Brisbane Truss Pty Ltd v Doval Holdings Pty Ltd [2007] RSLT 12

[2007] RSLT 12 THE RETAIL SHOP LEASES ACT In the matter of Dispute No 2006/0098 BRISBANE TRUSS PTY LTD ATF THE LEWIS FAMILY TRUST - Claimant - and - DOVAL HOLDINGS PTY LTD - Respondent -and- MR GABRIEL AUODE AND MRS WADAD AUODE - Third Party Coram: A Forbes (CHAIR) S Kairl D McBryde DECISION Given on Monday, 19 November 2007. -- 1 of 14 -- In 2000 the Respondent landlord Doval Pty Ltd (“Doval”) acquired a group of shops, known as Baroona on Nash, situated at the junction of Baroona Road, Agar and Nash Streets in the inner Brisbane suburb of Rosalie. The group comprises a real estate agency, the Third Parties’ (Aoudes’) convenience store (“the Rosalie Foodstore”) the Claimant’s “Rosalie Gourmet Market”, (“RGM”) and a first floor restaurant. In the immediate vicinity are several restaurants, a specialist butcher, a bakery, dress shops and a newsagent. A large supermarket and other food outlets are less than a kilometre away. Mr Norris Lewis is a director of, and spokesman for the Claimant, which has operated the RGM since 1997. Mr Lewis prides himself on good merchandising. According to the witness Kerrianne Bonwick, the Claimant conducts a “specialty business” offering a discerning public a “destination shopping experience”. A large and attractive display of high quality flowers greets customers as they enter the store. In clement weather some flowers are placed on the footpath, with others just inside the door. The Claimant accepted its current lease on 23 November 2003. The permitted use is expressed as: Gourmet food market for the sale of products associated with or connected to food, including delicatessen, fresh produce, cut cheese, meals, antipasto bar, patisserie and specialist breads, chocolates, flowers, kitchen giftware and cookbooks. The Aoudes have operated a convenience store next door to the Claimant’s present premises since 1995, after purchasing it from another occupant. In its Notice of Dispute the Claimant seeks orders and declarations against the Respondent landlord for disruption of the Claimant’s business. In essence the Claimant says that the Respondent, in breach of its lease to the Claimant, has caused it loss by permitting the Aoudes to exceed the permitted use of their -- 2 of 14 -- 3 premises, particularly (though not exclusively) by selling “specialty” flowers, despite protests by the Claimant. The Claimant seeks compensation in the amount of $71,671.13, and declarations. On an application by the Claimant and the Respondent, the Aoudes were made Third Parties to these proceedings pursuant to section 70A of the Retail Shop Leases Act 1994 (“the Act”). The Respondent denies liability, and seeks an order for costs against the Claimant, on an indemnity basis. Alternatively, it seeks an indemnity order against the Third Parties, in any amount that it is ordered to pay to the Claimant. The Third Parties deny that they have exceeded their permitted use. All three parties were represented by counsel. The hearing occupied three days, with an additional day for submissions. Exclusivity? The Claimant’s case is based on Clause 18(b) in the Reference Schedule to its lease, which reads: Subject to the use already granted to [the Aoudes] for a Convenience Store, [the Claimant] has exclusive use to conduct the business in terms of the permitted use as described. The Claimant’s permitted use is quoted above. The Aoudes’ current lease, granted in September 2003 (2-3 months before the Claimant’s present lease), contains an express “non-exclusivity” term. However, it is an elementary point of law, and common ground, that the Claimant’s lease cannot derogate from the Aoudes’ rights under their lease, such as those rights may be. The central question is this: To what extent does Clause 18(b), above, on its proper -- 3 of 14 -- 4 interpretation, protect the Claimant against competition from the Aoudes? Or to put the same question another way: Has the Aoudes’ business gone beyond that of a “convenience store” so as to trespass on exclusive rights of the Claimant? It appears that the fons et origo of Clause 18(b) of the Claimant’s lease was a meeting of Mr Lewis (for the Claimant) and Mr Witte (the Respondent’s business manager) on 24 April 2003, several months before the Claimant’s current lease began. Lewis was intent on having a clause in the new lease that more precisely defined, as against the Aoudes, the Claimant’s exclusive rights, particularly with respect to breads, cheeses and flowers. On this occasion, according to Lewis, he made it clear to Witte that in his (Lewis’) view, the Aoudes were intruding on the Claimant’s rights by selling products that did not belong to a genuine convenience store. Subsequently Lewis himself drafted a new “permitted use” clause, which appeared, unaltered in the Claimant’s new lease. However, as Lewis acknowledges, the Respondent told him by letter dated 7 May 2003, some six months before the Claimant’s new lease was executed, that the Respondent could not “… impose restrictions on the convenience store that are not current imposed [by its] lease”.1 Consequently, the Claimant remained open to competition in any retail field “already granted to the [Aoudes] for a convenience store”. Lewis claims that for several months before the Claimant’s and the Aoudes’ new leases were signed, the Respondent led him to believe that his objections to the Aoudes’ “product management” would be answered in the Aoudes’ new lease. He maintains that Mr Giraud (for the Respondent) assured him that he (Giraud) would keep an eye on the convenience store, to prevent it from selling items that were “the core” of the Claimant’s business. But it does not appear that Lewis asked to see a final draft of the Aoudes’ new lease, although that would have been a reasonable request, considering the interrelated character of the contiguous businesses. Significantly, it is not alleged that any misrepresentation by the Respondent induced -- 4 of 14 -- 5 the Claimant to renew its lease in November-December 2003. Although the Claimant seeks declarations and orders touching specialty breads and cheeses, the gravamen of its complaint is diminution of its former market share in “specialty” flowers, due to price-cutting by the Aoudes. According to the Claimant’s evidence, top-quality flowers are one of its most profitable lines. The Claimant buys them from specialist growers, including the witness Jacobus Bras, and sells 500- 600 “single species” bunches per week. Lewis says that before 26 April 2006 he applied a formula common in the retail flower trade: the purchase price (less GST) was doubled, then GST and a further 90 cents were added by way of “rounding”, producing a gross profit margin of approximately 100%. (He rejected a suggestion of the Respondent’s accountant, Mr Ponsonby, that the mark-up was really about 73%.) Mr Lewis acknowledges that the convenience store was already selling flowers before the Claimant’s present lease was granted, and he conceded, under cross- examination, that it was already selling some “single species” bunches of lilies in 2002. However, he says that those floral offerings were not comparable in quality or quantity with flowers now sold by both the Claimant and Aoudes. He says that from 2003 the Aoudes gradually increased the range and quality of their flowers, until, in early April 2006, they regularly had a large and prominent display of “specialty” flowers at their shop entrance. Those flowers were identical to those displayed by the Claimant, but lower in price. Lewis further says that in August 2006 the Aoudes began to sell “specialty” breads and “specialty” feta cheese. Mr Lewis has a professional expertise in cheeses. He classes fetta cheeses made of goat’s or sheep’s milk, as specialties. He describes specialty breads, as those of French or Italian origin, shaped manually, such as ciabatta, panini and baguettes. The Claimant contends that these products are not the proper business of a convenience store, and are therefore not within the permitted use in the Aoudes’ lease. The Tribunal is asked to draw and to enforce a 1 Letter Respondent to Norris Lewis dated 7 May 2003. -- 5 of 14 -- 6 distinction between “speciality” goods, on one hand, and lesser goods, fit for convenience stores, on the other. From April 2006 the Claimant responded to the unwelcome competition by reducing the price of its flowers by $3 or $4 a bunch. The Aoudes responded by selling similar flowers for $4 to $6 less than the Claimant. Nevertheless, sales of the Claimant’s flowers (at reduced prices) picked up about six weeks later, and this trend continued for the remainder of 2006, and in 2007. Indeed the Claimant’s turnover increased by 26.8% in 2006-2007, when the Claimant purchased 82% more flowers than in the previous financial year. It was suggested that the Claimant’s higher sales of flowers were mainly due to lower prices, but according to Mr Lewis intelligent merchandising, attractive presentation and careful wrapping were more important factors. The Claimant’s case is that, if it had been able to sell all its flowers in 2006-2007 at pre-April 2006 prices, it would have earned additional profits of $4,000 per month, or $48,000 for the financial year. It also claims that its reduced profits in three months, July to September 2007, were about $10,000 per month. Challenged on this point, Lewis explained that lower per-month losses in 2006-2007 were due to periods in which, despite competition from Aoudes, he sold his flowers at the “old” prices. The Claimant’s accountant (Mr Williams) estimates that the allegedly improper competition cost the Claimant $41,891 in 2006-2007, while the Respondent’s accountant (Mr Ponsonby) put the proper figure at $3,895.94. Mr Williams attributes a further $29,392.44 to the period 1 July to 30 September 2007, while Mr Ponsonby’s figure for that period is a little below $1000. Lauren Dixon, a marketing consultant called by the Claimant, testified that she surveyed nine convenience stores in Rosalie and adjacent suburbs. Only two of them sold flowers, and they were similar to the small bunches wrapped in coloured plastic, illustrated in a photograph marked LD2, annexed to her second written statement. None of the stores examined by her sold goat’s or sheep’s milk cheeses, and bread sales were limited to ordinary sliced and packaged varieties, -- 6 of 14 -- 7 except in one store, selling French bread sticks or baguettes. While the Claimant accepts, as it must, that its exclusive rights are subject to the Aoudes’ right to run a convenience store, the Claimant asserts that they are really running a small supermarket, which they are not entitled to do. It follows, according to the Claimant, that the Respondent, in not taking all reasonable steps to confine the Aoudes to convenience store operations, has unlawfully interfered with the Claimant’s business, and therefore is liable to compensate the Claimant for its consequent reduction in profits from 1 July 2006 to 30 September 2007. The Respondent’s Case The Respondent’s director and spokesman is Mr Bernard Giraud. He says that when the Claimant’s new lease was under discussion it was made clear to Lewis, and Lewis understood, that the Respondent could not impose restrictions upon the Aoudes that did not already apply. However, Lewis continued to complain about “erosion of exclusive use provisions” in the Claimant’s existing lease. In 2006 Giraud sought a legal opinion on the meaning of “convenience store”, and fortified by it, confined himself to encouraging co-operation between the fractious tenants. Quite properly, considerable efforts were made to distil the precise meaning of “convenience store” as a commercial term of art. The Tribunal was referred to the following definitions or descriptions: A small shop, usually located in the suburbs, which caters to the needs of nearby households by offering a range of food and domestic items most commonly in demand. 2 A retail business with primary emphasis placed on providing the 2 Macquarie Dictionary, revised 3 rd edn 2001. -- 7 of 14 -- 8 public with a convenient location to quickly purchase their requirements from a wide range of consumable products (predominantly food and petroleum products). 3 Operators in this industry retail a broad range of convenience items...entities which primarily operate as fruit and vegetable retailers, bread and cake retailers, take-away food retailers, specialised food retailers or supermarkets and other grocery stores are excluded from this the industry.4 Kerrianne Bonwick, an economic and market research consultant, prepared a report for the Respondent. She called in aid the Macquarie Dictionary, publications of the Australian Convenience Store Association, and her own professional experience to arrive at this opinion: A convenience store aims to cater for the day today needs or top-up shopping needs of residents of the local area. A convenience store is typically differentiated by providing a small range of essential goods and services that need immediate needs, e.g., snacks, drinks, “forgotten needs” such as last- minute dinner ingredients, emergency supplies … as well as those items with a limited shelf life or that are purchased frequently e.g. milk, bread, newspapers. The hours of operation of a convenience store are typically longer than those of a full line supermarket providing extended trading hours seven days a week.” 5 Typical offerings of a convenience store, according to Ms Bonwick, are “a broad 3 Australian Convenience Store Association. 4 IBIS World Australia Convenience Stores Industry, Market Research and Report July 2007 – Attachment NL 5, Statement Norris Lewis 25 August 2007 5 Report Kerrianne Therese Bonwick, filed 7 August 2007 page 1. -- 8 of 14 -- 9 range of basic grocery items, likely to have a limited choice in range of brands and quantities.” Cross-examined, she agreed that, typically, convenience stores fulfil day-to-day emergency and “top-up” needs, but added that emergency needs are not the defining characteristic. The expression “convenience store”, she considered, has no fixed meaning or limitation; rather it is a flexible and evolving concept, the expanding content of which depends on such circumstances as location, the tastes and needs of customers, and the proximity of competition. So, for example, a convenience store in a central business district might concentrate on snacks and lunches, while another, in a suburb with many immigrant residents might stock ingredients that have special appeal to such residents. In her opinion, Aoudes’ shop is properly described as a convenience store or small supermarket, serving a residential area inhabited by “young professional working single and couple households.” She observed that the nearest Woolworths’ supermarket sells “single species” bunches of flowers, and opined that, in so doing, the Aoudes’ shop offers goods commonly in demand and convenient to its customers, and does not go beyond the contemporary concept of a convenience store. She added that the expressions “supermarket”, “convenience store”, and “convenience supermarket” are more or less interchangeable. In Bonwick’s view, there are significant differences between the Claimant’s business and Aoudes’, the former being “an experiential shopping destination” offering gourmet products, superior service, and a pleasant ambience. The Respondent submits that the Tribunal should consult its own experience of “convenience” stores, assisted by dictionary and trade descriptions, and the opinions of Ms Bonwick and Mr Constanzo (a witness for the Aoudes). In its submission, the mere fact that the Claimant stocks a particular product does not mean that it cannot be lawfully sold by a convenience store. -- 9 of 14 -- 10 The Third Parties’ Case The Aoudes maintain that they are entitled to sell the disputed products, that they sold them for years before this dispute arose, and will continue to do so unless otherwise ordered. Mrs Wadad Aoude says that when she and her husband acquired their shop in 1996 it was a “fairly standard convenience store selling a broad range of goods,” including packaged bread, bread rolls and French sticks. She says that it has “always” sold cheeses which some may describe as “gourmet”, such as camembert, brie and stilton, in pre-packaged form, but when the Claimant’s business opened, the Aoudes reduced their cheese stocks by more than fifty per cent. Mrs Aoude further says that flowers – some in mixed lots, and some in “single species” bunches of gerberas, roses and lilies were originally displayed inside their store. After renovations in 1998, flowers were prominently displayed near the cash register, at the front of the shop. Gradually, in response to "customer needs", they made “subtle changes” in order to compete with the Claimant and a large supermarket about 300 metres away. Currently they purchase bread supplies from a major supplier as well as several small bakeries. About twelve or eighteen months ago they changed their supplier of specialty breads, such as foccaccia, Turkish bread and ciabatta. These are delivered in plastic wrapping, which Mrs Aoude removes before putting them on sale. Mrs Aoude claims that there has been no significant changes in their cheese stocks in the past five years – other than the reduction in volume, mentioned above. The Aoudes concede that their range and volume of flowers has changed with changes in customer demand. People are now more interested in buying “single species” bunches, although mixed bouquets are still sold. Mrs Aoude denied that she has sold “single species” bunches only in the last 12 months. She says that it was three years ago that she began to buy flowers in bulk at Rocklea wholesale markets, instead of pre-wrapped bunches. There are normally about 40 to 50 -- 10 of 14 -- 11 bunches on display. She claims, rather disingenuously, that she has no knowledge of the price or range of flowers sold by the Claimant. She denies price-cutting, but admits that, about three years ago, she became aware that the Claimant was undercutting her price, and that she and her husband followed suit.6 John Costanzo describes himself as corporate stores manager of IGA distributors, a wholesale warehouse supplying products to convenience stores and supermarkets throughout Queensland. He is familiar with the Aoudes’ store. In his opinion it is not trading as anything but a convenience store. He points out that, since supermarkets were given extended trading hours 10 or 15 years ago, convenience stores have progressively offered wider ranges of goods in order to retain their role as "one-stop shops". Convenience stores now stock differing ranges of products, depending on the space they have, and the demographics of their area. In his view, the contemporary convenience store is essentially a small supermarket, distinguishable from major supermarkets only in product range and volume. In Constanzo’s experience it is not uncommon for convenience stores to sell a range of fresh breads, and the range of breads sold by the Aoudes is not exceptional; gourmet cheeses are standard grocery lines; and flowers are sold in almost all convenience stores. About one convenience store in ten sells “single species” bunches such as gerberas and lilies, while about half of them sell roses. While I agree that the [Aoudes sell] a wider range of flowers than most convenience stores, it is not in my view uncommon for a convenience store to sell a range of flowers including single species. I do not believe [their] range of flowers ... to be significantly different to the range available at a standard supermarket. Ms Glynn Griffith is a real estate agent in premises two doors from Aoudes’ store. She is familiar with their offerings, and the Claimants’. She states that the Rosalie 6 Statement Wadad Aoude, 3.8.07, paragraph 26.3.8 -- 11 of 14 -- 12 area has been in transition for the past 20 years, and is now the home of many “white collar singles and middle to upper middle income families.” She says that for years the Aoudes have sold a wide range of flowers and breads, not confined to pre-packed products or bunches. In summary, the Third Parties contend that they have not exceeded the use permitted by their lease, that the Claimant’s action should fail, and that no question of their indemnifying the Respondent can arise. “Convenience Store” Manifestly the result of this case depends on the meaning attributed to the term “convenience store”. The essential facts are not seriously contested. The Aoudes concede that throughout the relevant period they have sold “gourmet” cheeses, “specialist” bread, and flowers, in mixed and “single species” bunches. They also concede that they have recently expanded their range of flowers. The question, however, is whether they have moved beyond the contemporary concept of a convenience store to trespass on the Claimant’s qualified right of exclusive trading. Can it be said that an increase in the volume or quality of products that are, according to evidence that we accept, within the range of a convenience store, amounts to a generic change by which it ceases to be simply a convenience store? We are not satisfied that the Aoudes have gone beyond the accepted functions of a contemporary convenience store, so as to invade the Claimant’s rights. The expert evidence and dictionary definitions sufficiently establish, in our view, that “convenience store” is an elastic and rapidly evolving concept, open-ended, and vague to a degree. We find that the sale of “gourmet” products and flowers (mixed or in single species) was at all material times an accepted activity of convenience stores, although not of all of them. Unfortunately for the Claimant, its exclusive-trading clause is inherently weak, even -- 12 of 14 -- 13 illusory, subject as it is to a wide and widening proviso. In deciding this dispute, it is appropriate to consider convenience stores in general; indeed, all parties adopted this approach. The proviso to the Claimant’s exclusivity clause refers to “a convenience store”, not to any particular store or class of stores. Still less does it purport to “freeze” the Aoudes’ stock-lines just as they were, when their current lease began. It would be very burdensome, if not quite impractical, to expect the landlord of a convenience store, or this Tribunal, to police every change in stocks of bread, cheese or flowers, with a view to declaring some such products to be “genuine convenience store material”, and others to be beyond that pale. Fine distinctions of that kind are not a proper subject for legal definitions, declarations or damages. As the meaning of “convenience store” evolves and expands in ordinary language, so, too, does its meaning in a lease, and in the Claimant’s limited “exclusivity” clause. This is not to suggest that the subject clause is quite nugatory, or that there are no limits to what a convenience store may sell, and remain a pure convenience store. If the Aoudes began to sell “kitchen giftware and cookbooks”, then it might be arguable that they were ultra vires their lease. Indeed, the Aoudes say that they have not sold, and do not intend to sell such items. Nor do they claim any right to sell a variety of delicatessen items, that require processing in the shop.7 Indeed, Mr Lewis’ servant or agent Patricia Russell seems to have been acutely aware of these difficulties, and the consequent fragility of the Claimant’s protection from competition, when she wrote to the Respondent’s solicitor on 8 September 2003: Brisbane Truss reluctantly agrees to the rather weak exclusivity clause. We note that the landlord is not prepared to protect [us] from the adjacent convenience store’s continued expansion into [our] product range. This is disappointing … 7 Aoudes’ response to further amended Notice of dispute filed 17 May 2007. -- 13 of 14 -- 14 [We note] that the convenience store’s lease is up for renewal early next year. [We ask] that the landlord negotiates [sic] “Permitted Use” of the convenience store lease such that it has a more defined area of product range and cannot infringe the product range of the Gourmet Market. In fact no more was done. According to an unchallenged “chronology of lease disputes” tendered by the Respondent, it forthwith told its solicitor “not to respond concerning alleged concerns regarding exclusivity”, and no change was made to the permitted use in the Aoudes’ lease. So it seems to us that the Claimant’s guarantee of exclusivity, such as it is, must be found in extra-legal distinctions - “an experiential shopping destination” offering gourmet products, superior service, and pleasant ambience (Ms Bonwick), and a wider range of high quality products presented with intelligent merchandising, attractive presentation and careful wrapping (Mr Lewis). We conclude that on the facts established, and in the circumstances, the Aoudes have remained within the “permitted use” term of their lease. It follows that in allowing them to trade as they have, the Respondent has not unlawfully interfered with the rights of the Claimant under its lease. The claim is dismissed. There will be no order for costs. A Forbes Chairman -- 14 of 14 --