Baird and Erbacher v George [2025] TASSC 4

Baird and Erbacher v George [2025] TASSC 4 | Case summary | Zoe

[30]

In 2013, the defendant operated a business comprising a gymnasium, retail shop and café under the name of "Youngtown Health and Fitness" from premises owned by him at 255 Hobart Road, Youngtown (the premises). The plaintiffs also operated a gymnasium business known as "The Fitness Academy". This business operated from two locations, Boland Street, Launceston and Innocent Street, Kings Meadows.
In early 2013, the plaintiffs decided to expand their business by setting up another gymnasium. The lease on the gymnasium at Innocent Street was due to expire on 31 March 2013, and they were seeking to set up the new gymnasium elsewhere. Their intention was to incorporate into their business a form of training known as CrossFit, and to conduct this in the new gymnasium, under a separate business name, CrossFit United. CrossFit is a registered trademark, owned by a company located in the USA, and the use of the name and provision of the program required a licence from this company. The licensing requirements included the prescribed qualification and accreditation of trainers. It seems that this form of training was becoming increasingly popular and had the capacity to generate fees which were significantly greater than those earned from other gym activities.
Coincidentally, the defendant advertised the sale of his gymnasium. The plaintiffs responded to the add, and after negotiation, it was agreed that they would lease the premises and the gymnasium business from the defendant. On 1 May 2013, the parties entered into a written lease agreement in respect of the premises for a duration of two years together with two consecutive options, each for a term of two years. The agreement included the transfer to and use by the plaintiffs of the defendant's business name and equipment, and the assignment and benefit of client membership contracts, for the term of the lease. The term commenced on 1 May, and the plaintiffs commenced occupation of the premises then.
Relations between the parties had broken down by early 2014. Although each makes allegations against the other about various matters, the two primary sources of contention were their respective responsibility for outgoings, in particular rates, land tax and water charges, and some structural changes, the installation of structures related to the CrossFit business, made by the plaintiffs allegedly without the consent of the defendant. These disputes were the subject of an email exchange between the parties, which culminated in an email from the plaintiffs to the defendant on 20 March 2014, in which the plaintiffs indicated their intention to terminate the lease agreement on 30 April 2014. The defendant claims that this email constituted a repudiation of the lease agreement. This is disputed by the plaintiffs. On 8 April 2014, the defendant gave notice to the plaintiffs of his intention to terminate the lease agreement and retake possession of the property. He took those steps the next day. He contends that this amounted to an election to accept the plaintiffs' repudiation. The plaintiffs argue that his act in retaking possession was unjustified and amounted to his repudiation of the agreement, which they have accepted by the commencement of these proceedings. Either way, there is no dispute that the lease was terminated on 9 April 2014, one year before the end of the tenancy. The question of responsibility and liability for that event is the primary issue in this case.
From that time on, the plaintiffs have been prevented from re-entering the property. Further, they claim that the defendant has retained and refused to return to them, chattels which include equipment purchased specifically by them in order to conduct the CrossFit business, and has thereby converted that property. It is not disputed that the defendant claimed a lien over the plaintiffs' gym equipment when he repossessed the premises, and he now concedes that he was not entitled to do so. However, the extent and nature of the said property is in dispute. It has still not been returned to the plaintiffs.
The plaintiffs, in this action, claim damages from the defendant for loss caused by his wrongful and early termination of the lease, and resulting from the unlawful conversion of their chattels. The claim includes damages for loss of opportunity to earn profits from the business during the remainder of the lease term, and the two option periods. This aspect of the claim focuses on the CrossFit business. The plaintiffs also claim the replacement value of their chattels.
The defendant relies on an entitlement to accept the plaintiffs' repudiation of the agreement, and also asserts that he was entitled to retake possession of the premises in any event because the plaintiffs had breached essential terms of the agreement, in particular by failing to pay the outgoings and installing the CrossFit structures. The defendant claims damages constituted by loss of the rent which would have been payable during the balance of the lease term, mitigated to some extent by actual rental income received by him from other sources during that time, together with the outgoings for which he says the plaintiffs are liable.

[31]

Both plaintiffs and the defendant gave evidence. There are some areas of dispute, and I will make appropriate findings in due course. However, many of the relevant communications are contained in emails and other forms of written correspondence, and the authenticity of these documents is not disputed by either party.
According to the plaintiffs, at the time that the lease was entered into by them, their existing business had a few hundred clients. After the lease commenced, this clientele was increased by the inclusion of the clients that had previously been with the defendant's business. The activities offered at the new gym included the CrossFit program. The plaintiffs placed signage at the premises displaying the business name "CrossFit United" in addition to their existing name "The Fitness Academy". The new name had been adopted specifically for the CrossFit business.
Although both plaintiffs were actively involved in conducting gymnasium activities, neither at that time, held the appropriate qualification or licence needed to conduct CrossFit classes. Accordingly, from the commencement of the lease until its termination, they relied exclusively on trainers with the requisite accreditation, whom they engaged as independent contractors to conduct these classes. The principal trainer was a man named Nathan Geard. The plaintiffs' evidence is that Mr Geard regularly conducted CrossFit classes throughout their occupation of the premises, on their behalf. According to Mr Erbacher, although they had discussed the possibility of entering into a business partnership with Mr Geard, this did not eventuate and he took the classes solely as an independent contractor. However, they had paid for the cost of his licence and accreditation.
The plaintiffs' evidence was that CrossFit also requires certain types of gymnasium equipment, in greater volume than would be the case for other forms of gym activity. Their evidence is that they purchased a significant amount of such equipment shortly before they entered into occupation of the property. This property was used at the premises specifically for the CrossFit business. It was all there when the defendant re-entered possession on 9 April 2014, and claimed a lien over it.
There is a lack of clarity on the evidence concerning the nature of relations between the parties during the first six months of the tenancy. Mr Erbacher gave evidence that he had seen some text messages which suggested that the defendant was attempting to persuade old clients to leave the plaintiffs' business and attend a private facility which he had set up during this time. There is also a suggestion that the defendant attended the premises and the other gym operated by the plaintiffs without invitation and caused disturbance when he did so. The defendant denies all of this. In any event, on 20 December 2013, the defendant's accountant, Crowe Howarth, wrote a letter to the plaintiffs enclosing an invoice for rates, land tax and water charges for the period 1 November 2013 to 30 June 2014. The letter claimed that these outgoings were payable by the plaintiffs pursuant to the lease. It also raised an issue concerning "internal alterations" to the property. It did not specify these alterations but referred to a clause in the lease which prohibits such alterations "without the previous consent in writing of the property owner". The letter concluded by stating "Please ensure in the future, before any renovations or alterations are undertaken, the permission of the landlord is sought".
It is common ground that the plaintiffs did prior to December 2013, install three pieces of equipment which required structural work, in the sense that they were affixed to either a wall or the floor. This equipment was specifically relevant to the CrossFit business, and included bar bell racks, which were bolted to the wall, chin up bars which were custom built and affixed jointly to the floor and the walls, and a large item described as "a CrossFit rig" which was installed around October 2013 and required attachment to the floor. Clause 3.10 of the lease provides that "alterations to the premises" shall not be made "without the previous consent in writing of the property owner". It is common ground that there was no written consent in respect of the installation of this equipment, but Mr Baird claims that he obtained the oral consent of the defendant in discussions prior to each installation. This is denied by the defendant. I will return to this issue in more detail shortly.
On 20 January 2014, the defendant forwarded an email to the plaintiffs which included a polite request to "deposit rates and outgoings today", and to confirm by email. On 22 January, a further email noted that the outgoings were "now due" and again requested payment. On 23 January, an email from the defendant to the plaintiffs noted that, because of lack of response, "these accounts will be forwarded to my solicitor for recovery of payment". The email also contained this statement:

[53]

The obvious internal inconsistency in the wording of these provisions, and in particular between the terms of the lease and the Disclosure Statement, reflects the different positions adopted by the parties as to their respective responsibility for the payment of outgoings. Clause 3.2.2 places liability on the tenant for payment of the outgoings after the first six months which specifically include "all council rates, land tax assessed on the property, water/sewerage charges", which is then qualified by the specific exclusion in respect of rates and land tax stated in the bracketed section at the end of the provision. A similar methodology applies to clause 3.3. The apparent exclusion of rates, land tax and water charges is not included in the relevant provision in the Disclosure Statement.
The defendant relies on the Disclosure Statement to support his argument concerning the interpretation of the relevant provisions. In particular, he asserts that the Disclosure Statement is incorporated into and forms part of the lease.
The first question is the status of the Disclosure Statement and its place within the contractual arrangements between the parties. The uncontradicted evidence of Mr Erbacher is that the Disclosure Statement was given to him and Mr Baird at the same time that they were given the lease to sign, and I infer that it was initialled by all parties and signed by the plaintiffs contemporaneously with the execution of the lease. Its existence appears to have its genesis in the provisions of the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998, but it is common ground that these regulations do not require a disclosure statement in this case. The regulations prescribe a mandatory code of practice in respect of leases of "retail premises with a lettable area of not more than 1,000 square metres". "Retail premises" are defined as premises used wholly or predominantly for one or more of the businesses listed in Appendix C, or for any business in a shopping centre. Neither applies to the premises in this case, and in any event they have a lettable area greater than 1000 m2. It is, accordingly, difficult to understand the reason for the delivery and execution of this document, apart from error or perhaps an abundance of caution, on the part of the lawyers who prepared the lease. I think this is the only reasonable inference in the circumstances. Neither document refers to or expressly incorporates the other. It is apparent, however, that the Disclosure Statement picks out and purports to summarise certain aspects of the agreement contained in the lease. Even if it was thought by those advising the parties that the Disclosure Statement was required by the said regulations, then not only is that understanding incorrect, the statement did not comply with the requirements of the regulations in any event. For example, I note that the regulations require the disclosure statement to be delivered not less than seven days before the execution of the lease or the commencement of occupation. Further, its contents are obviously meant to disclose aspects of the lease, some of which will be contained in the lease itself in due course but which also provide information which would not otherwise be disclosed in the lease. This is consistent with its obvious regulatory purpose, that is to ensure that the tenant, in particular, is informed of all relevant information before becoming legally bound by the transaction. In relation to outgoings, the regulatory requirement serves this purpose by requiring the statement to set out a list of general outgoings, with an estimate of the costs and the basis on which the costs are apportioned to the tenant. It seems to me that this is not intended to merely be a recitation or summary of the provision for apportionment of liability contained in the lease but rather to give the tenant hard information as to its likely liability for outgoings during the tenancy. The Disclosure Statement in this case made no attempt to provide that kind of information.
The Disclosure Statement can be seen, therefore, as an irrelevant and unnecessary document, erroneously provided in purported reliance on the said regulations. However, it was signed by the parties, in particular the plaintiffs, at the same time as the lease. Counsel for the defendant submits that the execution of the document identifies its contents "as terms by which parties agreed to be bound". Counsel cites Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 as authority for this proposition. That case does emphasise the importance of the signature, but it is taken out of context when applied to the facts of this case. The High Court, in the cited decision, was in fact considering the question of whether the execution by a party of a contractual document meant that it was binding on that party, notwithstanding the failure to read its contents before signature. That is not the issue in this case. It is not asserted by the plaintiffs that they should be relieved from their contractual obligations because they failed to read the document before signing it. The real question is the nature of those obligations and, in particular, the binding effect of the Disclosure Statement, its proper place as a contractual document between the parties, and any consequent effect that might have on the obligations of each party with respect to the payment of outgoings. It is, in essence, a construction question.
In Toll v Alphapharm the High Court did summarise the general approach to be adopted to any question of contractual construction:

[57]

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean]. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning[2
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice."
In this case, I am satisfied that the relevant provisions, in particular clauses 3.2 and 3.3, clearly express the agreement with respect to outgoings. The commercial context is that those outgoings are the primary responsibility of the property owner, the tenant will not incur direct liability to the relevant provider. The relevant clauses are specified to be tenants' covenants, and accordingly, their commercial purpose is to describe the tenants' contractual responsibility to "pay or reimburse" the property owner in respect of specified outgoings. The specific exclusions from that liability in both clauses 3.2.2 and 3.3 are crystal clear. They take those specific outgoings out of the more general description set out in the clause and clearly convey that they are the responsibility of the lessor. The fact that they also appear in the more general description is poor drafting but it is not possible, in my view, to avoid the very specific provision for exclusion contained in the bracketed parts of each clause. In my view, this is not affected by the contents of the Disclosure Statement. I accept the submission of Mr O'Rafferty that a reasonable business person would understand that that document is merely an attempt to summarise the terms of the lease for the purpose of disclosure, but is not intended to supplant those terms. A reasonable business person would also appreciate that such a summary may be inaccurate, and, in the case of any inconsistency, would rely upon the specific and clear provisions of the lease.
Accordingly, I am satisfied that the plaintiffs' position as communicated to the defendant, that they would not meet those outgoings, did not amount to an anticipatory or actual breach of the terms of the lease. Such communication did not justify the defendant's action in retaking possession of the premises and terminating the lease.

[58]

The pleaded breach in this case is restricted to the installation of the "CrossFit" structure consisting of steel posts and cross bars without previous consent in writing of the defendant as required by clause 3.10 of the lease.
There does not seem to be any contention about the following matters:
- That the affixing of the CrossFit structure to the floor and wall of the gym amounted to an alteration to the premises for the purposes of clause 3.10 of the lease.
- That this alteration was, in fact, carried out by the plaintiffs.
- That the plaintiffs did not have the "previous consent in writing" of the defendant to make the alteration.
The only real question is whether the plaintiffs informed the defendant of their intention to install the structure, including by affixing it to the premises, and whether the defendant verbally agreed to them doing so. The defendant's counsel did not seriously contend that if I find the defendant had given previous oral consent for the installation, that the lack of written consent would amount to a breach of the lease. Clearly, this position is appropriate, whether on the basis of the pleaded estoppel, or simply as an oral variation of the lease, or both.
Accordingly, the resolution of this question will depend on a factual finding which will, in turn, require a finding as to credit. As already noted, the evidence of Mr Baird is that he had a conversation with the defendant before the installation of each piece of equipment. On each occasion, the defendant provided oral consent for the installation. The last such conversation was held on 17 October 2013 and related to the installation of the CrossFit structure. During this conversation, he showed the defendant a 3D image of the proposed structure and it received his enthusiastic consent. Mr Baird's evidence is that the defendant saw the equipment shortly after its installation and made positive comments about it, consistent with the prior consent which he had given orally.
The defendant's evidence is that he did not have a discussion with either Mr Baird or Mr Erbacher at any time in relation to the installation of any equipment, including chin up rigs, bar bell racks or the CrossFit rig. He was asked when he first became aware that structural changes had been made to the gym. He said that it was about six or eight months into the lease "and I went down there and I seen it". When asked what he saw in terms of the structural changes he said:

[60]

He explained that he was referring to "a rig that was right in the centre". It is clear that he was referring to the CrossFit structure. He was also asked about bar bell racks and a chin up rig. He agreed that he had seen the bar bell racks, but seemed uncertain about the chin up rig.
I accept Mr Baird's evidence that he did have each of the conversations with the defendant that he described in his evidence. He was able to provide detail about these conversations and his evidence seemed to me to have the ring of truth to it. On the other hand, I think there was some confusion concerning the defendant's evidence about this question. He denied any conversation whatsoever about the installation of the equipment, but conceded that he had at least seen the bar bell racks. These had been installed well before six to eight months after the commencement of the lease when the defendant said he had first noticed structural alterations. I think it likely that he was frequently visiting the gym from the commencement of the tenancy, and it is probable that he would have seen the bar bell racks and chin up equipment during these visits. There is no suggestion that he raised any concern about them prior to the Crowe Howarth letter in December. This lack of earlier complaint is consistent with Mr Baird's evidence that the defendant had agreed to the installation of, at least, these two pieces of equipment.
The defendant's objections seem to have been triggered when he first sighted the CrossFit structure. I accept Mr Baird's evidence that he did have a discussion with the defendant about the installation of this structure on 17 October 2013, and that it was installed within a month of that conversation, that is some time in November. I think it likely that although the defendant had prospectively agreed to it, and had been shown a 3D image of it, he changed his mind after actually seeing it installed in situ. This would be consistent with him then having his accountant raise this issue in their correspondence of 20 December 2013. It is clear that Crowe Howarth were instructed to write to the plaintiffs in any event about the outgoings issue. The reference to the equipment has the flavour of an "add on" in that letter.
Accordingly, I prefer the evidence of Mr Baird to the evidence of the defendant in respect of this question. I find that the defendant did give prior verbal consent to the plaintiffs for the installation of each of the relevant pieces of equipment, including the CrossFit structure. Accordingly, I reject the defendant's assertion that the plaintiffs committed a breach of the lease by the installation of that equipment. Again, the defendant was not entitled to terminate the lease for this reason.

[63]

The law is also clear that the promisee may only bring the agreement to an end on the basis of an anticipatory breach, if it either accepts that breach, or alternatively affirms the contract but then encounters an actual breach on the part of the promisor. In this case, the defendant puts its case on the basis that it accepted the repudiation by re-taking possession of the premises on 9 April 2014. I have, in any event, ruled against the allegations of actual breach on the part of the plaintiffs.
The first question which arises is whether the plaintiffs did, in fact, evince an intention to repudiate their obligations under the lease as from 30 April 2013, in the email of 20 March. A judgment about whether the statement evinces the necessary repudiatory intention must be made objectively "by reference to the effect it would be reasonably calculated to have upon a reasonable person". Pacific Brand Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at 102 per Finn and Sunberg JJ. The plaintiffs argue that their words did not amount to a repudiation, but rather went no further than "posturing" as part of what in essence amounted to settlement negotiations. The plaintiffs' counsel refers to wording consistent with that categorisation including the invitation in the last paragraph "to show cause with your early agreement to this proposal or acceptable counter". However, the problem with this argument is that it is difficult to identify a "proposal", short of complete acceptance of the plaintiffs' expressed intention to abandon the tenancy. The preceding content of the email is exclusively constituted by accusations that the defendant has breached his obligations under the lease in various ways, and states with certainty the plaintiffs' intention to terminate the lease as a result. It seems that that outcome is the "proposal" referred to in the last paragraph.
In my view, there is no question that the effect that the email "would be reasonably calculated to have upon a reasonable person", is the plaintiffs' repudiation of their obligations under the agreement. The email does not suggest an alternative agreement which would leave the tenancy in place, although that might, in any event, amount to repudiation. It makes it quite clear that the plaintiffs intend to abandon the lease. Because it states that this will occur on a future date, but before the term of the lease has expired, this statement of intention amounts to repudiation by anticipatory breach of the agreement.
Although it is necessary to make an objective assessment of the effect that the relevant words would be reasonably calculated to have upon a reasonable person, my assessment of the email is supported by the fact that it seems to have been consistent with the actual intention of the plaintiffs. I refer in particular to the evidence of Mr Erbacher in cross-examination as follows:

[68]

The plaintiffs' counsel argued that his submission that the email should simply be considered posturing as part of negotiation, is supported by the subsequent email forwarded by the plaintiffs on 2 April 2014. However, in my view, this document does not assist the plaintiffs' argument. In fact, it confirms the intended "conclusion of our occupation". Insofar as it relates to settlement, it simply seeks to give effect to the plaintiffs' stated intention to abandon the lease, by proposing an agreement whereby each party walks away from the lease and relinquishes any rights or obligations they have in respect of the future performance of the lease. However, it also threatens a claim in damages for asserted breaches of the lease if the "proposal" is not accepted. All of this assumes that the intended termination of the lease is a certainty. In my view, this email supports and emphasises the repudiatory nature of the communication contained in the email of 20 March.
Before concluding this issue of repudiation, I should briefly consider the obvious feature of the email of 20 March, that the anticipated abandonment of the lease is claimed in the email to result from alleged breaches by the defendant of essential terms of the agreement. In that sense, it could be argued that the email purports to accept the repudiation constituted by those breaches. If this were the case, then the plaintiffs would be entitled to terminate the lease on that basis. The breaches alleged are particularised in the email as the defendant's entry into the premises on 9 March accompanied by disablement of the security system and removal of items leased to the plaintiffs, and an ongoing and continuous breach of the defendant's covenant to afford the plaintiffs quiet enjoyment of the premises.
However, despite the fact that both asserted breaches were the subject of evidence during the trial, the plaintiffs have not put their case on this basis. In particular, they have not pleaded, nor was it argued, that either alleged breach constituted a repudiation of the agreement, nor that the said email constituted notice of termination as acceptance of that repudiation. The plaintiffs' argument is limited to an assertion that the said email did not amount to a repudiation on their part, because it did not contain an unequivocal statement of intention to abandon the lease. In my view, it would be unjust and impermissible to assess the email on any basis other than that pleaded and argued. Accordingly, I will not do so. It follows that, irrespective of any view I might have about the defendant's conduct leading up to the email, and any claim made in the email, I will not deal with the case on the basis that the plaintiffs assert an entitlement to terminate the lease.
In respect of the defendant's acceptance of the plaintiffs' repudiation, counsel for the plaintiffs conceded in submissions that if the email of 20 March expressed the plaintiffs' repudiation of the agreement, then the defendant's action in re-taking possession of the premises on 9 April 2014, amounted to his acceptance of that repudiation. It is well established that a promisee's election to rescind the contract on the basis of anticipatory breach can be constituted and communicated by conduct, provided that the conduct, considered objectively, manifests an intention to treat the contract as at an end. There is no question that the defendant's actions on 9 April 2014 manifested such an intention.
However, there are some further requirements of termination for anticipatory breach which assume some importance in this case. Firstly, the promisee must, at least at the time of election, be ready and willing to perform his part of the contract. A related requirement is that the election to terminate by the promisee must be in reliance on the repudiation of the promisor. These were described by Brennan J in Foran v Wight [1989] HCA 51, (1989) 168 CLR 385, thus:

[71]

Foran v Wight was concerned with obligations in an executory contract which were "mutually dependent and concurrent", in particular a contract for the sale of land which required completion on a particular date, at which time both parties would be required to discharge their respective obligations. Although the lease agreement in this case is of a slightly different nature, I see no reason why his Honour's comments would not be applicable. A lease creates continuing mutually dependent and concurrent obligations. At its most basic, there is the ongoing obligation on the lessor to provide the lessee with quiet enjoyment of the property, in exchange for the lessee's payment of rent.
The relevancy of these requirements to this case arises from the defendant's letter to the plaintiffs of 8 April 2014 in which he unequivocally communicated his view that he was entitled "to terminate the lease agreement and re-take possession of the property" because of the plaintiffs' "continued refusal to pay outgoings". The letter asserted that the refusal to pay outgoings amounted to a breach of an essential term of the lease. The defendant took possession of the property the following day. Although the letter of 8 April 2014 does not indicate that it was his intention to do so on the basis of the failure of the plaintiffs to pay the outgoings, an inference could arguably arise that he relied on this alleged breach when he decided to take possession of the property. Of course, as I have found, the plaintiffs were not in fact in breach of the lease for this reason, and the defendant would not have been entitled to rely on same as a basis to terminate the agreement.
If it were established that the defendant did not rely on the repudiation contained in the email of 20 March when he elected to terminate the lease by re-taking possession on 9 April, but rather had decided to take that action because of the plaintiffs' refusal to pay outgoings, then it is arguable that at the time of the election to terminate, he was "not disposed to perform" his side of the contract in any event. In other words, it is arguable that an inference arises from the letter that he had decided to end the contract anyway for a reason not related to the repudiation contained in the email of 20 March.
It is apparent from the discussion in various judgments in Foran v Wight, that there is some uncertainty in the case law as to whether the requirement that the promisee be ready and willing to perform at least at the time of election to terminate, is an element of the cause of action arising from the acceptance of the repudiation or alternatively, is a matter relevant only to damages, in particular with respect to causation. This question was discussed by Brennan J in Foran v Wight although it did not directly arise in respect of the damages claim in that case because the purchaser sought only the recovery of the deposit. In respect of damages, the promisee will be unable to prove loss arising from the promisor's repudiation, if the promisee would, at the time of acceptance, have terminated the contract in any event for an unjustified reason, or for no reason.
However, in this case, it was conceded on behalf of the plaintiffs that if the email of 20 March amounted to a repudiation, then retaking possession amounted to acceptance thereof. Further, despite the information in the defendant's letter of 8 April, the defendant gave evidence consistent with his reliance on the plaintiffs' repudiation contained in the email of 20 March. In evidence-in-chief, he was asked by his counsel about his email to the plaintiffs of 9 April, which appears to have been coincident with him physically taking possession of the premises. His evidence is as follows:

[81]

The first issue in the assessment of damages for conversion, is the identification of the property retained by the defendant when he re-took possession of the premises on 9 April. As already noted, there is a significant dispute about this. The plaintiffs have produced evidence by way of invoices of property purchased by them early in the tenancy, for use in the premises. Mr Erbacher gave evidence that all of this was in the gym when the defendant re-took possession and that they have not received any back. The defendant relies on the stock take performed by Crowe Howarth on 9 April. The property in that list is significantly less than that claimed by the plaintiffs, even when restricted to that contained in the invoices.
I find that the property contained in the premises on 9 April, and unlawfully converted by the defendant, is that identified by the plaintiffs to the extent that it is contained in the invoices relied upon by them. This does not amount to all of the property particularised in the statement of claim, but in submissions, the plaintiffs' counsel conceded this limitation. I accept Mr Erbacher's evidence about purchasing the property confirmed by the invoices. Although he was briefly cross-examined about this, his evidence was not undermined by that cross-examination. The defendant did not provide any evidence of his knowledge about this property despite having been in possession of the premises since 9 April. I do not regard the Crowe Howarth audit as reliable. No-one from that firm was called by the defendant to support his case about this question. It is impossible to determine the reliability of their identification of the property owned by the plaintiffs during the purported audit. Further, although the defendant invited the plaintiffs to attend the stocktake in his email on 9 April, that email was sent four minutes before the stocktake was due to commence. If he was serious about ensuring that the stocktake provide independent and reliable evidence of the plaintiffs' property in the gym at that time, the defendant would have provided a realistic time-frame as part of his invitation. Finally, the defendant said that he no longer has the property because "some people come late at night and took it". There was no further explanation about this, and I found this bare assertion somewhat bizarre. I am simply not prepared to rely on the defendant's evidence about this question.
It follows that I accept the plaintiffs' case with respect to the identification of the converted property. It is the property listed in the invoices produced by Mr Erbacher. I will proceed on this basis.
The claim by the plaintiffs for damages for conversion of this property has two aspects. Firstly, the plaintiffs claim for the cost of replacement of the property. In this regard, each party has adduced expert evidence from a forensic accountant. The accountant called by the plaintiffs, Mr Stephens, has assessed replacement value at the cost price, exclusive of GST, plus 15%. The 15% represents an allowance for the increase in price to the date of his report assessed by reference to the Consumer Price Index. In evidence, he explained that the increase was assessed at a CPI increase of 3% per year over 5 years. The accountant called by the defendant, Mr Rands, asserts that the replacement value should be assessed on the basis of the cost price less an allowance for depreciation. For reasons which I will explain in due course, I prefer Mr Stephens' method of calculation.
The second aspect of the plaintiffs' claim for damages for conversion relates to consequential loss. This aspect of the claim is formulated by the plaintiffs on the basis of the Court's acceptance that the lease had been wrongfully terminated by the defendant, and that the defendant had also wrongfully converted the chattels. In summary, the plaintiffs assert that the combined effect of this wrongful conduct resulted in loss of opportunity to earn profits from the business conducted in the premises throughout the remaining duration of the lease, including the two option periods. This business, in large part, consisted of the CrossFit training program. Of course, given my finding that the termination of the lease resulted from the defendant's acceptance of the plaintiffs' repudiation, the plaintiffs will not recover damages based on the opportunity lost by giving up the tenancy. However, the plaintiffs' evidence was that the retention by the defendant of the said equipment was a causative factor in their inability to continue the CrossFit business in their Boland Street premises. Because I have upheld this aspect of the claim, it is necessary for me to assess whether the retention of the equipment alone has caused loss which is compensable in damages.

[82]

The fundamental principle applicable to assessment of damages for any tort, but including the tort of conversion, is compensation, that is, the plaintiffs should be restored as far as possible to the condition which pertained immediately prior to the commission of the tort. To put it another way, they should be placed back in the same position in which they would have been had the defendant not unlawfully converted their property. See Butler v Egg and Egg Pulp Marketing Port [1966] HCA 38, (1966) 114 CLR 185. Accordingly, in relation to the tort of conversion, where the property has been retained or destroyed by the defendant, damages will normally include the replacement cost of the property assessed at the market value of the goods as at the date of conversion. Of course, market value is a fluid concept which can be affected by a wide variety of factors. Because the underlying principle is one of compensation, the assessment will require a realistic assessment of what would have been necessary to enable the plaintiffs to purchase replacement equipment, that is, the actual cost to them of replacing the equipment, at the date of conversion.
It is for this reason that I prefer the evidence of Mr Stephens about this question. There was simply no evidence put before me to establish that there is a viable second hand market for such equipment and, in any event, I would doubt that seeking to replace the equipment with second hand goods would properly compensate the plaintiffs. They had only recently purchased the equipment new. There is no evidence as to the extent of any actual deterioration of that equipment. Mr Rands relied on depreciation schedules produced for taxation purposes by the Australian Taxation Office. I doubt that these schedules bear much relationship to the real situation, and in any event I would need evidence about the actual property in question before I would assess same as actually reflecting the real position.
The plaintiffs were entitled to have access to their equipment immediately, so that it could be used by them in their business elsewhere. In my view, they were entitled to purchase new equipment to replace that which had been wrongfully converted and retained by the defendant. I accept that Mr Stephens' methodology accurately reflects this loss with one possible exception. His addition of 15% is intended to represent the replacement cost at the date of his report, roughly 5 years after purchase. However, the correct date of assessment is the date of conversion. In this respect, conversion traditionally differs from the tort of detinue. However, it seems to be recognised that the rule in respect of conversion is qualified on the basis that any increase in the market value between conversion and the earliest time when the action could have been brought to judgment is recoverable as consequential loss: Sachs v Miklos [1948] 2 KB 23, Wollongong City Council v Fregnan [1982] 1 NSWLR 244, Egan v State Transport Authority (1982) 31 SASR 481. In this case, the action was commenced on 23 December 2015. There is no explanation before me to explain the very significant delay between commencement and trial. While the plaintiffs have been successful on the conversion claim, the position is complicated by the fact that they have only been partially successful in the overall action. In any event, the plaintiffs have claimed interest pursuant to s 35A of the Supreme Court Civil Procedure Act 1932. The assessment of interest under that provision is generally restricted to a period which commences on 9 September 2019, which is when that provision commenced Steen v Trustees of the Diocese of Tasmania [2024] TASSC 3 at [315]- [329]. However, s 35 of the said Act, which was in force at the date of the conversion, seems to me to deal specifically with this issue. It permits the Court to "give damages in the nature of interest over and above the value of the goods at the time of the conversion". There is no restriction on the assessment of such interest, it is in fact intended to represent damages. There can be no question that the plaintiffs were entitled to immediately replace the equipment so that it could be used by them in their business. Accordingly, in my view, the fair and just way to deal with this calculation is to add 3% to the actual cost price of the chattels which are verified by the invoices, to allow for CPI increase until the date of conversion, and then allow interest by way of damages pursuant to s 35, which I will assess on a simple basis at 4% per annum between the date of conversion and the date of this judgment. The choice of a rate of 4% is in accordance with the methodology which I adopted in Steen. My calculation of such damages is accordingly as follows:

[84]

The plaintiffs' claim for damages for loss of opportunity to earn profits from the business conducted in the premises is based on their allegation that the business was destroyed by the defendant's wrongful actions in terminating the lease on 9 April and retaining their chattels. The evidence of Mr Stephens purported to assess the amount that the business would have generated had it not ended as it did. It is clear that this assessment is based on a projection into the future of the actual earnings of the business up to the termination of the tenancy on 9 April 2014. The projections are based on growth rates estimated by the plaintiffs, but considered reasonable or even conservative by Mr Stephens. The calculation assumes that the plaintiffs would have taken up the two option periods, and the projected loss has been calculated over the whole of the total period, ie until 30 April 2019. Mr Stephens' assessment of loss on this basis is $305,291.51, most of which would have been accrued, under his projections, in the last 3 years of the combined period.
It is well established that damages for conversion can, in the case of income-producing chattels, include not just their value, but also "any consequential damage flowing from the conversion and not too remote to be recoverable in law": General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 2 All E R 314 per Diplock, LJ at 318. In most cases, the replacement value of the property will provide adequate compensation, but particularly in the case of chattels used to earn income, their conversion may result in loss arising, for example, from temporary or even permanent disruption to the income producing activity. Ultimately, the guiding principle will be an attempt to place the plaintiffs, so far as money can do, in the position they would have been had the tort not been committed. In assessing consequential loss, much will depend on the circumstances of the case, including the nature of the chattels, their use in respect of the income earning activity, and the viability of their replacement.
In this case, the position is again complicated by the fact that plaintiffs' claim for damages, and the evidence called in support of it, in particular from Mr Stephens, relied upon the combined impact on their business of the termination of the lease and the conversion of the chattels. Had both aspects of this claim been upheld, the plaintiffs would have been able to establish the defendant's direct responsibility for the destruction of the new business such as it was, and the assessment of damages would simply have involved assessment of the value of this loss. However, my finding that the plaintiffs were responsible for the termination of the lease must be taken into account. This finding necessarily means that the plaintiffs' claim for lost profits is limited to loss arising solely from the conversion, on the assumption that their conduct of the business in the premises had come to an end as a consequence of their own actions. Accordingly, to establish loss of profits from the conversion of the chattels in this context, the plaintiffs will need to prove that they would have used those chattels to earn income in other premises, Boland Street for example, but have lost the opportunity to do so because of the conversion. It is the value of the lost opportunity caused by the conversion which will underlie an award of damages under this head.
It is well established that consequential loss can include the loss of a commercial opportunity. Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332. A necessary element of establishing such loss is proof of a causal link between the tort, in this case the conversion of the goods, and the loss of the opportunity to earn profits from the equipment. That causal link must be established on the balance of probabilities. Malec v J C Hutton Pty Ltd [1990] HCA 20, (1990) 169 CLR 636, Sellars v Adelaide Petroleum NL, Tabet v Gett [2010] HCA 12, (2010) 240 CLR 537. Once causation is established, assessment of the value of the loss will depend on the assignment of probability to hypothetical events, both positive and negative, in the manner described by the High Court in Malec v Hutton.
In Doolan v Renkon [2011] TASFC 4, the Full Court explained that "where the realisation of an opportunity depends on a plaintiff's own decision to take it up, it must be proved on the balance of probabilities that it would have been taken up. Unless it is proved that a plaintiff would have acted on an opportunity, it cannot be said that the breach has caused any loss". In that case, the opportunities in question consisted of possible steps of a commercial nature which might have resulted in profit had they been taken. The Full Court held that it was necessary to prove to the civil standard that the plaintiff would have in fact taken one of the relevant courses of action. This approach is apposite to the circumstances in this case. Given my finding concerning the plaintiffs' responsibility for termination of the lease, their claim for consequential loss arising from the conversion of their property can only be for the lost opportunity to earn income from the use of the chattels in other premises. I can only allow this aspect of the claim if I am satisfied that it is more probable than not that had their equipment been returned to them upon termination of the lease, they would have pursued the opportunity which they claim to have lost.
In order to properly understand the nature of this claimed opportunity, it is necessary to further consider Mr Stephens' opinion, particularly in respect of lost future earnings. Mr Stephens' projection of anticipated future earnings purported to apply to all aspects of the business, but it is apparent that he regarded the cessation of the CrossFit aspect of the business as the critical factor in determining the projected loss. It was this aspect of the business to which he applied assumptions concerning growth, which in turn underpinned his assessment of future loss of profits. Further, he considered the impact of the loss of equipment to be an important factor in precluding the plaintiffs from "mitigation" of their loss by offering CrossFit classes from the Boland Street premises. He dismissed this possibility on the basis that the "business could no longer gain access to either the equipment or the clientele to enable relocation of the CrossFit business". Finally, he agreed with the defendant's counsel in cross-examination that the plaintiffs' lack of capacity to "market and have CrossFit services at their gym" for other reasons would cancel "a lot, if not all, of the losses" he had calculated and reduce them to "zero".
Accordingly, I am satisfied that the plaintiffs' claim for loss of future profits depends on proof that they were prevented by the conversion of their property from continuing the CrossFit business. It is a matter of historical reality that after 9 April, the plaintiffs did not in fact pursue this business in Boland Street or anywhere else. This was confirmed by Mr Erbacher in evidence, and in any event is apparent from the information and data provided to Mr Stephens by the plaintiffs. The question which must be answered, as a matter of causation, is whether but for the conversion of their property, they would have done so.
The evidence as to why the plaintiffs did not resume CrossFit classes at Boland Street is limited. There was evidence which supported the proposition that the CrossFit business required two key components. Firstly, it needed a trainer with appropriate affiliate status and licence from the CrossFit franchisor. Secondly, it required training equipment of the right type and in a quantity necessary to facilitate classes. Prior to the termination of the lease, the plaintiffs were able to fulfil both requirements. The classes were presented by appropriately qualified trainers subcontracted for that purpose. As I have already noted, the majority of such services were provided by Nathan Geard. However, there was evidence from the plaintiffs that they also employed other trainers with appropriate certification from time to time. Further, as already noted, they had purchased the particular equipment specifically for the purpose of conducting the CrossFit business.
In evidence-in-chief, Mr Erbacher attributed the failure to offer CrossFit classes from other premises not to the lack of a trainer, but rather to the absence of the required equipment. In cross-examination, he agreed that the classes could have been conducted in the Boland Street premises, albeit with some alterations. Mr Erbacher described how the relationship with Mr Geard broke down after they ceased to occupy the premises on 9 April:

[89]

Mr Baird's evidence was that the plaintiffs had an arrangement with Mr Geard whereby they assisted him to obtain the relevant CrossFit licence, so that he could conduct classes on their behalf. He did so as an independent contractor. After the lease termination, they had discussions with Mr Geard about continuing to conduct classes at their other property but that did not occur. Mr Baird attributed this to the non-return of the property. He also confirmed that other trainers had the ability to conduct CrossFit classes. Mr Baird confirmed that he himself applied for the relevant certification. However, he did not commence this process until after 9 April, and it took approximately five to six weeks to complete.
The plaintiffs' case was firmly based on the assertion that the interruption to their business, in particular the CrossFit aspect, arose from the various wrongful actions of the defendant, including both the termination of the lease and the conversion of the chattels. Mr Stephens' opinion as to loss assumed the causative factors in relation to the business loss to be this combination of factors. The plaintiffs' case does not attempt to address the specific impact of the retention of the equipment separately to the termination of the lease. However, I have rejected their case insofar as it attributes responsibility for the termination of the lease to the plaintiff. Accordingly, the question of causation relating only to the conversion of the chattels must be considered on the basis that the plaintiffs would have terminated the lease in any event. Not only is this the outcome of my finding concerning the termination of the lease, it seems also to be consistent with the intention of the plaintiffs. According to Mr Stephens, the plaintiffs instructed him that they had been planning to leave the premises for two months before the actual termination. Mr Erbacher conceded in cross-examination that they had made the decision to quit the premises in early 2014. Having regard to these matters, I am left with little confidence in the plaintiffs' explanations as to their conduct and intentions surrounding the termination and its immediate aftermath.
Despite the plaintiffs' evidence about their intentions in respect of the CrossFit business, there is no suggestion that they had made any preparations or done anything else to transfer this aspect of the business to the Boland Street premises. It is true that after termination, Mr Baird made a somewhat leisurely effort to obtain the relevant accreditation, but there is no evidence that the plaintiffs have since made any other attempt to recommence the CrossFit business, even in a limited form nor have they provided any explanation for not doing so. It is clear from Mr Baird's evidence that the operation of CrossFit classes has significant flexibility and can take a number of forms. I think that the equipment retained by the defendant would have been useful but not essential. I am satisfied that had the plaintiffs really intended to recommence this business, they could have done so utilising equipment available to them already in their other premises, or by purchasing some equipment to facilitate those classes. This is not a question of mitigation, rather it is evidence of conduct which is not consistent with an intention to conduct the CrossFit business in other premises.
However, after weighing up these factors, I am satisfied that had the equipment been returned to the plaintiffs immediately, as it should have been, they would, more probably than not, have used it to attempt to reinstate the CrossFit business to some extent. They would certainly have used it in respect of their other gym activities at Boland Street. There is no question that it should have been returned to them immediately. The failure of the defendant to do so is in my view a causative factor in their decision not to continue with the CrossFit side of the business, and in any event they have suffered some consequential loss from not having this equipment immediately available. I reject the defendant's counsel's argument that I should find that the chain of causation is broken by other concurrent causes of the decision, such as Mr Geard's decision not to continue to conduct classes on the plaintiffs' behalf. The plaintiffs had taken steps to get around that problem by Mr Baird obtaining his accreditation, and in any event I accept that there were other appropriately qualified trainers who they could have used. While a number of factors may have played into the decision not to recommence classes, I am satisfied on the balance of probabilities that the plaintiffs would have made some use of the equipment had it been returned to them.
Accordingly, I find that the plaintiffs have established a loss of opportunity. The more difficult question is the valuation of that loss. In this regard, I find Mr Stephens' opinion of little assistance, except as a general benchmark at the high point of the range of possibilities. I find many of his assumptions, particularly as to anticipated future growth, to be highly speculative and unreliable. Some of his assumptions are simply irrelevant, for example, the term of the assessment which was based on a continuation of the lease through the two option periods when my assessment must assume that the plaintiffs had decided to end the lease on 9 April 2014. Further, there are numerous negative contingencies to take into account, including that responsibility for the termination of the lease lies at the feet of the plaintiffs. For example, the plaintiffs may simply not have continued this business for very long, or the client interest in CrossFit in other premises may not have been strong. I must also take into account that I have already compensated the plaintiffs for the cost of replacing the equipment at the time of the conversion, adding interest to take into account their difficulty and inconvenience in doing so.
As I have said, Mr Stephens' assessment provides some guide as to the high water mark, but otherwise the speculative nature of his assumptions and the extent and nature of the various contingencies means that calculation of the loss is not easily or at all amenable to mathematical calculation. The Malec v Hutton process recognises that there will be such cases and permits assessment of compensation based on a global sum. I think that is the appropriate methodology here. Doing the best I can on the evidence provided to me, I assess damages for loss of commercial opportunity in the sum of $25,000.
I am satisfied that I should award interest on this sum, because the opportunity had it been taken up would have rendered profits to the plaintiffs soon after the conversion. However, s 35 of the Supreme Court Civil Procedure Act 1932 is not applicable to this head of damages, and accordingly the basis for the award is s 35A of that Act. Again, utilising the methodology explained in Steen, it is appropriate to award interest assessed on a simple basis at 4% from 9 September 2019. I calculate that interest as follows:

At a glance

Court

Decision date

Before

Source

Judgment (94 paragraphs)

Baird and Erbacher v George [2025] TASSC 4 (13 February 2025)

Parties

Cases Cited (7)

Cited By (1)