Baglatzis v Mondial Stone (Australia) Pty Ltd [2004] RSLT 17

[2004] RSLT 17 THE RETAIL SHOP LEASES ACT In the matter of Dispute No 40/03 DENNIS BAGLATZIS - Claimant - and – MONDIAL STONE (AUSTRALIA) PTY LTD (AS TRUSTEE FOR THE MONTESANTI FAMILY TRUST) - Respondent Decision Given on 12 March, 2004 -- 1 of 9 -- Baglatzis-v-Mondial Stone 2 Decision The Claimant was formerly a co-tenant and partner with George Karagianis in a restaurant business near Cairns, namely the Santorini Greek Taverna, in premises owned by the Respondent. The partnership was short-lived, and after four months of trading together the Claimant purchased Karagianis’ interest in the business and an assignment of the remainder of the one-year term of their lease. At the end of that term the Claimant was in no financial position to renew it. In essence, the amended Notice of Dispute claims: [A] A refund of $20,000 paid by the Claimant to the order of the Respondent by way of key-money, contrary to section 39 of the Retail Shop Leases Act 1994 [“the Act”] ; and [B] Compensation under section 22(2)(b) of the Act for loss and damage caused by the Respondent’s failure to provide the Claimant with a draft lease and Lessor Disclosure Statement which would have alerted him to the true extent of his obligation to pay outgoings; and [C] Compensation for loss caused by the unconscionable conduct of the Respondent in that the Respondent: [i] failed to inform the Claimant that an outdoor area used by the Claimant in his business was not part of the demised premises; [ii] caused or permitted the Claimant to believe that he was responsible for repairs to that area, and caused or permitted the Claimant to expend the amount of $ 3,410 on such repairs, when that expense was the Respondent’s sole responsibility; and [iii] refused or failed, without reasonable cause, to sign documents required for the transfer of a liquor licence from the said Karagianis to the Claimant when the Claimant’s partnership with Karagianis was dissolved. Following the Directions Hearing the Claimant retained a solicitor to prepare certain documents for the Tribunal, but at the hearing on the merits he appeared in person. A director of the Respondent company is Mr Filippo Montesanti who, at all material times, represented the company. Mr Montesanti did not attend the hearing but was represented by solicitor and counsel. -- 2 of 9 -- Baglatzis-v-Mondial Stone 3 Decision The Lease1 The Claimant and Karagianis leased the subject premises at Palm Cove, near Cairns, for an initial period of one year - from 1 April 2002 to 31 March 2003 - at a rent of $52,000 per annum. The lease contained options to renew for two periods of three years. Provisions of the lease, now material, are as follows: “1.2.10 Outgoings means … rates, local authority assessments of all types, Body Corporate levies… - 1.3.9 Whole Agreement … terms contained in this lease comprise the whole agreement … no further terms will be implied or arise between the Lessor and the Lessee under any collateral or other agreement made on or prior to execution… - 1.3.11 Lessor’s Consent … if the Lessor’s consent or approval is required it: (a) May be granted or withheld at the Lessor’s discretion… - 4.1.2 The Lessee shall obtain any consents or permits necessary to carry out its business from the premises. - 17.1 The Lessor leases to the lessee the chattels contained in the Schedule to this Lease. The Lessor leases the chattels to the Lessee for the duration of the term herein or any option term. - 17.2 The Lessor leases…the chattels on an “as is-where is” basis …” [There follows a schedule of leased chattels, commencing with the item “28 x granite tables”.] [A] THE PAYMENT OF $20,000 Evidence of the Claimant The Claimant states that he first heard of Karagianis as the owner of a Greek restaurant in Cairns, and that he met him there on the Monday evening before he signed the lease on Friday 22 March 2002. Karagianis then told him that he (Karagianis) was negotiating with the Respondent to lease the subject premises as a restaurant, and that he needed a manager, preferably someone fluent in Greek. The Claimant gained the impression that a concluded agreement with the Respondent was a matter of urgency. The Claimant was then about 25 years of age and keen to find a business opportunity. Immediately, on the Monday evening, he agreed to become 1 Exhibit 2 -- 3 of 9 -- Baglatzis-v-Mondial Stone 4 Decision Karagianis’ partner in the Palm Cove venture. Asked by the Tribunal why he acted so precipitately the Claimant replied that the opportunity to run a restaurant was “like marriage – love at first sight.” He did not inspect the subject premises before he signed the lease. The Claimant says that on the same Monday evening Karagianis indicated that Montesanti (for the Respondent) would not sign a lease unless and until he and Karagianis paid $20,000 to the Respondent’s account for “key money” or goodwill. In that context, according to the Claimant, Karagianis used the Greek word “klibi”, meaning “key”. Cross-examined, the Claimant firmly denied that this payment was for the hire of the chattels subsequently listed in the lease, or any others. The Claimant added that there was really no goodwill involved, because the premises were vacant for several months before he and Karagianis opened their restaurant there. Exhibit 4 is a handwritten document listing the chattels which are also listed in the Schedule to the lease. The Claimant says that Exhibit 4 was compiled by Karagianis, whose writing he often saw on papers connected with their restaurant business. (This identification is supported by Montesanti, below.) On Friday 22 March 2002, according to the Claimant, he obtained a bank cheque for $20,000. He “thinks” that it was made out to the Respondent’s director (Montesanti) as distinct from the Respondent. On the same day he and Karagianis went to the Respondent’s solicitors’ office in Cairns, signed the lease and delivered the cheque. The lease bears the date “22 March 2002”. The Claimant says that later in 2002, after the partnership ended, he had several telephone conversations with Montesanti (who resides in Sydney) about Body Corporate fees and other matters. In one of those conversations (says the Claimant) he mentioned the pre-lease payment of $20,000, whereupon Montesanti said that it was “to get the key or goodwill”. Evidence of the Respondent’s Director Montesanti says that he had no dealings with the Claimant before the lease was signed. He had been negotiating with Karagianis since early 2002, with a view to selling or leasing the premises to him. (Karagianis purchased the freehold towards the end of 2002. If any breach of Karagianis’ duty towards his partner was involved, that is a matter for the courts, not for this Tribunal.) Montesanti went to the premises with Karagianis, presumably before the lease was signed, and Karagianis wrote out a list of the chattels to be hired. Montesanti agrees that the items then listed are the same as those listed in the schedule to the lease. The Respondent had purchased them from the receiver of an earlier tenant, and Karagianis decided that it would be less expensive to hire them than to buy new equipment. -- 4 of 9 -- Baglatzis-v-Mondial Stone 5 Decision Montesanti admits that he required (and received) a payment of $20,000 before signing the lease on behalf of the Respondent. Montesanti did not tell his solicitor about that payment because it “was a private agreement between me and George Karagianis”. However, he denies that he described it as key money or a payment for goodwill. In support of that denial, the Respondent tendered a Notice of Defence filed by the Claimant in a Magistrates Court action initiated by Karagianis, which includes the assertion that Karagianis “did not tell [the Claimant] that the … payment of $20,000 was for the unlawful purpose of key money” 2 The forensic purpose of that inconsistent statement is not known to the Tribunal, and it does not deal with the Claimant’s evidence that Montesanti himself said that the payment was for key money or goodwill. Evidence of George Karagianis According to this witness his first contact with the Claimant was in February 2002 when the latter approached him at his restaurant in Cairns about opening a similar business, in partnership, at Palm Cove. He thought that the Claimant had the right credentials despite a lack of experience in the restaurant trade, and he decided to “give him a chance”. Karagianis agrees that he had negotiated with the Respondent for a couple of months before the subject lease was signed, with a view to buying or leasing the premises. At the inception of their partnership he and the Claimant agreed that they should hire equipment already in the premises instead of furnishing it anew. He offered Montesanti $20,000 for that purpose, and the offer was accepted. He denies that he told the Claimant that the $20,000 was for key money or goodwill. Before the lease was signed he and the Claimant visited the premises and the Claimant compiled a handwritten list of items subsequently placed at the end of the lease. Tribunal’s Finding on the “Key Money Issue” The evidence on this issue is obviously conflicting. The Tribunal did not have the benefit of seeing and hearing Mr Montesanti in person, as he did not attend the hearing. Nor did the Tribunal have the advantage of hearing Mr Karagianis under cross-examination. The Claimant lacked legal representation at the hearing, and he did not appear to be particularly well educated or sophisticated in a business sense. In the circumstances we do not regard his omission to require Montesanti to attend the hearing, or his failure to cross-examine Karagianis as conceding the accuracy of their depositions. So far as Karagianis’ credit is concerned, we note that his partnership with the Claimant was short-lived and apparently ended in acrimony. Karagianis is 2 Paragraph 7(e)(i) of Exhibit 6 -- 5 of 9 -- Baglatzis-v-Mondial Stone 6 Decision currently suing the Claimant in another forum, and in the present proceedings he chose to describe the Claimant, in strong terms, as an incompetent businessman. We do not regard Karagianis as a reliable witness. It is clear – and we so find – that the Claimant paid the Respondent, out of his own resources, the amount of $20,000 on or about 22 March 2002, as the Respondent’s alter ego Montesanti concedes. It is common for virtual owners of “family” companies to ignore any distinction between themselves and the artificial personality of their company. Montesanti’s affidavit speaks of himself and the Respondent company interchangeably. Montesanti signed the lease from the Respondent to the Claimant and Karagianis in his own name, without any clear indication of agency, and (see Exhibit 4) he banked the moneys for “hire” of the company’s chattels to his own account. The Claimant, in our view, is entitled to treat his payment to Montesanti as a payment to the Respondent. The Claimant’s evidence of that payment is supported by Exhibit 1 - a letter from the ANZ Banking Group, stating that an amount of $20,000, drawn from the Claimant’s account, was credited to Filippo Montesanti on 22 March 2002. The question, then, is what, in truth, that payment was for. No one suggests that it was for rent of the realty. The Respondent insists that it was for hire of the chattels nominated in the lease. It is common ground that no other chattels are involved. Now Clause 1.3.9 of the lease provides: “Whole agreement: (a) Terms contained in this lease comprise the whole agreement between the Lessor and the Lessee. (b) No further terms will be implied or arise between the Lessor and the Lessee under any collateral or other agreement made on or prior to execution of this lease.” In our view the Respondent’s contention that the payment of $20,000, prior to execution of the lease, represents hire of the chattels specified in the lease, is irreconcilable with the above term of the lease agreement, and the principle known as the parol evidence rule.3 While counsel for Respondent made a bare assertion to the contrary, it was not supported by any evidence, authority or reasoning, and we reject it. On the balance of probabilities we are satisfied that the amount of $20,000 was exacted in breach of section 39 of the Act, which prohibits the seeking or acceptance by a lessor of “key money or any amount for the goodwill of the lessee’s business”. “Key money” is widely defined in section 5 as follows: “(a) an amount to be paid to, or at the direction of, a lessor by way of a premium, non-repayable bond or 3 See e.g. Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507. -- 6 of 9 -- Baglatzis-v-Mondial Stone 7 Decision otherwise, for the granting…of a lease; or (b) any benefit to be conferred on, or at the direction of the lessor, for the granting … of a lease”. [Emphasis added] We find that the sum of $20,000 received by or for the Respondent from the Claimant on or about 22 March 2002 is an amount which neither the Respondent nor Montesanti was legally entitled receive, or to retain. See the Orders below. [B] THE DISCLOSURE STATEMENT ISSUE The Claimant also seeks compensation for an alleged failure by the Respondent to give him a “disclosure statement” in accordance with section 22. But when asked to explain his apparent signature on Exhibit 3 he “guessed” that he may have signed it on the day he signed the lease (without the benefit of legal advice). If so, the contents were not drawn to his attention. He complains that if they had been, he would have realised that he was liable for outgoings of about $17,000 (not an expected $3,000) and if he had known that, he would not have signed the lease. He conceded that he did not read the third page of the lease, where the relevant outgoings are listed, before he signed the instrument. The sanction for a failure to comply with s 22 is a right, in the lessee, to “terminate the lease” within 2 months after entry, and in that event compensation may be claimed. The Claimant took no such action, and besides, we are not satisfied that the Respondent failed to comply with the section. Accordingly this claim fails. [C (ii)] CLAIM FOR REFUND OF REPAIR COSTS The Claimant complains that the Respondent failed to inform him that an outdoor area used by the restaurant was not part of the demised premises, and that he was asked to pay, and did pay an amount of $3,410 for repairs to that area – an expense which was really the Respondent’s sole responsibility. Suffice it to say that the Claimant’s failure to appreciate the true position was due to his own failure to read and understand the lease document, or to seek appropriate legal advice. It is also fair to point out that the Claimant did enjoy the use of the area for business purposes. In our view the Claimant has failed to establish, in this regard, unconscionable conduct within the meaning of section 46B. The Tribunal dismisses this claim. -- 7 of 9 -- Baglatzis-v-Mondial Stone 8 Decision [C (iii)] FAILURE TO FACILITATE LIQUOR LICENCE TRANSFER The liquor licence for the Santorini Greek Taverna was originally in Karagianis’ name. The business could not do without it; according to the Claimant, liquor sales accounted for about 80% of turnover. The Claimant says that when the partnership was dissolved he needed the Respondent’s consent to an application for the transfer of the licence to him. He says that he explained this to the Respondent by telephone in early August 2002 and sent the appropriate papers to him. Some weeks later the Respondent told him that the necessary consent was “in the post”, but it never arrived. Meanwhile the Claimant fell foul of the licensing authorities. At last he took legal advice, and was told that there was a prior registered lease in favour of a mortgagee. On legal advice he lodged a caveat. Then, he says, Montesanti refused to consent to the licence transfer until the caveat was withdrawn. Solicitors’ letters flowed to and fro without a resolution. The Claimant then decided to sell the business. He claims that a Mr Luxon was prepared to buy it for $80,000, but withdrew for want of an assurance that a liquor licence would be available. After some weeks of trading at a loss the business closed in November 2002. The Claimant says that when he was seeking the Respondent’s consent to the licence transfer he was not aware that Karagianis was seeking to purchase the freehold. He says that he first heard of those negotiations when he read the Respondent’s affidavit in these proceedings. He asks the Tribunal to infer that the Respondent “stalled” his request while its negotiations with Karagianis proceeded. Montesanti, for the Respondent, says that he did not receive the licensing papers for a considerable time, because of a change of address. He claims that he did sign the documents and gave them to his solicitor in Sydney. He admits that Karagianis bought the freehold towards the end of 2002, but denies that this had anything to do with delay in dealing with the licence documents. (Karagianis has reopened the restaurant, and is conducting it on his own account.) The Tribunal is by no means satisfied with the explanations and excuses of Mr Montesanti on this aspect of the case. Here and elsewhere the credit of the Respondent’s director was less than impressive, and in our view it was not improved by his non-appearance at the hearing. Indeed it is most unusual for a corporate party’s principal representative to absent himself from a viva voce hearing. However, the onus of proof is on the Claimant, and on the present issue he must prove more than unconscionable conduct. He must also adduce acceptable and reasonably specific evidence of the loss or damage caused by such conduct, if any. The Claimant’s lack of due diligence in other aspects of this affair hardly supports a confident finding that he was sufficiently diligent in -- 8 of 9 -- Baglatzis-v-Mondial Stone 9 Decision attending to the licence transfer. But be that as it may, there is simply no evidence upon which we could quantify loss or damage, if any, resulting from alleged unreasonable delay on the Respondent’s part. We have no evidence, expert or otherwise, of the value of the business when negotiations with Mr Luxon broke down, compared with its value at the time of closure, and a potential buyer is by no means the same thing as a firm offer, let alone a concluded agreement. According to Luxon, the liquor licence problem was only one of several reasons for his withdrawal. Accepting this evidence, as we do, the proposition that Luxon would have purchased the business if the licence-transfer papers had been speedily completed, is in the realm of speculation, which we are not entitled to enter. Accordingly this claim is dismissed. We cannot part with this case without expressing some concern about the treatment of the naïve Claimant by Karagianis and Montesanti, individually or in concert. However, if the Claimant is entitled to any further redress (as to which we express no opinion) he will have to prepare and present a better case than the one he placed before us, and probably in a different forum. ORDERS: 1 That the Respondent pay the sum of $20,000 to the Claimant within 14 clear days of the service of this decision upon the Respondent. 2 That Filippo Montesanti, as director of the Respondent and sole agent for it at all material times, take all reasonable steps to ensure that the Respondent complies with Order 1, including payment by him to the Respondent of the amount of $20,000 received by him from the Claimant on or about 22 March 2002, if such payment has not already been made. 3 That the question of costs, reserved on 29 October 2003 be listed for further consideration at Brisbane on 14 days’ notice by the Registrar to each party. A Forbes Chair Retail Shop Lease Tribunal -- 9 of 9 --