Cha Cha Tavenna Pty Ltd v Foxzano Pty Ltd [2001] RSLT 5

1 [2001] RSLT 5 THE RETAIL SHOP LEASES ACT In the matter of Dispute 32/01 CHA CHA TAVENNA PTY LTD - Claimant - and - FOXZANO PTY LTD - Respondent DECISION Given in Brisbane on 18 December, 2001. -- 1 of 15 -- Cha Cha -v-Foxzano 2 Decision This is a claim by the tenant against the landlord for compensation in terms of the Retail Shop Leases Act. The subject premises are on the fourth floor, that is, the top floor, of a building in Gladstone. Access to the restaurant is by a single lift and stairs within the building or from the carparks on the third and fourth floors. The latter access is by way of a ramp. The lease generally contains provisions included in standard types of leases with some special provisions. The date of commencement is given as 14 th September 1997. A standard clause is clause 4.25, which requires the tenant to comply with legislative requirements. Although no specific claim has been made with regard to legal costs for preparation of the lease, we mention in passing that any provision requiring the lessee to pay the lessor's costs of the lease is illegal under the 1994 Retail Shop Leases Act. Clause 7.15 deals with carparking and makes the parking of vehicles within the building (by which the whole building and not only the leased premises is clearly meant) subject to the lessor's discretion. Such discretion was exercised in favour of the tenant and we are of the opinion that, in spite of the wording of this provision, it is implied in a lease of a particular part or portion of a building which has parking available for the use of tenants and their customers, use by such tenants and their customers is, subject only to reasonableness, an entitlement of a lessee. Further lessor's covenants, being -- 2 of 15 -- Cha Cha -v-Foxzano 3 Decision Part 10 of the lease, make this abundantly clear. Clause 10.1 gives the lessee the right, in common with the lessor and other tenants and occupiers for the time being, and its invitees and licensees, to use and pass through and along the common parts of the building, carpark and general area, including the lift, corridor, stairs and toilets thereof. Clause 10.2 sets out agreement on matters earlier raised between the solicitors to the parties. Sub-clauses (e) and (f) are of particular relevance. These read: The lessor shall at the lessor's own expense within two weeks after the date of commencement (e) replace damaged ceilings to Gladstone City Council Health Department requirements; and (f) repair leaking roof to prevent water entering the demised premises through the ceiling. These sub-clauses do not, on our finding, constitute the whole of the duties undertaken by the respondent with respect to repairs. In paragraph 16 of his statement, Mr Christos Mamalis says: "On or about 26 September 1997, the landlord's agent Max Lubke assured me that the landlord would effect the repairs required by the Council. This was subsequently confirmed by Irene Skenderus, on behalf of the landlord." -- 3 of 15 -- Cha Cha -v-Foxzano 4 Decision We accept that the landlord did ultimately effect the repairs required by the Council and that this provision is in addition to what specifically appears in the lease. It adds a term to the lease generally consistent with the provisions of the lease and does not contradict it. In coming to this conclusion, we base ourselves on the oral evidence and demeanour of the respective witnesses in this regard, namely, Mr Mamalis and Mrs Skenderus. The impression made on us by Mr Mamalis is that he is a truthful witness. He is proud of the restaurant which he runs and is fastidious in keeping up its appearance and general facilities. He may and in our opinion sometimes does over-estimate the effect on prospective and actual customers of defects in the premises and its surrounds, including the approaches to it. We take this into account in assessing compensation. Mrs Skenderus was extremely vague in her general evidence. Her answers to questions were sometimes such as to avoid the question or giving an answer to it. Where there has been a conflict between her and Mr Mamalis, we accept Mr Mamalis generally. Although the credibility of Mr A G McCann is not relevant to the point we are now discussing, we take the view that we should set out our -- 4 of 15 -- Cha Cha -v-Foxzano 5 Decision general comments as to the impression made by him on us. Members of the Tribunal noticed that when he was at the back of the hearing room, he made gestures and adopted a stance indicating aggression to the claimant and his witnesses. This is consistent with the evidence of Mr Mamalis as to his previous behaviour and attitude to him, and consistent with what we saw of him in the witness-box. We take the view that he is a man of quick temper and has formed a dislike of Mr Mamalis, and has allowed this to influence his views. We accept the claimant's evidence that the respondent did not within two weeks after the date of commencement of the lease replace damaged ceiling tiles to Gladstone City Council Health Department requirements and repair the leaking roof to prevent water entering the demised premises through the ceiling. We further accept that the respondent has not repaired the leaking roof to the present day. It is therefore in breach of its contractual duty and also in breach of those provisions of the Retail Shop Leases Act which require it to maintain the premises. It must therefore accept responsibility and pay compensation for such breaches and matters arising out of them. We proceed to look at the individual claims. A claim is made for compensation for rent paid by the applicant during the period when the applicant was unable to use the premises due to the respondent's breaches of the lease. The amount is $2,392.96. We -- 5 of 15 -- Cha Cha -v-Foxzano 6 Decision have already found that the respondent did not do the repairs to the premises which it was obliged to do within two weeks, and has not satisfactorily done those until the date of the hearing. The respondent submits that the Tribunal has no jurisdiction to hear this claim because of the provisions of s.109(1)B of the RSLTA. There is no jurisdiction in the Tribunal to hear a claim about arrears of rent or the amount of rent payable under a retail shop lease. The Chairman has directed the Tribunal that the present claim is within the jurisdiction of the Tribunal, being neither for arrears of rent or the amount of rent payable under a retail shop lease. It is a claim for compensation for breach of contract by the respondent. The compensation claimed is calculated with respect to an outgoing of the claimant caused by the respondent's actions. We do not have to look at the amount of rent payable and it is certainly not a claim for arrears of rent. We find the sum of $2,392.96 proved. A claim has been made for loss of gross profit which would have been incurred during this period. We deal generally with the question of loss of profits below. We point out that to allow loss of profits as well as a claim for refund of rental would amount to a duplication to this extent over this period. We accept that water leaks have continued throughout the period of the lease. The respondent was obliged to prevent such water leaks in -- 6 of 15 -- Cha Cha -v-Foxzano 7 Decision terms of the lease and has a general duty as a landlord to maintain at least the exterior of the building. Insofar as consequential damage was done to the interior of the building, including structures, we find there is a duty to compensate. We accept the figure of $3,490.00 as claimed. This is made up of - Labour for cleaning, cutting and fitting and re-arranging the ceiling tiles - $1,000.00 Costs of patching damage to walls and ceiling and replacing cornices - $2,405.00 Repairs to cold room ceiling - $ 85.00 Total: $3,490.00 We accept that the respondent did not carry out the duties with regard to suspended tiles as required by clause 10.2 of the lease. We further accept that it was reasonable for the claimant, in order to conduct his business, to do this work or have it done. The claim in this regard which we accept is $5,585.65, made up as follows: Labour for removing, covering, cleaning, cutting and replacing ceiling tiles - $2,034.00 -- 7 of 15 -- Cha Cha -v-Foxzano 8 Decision Materials and labour for installation of gyprock suspended ceiling - $2,100.00 Costs of painting ceiling tiles and suspended ceiling - $1,451.65 It appeared that the doors leading from the restaurant to the outside patio were not sufficiently wide to comply with fire or building regulations. The doors were sufficiently wide for a restaurant seating 150 people, but were insufficient for a restaurant which had chairs for 200 people. The evidence is that Mrs Skenderus, who had previously managed the restaurant, told the claimant's representatives that she had had receptions for up to 250 people. We do not accept that this was a warranty that the restaurant could be legally used for seating 200 people. The Chairman has directed that the general rule of "caveat emptor" applies to lessees and that there is no warranty by a landlord that these premises may legally be used for the purposes let. We reject the claim for $2,000 made in respect of the widening of the doors. $500 had been paid by the respondent in this regard, and we are of the opinion that credit should be given to the respondent in our calculations. We accept that the respondent's breaches have caused continuing damage to the suspended ceiling and that the claimant is entitled to have the ceiling repaired by the respondent or at the cost of the -- 8 of 15 -- Cha Cha -v-Foxzano 9 Decision respondent. We intend dealing with this by directing that the respondent (a) cause the roof to be properly sealed so that there is no further water leakage; (b) to make good the interior damage caused by the water leakage, including the ceiling and the one wall badly affected. We direct that this work be done within six weeks of the date of this decision, and if it is not done or not completed within this period, we grant the applicant leave to present to us quotations to have the work done by outside contractors. We intend, subject to being satisfied that the quotations are reasonable, and in this respect the respondent will be given an opportunity of making submissions or presenting evidence, that the respondent pay to the claimant the amount of the rectification work in terms of those quotations. Payment is to be made directly to contractors by agreed draws or on completion of the work. We deal with the claim for payment of $464.75 paid to a local technician by the applicant to carry out repairs to the elevator because the respondent's service contractor refused to attend, having no authority from the respondent to do so. We find that the person called out was appropriately qualified. However, the claimant is limited to after hours call outs and is therefore reduced to $178.74 We therefore direct the respondent to pay this sum. With respect to the claim for electrical charges relating to the air- -- 9 of 15 -- Cha Cha -v-Foxzano 10 Decision conditioning cooling tower, we are not satisfied that the claimant has shown any improper charge to him. We now deal with the claim for loss of profits. We accept the claimant and his witnesses that (a) the lift was erratic in its behaviour; (b) the lights in the parking area within the building were not kept on during normal trading hours; (c) water penetration caused damage to the ceiling and an interior wall. The damage to the ceiling was such as to cause Mr Mamalis major concern because of his fastidious approach but was not great to a person whose attention was not directed to it. We do not find that it was not noticeable, but do find that it was more than minimal, without being severe. (d) We find that graffiti was placed on the lower entrance section to the building from time to time, but usually removed within a fairly reasonable time. The question of compensation for loss of profits is often a difficult one. This is particularly applicable in the case of restaurants. Common experience is that restaurants vary in popularity frequently, almost from day to day. It is hard to establish a particular pattern for this behaviour. It may relate to weather, competition, external financial factors such as GST, or internal factors such as a change of chef, a chef having a batch of improperly prepared food, the standard of service and many more factors. -- 10 of 15 -- Cha Cha -v-Foxzano 11 Decision The claimant has relied on a report from Mr C J Carroll, a chartered accountant practising in Gladstone. Mr Carroll has adopted two approaches, firstly, comparison with another restaurant's trading revenue in Gladstone. For the reasons which apply to restaurants generally, we find this approach unconvincing and reject it. Mr Carroll's second approach was to compare the average weekly takings of the claimant over four years of actual trading, with the actual weekly revenue during the period 1 st July 2000 to 26th May 2001 being the period in which the claimant alleges major problems, particularly with the lifts and lights. From this calculation, Mr Carroll estimated the loss of revenue as between $22,000 and $29,000. This leads to a gross profit loss of $13,200-$17,400. Deducting an estimate of wages (24.67%) this leads to an estimated net loss of $7773 to $10,246. Comparison of trading figures over a specific period corresponding with an average over a period of some four years is, as far as we are able to decide, an acceptable method of assessing loss of profit. The respondent has raised the question of GST which came into force on 1 st August, 2000, as a factor to be taken into account. This factor is very difficult to assess. We are aware that the Australian Caterers' Association claims that according to figures supplied to it by its members there was a loss of turnover of something in the nature of 7%. On the other hand, we are aware that the Australian Bureau of -- 11 of 15 -- Cha Cha -v-Foxzano 12 Decision Statistics in a report some 12 months after the introduction of GST with regard to caterers and food trade, that is, prepared food trade, found there was no effect on gross turnover by the implementation of GST. We are reluctant to accept the lower of the estimates given by Mr Carroll, i.e. $13,200-$17,400, as it seems to us to be larger than we would have expected from the actions causing the disruption and for which the respondent is liable. We feel there were external factors which brought about some of this loss. Bearing in mind that the onus is on the claimant, we have decided to reduce this sum to $6500.00. We are aware that this is only an estimate but it is based on the experience of the Members of the Tribunal. With regard to alleged damage to the water cooling tower caused by the claimant, the position is that within the demised premises was a valve which the claimant reasonably believed controlled the water supply into the demised premises. This valve was concealed in a cupboard. There were no other valves of this nature in the same cupboard. The valve which controlled the water to these premises was elsewhere. When a leak in the water supply occurred, the claimant switched off this valve. He did so in the honest belief as set out above. We find his actions were reasonable and he could not reasonably have foreseen damage to the water tower. We therefore find that he is not liable for any consequential loss. -- 12 of 15 -- Cha Cha -v-Foxzano 13 Decision After the draft decision in this matter was prepared and sent to the Members of the Tribunal for final consent, we were advised that the Respondent had sold the premises and the sale had been settled on 20 September, 2001. By letter dated 21 October 2001, the Respondent's solicitors Kenny & Partners advised us of the sale and settlement and further advised that the claimant's solicitors, VAJ Byrne & Co acted for the purchaser and new lessor. Kenny & Partners further advised: "We raise the above matter now as it might render any Order that the Tribunal intends making regarding the repairs to the leased premises by our client an impossibility." We have not heard regarding the sale from VAJ Bryne & Co. We would in the normal course of events have given them an opportunity to make submissions, but as the same solicitors are involved for the (new) present landlord and the claimant, we think that this would serve no purpose. If the claimant wished to make submissions it would know of the changed circumstances and do so. We assume there is no special term in the agreement of sale relating to outstanding repairs. If we are incorrect we give liberty to apply. The change of ownership of the leased premises gives rise to two points. The first is that raised in Kenny & Partners' letter of 25 October, 2001. We intend dealing with this by providing that the Order we make -- 13 of 15 -- Cha Cha -v-Foxzano 14 Decision in regard to repairs to the roof and repairs to consequential damage be conditional on the new landlord agreeing to the work being done, such agreement to be confirmed in writing and filed within 21 days. If this is not done, the parties are granted leave to apply. We do not anticipate any difficulty in obtaining the present owner's consent, as the repairs would be to its advantage. Further, the same firm of solicitors is involved as that representing the claimant. The further point, although not raised but which we think we should discuss, is whether the duty to repair on the respondent ended with settlement at the sale. If this duty relied solely on ownership this would be the case. However, we accept that the duty to repair the roof was contractual and not based on ownership. The order we make is: • The respondent is to pay to the applicant within seven days:- (Refer p. 6) $2392.96 (Refer p.7) 3490.00 (Refer p. 7) 5585.65 (Refer p. 9) 178.74 (Refer p.12) 6500.00 $18147.35 Less credit 500.00 $17647.35 ======== -- 14 of 15 -- Cha Cha -v-Foxzano 15 Decision • Liberty to apply with regard to the two issues discussed by us, namely (1) in the event of our being incorrect in our assumption that there is no specific agreement between the respondent and the purchaser of the property; and (2) in the event of the new purchaser not permitting repairs referred to or the respondent failing to effect such repairs within a reasonable time. Such liberty will include re- opening of these issues. P V Loewenthal, Chairman. -- 15 of 15 --