Ensday Pty Ltd v Dorik Pty Ltd [2001] RSLT 12

1 [2001] RSLT 12 THE RETAIL SHOP LEASES ACT In the matter of Dispute 55/00 ENSDAY PTY LIMITED - Claimants and DORIK PTY LIMITED - Respondent DECISION Given in Brisbane on 16 May, 2001. -- 1 of 6 -- Ensday-v-Dorik 2 Decision This claim arises out of a tenancy in respect of premises in a shopping centre known as Watergarden, situated in Everton Hills. The premises concerned were those to be used as a convenience store. The claimant alleges that the lessor by its agent represented that there would be a tenancy mix of the centre and made representations that the tenants would meet certain standards. This is denied by the respondent. The Controlling Director of the claimant is Adrian Daynes (Daynes). Daynes is an experienced operator of convenience stores. His practice is to enter into a lease in respect of premises and to set up a convenience store which he thereafter disposes of or sublets to a purchaser or sub-lessee, who becomes the operator of the store. His practice in entering leases is to obtain a substantial contribution from the landlord towards the cost of fitout, which contribution is non-refundable, and to obtain a further substantial sum as a cash loan secured by mortgage over the assets of the business being set up. This cash loan is repayable with interest over a lengthy period. The Watergarden Shopping Centre was originally developed by a Mr W Doolan on behalf of a company controlled by him known as Berrima Property Pty Ltd. This company was financed by a mortgage from McLaughlin Nominees Mortgage Pty Ltd. Berrima Property defaulted under the mortgage and McLaughlin Nominees Mortgage entered into possession. On 16 th June 1999, Dorik One entered into a contract to purchase the shopping centre from McLaughlin Nominees. Settlement of that contract took place on 11 th November, 1999. Dorik One obtained a mortgage from Perpetual Trustee Company Limited as Trustee for the ANZ Bank. When Berrima still owned the shopping centre, Daynes had entered into negotiations to lease part of the shopping centre for the purpose of setting up a convenience store. He was originally shown the site by Doolan and there were discussions about a lease, which discussions were, to some extent, recorded in correspondence. A letter from the estate agents employed by Doolan indicates that these discussions were prior to 17th August 1998. Daynes was approached by one Stewart, who was aware of the previous dealings between Daynes and Doolan. Stewart said that the new landlord had instructed him to obtain tenants for the Watergarden Centre. According to Daynes, Stewart told him that the management of the Watergarden Centre wanted a food store, bottle shop, bakery and video store, having already obtained a coffee shop, restaurant, pool shop and Aqua Zoo. A meeting was then arranged by Stewart between Daynes and one Russell Magnus. Daynes said he first believed that Magnus was the principal, but it now appears that he was an agent. At this meeting, according to Daynes, he required an undertaking with regard to the mixture of tenants who would occupy the Watergarden Centre. Daynes alleges he said that the businesses adjoining his store would have to be a bakery and a bottle shop. He says that -- 2 of 6 -- Ensday-v-Dorik 3 Decision Magnus stated he was prepared to give this in writing. However, because the bottle shop had to go through licensing, he could not give a precise date when the bottle shop would commence operation. He said it would definitely happen within six months of the date of the meeting. He also asked Daynes whether Daynes would consider opening up a bakery in the centre, which Daynes refused to do. A further meeting took place between Daynes, Partridge and Magnus. There was a fairly short discussion in which Daynes outlined the discussions with Doolan and indicated he wanted a similar deal. What he required was $65,000 contribution to shop-fittings and a loan of $125,000 to be repaid with interest over five years, and a loan of $60,000 to be repaid in six months to help purchase stock. Partridge offered a loan of $95,000 over five years and a fit-out contribution of $65,000. Rental was to become payable after ten weeks or after the following tenancies had opened - Bakery, Aqua Zoo, Mussel Seafoods, Quo Vadis Restaurant, Café Zanetti, Chicken Shop, Video Shop and another shop. It is noted that the bakery and bottle shop, which Daynes now states were essential for the viability of his business, were not set out as essential tenants before rent would become payable. Daynes' explanation is that he understood the bakery and bottle shop would be included among the tenants. The bottle shop would commence within six months, and the bakery almost immediately. We looked at the wording of the misrepresentation alleged by Daynes in the light of a direction from the Chairman that a statement as to future intentions does not amount to a representation unless it is in terms (a) stating the representor's present intention; and (b) showing by the exact words used or by necessary implication that the representor and his principal had the present ability to make happen that which is represented. We are in the unfortunate position of not having seen Partridge giving evidence. By letter dated 9 th March, 2001 to the Retial Shop Lease Tribunal, Partridge advised that Dorik One has only one asset, namely, the Watergarden Shopping Centre, the mortgagee was owed some $3m in excess of the current value of the centre, and that unsecured creditors would therefore not be paid. On this basis he requested that this matter should not proceed, as it would be a waste of the Tribunal's time in that any order made would be incapable of enforcement. The Chairman declined the request for adjournment. Under cover of a letter dated 18 th March, 2001, Partridge presented material to the Tribunal. This material included statements and various exhibits from himself, Magnus and Stewart. Partridge stated that he was "working 12-plus hour days to make ends meet and cannot get leave to attend. I am no longer the chief and am just an Indian." We have not had the benefit of seeing Partridge or the other witnesses who -- 3 of 6 -- Ensday-v-Dorik 4 Decision gave statements on behalf of the respondent. The explanation that he could not take a short time off from work is not convincing. To us it seems more probable that as his own money was not at stake, he was not prepared to make the effort. A further criticism of his credibility is his statement that the solicitors had been acting on behalf of Dorik One had been willing "spec" a case against Mr Daynes. This, too, is a matter which requires further explanation, as this Tribunal cannot award costs except in special circumstances. The material produced by Partridge on behalf of the respondent contains denials either by him personally or by the signatories to other statements of all material allegations made by Daynes. The representations alleged to be misrepresentations by Daynes relate to the failure to open a bottle shop and the statement that the other tenancies which were a precedent to the claimant becoming liable to pay rental were not true tenants, but false tenancies operated by Partridge and associates in order to make Daynes and his company liable to commence paying rental. We have been supplied with the Minutes of a meeting of the Watergarden Shopping Centre held on Tuesday 10 th May, 2001. At this meeting concern was expressed about the failure of certain tenancies to be properly operated. There was no statement that the tenancies were false tenancies. Further, the following appears: A bottle shop was proposed and even promised and so far there is no sign of this happening. In our opinion this statement, which appears in a Memorandum of what occurred at a tenants' meeting at which Daynes was present, and to which he took no objection, is a further indication concerning the question as to whether there had been a misrepresentation with regard to future events or a misrepresentation with regard to a material aspect at the time of negotiations. It appears to us to fall into the first of these two categories. In March and April 2000 there were discussions with regard to the payment by Dorik to Ensday, namely, the balance of the fitout contribution. Daynes attended at the offices of the respondent's solicitors and was there asked to sign a document relating to the tenancy. He states that he did so under duress, as he would not be paid the balance of the fitout unless he signed. The respondent has taken the view that it was always implied that he would not paid for the fitout until he produced some proof that he had made payment himself. In any event, he was presented with a document and signed it. We attach a copy of that document to this decision. Although undated, other material indicates that it was signed on 10th April, 2000. Ensday did not make the first repayment under the loan agreement on 1/5/2000 and has never paid any rental. -- 4 of 6 -- Ensday-v-Dorik 5 Decision By letter dated 32rd June 2000, the claimant's then solicitor advised that the claimant was terminating the lease on the basis of being induced to entering the lease by deceptive and misleading representations. The respondent entered into possession of the premises shortly after. By letter dated 28th July 2000, the Chief Executive Officer of the Pine River Shire Council advised the respondent that the application for use of part of the shopping centre as an hotel (tavern) was refused on 24th July, 2000. On our view of the material set out, we take the view that the claimant has failed to show (a) that there was a representation that a bottle shop or something similar would be set up in the premises. We take the view that the material presented to us by the claimant amounts to no more than a present representation of the respondent's future intention. (b) Again on the material before us, we do not accept that the claimant has proved that the tenancies required to be set up for rent to become payable were sham tenancies. In this regard we rely particularly on the contents of the documents executed by Daynes at the respondent's solicitor's office on 10 th April, 2000. We pass on briefly to deal with the amount of the claim had it succeeded. The claimant alleges it would not have entered into the lease had the representations not been made. On this basis, it would not have incurred the shopfitting expenses and would not have obtained the loan from the respondent. Further, it would not have incurred losses for the period in which it traded. Finally, it would have been able to sell the business for a substantial sum. We deal with each of these. We agree that it would not have incurred the fitout expenses, but has been compensated by the payment of $65,000 by the respondent. The cash advance made by the respondent is unaffected by these proceedings. Documents indicate that some loss incurred in trading. No material has been put before us indicating what would have occurred had the misrepresentations not been made, i.e., whether a new store freshly opened in a shopping centre with a liquor outlet and a bakery would show profits in its first period of trading. The comparison between the business which was hopefully conducted in the subject premises and those conducted elsewhere in Tarragindi is too inexact to fit any particular figure. P V Loewenthal, -- 5 of 6 -- Ensday-v-Dorik 6 Decision Chairman. -- 6 of 6 --