Elizabeth O'Kane v Yu Feng Pty Ltd [1997] RSLT 9

___________________________________________________________________________ [1997] RSLT 9 RETAIL SHOP LEASES ACT 1994 In the matter of Dispute No 71 of 1996 ELIZABETH JESSIE O'KANE - Claimant -and- YU FENG PTY LIMITED - Respondent DECISION Given on 7 February, 1997 in Brisbane _____________________________________________________________________________ _ -- 1 of 8 -- O'Kane -v- Yu Feng 2 Decision This dispute was commenced by a Notice of Dispute dated 26 July 1996 and registered in the Tribunal's Registry on 31 July 1996. The dispute was referred to mediation on 29 August 1996. As a result of the mediation, the dispute was referred by the Chief Executive officer to the Tribunal for determination following receipt of the Mediator's report. The Complainant is the lessee, Elizabeth Jessie O'Kane ("the Tenant") and the Respondent is Yu Feng Pty. Ltd., the Landlord ("the Landlord"), the premises are Shop No. 1 in "Big Top Shopping Centre" at Duporth Avenue, Maroochydore. The particulars of the dispute as stated in the Dispute Notice can be resolved into two issues, the first being a claim for compensation under section 15.(1)(a)(iii) of the Retail Shop Leases Act 1984 ("the 1984 Act") on the ground that certain works within the Centre and certain roadworks that substantially inhibited or altered access by customers to the Lessee's retail shop and, particularly, inhibited and altered the flow of potential customers past the Lessee's shop; the second being a similar claim on a similar basis arising out of the construction of automatic glass doors which cut off the Lessee's shop from the major part of the Centre. In 1994, the Lessor carried out extensive redevelopment work on Big Top Shopping Centre, basically for the purpose of retaining Franklins as a tenant. The interior redevelopment involved the relocation of Franklins (which became Franklins Big Fresh on relocation) from the Horton Parade end of the Centre to the Ocean Street side. The local authority imposed a condition on its approval of the works performed by the Lessor, that condition requiring extensive roadworks in Duporth Avenue, including the construction of a roundabout. The evidence before the Tribunal shows that by letter of 29 April 1994, the Maroochy Shire Council approved a modified design of the roundabout, and that the Lessor commenced construction in the month of August 1994. The Tribunal notes that the performance of the roadworks, including the installation of the roundabout in Duporth Avenue, was a requirement imposed by the local authority, but the point is that there would have been no such requirement, so far as the evidence shows, had there been no redevelopment by the Lessor of Big Top Shopping Centre. That is, the action taken by the Lessor was not "action lawfully required by a Department of Government or statutory body" for the purposes of s.15.(1)(a)(iii) of the 1984 Act, or an "action under a lawful requirement" for the purposes of s.43.1.(c) of the Retail Shop Leases Act 1994 ("the 1994 Act.") The Respondent's evidence, which the Tribunal accepts, is that the redevelopment was necessary for the purpose of preserving the continued existence of Big Top Shopping Centre in competition with the newly developed and almost adjacent Sunshine Plaza Shopping Centre. In particular, the Respondent claims, Franklins would have transferred from Big Top to Sunshine Plaza had the redevelopment not taken place. The Tribunal is satisfied that the redevelopment in Big Top Shopping Centre was carried out by the -- 2 of 8 -- O'Kane -v- Yu Feng 3 Decision Respondent for the legitimate purpose of preserving its Centre. But the result of the redevelopment, although perhaps beneficial to other tenants in Big Top Shopping Centre, was detrimental to the Claimant's business. The installation of the roundabout in Duporth Avenue led to the removal of a number of metered parking places directly opposite or almost directly opposite the Claimant's shop. Parking spaces on each side of Duporth Avenue were eliminated. Those parking spaces were made up by additional parking provided by the Respondent within the shopping centre, but the siting of those additional parking spaces on the river side of the centre and the placement of entrances and escalators drew pedestrian traffic and potential purchasers into the Horton Parade end of the Centre - that is, the opposite end from Duporth Avenue, to which the Claimant's shop has a frontage. In her statement made on 22 November 1996 and filed in the Registry, and subsequently verified from the witness-box, the Respondent's witness Meredith Mary Macrae, the Senior Centre Manager of Big Top Shopping Centre, states that the "refurbishment constructions" were commenced in January 1994 and ended in October 1994. She states in paragraph 5(i) of her statement that the construction of the roundabout in Duporth Avenue was part of the refurbishment and a condition of the Council's approval of the Franklins constructions. The Tribunal accepts that evidence. In paragraph 14 of her statement, the witness states that "the relocation of Franklins from the western end of the Centre to the middle altered traffic flow patterns by bringing customers closer to the eastern end of the Centre, and closer to the Mix 'n Match tenancy." The Tribunal is satisfied that, while potential customers may have parked their cars closer to the Mix 'n Match tenancy than they did when parking at or near the western end of the Centre, no advantage accrued to the Claimant in that access from the new carpark to the Claimant's retail shop was much less direct than access had been from the public parking places in Duporth Avenue, of which the Claimant's customers had had the benefit before the roadworks led to their removal. In April 1996 (Ms Macrae's statement, paragraph 17), the Respondent installed automatic doors in the Big Top Shopping Centre near the Duporth Avenue entrance in such a position as to cut off the Claimant's shop and certain other small shops from the main body of the Centre. The result was that customers entering from the carparking area provided within the Centre into the main arcade would not find the Claimant's shop unless and until they walked outwards through the automatic doors towards Duporth Avenue. Photographs produced in evidence show that the automatic glass doors did obscure the view of the Claimant's shop from within the main arcade of the Centre. The Tribunal accepts the Respondent's evidence that the doors were installed for the purpose of improving the air-conditioning of Big Top Shopping Centre, a legitimate purpose. But that action taken by the Respondent did substantially inhibit access by customers to or the flow of potential customers past the retail shop. -- 3 of 8 -- O'Kane -v- Yu Feng 4 Decision In short, the Tribunal accepts the Respondent's submissions that its actions were legitimate and reasonable in the circumstances. But that does not mean that the Claimant cannot seek reasonable compensation for injury (in the legal sense) suffered by her as a result of the actions taken by the Respondent. It is for the giving of such an entitlement to a tenant under the circumstances appertaining here, or similar circumstances, of course, that s.15.(1)(a) of the 1984 Act and s.43.(1)(c) of the 1994 Act were enacted. The Claimant has supplied an unaudited statement of trading and profit and loss for the years ended 31 December 1992 to 31 December 1995, and the period of eight months to 31 August 1996. She has also supplied figures being projections of anticipated losses from the year 1997 to the year 2000 inclusive. The profit and loss statements were filed and delivered in support of the orders which the applicant asked the Tribunal to make. Those orders are:- "That the lessor: (a) be not entitled to claim any loss of rental/outgoings from the lessee for the period as and from when the lessee vacates the premises situated at Shop 1, Big Top Shopping Centre, Duporth Street, Maroochydore; and (b) shall compensate the lessee for monies in the sum of $200,000 representing part of: (i) the actual losses to date; and (ii) loss of goodwill. In the alternative, should Order 1(a) not be granted, then an order that: 2. The lessor shall compensate the lessee for monies in the sum of $200,000 representing part of: (i) actual losses to date; (ii) loss of goodwill; and (iii) anticipated losses to the end of the lease period." The Claimant cannot succeed in a claim for future anticipated loss or injury beyond the date on which her lease expired or will expire. The Respondent's witness Ms Macrae says, in paragraph 6 of her statement, as follows: -- 4 of 8 -- O'Kane -v- Yu Feng 5 Decision 6. The Lessor did elect to re-enter the shop on 17 May 1996 to recover outstanding rental ...... A Form 10 Notice was served on the premises on 17 April 1996 seeking payment .... by the close of business on 30 April 1996. No monies were paid and it was not until 17 May 1996 that the Lessor took action to re-enter the premises. $2000 was paid by the Lessee. A repayment program was put in place for the balance of arrears, and the Lessee was allowed back into possession on 21 May 1996. The Lease was not terminated and remains in place. The lease does not expire until 31 October 2000 .....". If the Respondent as lessor did serve a Form 10 Notice (as required by the Properly Law Act 1974) and did re-enter the premises as claimed by Ms Macrae, the lease was terminated at the date of the Respondent's re-entering, 17 May 1996. Further, if that is the case, the Claimant remains in possession as a tenant from month to month. A month to month tenancy is a periodic tenancy within the meaning of that term in s.15.(1) of the 1984 Act. In that Act, the implied provisions for compensation do not apply to a periodic tenancy. For reasons set out later in this decision, the Claimant's claim for compensation must be determined in accordance with the compensation provisions set out in the 1984 Act. The Claimant states in her statement in reply to Ms Macrae's statement that she had never received the Notice in Form 10 to which the Respondent's witness referred. She says it later turned out that the document had been sent to her sister's address, received by her brother-in-law, and not referred to the Claimant or her sister until after the action of the Respondent's agent in locking the Claimant's manager out of the shop. No evidence was given on behalf of the Respondent other than that contained in paragraph 6 of Ms Macrae's statement. The agent representing the Respondent at the hearing of the dispute called no evidence to rebut the Claimant's evidence, given both in written statement and orally in the witness-box, that she had not received the Form 10 Notice. There was no suggestion on behalf of the Respondent that indeed, the lessee was E J O'Kane Trading Pty Ltd and that the Notice was served at the Registered Office of the Company. Further, there was no explanation of the circumstances stated by the Claimant. Having regard to the routine nature of Ms Macrae's statement, and to the absence of any explanation being offered by the Respondent, the Tribunal accepts the Claimant's evidence that no Form 10 was ever served upon the lessee. Since notice in Form 10 duly served upon the lessee is an essential pre-condition to the exercise by a lessor of a power of termination of a lease on default by a tenant, the Tribunal holds that on the evidence before it the Claimant's lease was not determined by re-entry, the entry by the Claimant's representative upon the premises being a mere trespass. The Tribunal sets out its reasons for holding that the compensation provisions of the 1984 Act are relevant, because evidence shows that the formal lease under which the Claimant occupies the retail shop was not signed until November 1994, on which date -- 5 of 8 -- O'Kane -v- Yu Feng 6 Decision the 1994 Act had come into force. Nevertheless, the relevant lease is one entered into, or renewed, under an option under an agreement that was entered into before the commencement of s.5 of the 1994 Act, the relevant date for this purpose. Such a lease is an "existing retail shop lease" to which the compensation provisions of the 1984 Act apply by reason of s.14.(1) of the 1994. The Tribunal does not have jurisdiction to make Order 1.(a) sought by the Claimant. That being so, the Tribunal's order will relate to the alternative order sought by the Claimant. The Tribunal will take into account the Claimant's anticipated losses to the end of the lease period in arriving at its decision as to compensation. In reaching its decision, the Tribunal must have regard to the evidence submitted to it concerning the effect of the development of Sunshine Plaza. In spite of the report made by Total Resource Management Pty Ltd, which the Claimant filed and delivered, and in spite of the evidence tendered on behalf of the Respondent, the Tribunal does not accept the Respondent's submission that the falling off in the Claimant's business is due solely or in major part to competition from retailers within Sunshine Plaza. There has, of course, been no suggestion of competition from within Big Top Shopping Centre, because there is no competition in that Centre. While there are 28 "fashion shops" in Sunshine Plaza according to the evidence before the Tribunal, the Claimant's business is not a "fashion shop" within the trade meaning of that term. The figures supplied by the Claimant's accountant assume a continuing increase in the loss of sales and the loss of gross profit to be suffered by the Claimant in each year of the term of the lease up to 31 October 2000. The Tribunal considers that if there is such a continuing diminution on the Claimant's turnover and gross profit, that diminution occurring after 30 June 1996 cannot reasonably be attributed to the redevelopment work carried out by the Respondent. The action taken by the Respondent which inhibited or altered access by customers to the claimant's retail shop was taken primarily in 1994, the refurbishment constructions for Franklins Big Fresh having been completed in October of that year. The automatic doors of which the Claimant complains were installed in April 1996, and it is for that reason that the Tribunal regards diminution in turnover up to 30 June 1996 as being in major part due to the actions taken by the respondent. Similarly, the effect on the Claimant's business of the opening of the rival centre, "Sunshine Plaza," should have stabilised by 30 June 1995, the second stage of that Centre having been completed in November 1994. The figures produced by the Claimant's accountant show diminution in sales between the calendar years 1992 and 1993 of 5.05%, and that diminution cannot be attributed to any action taken by the Respondent or to any competition arising from Sunshine Plaza. The diminution from 1993 to 1994 is 13.8%, while the diminution from calendar year 1993 to calendar year 1995 increases to 32.11%, and the decrease from calendar year to 1993 to -- 6 of 8 -- O'Kane -v- Yu Feng 7 Decision 1996 increases to 39.45% on the assumption that total sales for the 1996 amounted to twelve-eights of the figure used by the accountant for the period of eight months ending on 31 August 1996. The Tribunal is not prepared to take those figures as indicative of the loss to the Claimant caused by anything done by the Respondent. Instead, the Tribunal has applied its knowledge and expertise in comparing the Claimant's figures with corresponding figures for the "specialty shops" and "ladies' fashion shops" in the Big Top Shopping Centre at 30 June 1996, to assess the proportion of the diminution in the Claimant's turnover and gross profit due to the actions taken by the Respondent. The Tribunal has concluded that 7.1% represents the proportion of the Claimant's turnover and gross profit lost as a result of the Respondent's actions. The resulting loss calculated to the end of the tenancy on 31 October 2000 is $104,122 calculated as follows:- Year Adjusted Turnover Turnover Loss Gross Profit Lost $ $ $ 1993 217060 na na 1994 201649 15411 6164 - 6164 1995 187332 14317 5729+6164 = 11893 1996 174031 13301 5320+5729+6164 = 17213 1997 17213 1998 17213 1999 17213 2000 17213 Total: 104122 ====== The diminution in annual gross profit must have a corresponding effect on the market value of the Claimant's business, particularly where the Respondent, as Landlord, asserts that the lease will run to 31 October 2000, a period of nearly four years. The diminution in the market value of the business is a relevant injury in the legal sense, sustained by the Claimant. The Tribunal assesses the loss of market value at $51,878, making a total loss suffered by the Claimant as a result of the Respondent's action of $156,000 in respect of which the Respondent must pay compensation pursuant to s.15.(1)(b)(iii) of the Retail Shop Leases Act 1984, made applicable by s.14 of the Retail Shop Leases Act 1994 to the existing retail shop tenancy, provided that the tenancy does continue to 31 October 2000. Bearing in mind the possibility that the parties may, by mutual consent, terminate that tenancy before the date of its expiry presently appointed, the Tribunal orders the Respondent to pay to the Claimant compensation pursuant to s.15.1(b)(iii) in the sum of $156,000 payable as follows:- (i) By a payment of $70,000 on or before 28 February 1997; -- 7 of 8 -- O'Kane -v- Yu Feng 8 Decision (ii) By twenty-one equal monthly instalments of $4000 each and a twenty-second and final monthly instalment of $2000, the first such instalment being due and payable on 28 March 1997 and subsequent payments on or before the last day of each and every month until the said sum of $86,000 has been paid in full. Provided that if any such payment remains outstanding for seven or more days after the due date therefor, then the whole unpaid balance of the said sum of $86,000 shall become and be immediately due and payable; and provided further that the Respondent's obligation to make the aforesaid periodic monthly payments to the Claimant is restricted to the payments falling due on or before the day upon which the Claimant's obligation to make any further payment of any nature whatsoever to the Respondent pursuant to the retail shop lease the subject of this Dispute, or pursuant to any breach by the Claimant thereof, is terminated otherwise than by payment in full of rent and outgoings calculated to 31 October 2000. The Tribunal wishes to make it known generally to lessors of retail shops that it regards the lessor's conduct towards lessees as a matter of some importance, as an influence of the Tribunal's assessment of evidence, and assessment of the credibility of witnesses. A. Couper Chairman. -- 8 of 8 --