) in its amended claim seeks: i) compensation in the amount of $250,000 for loss of trading profits under section 43(2)(b) of the Retail Shop Leases Act 1994 because the new premises were not available on the date specified in the Agreement for Lease, remain unavailable and it has incurred trading losses; ii) an order that Premier Pacific: (1) provide a statutory declaration as to the likely completion of the redevelopment including timeframes and written regular updates of progress; (2) confirms the intent to retain the leasing agreement along with terms and conditions as negotiated for the new shop premises which would survive any further transitional owner or management changes; iii) an order that until delivery of the new premises that Boniface occupy the temporary premises rent and utility free until hand over of the new premises being acceptable to both parties; -- 2 of 7 -- 3 iv) an order that due to the financial hardship suffered by Boniface that the requirement for a bank guarantee be waived whilst Boniface lease premises at the Centre; i) capped its claim at $250,0001 and therefore did not pursue its previous claims: i) Civic Video $124,120.92 ii) Loss of wages $ 60, 000 iii) Stock Losses $ 40,000. [2] Premier Pacific: a) has experienced financial difficulties. Receivers and managers were appointed. As a consequence the redevelopment has been delayed; b) submits that it is progressing the redevelopment of the Centre but is unable to swear to the likely date for completion; c) concedes that an entitlement to reasonable compensation has arisen but contends that Boniface has not established its losses; d) submits that section 83 of the Retail Shop Leases Act 1994 sets out the orders the Tribunal may make which does not include any power to grant relief sought in relation to the provision of a statutory declaration, provision of regular updates or the waiver of a bank guarantee; e) confirmed its intention to remain bound by the Agreement for lease dated on or around 2009 but is unable to guarantee the actions of subsequent owners of the Centre; f) consents to Boniface occupying shop 20 rent (the temporary premises) and utility free until formal handover of shop 32 (the new premises) to Boniface; g) did not lead any evidence of its own but restricted itself to testing Boniface’s evidence. Discussion and Decision [3] Boniface relies upon the following: a) Profit and Loss Statement 1/7/2005 - 30/06/20062; b) Profit and Loss Statement 1/7/2006 - 30/06/20073; c) Profit and Loss Statement 1/7/2007 - 30/06/20084; d) letter dated 14 March 2011 from Mr Maughan attaching financial statements for the year ended 30 June 2009, 30 June 2010 and for 6 months ended 31 December 20105; e) summary schedule6 which sets out Boniface’s calculation that the trading loss sustained from November 2009 to June 2011 because it was not 1 Section 103 Retail Shop Lease Act 1994. 2 Exhibit 8. 3 Exhibit 9. 4 Exhibit 10. 5 Exhibit 6. -- 3 of 7 -- 4 able to take possession of the new premises in November 2009 is estimated at $261,957. [4] Mr Steven Attrill gave evidence on behalf of Boniface that: a) Exhibits 8, 9 and 10 were prepared for the purposes of attempting to sell the business; b) the original premises had a floor space of approximately 300 m2, had external access and Boniface was entitled to open at hours to suit its business; c) the new premises: i) were smaller than the original premises but less space is now required because DVDs are smaller than VHS products; ii) was to have external access; iii) was to be located near a news agent and a Pizza Hut. These businesses would be likely to draw customers to Boniface’s business and enhance it; d) there is no reason why Boniface’s business in the new premises would not have traded in a similar manner to the manner it had traded in the original premises; e) on 8 October 2008 Premier Pacific erected barriers which prevented external access to Boniface’s original premises and redirected traffic away from Boniface’s premises to a secondary entrance on the other side of the Centre and that its trade commenced to decline; f) on 22 December 2008 a meeting was held where Boniface sought assurances from Premier Pacific; g) Premier Pacific represented that the new premises were scheduled to be handed over to Boniface in November 2009; h) following the meeting Boniface received a letter dated 20 January 20097 which represented that the new floor area would be approximately 210 m2; i) on 1 July 2009 an Incentive Deed8 was signed which provided: i) an incentive of three months rent free from the commencement of the new lease as compensation for the disruption based upon the represented practical completion date; ii) that Boniface was entitled to occupy the temporary premises on the basis that no gross rent and outgoings were to be paid; j) on 1 July 2009 an Agreement to Lease9 was signed which provided: i) that the date for Practical Completion of the Lessor’s Works was 29 November 2009; 6 Exhibit 13. 7 Exhibit 1. 8 Exhibit 2. 9 Exhibit 15. -- 4 of 7 -- 5 ii) if Practical Completion was not achieved on or before 29 November 2010 the agreement could be terminated; iii) that the floor area is to be approximately 150-170 m2; k) the temporary premises into which Boniface moved is an internal shop, which was considerably smaller than the original and the new premises, being approximately 38 m2; l) it was necessary to place a large amount of fixtures and fittings and stock into storage and therefore limited stock has been available for display for customers to view to generate trade; m) during the period since Boniface moved into the temporary premises until August 2011 it was unable to open to trade unless the Centre was open. This meant that it was not permitted to trade during times that it would ordinarily trade and in particular on public holidays until the August 2011 public holiday; n) public holidays are prime trading days for Boniface’s business; o) in difficult economic times video stores will usually experience an increase in trade because it is an inexpensive form of entertainment; p) denies that Boniface failed to communicate with Civic Video and produced an email communication10; q) says that issues with the delayed redevelopment caused Civic Video to claim Boniface was in breach of the franchise agreement and purport to terminate it and to claim damages; r) sales in 2010 were inflated by $100,000 (incl GST) by a one off item; s) in December 2010 Boniface sold a large catalogue of VHS stock raising approximately $40,000 thereby inflating sales. This was done to reduce the size of Boniface’s collection. Sales in 2011 were thereby inflated by this one off item; t) Boniface’s obligation to pay Mr Rex Attrill for services such as bookkeeping, banking, counter duty, relief staff services, supervisory and management has not been quantified because Boniface does not know when it will be in a position to pay for those services. The obligation is to pay Mr Attrill when Boniface is able; u) After Civic Video terminated the franchise agreement Boniface has not been allowed to use the Civic Video branding and has not been able to access services or stock using the group’s buying power and therefore costs have increased. By way of example Civic had a SMS service used to inexpensively follow up overdue loans. Since the termination Boniface has been using phone and debt collectors at an increased cost; v) Boniface reduced its staff levels to reduce costs and its business has suffered because staff with higher level skills have not been able to be retained; w) Boniface has been attempting to minimise its loss and has sought to move to external premises within the Centre but has not been able to reach agreement with Premier Pacific; 10 Exhibit 5. -- 5 of 7 -- 6 x) Boniface had the opportunity to terminate but did not do so because until the franchise agreement was terminated Boniface had a defined territory and Boniface was, despite conducting enquiries, not able to locate any other commercial opportunity in the territory. Even since Boniface has not been constrained by the territory requirements Boniface has been unable to locate suitable commercial opportunities and has chosen to stay in the belief that once Boniface takes up the new premises business will be able to be increased. [5] The Tribunal is satisfied that Boniface has suffered significant trading losses as a consequence of not being able to commence to trade in the new premises from November 2009. [6] The concept of compensation is to put Boniface into the position it would have been in had the new premises been available from November 2009. This involves estimation and sometimes the assessment calls for the use of “a broad axe”.11 [7] The Tribunal accepts Mr Attrill’s evidence and therefore accepts that the previous profit from trading in the old premises is a reasonable estimate of the profit from trading expected in the new premises. [8] Exhibits 8, 9 and 10 were put together for a prospective purchaser. When compared to the financial statements in Exhibit 6 it is evident that certain expenses have not been included in the earlier periods. In a proposed sale circumstance it is usual to remove expenses which are particular to the current owner eg bank charges, depreciation, interest, and owner’s superannuation and salaries. The expenses would then be understated and the profit over stated. [9] For this reason the Tribunal is not satisfied that Exhibit 13 accurately reflects the trading loss suffered by Boniface. [10] The Tribunal has considered the expenses included in recent years financial statements and considers that the expenses for the financial years ending 30 June 2006, 30 June 2007 and 30 June 2008 ought to be adjusted by the average expenses in the financial years ended 30 June 2009 and 30 June 2010 in respect of the following expenses: a) Borrowing/mortgage; b) Cleaning; c) Depreciation; d) Freight; e) Interest; f) Vehicle; g) Print; 11 Cattanach v Melchior (2003) 215 CLR 1 at [101]; Cameron v Cavric P/L t/a Cavalier Homes Mackay [2010] QCAT 114. -- 6 of 7 -- 7 h) Repairs; i) Security; j) Staff Amenities; k) Workcover. [11] When these adjustments are made the trading loss estimated using the methodology set out in Exhibit 13 for the period December 2009 to June 2011 is $121,453. [12] The claim in relation to Civic Video was not pursued. In any event the amount claimed is subject to other dispute resolution proceedings and so the loss, if any, had not crystallised. [13] The claim for trading stock value, loss of wages and wages owed to Mr Rex Attrill were not pursued. In any event the limited evidence in relation to these items was that the losses had not as at the time of the hearing crystallised in relation to trading stock value and the wages owed to Mr Rex Attrill. [14] Section 83 of the Retail Shop Lease Act 1994 vests power in the Tribunal to make orders the Tribunal considers just to resolve the retail tenancy dispute. [15] The Tribunal is not satisfied it is just to resolve the dispute to make an order: a) requiring Premier Pacific to: i) provide a statutory declaration as to the likely completion of the redevelopment including timeframes and written regular updates of progress; ii) confirm the intent to retain the leasing agreement along with terms and conditions as negotiated for the new shop premises which would survive any further transitional owner or management changes; b) waiving the requirement for a bank guarantee whilst Boniface leases premises at the Centre. Orders [1] By consent Boniface Pty Ltd is relieved of any obligation to pay rent and utilities to Premier Pacific (Holdings) Pty Ltd or any successor in title while Boniface Pty Ltd occupies the temporary premises (shop 20) until formal handover of the new premises (shop 32) occurs. [2] Premier Pacific (Holdings) Pty Ltd is to pay reasonable compensation to Boniface Pty Ltd for the period November 2009 up until 30 June 2011 in the sum of $121,453 by 4pm 16 December 2011. -- 7 of 7 --