Dezcam Pty Ltd & Rangoon High Pty Ltd v Yu Feng Pty Ltd [1995] RSLT 4

1 THE RETAIL SHOP LEASES ACT 1984 [1995] QRSLT 4 In the matter of Dispute No. 30/94 DEZCAM PTY LTD and RANGOON HIGH PTY LTD - Tenant - and - YU FENG PTY LTD - Landlord Coram: P Loewenthal J. - Chairman Mr T Davies - Member Ms L Peters - Member DECISION Delivered on 13 June, 1995, in Brisbane. -- 1 of 8 -- 2 -- 2 of 8 -- Dezcam & Rangoon-v-YuFeng 3 Decision 3 The complaint is that the work involved in refurbishing and extending the Sunnybank Plaza Shopping Centre disrupted the claimants trading in their shop. The history of the matter is as follows:- 21 December, 1989 - the claimants bought the greengrocery business being conducted at Shop 35 Sunnybank Plaza Shopping Centre ("The Plaza") from Dracon No 24 Pty Ltd for the sum of $120,000. The area of shop 35 is approximately 191 square metres. November, 1990 - a fruit barn was opened by Cocos at Market Square over the road from The Plaza. March/April, 1993 - The Bi-Lo Supermarket greatly increased their fruit and vegetable range and display. May, 1993 - The claimants listed their business for sale for $250,000 plus stock at valuation. 1 October, 1993 - The claimants' business was relocated to shop 279 at The Plaza in a reduced area of approximately 112 square metres and a reduced rental of approximately $4000 per month. February, 1994 - Robert Daniel, a Director of Dezcam Pty Ltd was advised by Mr Mark Birine of the proposed redevelopment of the centre and the construction of a supermarket complex. He was told that such reconstruction would be completed by July, 1994. 1 April, 1994 - The main car park, i.e. the one directly in front of the claimants' shop was fenced off to enable the commencement of excavation work. June or July, 1994 - A fence was erected around the construction area. This fence was made of plywood and made external access to the claimants' shop impossible. Customers had to enter the claimants' shop through the main shopping mall. The claimants state that as a result of this disruption, they reduced their profit margin in an attempt to attract customers. 16 May, 1994 - Legislation for extended trading hours became law. 9 August, 1994 - The supermarket conducted under the -- 3 of 8 -- Dezcam & Rangoon-v-YuFeng 4 Decision 4 name of Franklins No Frills at Sunnybank Hills Shopping Centre was extended and commenced trading as "Franklins Big Fresh". The other major supermarkets in the area and generally within five kilometres of the new Franklins supermarket reduced their own prices to the introductory promotional prices being offered by Franklins Big Fresh. 3 October, 1994 - The car park immediately in front of the claimants' shop was reopened but the remaining or other car park was closed. 4 October, 1994 - A shopping centre called the "Grand Plaza Shopping Centre" was opened at Browns Plains. 21 November, 1994 - The respondents served a Notice to Remedy breech calling on the claimants to pay arrears of rental. The arrears were not paid. 2 December, 1994 - The respondents served a Notice to Vacate on the claimants. 4 December, 1994 - The locks on the claimants' shop were changed and the claimants were denied access. The lease between the parties would only have expired in October, 1998. The matter first came on for hearing before the Tribunal on 5 April, 1995. The evidence relating to financial matters being given by Mr Robert Daniels was inconsistent with the material contained in financial statements and was complicated by the claimants having kept joint records in respect of the shop at The Plaza and another business conducted by them at Ashgrove. In order to have an opportunity of resolving conflicts Mr Batch, who appeared on behalf of the claimants, sought and was granted an adjournment. The matter again came before the Tribunal on 2 May, 1995 when the claimants produced fresh and contradictory evidence of turnover. It now appears that there are several sets of contradictory figures which are not capable of being reconciled and are admitted by the claimants to be irreconcilable. It appears that there are several sets of figures from which the claimants' financial statements can be drawn. Originally, joint financial statements were produced in respect of the claimants' two businesses at The Plaza and Ashmore. Banking for The Plaza business was kept separately from the Ashgrove business and an attempt was made to calculate financial statements for the shop at The Plaza from -- 4 of 8 -- Dezcam & Rangoon-v-YuFeng 5 Decision 5 banking statements. Another set of figures relating to turnover was produced by the respondent centre management, these having been given by the claimant to establish their rent which was charged at 6 per cent of turnover after a base figure had been reached. These figures were consistently lower than those disclosed in the financial statements which, it appears, were submitted to the Taxation Department. On 2 April, cash books or daily records were produced showing daily takings. These were very substantially in excess of the amounts banked and previously relied on. A further difficulty is that they showed substantial cash payments and no satisfactory records were kept or produced, showing whether the payments were in respect of business expenses or purchases or drawings by Directors of the claimant company. The claimants originally relied on the financial statements prepared by their accountant, Mr Wilmott. These statements did not distinguish between the two businesses conducted by the claimant. Subsequently, Mr Wilmott prepared a second set of financial statements in which he attempted to separate the trading of the two businesses by making use of bank deposit records. Finally, the claimants produced their cash books which showed cash takings substantially in excess of deposits. The excess is $131,422 which is claimed to be cash expenses. A substantial portion of these expenses remains undocumented and it is not clear whether they were used for expenses properly so called or were taken by the claimant directors in cash. The experts agree that the most accurate figures on which to work are those from the cash books, subject to the qualification to which I have referred to. These figures have been analysed by Mr Jon Norling on a month to month basis and indicate substantial seasonal variations. They also, insofar as can be calculated, show a gross profit margin on sales of 32 per cent. The three expert witnesses who provided reports and gave oral evidence are Mr Lindsay Wright, on behalf of the claimants and Mr Norbert Charles Calabro and Mr Jon Norling on behalf of the respondents. There are substantial differences in the conclusions which the witnesses draw from the figures. Mr Wright finds a decline in turnover and number of customers when construction work commenced. He regards the opening of Franklins Big Fresh as oonly having a temporary effect and states that the claimants' business would again have become profitable -- 5 of 8 -- Dezcam & Rangoon-v-YuFeng 6 Decision 6 when the "honeymoon" effect and resulting competition from the other large supermarkets had ended. He makes the assumption that the business would remain unaffected by the opening of Franklins Big Fresh. Mr Calabro has analysed trading figures for the months before construction commenced and notes a downturn in sales and customers. He expresses the view that this downturn would have continued even without construction. His maintainable profits are therefore substantially lower than those of Mr Wright. Mr Norling has analysed sales and adjusted them with regard to monthly variations of turnover. He comes to the conclusion that the effect of construction only applied over two months and thereafter trading figures were back to the preconstruction level until Franklins Big Fresh opened its business. The experience of Members of the Tribunal is that construction work which decreases access or changes patterns of access reduces turnover for the full period of the construction with variations depending on the nature and stage of the inconvenience flowing from the construction. Although Mr Norling finds that seasonally adjusted turnover (as set out in Table 5.2 of his report) did not show a decline during construction work, we feel that there must be some explanation not appearing from the figures alone. In the same table, Mr Norling finds a substantial decline between October, 1993 and March, 1994. His Table 5.3 being a calculation of comparable turnover again indicates a similar result even when seasonally adjusted. We have decided that: (a)Construction would have had an effect on profits over a period probably extending beyond the actual termination of construction work. (b)Franklins Big Fresh and resultant promotion from supermarkets in competition would be limited in time. (c)The business may have been viable had it been given time to continue trading after these temporary interruptions. Given time, it may again have become profitable. It therefore probably had a value when the claimants were evicted. (d)This means that the loss of goodwill and its reduction to nil is due to the respondents evicting the claimants. It is not due to the respondents' construction work which -- 6 of 8 -- Dezcam & Rangoon-v-YuFeng 7 Decision 7 would have limited earnings over a reasonably short period. (e)The respondents were within their rights in entering into possession of the shop as the claimants were substantially in arrears with rental. It is only in very limited circumstances that the exercise of a legal right can give rise to a claim for compensation. On a proper analysis of Mr Wright's report and evidence, the claimants compensation would be limited to loss of profits over a period. Mr Calabro, in the light of the latest figures available, has not departed from his original inference from trading figures that the claimants' business was already declining by March, 1994. He has assessed goodwill as at March, 1994 on the latest figures on two bases. These are on the assumption, firstly, that all other cash expenses in the cash book were business expenses and on the further assumption that all other cash expenses were non-business expenses. On the first basis, he assesses the value of the business at $32,200 and on the second basis at $81,400 in March, 1994. Mr Norling accepts Mr Wilmott's figures on average turnover and basically accepts his methodology. In other words, he does not notice the same pattern of decline as Mr Calabro. Using these latest figures, he has assessed the goodwill of the business as at March, 1994, July, 1994, and December, 1994 in round figures at $197,000, $186,000 and $13,000. It seems to us that the final loss of goodwill when the respondent entered into possession, reducing goodwill to nil, was due to the exercise of a legal right and is not the subject of compensation. We have therefore come to the conclusion that compensation should be limited from the time when construction commenced until the business was closed down. This is a period of some nine months. Mr Norling calculates the average loss of profit over April and May, 1994 at about $2750. We used this as the basis for calculation over nine months accepting that other factors enter into the matter. We believe that construction would have had a continued effect on profit but that the effect would have declined when Franklins Big Fresh opened. Balancing reason for decline against the other, we have come to the conclusion that the nearest we can come to assessing the compensation to which the -- 7 of 8 -- Dezcam & Rangoon-v-YuFeng 8 Decision 8 claimant is entitled is the round figure of $15,000 and we award this sum. Chairman Chairman Retail Shop Lease Tribunal -- 8 of 8 --