This as an application by the former tenant of a café at Rose Bay ("the premises") against its former landlord who, on 6 March 2018, re-entered the premises thereby terminating the lease for non-payment of rent.
The applicant blames the respondent for the loss of its business alleging, amongst other things, that it engaged in misleading and deceptive conduct and unconscionable conduct. However, the claim that was ultimately pursued at the hearing was for the return of various items of equipment and stock in trade that were in the premises when the respondent re-entered. In the alternative, the applicant claims damages for the equipment and stock in trade sold by the respondent to a company that now leases the premises. It also seeks the return of a bank guarantee or the cash equivalent, provided to the respondent as security for its obligations under the lease.
The respondent denies the applicant's claim and says that it was entitled to sell the equipment and stock in trade.
[2]
Background
The premises were originally leased by the respondent to Italian Company Pty Ltd ("Italian Company") for a term of five years commencing on 1 March 2016 and ending on 28 February 2021 ("the lease"). The lease describes the use of the premises as "Italian bakery, production of cakes including sweet and savoury products, breads and coffee and associated beverages".
On 1 May 2017, the applicant entered into a contract with Italian Company to purchase the business conducted from the premises. According to the contract, the applicant purchased the business for one dollar. Under the contract the applicant also agreed to pay a finance company by the name of Silverchef the sum of $13,200.52. That was the balance owing by Italian Company after deduction of a $1,900.68 bond for specific equipment listed in a Silverchef payout quote dated 21 April 2017 ("Silverchef quote") annexed to the contract. In turn Italian Company agreed to transfer title in that equipment to the applicant. That equipment as well as stock in trade items are at the heart of this dispute.
On 10 May 2017 the lease was assigned by Italian Company to the applicant with the consent of the respondent. Ms Heather Hancock ("Ms Hancock"), the applicant's sole director, became the new guarantor of the applicant's obligations under the lease. It was a term of the deed of assignment that the applicant would also provide the respondent with a new bank guarantee for $28,600. The applicant subsequently provided a bank guarantee for $27,500 plus a personal cheque for $1,100.
The applicant says that in April 2017 it borrowed $50,000 from Ms Caroline Cardoza ("Ms Cardoza") and a further $50,000 in May 2017 from Mr Jean Baptiste Alexandre ("Mr Alexandre") to purchase equipment for its business. The applicant's evidence includes written loan agreements with each of Ms Cardoza and Mr Alexandre.
The applicant commenced trading from the premises on about 9 June 2017. Almost from the outset it had difficulty in meeting its rental obligations under the lease. On 6 March 2018, and without prior notice, the respondent re-entered the premises and terminated the lease for non-payment of rent. The respondent says that the amount then owing was $20,465.21 and that a further payment of $9,914.66 fell due on 1 April 2018. It is not in dispute that the applicant's rental payments were in arrears or that the respondent was entitled to re-enter the premises thereby terminating the lease.
Following termination of the lease the applicant unsuccessfully endeavoured to persuade the respondent to allow it to resume occupation of the premises including under a licence.
Equipment, stock in trade, including food, plus personal items said to belong to various persons were still in the premises when the respondent re-entered on 6 March 2018. There were acrimonious communications between the parties' representatives concerning the return of various items still in the premise that were said to be owned by a number of people including Ms Hancock, her husband, Mr John Hancock ("Mr Hancock"), Mr Alexandre, who worked at the premises as a chef and Ms Garner Grace Hancock ("Ms Grace Hancock"), Ms Hancock's daughter who was employed there as a part-time baker.
On 10 April 2018, the applicant filed the application now before the Tribunal, and also an application for interim orders. The interim relief sought by the applicant was an order that it be permitted access the premises to remove items owned and/or encumbered by third parties including Ms Cardoza and Mr Alexandre. It also sought orders that the respondent be restrained from selling or moving the items currently located in premises, from advertising the business for sale, and that it be granted access to remove all food and perishable items from refrigerators and shelves to minimise damage to the refrigeration units in the premises. A number of directions were made by the Tribunal over the following months with the apparent intention of the interim application being listed for hearing. Orders were also made for Ms Grace Hancock and Mr Alexandre to meet at the premises with a representative of the respondent at a mutually suitable time and date to identify and receive personal items belonging to them. A hearing did not take place and the interim application was eventually dismissed on 23 October 2018. The applicant says this was because the Tribunal Member dealing with the interim application at the time considered that the relief sought needed to be dealt with at the final hearing.
On 3 May 2018, Ms Cardoza's and Mr Alexandre registered security interests on the Personal Property Security Register ("PPSR") over various items of equipment ("PPSR list"). The description of the equipment in the PPSR list is identical to the list of equipment in the Silverchef quote.
The respondent entered into a new lease of the premises with Royal Bakery Pty Limited ("Royal Bakery"). The lease commenced on 11 June 2018 and is for a term of four years ("Royal Bakery lease").
Pursuant to the Royal Bakery lease certain fixtures, fittings plant and equipment in the premises described as "Sale Property", were sold by the applicant to Royal Bakery for $40,000 plus GST. These items are listed in two separate categories ("category 1" and "category 2") in an appendix to the lease. Royal Bakery acknowledged the existence of a dispute between the respondent and the applicant in relation to the specific items listed in category 1 ("category 1 equipment") and agreed to store them on the premises in a safe and secure place until the respondent was able to confirm ownership. It also agreed to immediately repair and maintain the category 1 equipment and redress normal wear and tear and any capital or structural costs. The Royal Bakery lease also provides that if the respondent notifies Royal Bakery that it does not have title in or ownership of the category 1 equipment, Royal Bakery will do all things reasonably required by the respondent to remove them from the premises and the respondent will reimburse Royal Bakery by paying it $15,000 plus GST in compensation.
The items in category 2 comprise stock in trade that one would expect to find in a café and include crockery, cutlery and cooking utensils to name a few ("category 2 items"). The Royal Bakery lease is silent as to what happens if it turns out that the respondent does not have ownership of or title in those items
The respondent says that the lease of the premises to the applicant permitted it to sell the category 1 equipment and category 2 items to Royal Bakery because the applicant failed to remove those items from the premises when directed to do so by the respondent and, as a consequence, they were forfeited to or became the respondent's property. This is disputed by the applicant. The applicant says that it was not permitted to have access to the premises to retrieve its property. It also says the respondent failed to direct it to remove those items as required under the lease and therefore the forfeiture provision in the lease was not triggered. In the alternative the applicant claims damages.
The applicant also says there are "detinue and conversion issues", that section 177A of the Conveyancing Act applies, and it has certain rights of subrogation said to arise from having paid out Italian Company's liability to Silverchef.
The respondent presented the applicant's bank guarantee and has been paid $27,500. The applicant's cheque for $1100 was dishonoured on presentation by the respondent. The respondent does not make a claim for any further monies said to be owing under the lease.
[3]
The nature of the applicant's claim
The applicant made a number of allegations and claims in the application filed with the Tribunal that initiated these proceedings. It blames the respondent for its inability to pay the rent and for the ultimate loss of its business. The applicant said the respondent made certain pre-lease representations about the potential of the business that were misleading and deceptive and unconscionable. It asserted that the respondent misrepresented the amount of coffee that was capable of being sold each week from the premises, that if the applicant commenced trading at 5 AM it would increase sales, that it needed to sell high quality coffee such as Allpress, and that the proximity of a bus stop was one of the reasons the premises were so desirable. It also said that the respondent failed to disclose the true extent of the Italian Company's rental arrears and any rent deferral, and that it was required to pay undisclosed trade waste and water charges.
The applicant also asserted that the respondent misrepresented that premises were in good repair. In this regard it said the opening of its business was delayed due to the need to relocate a gas meter, there were problems with the air-conditioning and there was a drainage issue.
Another assertion made by the applicant was that despite numerous requests the respondent refused to give its staff access to the premises following termination of the lease in order to retrieve their personal effects.
The applicant also asserted that after the lease was terminated the respondent, in advertising the sale of the business conducted from the premises, engaged in misleading and deceptive conduct.
The applicant sought an order that the respondent pay compensation for the loss of its business and for the return of the bank guarantee. It also sought orders for access to the premises to remove the contents including equipment said to be encumbered and personally owned, to remove food and perishable items from the refrigeration and storage units, and set aside the deed of assignment of the lease asserting that various provisions in the lease were harsh and unconscionable.
By the time the matter came on for hearing the applicant's claim had narrowed considerably. At the commencement of the hearing Mr Hancock informed me that the applicant was seeking the return of goods and chattels that were in the premises when the respondent re-entered and, in the alternative, damages. It was also seeking the return of the bank guarantee or cash equivalent. Mr Hancock said there were "issues of detinue and conversion", section 177A of the Conveyancing Act applied, and the applicant has certain rights of subrogation is said to arise from having paid out Italian Company's liability to Silverchef.
At the conclusion of the evidence on the first day of the hearing, I asked Mr Hancock to explain precisely what the applicant was seeking. He said it was seeking $40,000 plus GST for the equipment it says belongs to it, that being the amount for which the respondent sold the equipment to Royal Bakery, damages for the equipment being used and the following amounts:
1. $3789.36 for items thrown away
2. $614.70 for cleaning products
3. $12,685.79 for additional items of equipment;
4. $5000 for a convection oven and fryer; and
5. $27,500 being the amount of the bank guarantee provided as security by the applicant.
It is this claim, as articulated by Mr Hancock, that is to be determined by the Tribunal.
The respondent did not file a defence to the application nor did it seek to bring any claim against the applicant. It relies entirely on the evidence contained in the statements and an affidavit filed on its behalf, and on the oral evidence given by its witnesses in cross examination. In summary, its position is that the various items left in the premises after the lease was terminated have been forfeited to it, or do not belong to the applicant, and the applicant is not entitled to the return of the bank guarantee having been indebted to the respondent for rent owing under the lease. The respondent also denies the other allegations and claims made by the applicant in its application.
[4]
Jurisdiction
There is no dispute that the subject lease was a retail shop lease, the applicant's claim is a retail tenancy claim for the purposes of the Retail Leases Act, 1994 ("the Act"), and the Tribunal has the power under section 72 of the Act to grant the relief sought by the applicant.
[5]
Relevant provisions of the lease
The following provisions of the lease are relevant to the subject matter of this dispute:
Clause 20.04 Definition of default
The Tenant shall be in default of the Lease in any of the following circumstances;
Failure to Pay Moneys: if any moneys payable by the Tenant to the Landlord are not paid within fourteen (14) days of the due date.
Clause 20.06 Rights on Default
If the Tenant shall have made default the Landlord may (without prejudice to any other rights of the Landlord):
(a) Termination of Re-Entry: without any prior demand or notice re-enter into and take possession of the demised premises or any part (by force if necessary) and eject the Tenant and all other persons and thereupon the Lease shall be terminated
Clauses 22.02 to 22.04, inclusive, of the lease prescribes what is to happen to the applicant's plant, fittings, furnishings and stock in trade at the end of the lease. They provide as follows:
22.02 Tenants right to remove fittings
Provided the Tenant shall throughout the term of the Lease observe perform and fulfil all the covenants terms and conditions on its part expressed or implied in the Lease the Tenant may during the last fourteen (14) days of the term of the Lease remove from the demised premises all the Tenant's plant, fittings, furnishings and stock-in-trade provided that such removal can be effected without causing any substantial damage to the demised premises or the Building provided further that the Tenant shall make good any damage whatsoever caused to the demised premises or the Building by such removal.
22.03 Tenant's obligations to remove fixtures
The Tenant shall if directed by the Landlord immediately remove from the demised premises after the expiration or sooner determination of the Lease all fixtures, fittings and stock-in-trade installed by or on behalf of the Tenant and shall make good any damage whatsoever caused to the demised premises or the Building by such removal and if required by the Landlord shall also pay to the Landlord the cost of realtering any alterations to the demised premises made prior to or during the term of this Lease at the request of the Tenant so that the demised premises may be converted by the Landlord back to their original condition and PROVIDED ALWAYS that the Landlord may cause any such plant, fittings and fixtures and stock-in-trade to be removed and such damage to be made good and any such alterations to be so re-altered and may recover the cost thereof from the Tenant as a liquidated debt payable on demand PROVIDED FURTHER If the Tenant fails to remove its fittings, fixtures and stock-in-trade as directed by the Landlord on or prior to the expiration or sooner determination of this Lease, the Landlord without relieving the Tenant for its obligations under this clause shall be at liberty to sell such property in the name of the Tenant and the Tenant hereby appoints the Landlord, the Tenant's attorney for such purpose
22.04. Any of the Tenant's fittings, fixtures and stock-in-trade not removed by the Tenant pursuant to Clause 22.02 and Clause 22,03 shall become the property of the Landlord.
Part 26 of the lease contained provisions which required the applicant to provide the respondent with a bank guarantee to secure the applicants obligations under the lease. The consequences of the applicant defaulting and the rights of the respondent are set out in clause 26.02 which provides as follows:
26.02 If the Tenant falls to perform or observe any of its obligations under this Lease the Landlord may without notice to the Tenant make demand on the bank guarantee for such amount necessary (or where the amount Is not known for the amount reasonably estimated by the Landlord as necessary) to compensate the Landlord for any loss, damage, costs or expenses incurred or likely to be incurred as a result of the non-performance or non-observance by the Tenant of its obligations under the Lease. Any payment pursuant to the bank guarantee will not waive the non-performance or non-observance by the Tenant or prejudice any other right of the Landlord arising from such non observance or non-performance.
[6]
Relevant provisions of the Royal Bakery lease
As previously mentioned, the Royal Bakery lease contains an agreement whereby the respondent sold certain items to Royal Bakery that were in the premises when the lease to the applicant's terminated. These are the relevant provisions of the Royal Bakery lease:
PART 32 - SALE OF CERTAIN LANDLORD'S FIXTURES AND FITTINGS
32.01 The Landlord and the Tenant acknowledge and agree as follows:-
(a) the Landlord is currently in dispute with the previous tenant in relation to the ownership and title to the items listed in Category 1 of Appendix "D" of the Sale Property;
(b) the Tenant will store the Sale Property listed in Category 1 of Appendix "D" on the demised premises at no cost to the Landlord in a safe and secure place until the Landlord is able to confirm ownership of those items in Category 1 of Appendix "D";
(c) in the event that at any time during the term of the Lease, the Landlord notifies the Tenant in writing that it does not have title or ownership of the Sale Property listed in Category 1 of Appendix "D"; then the Tenant will do all things and execute all documents reasonably required by the Landlord to surrender and remove those items of the Sale Property listed in Category 1 of Appendix "D" as the Landlord directs including allowing the previous tenant's representatives and contractor removalists to attend the Premises during a reasonable time for the Tenant's use of the demises premises;
(d) if the Landlord notifies the Tenant in accordance with clause 31.01(c) that it does not have ownership or title in the Sale Property in Category 1 of Appendix "D"; then after removal of those items the Landlord shall reimburse the Tenant the amount of fifteen thousand dollars ($15,000.00) plus GST in compensation of the Landlord being unable to convey ownership of those items and the Tenant shall have no other claim or right of compensation from the Landlord in respect of those items in Category 1 of Appendix "D".
32.02 Subject to clause 32.01 above, the Landlord and the Tenant acknowledge and agree:-
(a) that on the earlier of the date of this Lease or the Commencing Date the Landlord transfers all its right, title and interest to the Landlord's fixtures, fittings, plant and equipment as set out in Categories 1 and 2 of Appendix 'D" of this Lease ("Sale Property");
(b) that on the earlier of the date of this Lease or the Commencing Date the Tenant will pay to the Landlord an amount of forty thousand dollars ($40,000.00) plus GST on or prior to the date of this Lease for the purchase of the Landlord's Sale Property pursuant to clause 32.02(a);
(c) the Tenant has satisfied itself in relation to the condition of the Sale Property and the Landlord makes no warranty as to fitness, operation and condition or its suitability for the Tenant's use and the Tenant has no claims or right of compensation against the Landlord in relation to the condition of the Sale Property;
(d) the Tenant must immediately repair, maintain and upkeep the Sale Property including redress of normal wear and tear and any capital or structural costs and the Landlord has no responsibility in relation to any maintenance, repair or other obligations in relation to the Sale Property;
Appendix D of the Royal Bakery lease lists the following items of equipment:
Category 1
1. Fomo LXTYPICET & stand aka Lainox electric oven SN: NRLA 020118818
2. Friggitrice Giorik FP 18S (no serial number given)
3. Thermaster 4 door Fridge S/S SN: 12B4S15070IBOSUF
4. Thermaster 4 door Freezer S/S SN: 409502304602200201
5. Grand 3 Door Fridge aka Grand 3 door under bench fridge Baker's Buddy SN: 151207007
6. Anvil double fryer aka Anvil Axis Double Deep Fryer SN: 11001543315FFA
7. Grange Slicer SN 9022047
8. Grange Planetary Mixer SN: 7038B20F/10
9. Stainless Steel Bench 1.8 metres
10. Stainless Steel Bench 1.8 metres
11. Stainless Steel Bench 1.2 metres
12. Belleview Cold Display SN SG 180FA - 2XB 3289317
13. Jinge Food Bins (79L & 98L)
14. Eswood Glasswasher SN 2853856
15. Induction Cooktop SN CZC-P5K06015
16. Pastry Trolley x 3
Category 2
1. Floor and wall tiles, ceilings, cabinetry, counters, fixed benches, tables, chairs, furniture, chalkboards, light fittings, Hand basins, sink tap, fixed shelving
2. Crockery - glasses, cups, saucers, mugs, plates, bowls, jars, cookie jars
3. Blender, microwave, bar fridge
4. Utensils, takeaway food containers, utensils
5. Cleaning & paper products
6. Air-conditioner
7. Metal shelving
8. Soup warmer
9. Cook books
10. All miscellaneous equipment
[7]
Hearing
The hearing took place over two days. The applicant was represented by Mr Hancock, a former solicitor, who appeared as a lay advocate. Ms Hancock, who was in attendance throughout the hearing, confirmed that Mr Hancock was authorised to represent the applicant at the hearing. Mr Fernon of counsel appeared for the respondent.
The applicant relied upon the following statutory declarations and statement:
1. statutory declaration of Ms Hancock dated 2 May 2018 ("Ms Hancock's first statutory declaration");
2. statutory declaration of Mr Alexandre dated 1 May 2018;
3. statutory declaration of Ms Grace Hancock dated 2 May 2018;
4. statutory declaration of Ms Hancock dated 29 June 2018;
5. statutory declaration of Ms Grace Hancock dated 29 June 2018 ("Ms Hancock's second statutory declaration"); and
6. statement of Mr Alexandre dated 3 July 2018.
At the commencement of second day of the hearing, Mr Hancock sought leave to file his statutory declaration dated 30 April 2019. It was emailed to the Tribunal on that date and a copy sent to the respondent's solicitors. Leave to file the statutory declaration was opposed by Mr Fernon. Mr Hancock's email relevantly reads as follows:
I refer to the hearing of this matter on 8 April 2019 and confirm that the matter is part heard and due to be finalised on 3 May 2019.
Please find enclosed statement of John Leslie Hancock dated 30 April 2019, which will be tendered by the Applicant at the hearing on 3 May 2019 to specifically deal with fresh allegations put by John Sophios and Christopher Sophios on behalf of the respondent that the Applicant was given notice (via John Hancock) to collect the goods and chattels of the applicant from the premises (address inserted). The fresh allegations were put after the Applicant had already finished its evidence in these proceedings.
I rejected Mr Hancock's application for leave to file his statutory declaration on the basis that the evidence had closed and the parties' representatives were in the middle of final submissions. Furthermore, what was said by Mr Sophios and Mr Christopher Sophios came out of their cross examination. It was always open to Mr Hancock to seek leave to give evidence then and there to respond to the new matters raised. He did not do so.
The respondent relied upon the following statements and affidavit:
1. statement of Maria Sophios dated 4 June 2018;
2. statement of John Sophios dated 4 June 2018; and
3. affidavit of Christopher Nickos Sophios dated 19 November 2018
Maria Sophios ("Ms Sophios") and her husband John Sophios ("Mr Sophios") manage the premises. Mr Christopher Sophios ("Mr Christopher Sophios") is one of the respondent's two directors.
All of the parties' witnesses were cross-examined under oath except for Ms Grace Hancock, who was not available. At the conclusion of the hearing Mr Hancock and Mr Fernon made oral submissions. Written submissions dated 8 April 2019 bearing Ms Hancock's name as director of the applicant were also relied upon by the applicant.
[8]
The applicant's evidence
Ms Hancock was the primary witness for the applicant. Since Ms Grace Hancock was not available for cross examination I have not taken her evidence into account. In any event I would not have considered her evidence to be relevant to the issues for determination in these proceedings as it related to her attempts to secure the release of personal items said to be in the premises.
I also do not consider Mr Alexandre's evidence to be relevant to the determination of the applicant's claim as articulated by Mr Hancock. Mr Alexandre's statutory declaration and statement were both made in support of the applicant's application for interim relief. That evidence concerned his efforts to secure the return of personal items and a $50,000 loan he said was made to the applicant to purchase equipment for the business conducted from the premises. Mr Alexandre was cross examined by Mr Fernon but his evidence again concerned the attempts made to retrieve personal items and the loan he is said to have made to the applicant. Mr Alexandre was not a party to the proceedings and in my view any residual dispute that may have existed over the return of his personal items has no bearing on the determination of the applicant's claim.
Mr Alexandre also gave evidence that his loan to the applicant was secured by the registration of a security interest on the PPSR. Even if that is the correct, I do not consider it relevant to the determination of the applicant's claim and neither party has submitted that his or Ms Cardoza's security interest acts as a bar to the Tribunal granting the relief sought by the applicant.
In summary, Ms Hancock's evidence, in so far as it is relevant to the applicant's claim, was as follows:
1. As part of the acquisition of the business conducted from the premises, the applicant purchased the equipment listed in the Silverchef quote from Italian Company by paying out the amount owed Silverchef.
2. The applicant also purchased in around May 2017 from a Filippo Mr Di Napoli of Rome, Italy a LXTYPICET 101 convection oven ("convection oven") and a Giorik model FP 185 fryer ("fryer") for $5000. Annexed to Ms Hancock's second statutory declaration is an invoice dated 28 April 2017 issued to the applicant by Mr Di Napoli for $5000 ("Di Napoli invoice").
3. The applicant borrowed $50,000 from each of Ms Cardoza and Mr Alexandre. These borrowings are recorded in written agreements. annexed to Ms Hancock's first statutory declaration. The agreement with Ms Cardoza bears the date 11 April 2017 and the agreement with Mr Alexandre is the date 15 May 2017. Both agreements are expressed to grant security interests over the following PPSR items:
Forno LXTYPICET 101 & Accessories (Convection Oven)
Friggitrice Giorik FP185 (Fryer)
Thermaster 4 door fridge s/s sn321401506014
Thermaster 4 door freezer s/s sn332271512010
Grand 3 door fridge sn151207007
Anvil double fryer sn66958112
Grange slicer sn9022-047
s/s bench 1.8m
s/s bench 1.8m
Belleview cold disp sn3289317
Food Bin (79L & 98L)
Eswood glass washer sn2853856
Induction cook snCZC-P5K06015
s/s bench 1.2mx.7m
20L planetary mixer sn7038B20F/07
Pastry trolley x 3
Misc equip
1. After the respondent re-entered the premises on 6 March 2018, Ms Hancock said that she endeavoured to come to an arrangement with the respondent that would allow the applicant back in, including under licence, but this was rejected.
2. Following termination of the lease Ms Hancock personally observed the new tenant using equipment purchased by the applicant which she says was subject to Ms Cordoza's and Mr Alexandre's registered security interest. Ms Hancock said she also observed the new tenant using the applicant's tables and chairs, benches, refrigerators, storage, shelving and other parts of the applicant's fit out including cupboards and a banquette as well as packaging, cups, cutlery, serving platters and display platters. Ms Hancock said she purchased items from the new tenant and observed that it was using packaging that had been purchased by the applicant.
3. Ms Hancock annexed to her first statutory declaration the respondent's lockout notice and a series of emails that passed between herself and Mr Sophios which are relevant and therefore set out below in full:
1. Lockout notice 6 March 2018
Lock out notice
6 March 2018
Baptiste & Wilson Pty Limited
The locks to these premises have been changed.
The landlord has exercised its rights in accordance with the lease and has locked you out due to continual breach of lease for non-payment of rent.
You are not authorised to enter the property until all arrears of rent & associated expenses have been fully paid up.
Should you enter the premises without permission, you will be trespassing.
Contact John Sophios on [number given] to arrange payment of all amounts outstanding. Permission to re-enter will be granted when all outstanding amounts have been settled in full.
The landlord
1. Email J Sophios to H Hancock 6 March 2018
Dear Heather,
Further to my notice to you in our numerous conversations and communications over the last five months regarding an impending lock out due to failure to pay the rent in accordance with the lease, please be advised that the lock out occurred this afternoon.
This is as a result of your continual failure to pay the rent in accordance with the lease and your consistent failure to honour your numerous commitments to us, to rectify the rental arrears since the second month of your occupation at the premises.
Please find attached confirmation of lock out that occurred this afternoon.
You are not permitted to enter the premises until the rental arrears are settled in full.
Yours sincerely,
John Sophios
1. Email H Hancock to J Sophios 8 March 2018
Dear John
Thank you for speaking with John today about the shop at [address given] as he pointed out, I believe it would be beneficial to both of us if we were allowed to resume trading under license tomorrow morning at 6am for the following reasons:
1. We have no intention of running out or not paying rent as evidenced by our increased number of payments in the last five weeks due to increased revenue. We have paid over $14,000 in the last five weeks. I am happy to return the keys to you nightly or go through the financials with you if that would help you to see where the business is going.
2. We have just started to make some money this quarter but we need every trading day of the week, particularly Thur to Sun as those are our highest volume days. Losing Wed and Thur this week means we are already behind the mark.
3. We have a profitable catering party booked on Saturday which was generating the other 1500 I promised to you this week in addition to the 3500 I paid on Sunday, and that same client has booked a 200 person event in May. If we cancel the Sat event at this late date she will likely cancel May as well.
4. If we stay closed through this weekend and lose our staff and revenue we will not be making any rental payments at all whereas if we are trading we can continue to pay increasing amounts as we have done for the last five weeks.
5. It took six weeks to find our head barista and he supports his extended family so will have to work elsewhere if we don't reopen by tomorrow. Our other barista is off this weekend for holidays so we will be unable to do coffee without staff. If we lose our current staff it could take weeks to find another senior guy with enough experience to do our coffee to the level that our clients expect.
6. Thursday and Friday are our biggest nights for ubereats take away sates. We already lost our Thur night $500 of average online sales by being closed for dinner tonight.
7. The online sales just started three weeks ago and are increasing in volume and popularity weekly and we do not want to lose that momentum. We have designed a second online store with ubereats for the cooked and frozen meals we have as well which will increase revenue even further.
8. The council sent us the signed leases for sidewalk tables on Monday which will increase the cafe revenue as at the moment we often turn people away on the weekends because we lack seating. We are adding four tables. However I need ongoing revenue to pay that lease which has a cost of over $1700 for the setup and first quarter. I have delayed starting that as we did not have the funds but the ubereats revenue is increasing so I believe it is important to get the seats done soon. I have applied for a small business loan to cover this and the rental arrears and if it is approved then I will send you the funds earlier.
9. If you do want to find other tenants (which I am hoping you won't have to as we continue to grow) there could be a better chance of leasing it while occupied and trading than while vacant.
With the payment of $1500 tomorrow we will be almost up to date with the arrears for Jan. With the increasing online sales we should be able to continue to pay more than the weekly rent in an amount between 3500 and 5000 per week depending on catering events which will bring the arrears back in line within a couple of months. I am mindful that the revenue will drop again during the school holidays for Easter but I already have some Easter catering booked which will help to defray that. I know that we have been unable to meet the payments as promised up to this point. I was overly optimistic about the cafe and coffee revenue in the beginning as no one in the area is doing over 50 kg a week now, not even Sonoma. There are just too many cafes for coffee…9 choices in three blocks. That is why we adjusted the business model for the online and Mexican and have been doing 80 hours a week to get this on track. If we lose anymore trading days I am not sure we can recover.. .we are working so hard to make this succeed and are just seeing light at the end of the tunnel now. If it totally fails as I told you I will be unable to pay out the lease so please consider letting us continue to work and trade so that we can catch everything up. As I said before, if I had any funds at all available then I would back myself.
Thank you for your consideration and if you could consider letting us access the shop tomorrow at 5.45 am to open I would be very grateful.
Heather Hancock
1. Email J Sophios to H Hancock 8 March 2018
Dear Heather,
To be clear, you are NOT permitted to enter the property under any circumstances.
I have discussed your latest with the family and advise there is no change to our position as outlined lockout notice.
John Sophios
1. Email H Hancock to J Sophios 9 March 2018
Ok John..thank you for your response. There is no way that I can get the funds to pay the arrears without trading. I will cancel the weekend party tomorrow and refund her money. I will let the staff go so they can find other positions. If you could let the chef know when he can collect his knives that would be appreciated.
As John told you in tonight's conversation, I have no other assets that haven't been sold to fund this...no house, no car, no savings and no investments so there is nothing left to liquidate to pay out the arrears or the lease. I have a six figure tax debt and a debt to my children's school. I put everything I had into this business. I did apply for another small loan to try to sort this but if I lose the staff by not trading this weekend there is no point to taking it out and I will not borrow anything else if I can't trade.
You can let me know if you want any assistance clearing out the refrigerators so they don't get ruined as they are fairly full of food at the moment and I can arrange for them and the other equipment to be returned to the leaseholder. I wish you good luck in trying to lease the premises again soon. I wish that things had turned out differently.
I find it ironic that as soon as I was able to start making larger payments after 8 months of hard work you guys decided to pull the plug.
I'm not trying to manipulate you or playing some sort of game where I'm going to magically come up with the funds at the last minute.
I told you at the beginning that I had $100,000 to get this business started and that is now gone. We built the trade from nothing to currently about $8-$10k per week gross and that continues to grow. We would definitely have been able to make it work with a bit more time.
Now you will be looking at an empty shop with a fourth failed business associated with it (whether or not that's true, that is the perception in this area). I think it's going to be difficult to rent because it has a bad site reputation associated with failure and because it has no coolroom. From a purely commercial point of view you are making the wrong decision. You could continue to receive rent payments under license giving me no rights as a lessee and look for new tenants and instead you choose to effectively destroy any chance or receiving rent until you lease to someone new and you are ending my business at the same time making it impossible for you to recover anything in the future.
Please contact me if you want me to remove any of my personal items or to help clear it out. I will post a sign on the door in the morning letting our customers know as I have been holding off returning calls and telling people until I was sure you were definitely closing us down.
Regards,
Heather
1. Email H Hancock to J Sophios 19 March 2018
Dear John...there are a number of items in the shop that belong to the designer who did the original fit out that were only on loan to us. I have attached the list here...there is another copy of this in the shop somewhere as well. Please advise how you want to arrange to remove them...several of them are sentimental to her as her father in law made some of the sculptures and other decorations. The majority of the decoration stuff on the front shelves of the shop belongs to her. Many thanks,
1. Email H Hancock to J Sophios 20 March 2018
Hi John...l assume given your previous advice that prior to the lockout you had been speaking with other parties about leasing the premises that you are proceeding with re-leasing the shop to someone else. As I stated before I am disappointed in your actions after your previous comments that I was a good operator and that the coffee was excellent and after we had been steadily increasing our payments and catching up the arrears.
Allpress needs access to disconnect and remove the coffee machine and grinder. I will get them to ring you and arrange a time.
Further to my earlier advice the electricity is on a weekly payment plan. I cannot make the payments as you have stopped us trading so I will advise you if they give me a disconnect notice. I missed the payment last Friday and they usually go about 5 days before sending the disconnect notice. All the fridge and freezer contents will make a huge mess if that happens and it will cause damage to the refrigerators and the coffee machine.
As I advised last week my chef has obtained another position and needs access to his tools and personal items he brought in from his home for work. I gave him your contact details to arrange the pickup.
Please let me know what you want me to do about cleaning out the rest. The decorator wants her things back that were loaned plus there are items she provided on her invoice that haven't been paid for so title hasn't passed on those. I will see if she wants those back as well as the loaned items. I sent you a list earlier of the loaned items that were not ours to keep. Her name is Jan Marie and I will have her call you directly.
As I advised you in my earlier email, the other equipment at the shop is encumbered so please let me know about how you want to handle removing it.
Thank you.
Heather
[9]
Respondent's evidence in chief
The following is a summary of the respondent's evidence in chief in so far as it is relevant to the applicant's claim:
1. Mr Sophios' statutory declaration focused on the applicant allegations of misrepresentation, which he denied, and the circumstances surrounding the collection of personal items in the premises. In cross examination, he said that he was involved in preparing a list of equipment that was in the premises, he did not know who owns the equipment and all the perishables were disposed of in bins. Mr Sophios said Ms Hancock offered to help clean up the perishable items but he did not need her help. He said there were a number of conferences with Mr Hancock after the lockout in which he said to him "either pay the rent or come and take your stuff and go".
2. In her statement, Ms Sophios described the events leading up to the parties entering into a deed of assignment of the lease to the applicant. She also described the applicant's rental defaults from July 2017 through to 6 March 2018 and how, on 6 March 2018, she entered the premises and locked out the applicant as it was in arrears of rent and other amounts totalling $20,465.21. There is a report annexed to Ms Sophie's statement showing how that amount is made up. She also says that on 1 April 2018 a further payment of $9914.96, including GST, became due.
3. Ms Sophios annexes to her statement a list of the equipment in the premises at the time the respondent re-entered ("Sophios list"). The items listed under the heading "equipment" are almost identical to the category 1 equipment. The only exception is that the Sophios list includes a Zanussi gas oven. The Sophios list also describes under the heading "other items" additional stock in trade items found in the premises that generally corresponds with the category 2 items.
4. Ms Sophios said that after the respondent re-entered the premises she instructed a real estate agent to advertise for a new tenant and a prospective tenant was found around 20 May 2018.
5. Mr Christopher Sophios' affidavit primarily deals with a dispute that arose over the respondent's compliance with a summons to produce. He annexed a copy of the Royal Bakery lease to his affidavit. In cross examination he said that he asked Mr Hancock to remove the applicant's property from the premises.
6. Mr Fernon tendered a without prejudice letter dated 23 May 2018 from the respondent's solicitors to the applicant's director which is relevant to the respondent's defence to the applicant's claim. That letter reads as follows:
Dear Madam
As you are aware, we act for the Respondent Sophios Pty Ltd.
We are instructed to make the following offer to settle all matters between the parties on a Without Prejudice Save As To Costs basis.
Without admissions and in the interests of resolving the dispute on a commercial basis our client offers:
1. Each of the personal items that are the subject of your client's current application, may be collected from the former leased premises at one of the following dates and time:
DATE TIME
1 Tuesday, 29 May 2018 12.00 noon to 3.00pm
2 Wednesday, 30 May 2018 12.00 noon to 3.00pm
3 Thursday, 31 May 2018 12.00 noon to 3.00pm
2.Those items claimed by your client as belonging to It may be claimed in person by Heather Hancock.
3. Those Items claimed to be owned by third parties, namely Grace Garner Hancock, Jean Baptiste Alexandre, Caroline Cardozo or Jan Marie Jacobson may be collected by them at the stated time and place. Alternatively, if any or all of those persons provide us with a signed Letter of Authority in favour of Heather Hancock to collect those goods on their behalf, she may collect them on such person's behalf at the stated time and place.
4. The NCAT proceedings be entirely dismissed. A Deed of Release in the form attached is to be executed by each person named in point 2 and point 3 above and the executed Deed of Release is to be handed to our client upon collection of the items.
5. Each party bear their own costs of the proceedings.
Mr John Hancock will not be permitted to access the former leased premises, whether to collect any Items claimed or at all.
If your client elects to accept this offer, please advise upon acceptance, the date and time which your client elects to collect the goods. Representatives from our client will then be in attendance.
This offer remains open for acceptance up to and until 5.00pm on Monday, 28 May 2018.
This offer is made in accordance with the principles espoused in Calderbank v Calderbank [1975] 3AII ER 333. Should the above offer not be accepted, the Respondent may rely upon this correspondence in relation to costs.
Yours faithfully
Wilshire Webb Staunton Beattie
1. Attached to the letter from Wilshire Webb Staunton Beattie are five separate deeds of release prepared by the respondent's solicitors being one each for the applicant, Ms Grace Hancock, Mr Alexandre, Ms Cardoza and a Ms Jacobson. Some of Ms Jacobson's personal possessions were said to be in the premises. Each deed contains a provision whereby the respondent, its directors, employees and agents were released from all claims the releasee has or may in the future have against them. "Claims" was defined in the deed to include all actions and liability relating to the lease.
[10]
The applicant's evidence in reply
Ms Hancock's second statutory declaration is primarily responsive to the statements of Mr Sophios and Ms Sophios and addresses matters raised in those statements that are unrelated to the applicant's claim. Relevantly, Ms Hancock said the Sophios list was incomplete and that a list prepared by Mr Alexandre and annexed to her second statutory declaration was more complete inventory of the contents of the premises ("the Alexandre list").
The Alexandre list is divided into a number of sections. There is a section that describes items that are in the category 1 equipment list by name, condition, vendor, years of service, what is referred to as the "initial value" and the date of payment. Included in the list is a Zanussi gas oven and a mixer. The total initial value of the list of items is stated to be $37,270.70. The vendor identified for the majority of the items listed is Silverchef.
Over four pages the Alexandria list also describes various items of inventory including crockery, cutlery, cake tins, bowls, cooking utensils, telephone and telephone and EFTPOS equipment, and a number of cookbooks. The total value attributed to the items is $12,685.79. On a separate page, headed "packaging list", is a list of packaging items but no value is attributed to them. There is also a separate list of cleaning items. The value attributed to those items is $614.70. The food items list, which runs to five pages, includes both perishable and non-perishable food. The attributed total value is $3,789.36.
Ms Hancock said that the estimated values of items in the premises that are in the Alexandre list were prepared by comparing them with the same or similar items then listed for sale on Gumtree or other second-hand sites. It is not clear which items she is referring to. There are no documents from any internet sites annexed to the statutory declaration.
Also annexed to Ms Hancock's second statutory declaration is an invoice from Patlin Building Services in respect of the supply and installation of seating, cabinets and shelving for the café fit out plus some extra items for contract variation. The total amount of the invoice is $14,500 inclusive of GST.
[11]
Issues
There is no dispute that on 6 March 2018 the applicant was in default under the lease for non-payment of rent and, by virtue of clause 20.06 (a) of the lease, the respondent was entitled to re-enter the premises and, as a consequence, terminate the lease.
Having regard to the nature of the applicant's claim and the parties' contentions, in my view the issues to be determined in this matter are as follows:
1. Did the applicant's fixtures, fittings and stock-in-trade that were in the premises when the respondent re-entered on 6 March 2018 become the property of the respondent pursuant to clause 22.04 of the lease?
2. If the answer to (1) is "no", does the applicant own any of the category 1 equipment or category 2 items?
3. If the answer to (2) is "yes", what relief is the applicant entitled to?
4. Is the applicant entitled to be paid $27,500 for the bank guarantee that has now been presented by and the proceeds paid out to the applicant?
[12]
Applicant's submissions
Mr Hancock submitted that the applicant was entitled the return of all of the category 1 equipment and all category 2 items except for the floor and wall tiles (item (1)), the blender, microwave and bar fridge (item 3)), the air-conditioner (item (6)), the cook books (item (9)) and the miscellaneous equipment (item (10)) which it disclaims.
Hancock submitted that the evidence of ownership of the category 1 equipment is the contract for sale of business between Italian Company and the applicant's bank statement showing a payment of approximately $13,050 to Silverchef. He also submits that evidence of ownership of the convection oven and fryer purchased from Mr DiNapoli by the applicant is an undated deed of assignment between Mr Filippo Di Napoli as assignor and Ms Hancock trading as The Hands That Feed Us. By that deed, Mr Di Napoli, as owner, assigned to Ms Hancock a Forno LXTYPICET101 convection oven and accessories and a Friggitrice Giorik FP18S fryer for the consideration of the payment of $5000 the receipt of which was acknowledged by Mr DiNapoli ("Di Napoli deed").
Mr Hancock submitted that contrary to general principles, the applicant was denied access to the premises in order to recover items belonging to it. He cited in support of this submission Martin v King (1996) 7 BPR 14,681 and Palermo Seafoods Pty Ltd V Lunapas Pty (No 2) [2014] NSWSC 1323
Mr Hancock referred to the following passage in McLelland CJ in Equity's decision in Martin v King:
[14,682] The principles of law which govern the rights of the parties are, of course, affected by any relevant provision in the lease, but subject to any such provision to the contrary, the relevant rule may be broadly stated as follows: where a tenancy is terminated without sufficient warning to enable the tenant to remove his goods from the premises prior to termination, generally speaking the tenant has a right of entry on the premises for the purpose of removing his goods, for a reasonable time….
[14,683] Furthermore, a landlord does not at common law have a possessory lien over the goods of the tenant in order to secure arrears of rent or any other obligation of the tenant, including such an obligation as that arising under cl 12 of the lease in the present case.
He also referred to the following passage in the decision of Young AJA in Palermo Seafoods Pty Ltd V Lunapas Pty (No 2):
[41] Another way of approaching the matter is to say that by virtue of the law declared by the Court of Appeal in Fitzgerald V Kellion Estates Pty Limited (1977) 2 BPR 9,181 the principle is that if a person's goods come on to another person's land lawfully, if a demand is made for the return of the goods, the landowner must not prevent the owner of the goods from reclaiming them.
Mr Hancock also submitted that clauses 22.04 of the lease does not permit the respondent to forfeit the items that were in the premises when the lease was terminated and are now being used by Royal Bakery in its business conducted from the premises. He submitted that before there can be a forfeiture, it is necessary for either clauses 22.02 or 22.03 to be engaged. Clause 22.02, he says, does not apply here as it assumes the parties know when the lease term will end because it permits a tenant to remove items belonging to it during the last 14 days of the term. He submits that clause 22.03 does not apply either. That is because the respondent was required by that clause to give the applicant a direction after the expiration or sooner determination of the lease to immediately remove its fixtures, fittings and stock in trade from the premises, and only where such items are not removed by the applicant pursuant to clause 22.03 do they become the property of the respondent. He says no direction was given by the respondent as required by that clause and accordingly clause 22.04 does not apply, and therefore, property or title in the fixtures, fittings and stock in trade did not pass to the respondent.
Mr Hancock also submitted that the applicant relies upon section 177A of the Conveyancing Act. He did not explain how the applicant relied upon this section but I infer that the applicant contends that since that section abolished the remedy of distress for rent, the respondent was not permitted, following re-entry, to hold and then sell the applicant's property to recover outstanding rent.
Mr Hancock also submitted that it is arguable that the applicant has rights of subrogation in relation to the payment that was made to Silverchef for the equipment listed in the Silverchef quote. He did not elaborate on this submission.
In relation to the applicant's alternative claim for damages, Mr Hancock submitted that the applicant relies upon the sale of the category 1 equipment and category 2 items to Royal Bakery. He says the sale has put a value on those items of $40,000, and that is the amount of damages that should be awarded to the applicant.
With regard to the amount claimed for the food items said to have been thrown away ($3789.36), the cost of cleaning products ($614.70), the additional items of equipment ($12,685.79) plus the convection oven and fryer ($5000), the applicant relies on the Alexandre list annexed to Ms Hancock's second statutory declaration as evidence of the quantification of those claims.
Mr Hancock also submitted that none of the items sold by the respondent to Royal Bakery were stored and the value has been diminished.
[13]
Respondent's submissions
In his submissions, Mr Fernon conceded that the Grange mixer, the 1.2 m bench, the food bins, the Eswood glass washer and the induction cooktop, all part of the category 1 equipment list, belong to the applicant.
Mr Fernon did not disagree with Mr Hancock's submission that for clause 22.04 to apply resulting in the forfeiture of the applicant's property, it is necessary for the respondent to direct the applicant to remove its property. He submits that the direction was given to the applicant. In that regard he relies on the evidence given by Mr Sophios and Mr Christopher Sophios in cross examination who each said that after the respondent re-entered they verbally informed Mr Hancock that the applicant can remove its items from the premises. Mr Fernon acknowledged that this evidence only arose in cross examination. He says however that Mr Hancock could have given evidence disputing what was said by Mr Sophios and Ms Sophios, he did not do so and therefore a Jones v Dunkel inference should be drawn that Mr Hancock's uncalled evidence would not have assisted the applicant. Mr Fernon also submitted that the applicant relies on the without prejudice 23 May 2018 letter sent by the respondent's solicitors to the applicant to support the submission that a direction to remove the applicant's items from the premises was in fact given.
Mr Fernon also submitted that the applicant is only seeking the return of items. He says that if it is found that the applicant has an entitlement to some or all them, the only order is that they be returned or the applicant be given access to them. He submitted that the onus is on the applicant to establish ownership and the evidence of ownership is "very slim". He pointed to the fact that the serial numbers for the Thermaster fridge and freezer and the Anvil fryer in the category 1 equipment list and the Sophios list are not the same serial numbers for the corresponding items in the PPSR list and in the Silverchef quote.
Mr Fernon also submitted that category 2 items had been made available for collection and no claim has been made for them. In any event he says it has not been established that category 2 items belong to the applicant. Only category 1 equipment with serial numbers common to both the category 1 equipment list annexed to the Royal Bakery lease and Ms Sophios list may, he said, belong to the applicant.
As for the claim made in relation to the food left in the premises, Mr Fernon says that Ms Hancock's 9 March 2018 email, in which she offered to assist in cleaning out the refrigerators, was an acceptance that food needs to be thrown out, which is what happened.
Mr Fernon also submitted that any rights of subrogation are irrelevant as there is no explanation of what those rights are or how they might have arisen. In relation to Mr Hancock's submission regarding section 177A of the Conveyancing Act, he says it does not apply as the respondents are not seeking distress rent. There is no claim for unpaid rent and the respondent is not seeking to claim the goods as security.
As for the applicant's damages claim, Mr Fernon says the best evidence of the value of equipment is what is in the contract for sale of business which attributes a figure of $15,000 to the equipment and it is that figure which coincides with the $15,000 payment referred to in the Royal Bakery lease for the category 1 equipment. So far as the amount of $40,000 for the equipment in both categories is concerned, Mr Fernon says that they include floor and wall tiles, air-conditioning and miscellanies equipment with no attempt to distinguish how these items are to be allocated to between the two categories.
[14]
Did the applicant's fixtures, fittings and stock-in-trade that were in the premises when the respondent re-entered on 6 March 2018 become the property of the respondent pursuant to clause 22.04 of the lease?
The first issue to be determined is whether the applicant's fixtures, fittings and stock-in-trade became the property of the respondent pursuant to clause 22.04 of the lease following termination.
The applicant says that clause 22.04 of the lease was not triggered because no direction was given from the respondent to the applicant to remove fittings, fixtures and stock-in-trade from the premises and so they remain the property of the applicant as required by clause 22.03. It is not disputed by the respondent that for the clause to be triggered, it is necessary for it to have directed the applicant to remove those items "on or prior to the expiration or sooner determination of the lease", to use the words that appear in that clause.
The parties disagree as to whether the respondent gave that direction to the applicant. The respondent says it did and points to the evidence given by Mr Sophios and Mr Christopher Sophios at the hearing and to the without prejudice letter dated 23 May 2018 that was sent by its solicitors to the applicant. This is disputed by the applicant.
Weighing up all the evidence, the conclusion I have come to is that the respondent did not direct the applicant following the termination of the lease to remove any of its fittings, fixtures and stock in trade from the premises and, therefore, title or property in them did not pass to the respondent pursuant to clause 22.04 of the lease. My reasons for coming to that conclusion are as follows:
1. I do not accept the evidence of Mr Sophios and Mr Christopher Sophios on this particular issue. When one looks as the lockout notice and the contemporaneous correspondence, and by that I mean the email correspondence between Ms Hancock and Mr Sophios from 6 to19 March 2018 set out in full earlier in these reasons, it is obvious, in my view, that the respondent was not prepared to allow the applicant's representatives back into the premises unless the rent was paid. That was made abundantly clear by the respondent in a series of messages to the applicant starting with the lockout notice which included the statement: "You are not authorised to enter the property until all arrears of rent & associated expenses have been fully paid up". The same message was bluntly delivered by Mr Sophios in the two emails he sent to Ms Hancock on 6 and 8 March 2018.
2. It was not until its solicitors sent the without prejudice letter dated 23 May 2018 did the respondent make a conditional offer (an offer that was subject to the signing of a deed of release) to the applicant and others to collect their items from the premises. To suggest, as the respondent does, that prior to the letter being sent it had directed the applicant to collect the items that were in the premises simply does not ring true in the face of that letter or the emails from Mr Sophios of 6 and 8 March 2019 to which I referred. Indeed there is not even the slightest hint in the correspondence that the applicant had been directed by the respondent to enter the premises and remove its property.
3. The letter of 23 May 2018 was not, by any stretch of the imagination, a direction to the applicant to remove its property from the premises. Rather it was an offer to permit the removal of the property on condition that the applicant give up all rights that it had under the lease against the respondent. Nowhere does there appear in clause 22.03 of the lease, either expressly or even by implication, an entitlement on the part of the respondent to insist that the applicant give up its rights before being allowed back into the premises to collect items that belonged to it. As the applicant correctly pointed out, the general law as explained in Martin v King and Palermo Seafoods Pty Ltd V Lunapas Pty (No 2), entitled the applicant, subject to any provision to the contrary in the lease, to be allowed back into the premises in order to remove its property. There is no provision to the contrary in the lease.
4. Mr Hancock did not give any evidence in response to Mr Sophios' and Christopher Sophios' evidence that they asked him to remove the applicant's property from the premises. Mr Fernon submitted that a Jones v Dunkel inference should be drawn in relation to Mr Hancock's uncalled evidence. I reject the submission. The contemporaneous email correspondence between Ms Hancock and Mr Sophios and the letter from the respondent's solicitors to which I have referred, were sufficient to enable me to determine the issue of whether a direction was made by the respondent pursuant to clause 22.03 of the lease.
Accordingly, I find that the respondent did not give the applicant a direction to remove its fittings, fixtures and stock in trade from the premises with the result that clause 22.04 of the lease has not been triggered and the fittings, fixtures and stock in trade in the premises when the lease was terminated did not become the property of the respondent.
[15]
Does the applicant own any of the category 1 equipment or category 2 items?
The next issue to be determined is whether the applicant owns any of the category 1 equipment or category 2 items.
Mr Fernon conceded that that the Grange mixer (item (viii)), the 1.2 m bench (item (xi)), the Jinge food bins item (xiii), the Eswood glass washer (item((xiv)) and the induction cooktop (item (xv)), which are part of the category 1 equipment, belong to the applicant.
Mr Fernon submitted that evidence of ownership of the other category 1 equipment was "very slim". He pointed to the fact that the serial numbers for three items of equipment, the Thermaster refrigerator, Thermaster freezer and Anvil double fryer, do not correspond to the serial numbers for similarly described items in the PPSR list or Silverchef quote.
The first two items in the category 1 equipment list, numbered (i) and (ii) are the convection oven and fryer which were not part of the Silverchef quote. Ownership of items (iii), (iv) and (vi), being the refrigerator, freezer and Anvil fryer, is disputed by the respondent on the basis that the serial numbers in the category 1 equipment list and Sophios list do not match the serial numbers in the Silverchef quote and PPSR. I will deal with each of those items separately.
As for the remainder of the category 1 equipment, the applicant's unchallenged evidence is that it was purchased from Italian Company, the applicant having paid out Silverchef the monies owing to it for the equipment and the Italian company in turn transferring title to the applicant. That evidence consists of the contract for sale of the business between the Italian Company and the applicant annexed to Ms Hancock's first statutory declaration, and the applicant's Westpac statement annexed to Ms Hancock's second statutory declaration recording a payment to Silverchef 11 May 2017 in the amount of $13,042.15. On the basis of that evidence, I am comfortably satisfied that items (v) and (vii) to (xvi), inclusive, are owned by the applicant.
I turn now to consider the ownership of the Thermaster refrigerator and freezer, and the Anvil double fryer. It is not in dispute that the serial numbers on the three pieces of equipment in the Silverchef quote, Alexandre list and PPSR list do not match the serial numbers for the three corresponding items in the category 1 equipment list and the Sophios list.
The Silverchef quote and the PPSR list each describe the equipment as follows:
Thermaster 4 door fridge s/s sn321401506014
Thermaster 4 door freezer s/s sn332271512010
Anvil double fryer sn66958112
In the Alexandre list, the equipment is described as follows:
SUC1200 Thermaster Fridge SN 321401506014
SUFIOOO Thermaster Freezer SN 332271512010
FFA002 Double Fryer SN 66958112
In the category 1 equipment list and the Sophios list the equipment is described as follows:
Thermaster 4 door Fridge S/S SN: 12B4S15070IBOSUF
Thermaster 4 door Freezer S/S SN: 409502304602200201
Anvil double fryer aka Anvil Axis Double Deep Fryer SN: 11001543315FFA
Mr Fernon submitted that since the serial numbers for the three items recorded in the Sophios list and category 1 equipment list do not match the serial numbers for the corresponding items in the Silverchef quote, the Alexandre list and the PPSR list, the applicant has not established ownership of those items. Mr Hancock submitted that the respondent has not produced any evidence, such as photos, to show that the serial numbers do not match.
The absence of an explanation by either party for the different serials numbers is unhelpful. I am though, on balance, comfortably satisfied that the three items of equipment referred to in the category 1 equipment list are the same as the corresponding items in the Silverchef quote, which was paid out by the applicant and, for the following reasons, the equipment is owned by the applicant:
1. Except for the serial numbers, the descriptions of each piece of equipment in the Silverchef quote, on the PPSR list and in the Alexandre list matches the description of the three corresponding items in the category 1 equipment list and the Sophios list;
2. In the absence of any evidence, such as photos, to corroborate the serial numbers attributed to the items in the Sophios list and category 1 equipment list, I cannot rule out the possibility of an error in the recording of the serial numbers for the purpose of preparing those lists; and
3. It seems highly improbable that in the short period in which the applicant traded from the premises that it would replace three identical items of equipment without making mention of that in its evidence.
Accordingly, I find that the Thermaster 4 door Fridge S/S SN: 12B4S15070IBOSUF, the Thermaster 4 door Freezer S/S SN: 409502304602200201 and the Anvil double fryer aka Anvil Axis Double Deep Fryer SN: 11001543315FFA are owned by the applicant.
The applicant's evidence in relation to ownership of the convection oven and fryer is far from clear-cut. Mr Hancock submitted that the Di Napoli deed is evidence of ownership. The deed was not annexed to either of Ms Hancock's statutory declarations but was included in a bundle of documents found in the two lever arch folders of documents the applicant relied upon the hearing. The front sheet of that bundle is headed "Damages Claim - Baptiste & Wilson PL- Quantification - 3 December 2018". The description of the equipment in the deed reads:
Forno LXTYPICET101 & Accessories (Convection Oven) &
Friggitrice Giorik FP18S (Fryer)
In her second statutory declaration, Ms Hancock said the convection and oven were purchased from Mr Di Napoli the evidence of which is the Di Napoli invoice. The invoice is addressed to the applicant, the purchase price is $5000 and the equipment is described as:
Pastry Oven LXCTYPICET101
Fryer Giorik Model FP185
In the category 1 equipment list the first two items are described as:
Fomo LXTYPICET & stand aka Lainox electric oven SN: NRLA 020118818
Friggitrice Giorik FP 18S (no serial number given)
Mr Hancock did not refer me to nor could I find in any of the applicant's documents evidence of having it having paid Mr Di Napoli for the two pieces of equipment.
While I am comfortably satisfied that each of the three documents are referring to the same two pieces of equipment, I cannot reconcile the Di Napoli deed purporting to assign the equipment to Ms Hancock, and in which Mr Di Napoli acknowledges having been paid $5000 for the equipment, with the Di Napoli invoice dated 28 April 2017 issued to the applicant for the same equipment. As a consequence of this obvious inconsistency between the Di Napoli deed and the Di Napoli invoice, and the absence of any evidence to show that the applicant actually paid for the equipment, I am not comfortably satisfied that the convection oven and fryer are owned by the applicant.
The applicant's evidence of actual ownership of the category 2 items is limited. There is an invoice from Patlin Building Services dated 23 May 2017 for the supply and installation of seating, cabinets and shelving for a café fit out at a cost of $12,000 inclusive of GST and an additional $2,500 inclusive of GST for variations. The invoice was in the applicant's headed "Damages Claim - Baptiste & Wilson PL- Quantification - 3 December 2018" bundle of documents. In the same bundle is a copy of a general ledger showing 3 payments totalling $13181.52 to "Patlin" between May and August 2017. Also in the bundle is a copy of the Alexandre list that was annexed to Ms Hancock's second statutory declaration which she described as "a more complete inventory" of the premises. There are numerous items in the Alexandre list under the heading "Equipment list" (not to be confused with the category 1 equipment list) that match or come within the broad description of the category 2 items. Some of those items match the description of the items in the Patlin Building Services invoice.
Other than the payments to Patlin to which I have referred, I was not directed to nor could I find in the applicant's documents any other records showing proof of purchase or proof of ownership of items in the Alexandre list.
If the applicant had to strictly prove ownership of the entire list category 2 items on the evidence presented, and other than in relation to what was supplied by Patlin, it would fail to do so. However, the bar in establishing ownership in proceedings in this Tribunal is not set that high. Taking into account the nature of the applicant's business conducted from the premise, the nature of the category 2 items, the Patlin Building Services invoice, and the inventory of the premises' contents that is recorded in the Alexandre list, I am comfortably satisfied that with the exception of the blender, microwave and bar fridge, the air-conditioner, the cookbooks and the miscellaneous equipment (whatever that might be) which have been disclaimed, the category 2 items are owned by the applicant.
[16]
What relief is the applicant entitled to?
Having decided that all but two of the pieces of equipment in the category 1 equipment list and all of the category two items, apart from those it has disclaimed, are owned by the applicant, the next issue to be determined is what is the relief to which the applicant is entitled.
The applicant claims all category 1 equipment and all category 2 items except for those disclaimed. In the alternative the applicant claims:
1. $40,000 plus GST being the amount for which the respondent sold equipment in both categories to Royal bakery;
2. additional damages for the equipment being used;
3. $3789.36 for perishable items thrown away;
4. $614.70 for the cost of cleaning products;
5. $12,685.79 for various additional items of equipment; and
6. $5000 for a convection oven and fryer
In seeking damages the applicant relies on the Tribunal's power under on section 72 of the Act.
Mr Fernon submitted says that if I find that the applicant has an entitlement to any of the contents of the premises, the only order I should make is that they be returned to the applicant or that it be given access to the them. He said this is because the applicant only sought the return of the contents. In that regard he relies on paragraph 16 of the application in which the applicant seeks access to the premises to " (r)emove food and perishable items from refrigeration and storage units (and for the) (r)emoval of the contents of the shop, which includes equipment encumbered as well as other items personally owned".
Mr Fernon's submission, in my view, characterises the applicant's claim far too narrowly. Part 4 of the application specifically states that the applicant seeks an "(o)rder to pay compensation for loss or damage damages $tbd". In my view that signalled the applicant's intention to pursue a damages claim. Although the damages claim was initially based around the applicant's loss of its business, the applicant's written submissions dated 8 April 2019 certainly made clear that it was seeking, "the return of the goods and chattels of the applicant at the premises where the respondent has both refused access to the premises and or provided the Items of the applicant and or in the alternative damages", to use the words in the opening paragraph of that submission.
Mr Fernon submitted that the best evidence of what the category 1 equipment is worth is in the contract for sale of business which attributes to it a value of about $15,000. So far as the amount of $40,000 for the equipment in both categories is concerned, Mr Fernon submitted that the amount paid was for a number of items including floor and wall tiles, air-conditioning and miscellanies equipment with no attempt to distinguish how these items are to be allocated to between the two categories.
I have given much thought as to whether I should order the respondent to return the category 1 equipment and category 2 items not disclaimed by the applicant or make an order for payment of damages. On the available evidence it appears that the equipment and items in both categories have been in the possession of Royal Bakery since 11 June 2018 when its lease of the premises commenced. While the Royal Bakery lease provides for the category 1 equipment to be stored by the tenant in a safe and secure place until the respondent is able to confirm ownership, it is highly likely, particularly given that the Royal Bakery paid for and had the obligation to repair and maintain the equipment, that it has been and is continuing to be used by it in the conduct of Royal Bakery's business. That is the only reasonable conclusion that can be drawn from the agreement recorded in clauses 32.01 and 32.02 of the Royal Bakery lease and from Ms Hancock's evidence of what she observed at the premises, evidence that was not challenged by the applicant. It is also highly likely that the condition of the equipment or the condition of some items of equipment has deteriorated through use since the respondent re-entered on 6 March 2018.
There is a further complication which is that some of the category 2 items such as takeaway food containers, cleaning and paper products are consumables. Most if not all of them may no longer exist. It is also possible, given the nature of the other non-consumable items, such as crockery and utensils, that many of them may no longer exist or be in the possession of Royal Bakery.
I have decided that the most appropriate course for me to take in the circumstances, is for the applicant to be compensated for the loss of its equipment and other items by making an order under section 72(1)(a) of the Act that the respondent pay damages rather than make an order that they be returned. That section gives the Tribunal power to make "an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person".
The applicant says that it is entitled to the $40,000 plus GST that being the amount for which the respondent sold the equipment and items in both categories to Royal Bakery. It is understandable how an assumption may be made that in agreeing to pay Royal Bakery compensation of $15,000 if it does not have ownership of the category 1 equipment, the applicant and Royal Bakery placed a value of $15,000 on that equipment and $25,000 on the category 2 items. That would though, in my view, be an overly simplistic approach bearing in mind that the applicant does not own two items of the category 1 equipment and has disclaimed some of the category 2 items. The conclusion I have come to is that it is necessary to separately consider the appropriate amount of compensation for the loss of each category.
Some guidance as to the value of the category 1 equipment can be taken from the following sources:
1. When the equipment was sold to Royal Bakery in June 2018, the respondent and Royal Bakery agreed that if the respondent ultimately did not have ownership of it, the respondent would pay Royal Bakery $15,000 for those items.
2. The Silverchef payout figure for the equipment, other than the convection oven and fryer, was $15,101.23 as at 21 April 2017.
3. The Di Napoli and the Di Napoli invoice, the latter being dated 28 April 2017, each put a combined value on the convection oven and fryer of $5000.
The Alexandre list puts the "initial value" of the equipment at $37,270.70. That includes an amount of $1,000 for the Zanussi oven which is not in the category 1 equipment list. What is meant by "initial value" is not explained although there is a strong inference it is the original cost of the equipment. I have therefore not taken into account the values attributed to the equipment in that list in determining the value of the category 1 equipment purposes of determining what compensation should be paid to the applicant.
The decision I have come to is that the most reliable evidence of what the category 1 equipment was worth at the time the respondent purported to sell it to Royal Bakery is the $15,000 compensation the respondent agreed to pay if it does not have ownership in the equipment. There has been no suggestion that the agreement was not at arm's length and the amount is within the range of the Silverchef payout figure. For that reason I am comfortably satisfied that value of that category 1 equipment is $15,000.
The category 1 equipment includes two items, the convection oven and fryer, which I have found are not owned by the applicant. The amount the respondent is to pay to the applicant for the category 1 equipment must therefore to be reduced by the value of those two items.
The Alexandre list gives an original purchase date of 28 April 2016 for both items and "initial values" $ 7,321.99 and $2,611.87, for the convection oven and fryer, respectively. It also describes the condition of both as "excellent" with the oven said to have 15 years of service left while is said the fryer had 12 years of service left. Exactly 12 months later, that is 28 April 2017, the Di Napoli invoice attributes a value of $4000 for the convection oven and $1000 for the fryer $1000. This suggests that the value of equipment depreciated by approximately 50% in 12 months.
Having regard to this evidence, I am comfortably satisfied that the convection oven and fryer were worth a total of $5000 as at 28 April 2017. Since the value of the equipment over the previous 12 months had depreciated by 50%, it is reasonable to conclude that their value depreciated further between then and when they were purportedly sold to Royal Bakery on 11 June 2018. I propose to allow for a further depreciation in value of 30% over that period and find that the total value of the convection oven and fryer as at 11 June 2018 was $3,500.
Accordingly, I find that the amount of compensation the respondent must pay the applicant for the category 1 equipment is $11,500 being $15,000 less $3,500 for the value of the convection oven and fryer.
Calculating the amount of compensation which the respondent should pay the applicant for the category 2 equipment is more problematic.
Five pages of the Alexandre list, under the heading "Equipment list" sets out by description, quantity and value of non- food inventory in the premises including crockery, pots and pans, cutlery, cleaning and paper products, frypans, hot plates, cutting boards price, name display chalkboards, an EFTPOS machine and telephone equipment to name some of the many items listed. Other than cleaning products, the Alexandria list puts a value of $12,685.79 on those items. This includes items disclaimed by the applicant such as a blender said to be valued at $15, a microwave and a bar fridge are valued at $50 each and a soup warmer valued at $139. The list puts a value of $614.70 on separately itemised cleaning products. The list also includes packaging items but no value is attributed.
The Sophios list and the list of category 2 items appear to be summaries of the inventory in the premises at the time the lease was terminated. Ms Hancock's evidence is that the Alexandre list is a more complete inventory of the contents of the premises than the Sophios list. Her evidence was unchallenged. I accept Ms Hancock's evidence and am comfortably satisfied that the Alexandre list is a more complete record of the inventory in the premises at the time the lease was terminated.
The applicant has not, however, adduced any evidence to corroborate the values attributed to any of the items in the Alexandre list. The absence of such evidence to show the basis for arriving at amounts attributed to each item in the Alexandre list, or whether items are new or used, makes it difficult to assess their value as at the date the respondent purported to sell them to Royale Bakery. In the circumstances and accepting that this is not a perfect solution, the conclusion I have come to is that the applicant is entitled to be compensated by the respondent for the category 2 items that are not disclaimed, in the amount of $5000.
The applicant has also claimed additional damages for its equipment having been used following termination of the lease. While Ms Hancock's has given some evidence of Royal Bakery's use of the applicant's equipment, there is no evidence of any actual loss. Accordingly, the claim must fail.
The applicant's claim for $614.70 in respect of cleaning products has been dealt with as part of my decision to award the applicant $5,000 in compensation for the category 2 items which include cleaning products.
The applicant also separately claimed an amount $5,000 for the convection oven and fryer purchased from Mr Di Napoli. Having decided that I was not comfortably satisfied that the convection oven and fryer are owned by the applicant, this claim must fail.
I turn now to consider the applicant's claim for $3789.36 in respect of food items said to have been thrown away by the respondent. The amount is quantified in the Alexandre list and includes "refrigerated" items said to be worth approximately $2,000 with the other food items, described as "consumables", making up the balance of the claim. To give a sense of what these descriptions are referring to, the list of refrigerated items includes cream, butter, yoghurt, ham and smoked salmon to name but a few. The consumables list is extensive and includes splices such as cloves, cumin, ginger and saffron, and dry goods, such as sugar, flour, vinegar and honey.
It is not in dispute that when the respondent re-entered on 6 March 2018 there was both refrigerated and non-refrigerated food in the premises. The respondent did not adduce any evidence of what food was found in the premises. It has also not disputed the accuracy of the refrigerated and consumable food items in the Alexandre list. Accordingly, I am comfortably satisfied that the food described in the Alexandre list was in the premises when the respondent re-entered.
There is also no dispute that the respondent disposed of the refrigerated food stored in the refrigeration units after it re-entered on 6 March 2018. It is not evident what happened to the non-refrigerated food or consumables. The applicant claims that none of food in the premises was returned by the respondent. The respondent has not adduced evidence to suggest that any food was returned to the applicant.
The correspondence between the parties reveals that on 9 March 2018, three days after being locked out, Ms Hancock asked Mr Sophios to let her know whether he wanted any assistance in clearing out the refrigerators so they do not get ruined. Her offer of assistance was not accepted. On 20 March 2018 Ms Hancock sent a further email to Mr Sophios foreshadowing the disconnection of the electricity and pointing out that "all the fridge and freezer contents will make a huge mess if (the electricity is disconnected) and will cause damage to the refrigerators and the coffee machine". On 10 April 2018 the applicant commenced proceedings and sought inter-alia, an interim order that it be granted access to remove all food and perishable items from the refrigerators and other shelves in order to minimise damage to the refrigeration units.
Mr Fernon submitted that the offer by Ms Hancock to assist with the cleaning out of the refrigerators was an acceptance that food needs to be thrown out, and that is what happened. I disagree. I do not consider a request to clean out the refrigerators is tantamount to an acceptance that the refrigerated food items need to be thrown out. Furthermore, the application made by the applicant just over a month after being locked out for an interim order that it be granted access to remove all food and perishable items from the refrigerators was a clear demand by the applicant for the return of the food in the premises.
In the circumstances, I am comfortably satisfied that the food in the premises when the respondent re-entered was owned by the applicant, it was denied access to the premises by the respondent to remove that food, and it is therefore entitled to be compensated for the loss of the food.
The Alexandre list gives an item by item description of the food, the quantity, a single item value and total value for each, but no evidence has been adduced by the applicant to corroborate the values attributed to the items. Accordingly, and again accepting that this is also not a perfect solution, the conclusion I have come to is that the applicant is entitled to be compensated by the respondent in the amount of $2000 for the loss of the food that was in the premises when the lease was terminated.
[17]
Is the applicant entitled to be paid $27,500 for the bank guarantee that has now been presented by and the proceeds paid out to the applicant?
The applicant seeks the return of the bank guarantee for $27,500 it provided as security for its obligations under the lease, or the cash equivalent. The basis for the claim was never articulated by Mr Hancock but it appears to have its genesis in the application filed to commence these proceedings. One of the orders sought was the return of the bank guarantee. The claim for the cash equivalent was added by Mr Hancock at the hearing no doubt due to the bank guarantee having been presented by the respondent and paid out.
As already observed, the applicant does not dispute that as at 6 March 2018, when the respondent re-entered the premises and terminated the lease for non- payment of rent, it was permitted to do so under the lease. It does not dispute that the amount then owed to the respondent for rent was $20,465.21 and that a further payment of $9,914.66 fell due on 1 April 2018. The respondent did not re-lease the premises until June 2018. That is also not in dispute.
Clause 26.02 permitted the respondent to present the bank guarantee in order to "compensate the (respondent) for any loss…. incurred or likely to be incurred as a result of the non-performance or non-observance by the Tenant of its obligations under the Lease." The respondent's loss was the outstanding rent in excess of $30,000. Under the lease it was entitled to present the bank guarantee to compensate it for the applicant's rental default. The applicant's claim for $27,500, being the cash equivalent of the bank guarantee, must therefore fail.
In view of the conclusions I have come to and my findings, it is not necessary for me to consider the applicant's claim in detinue and conversion, the assertions that section 177A of the Conveyancing Act applies, or that it has certain rights of subrogation said to arise from having paid out Italian Company's liability to Silverchef.
[18]
Summary
In summary, these are my findings:
1. The applicant's fittings, fixtures and stock-in-trade in the premises at the time the lease was terminated on 6 March 2018 did not become the property of the respondent pursuant to clause 22.04 because no direction was given by the respondent to remove them pursuant to clause 22.03.
2. Except for the Forno LXTYPICET 101 convection oven & Accessories and the Friggitrice Giorik FP185 fryer, the category 1 equipment remained the property of the applicant.
3. Except for the blender, microwave and bar fridge, air-conditioner, cook books and an item described as "miscellaneous equipment", which have been disclaimed by the applicant, all category 2 items remained the property of the applicant.
4. The respondent is to pay the applicant damages of $18,500 being $11,500 for the category 1 equipment, $5,000 for the category 2 items and $2,000 for the food items.
5. All other claims made by the applicant are to be dismissed.
[19]
Orders
Accordingly, these are the orders of the Tribunal:
1. The respondent pay the applicant by way of damages the sum of $18,500 within 14 days.
2. The application is otherwise dismissed.
[20]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 16 June 2021
Parties
Applicant/Plaintiff:
Baptiste & Wilson Pty Ltd ATF But I want a Pickle Trust