LANDLORD AND TENANT – COVENANTS – OTHER COVENANTS – where
landlord leased premises to tenant for purpose a nightclub
and sports bar
– where landlord warranted that the premises may be used for the purpose
Source
Original judgment source is linked above.
Catchwords
LANDLORD AND TENANT – COVENANTS – OTHER COVENANTS – wherelandlord leased premises to tenant for purpose a nightcluband sports bar– where landlord warranted that the premises may be used for the purposeof nightclub and sports bar –where tenant served with a notice under s 69Fire and Rescue Service Act 1990 (Qld) suspending trading until traveldistances to fire exits were rectified – where tenant stopped paying rentand outgoingsupon suspension of trading – where landlord served notice toremedy breach of covenant under s 124 Property Law Act 1974 (Qld) ontenant for non-payment of rent and outgoings – where tenant claimed it wasunable to trade due to the landlord’sbreach of the warranty –whether breach notice properly issued – where tenant could set off rentand outgoings againstdamages for breach of covenant – where landlordcould not seek forfeiture of the lease when in breach of warranty that preventedtenant from trading from the premises
LANDLORD AND TENANT – TERMINATION OF THE TENANCY – SURRENDER
– SURRENDER BY OPERATION OF THE LAW – PARTICULAR
CASES – where
landlord was in breach of a warranty given under the lease which prevented
tenant from trading from the premises
– where landlord not entitled to
forfeit the lease – where landlord served notice to remedy breach of
covenant –
where tenant did not challenge breach notice or seek relief
from forfeiture or resist landlord taking possession of the premises
–
whether the acceptance by the tenant of the taking of possession of the premises
by the landlord brought lease to an end
– whether surrender by operation
of law
PROFESSIONS AND TRADES – LAWYERS – DUTIES AND LIABILITIES
– SOLICITOR AND CLIENT – RETAINER – EXTENT
OF RETAINER –
where landlord leased premises to tenant for purpose of nightclub and sports bar
– where tenant served
with a notice under s 69 Fire and Rescue Service
Act 1990 (Qld) suspending trading until travel distances to fire exits were
rectified – where landlord engaged firm of solicitors
to act on its behalf
in relation to the validity of the s 69 notice – where landlord permitted
the solicitors to act also for
the tenant in relation to the s 69 notice –
whether the solicitors’ retainer in relation to the tenant extended to
giving
the tenant advice on its rights and obligations under the lease –
whether the solicitors gave advice to the tenant on its rights
and obligations
under the lease
Trade Practices Act 1974 (Cth), s 52, s 53A
Fire and
Rescue Service Act 1990, s 69, s 104C, s 104G, s 104L, s 104P
Liquor
Act 1992, s 148A
Property Law Act 1974, s 124
Standard
Building Regulation 1993, s 95
Australian Competition and Consumer
Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18
(2003) 214 CLR 51,
considered
Knockholt Pty Ltd v Graff [1975] Qd R 88, considered
Konica
Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687,
considered
Judgment (168 paragraphs)
[1]
LANDLORD AND TENANT - COVENANTS - OTHER COVENANTS - where landlord leased premises to tenant for purpose a nightclub and sports bar - where landlord warranted that the premises may be used for the purpose of nightclub and sports bar - where tenant served with a notice under s 69 Fire and Rescue Service Act 1990 (Qld) suspending trading until travel distances to fire exits were rectified - where tenant stopped paying rent and outgoings upon suspension of trading - where landlord served notice to remedy breach of covenant under s 124 Property Law Act1974 (Qld) on tenant for non-payment of rent and outgoings - where tenant claimed it was unable to trade due to the landlord's breach of the warranty - whether breach notice properly issued - where tenant could set off rent and outgoings against damages for breach of covenant - where landlord could not seek forfeiture of the lease when in breach of warranty that prevented tenant from trading from the premises
[2]
LANDLORD AND TENANT - TERMINATION OF THE TENANCY - SURRENDER - SURRENDER BY OPERATION OF THE LAW - PARTICULAR CASES - where landlord was in breach of a warranty given under the lease which prevented tenant from trading from the premises - where landlord not entitled to forfeit the lease - where landlord served notice to remedy breach of covenant - where tenant did not challenge breach notice or seek relief from forfeiture or resist landlord taking possession of the premises - whether the acceptance by the tenant of the taking of possession of the premises by the landlord brought lease to an end - whether surrender by operation of law
[3]
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - RETAINER - EXTENT OF RETAINER - where landlord leased premises to tenant for purpose of nightclub and sports bar - where tenant served with a notice under s 69Fire and Rescue Service Act 1990 (Qld) suspending trading until travel distances to fire exits were rectified - where landlord engaged firm of solicitors to act on its behalf in relation to the validity of the s 69 notice - where landlord permitted the solicitors to act also for the tenant in relation to the s 69 notice - whether the solicitors' retainer in relation to the tenant extended to giving the tenant advice on its rights and obligations under the lease - whether the solicitors gave advice to the tenant on its rights and obligations under the lease
Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd(1992) 26 NSWLR 687, considered
[11]
KS Howe (22-26, 29-30 March 2010) and B Wessling-Smith for the plaintiff
[12]
[1] On 7 January 2005 the Queensland Fire and Rescue Service (QFRS) by notice (the s 69 notice) issued under s 69 of the Fire and Rescue Service Act 1990 (Qld) (the Act) closed the nightclub operated by the plaintiff from premises situated at Carlo Street, Pialba that were owned by the first defendant, until the means of escape from the premises, including travel distances and alternative paths, had been approved in writing by the Hervey Bay City Council, and the approval provided to QFRS. The second defendant is the firm of solicitors that acted for the first defendant in relation to the lease and the premises. The second defendant also acted on behalf of both the first defendant and the plaintiff in relation to the s 69 notice, until the plaintiff changed solicitors on 23 March 2005. The first defendant purported to terminate the plaintiff's lease of the premises on 8 June 2005 and the plaintiff accepted the lease was at an end. This proceeding was commenced on 21 September 2005.
[13]
[2] The plaintiff alleges that clause 6.2 of the lease amounted to a warranty that the premises may be used for the purposes of a nightclub and sports bar and that under clause 9.3 of the lease the first defendant was required, at its expense, to carry out all structural repairs to the premises which the plaintiff alleges were the type of repairs that were required to satisfy the s 69 notice. The plaintiff claims from the first defendant damages equating to the loss of the business that was conducted from the premises on the basis that those damages were suffered as a result of the first defendant's breach of the warranty in clause 6.2 of the lease and the first defendant's breach of clause 9.3 of the lease or, alternatively, on the basis that the plaintiff relied on the representation that the premises may be used for the purposes of a nightclub and sports bar and was induced to enter into the lease and trade from the premises and the representation was false and therefore was misleading or deceptive in contravention of s 52 or s 53A of the Trade Practices Act 1974 (Cth) (TPA). The claim based on the TPA was not pressed at the trial.
[14]
[3] The plaintiff and the first defendant retained the second defendant from on or about 7 January 2005 to provide advice about the s 69 notice. The plaintiff alleges that the second defendant negligently and in breach of its duties to the plaintiff advised the plaintiff not to pay rent to the first defendant when it knew that the plaintiff was relying on that advice and that advice was incorrect, failed to advise the plaintiff to continue to pay rent, failed to advise the plaintiff to obtain independent legal advice, and failed to advise the plaintiff appropriately in relation to the responsibilities of the first defendant under the lease for the alterations to the premises and the plaintiff's possible courses of action, if the alterations were not carried out by the first defendant. The plaintiff alleges that if it had received appropriate advice from the second defendant, it would have either carried out the alterations to the premises in order to continue trading or terminated the lease, if the first defendant had failed to carry out the alterations to the premises. The plaintiff claims damages from the second defendant equating to the loss of the business that was conducted from the premises and also seeks a declaration that the second defendant indemnify the plaintiff against all claims by the first defendant.
[15]
[4] The plaintiff leased the premises from the first defendant under a lease that was signed by the plaintiff on 31 May 2002 and by the first defendant on 2 December 2002 for a term of 10 years that commenced on 1 June 2002. There was an option for renewal for a further term of 10 years.
[16]
6.2 The Landlord warrants that the premises may be used for the purposes set out in Item 14. The Tenant will comply with any laws and requirements relating to its use of the premises."
[17]
[6] The permitted use that was specified in item 14 of the schedule was nightclub and sports bar.
[18]
9.1 The Tenant must comply on time with all requirements and orders of competent authorities and all laws in connection with the premises, the tenant's property and the use or occupation of the premises.
[19]
9.2 Notwithstanding clause 9.1, in complying with the requirements, orders of authorities and all laws, the Tenant need not carry out structural alterations, maintenance, repairs, replacements or additions or any alterations, maintenance, repairs, replacements or additions of a capital nature to the premises except:
[20]
(a) those required because of the nature of the Tenant's business or the Tenant's use or occupation of the premises; and
[21]
(b) those which are required because of the Tenant's employees and agents
[22]
9.3 The Landlord shall carry out, at the Landlord's expense, all structural repairs to the premises, in particular and without limiting the generality of the foregoing, the Landlord shall carry out repairs to the guttering and down pipes of the premises whether internal or external to the premises and shall maintain the roof to the premises in a leak-proof and wind-proof condition. The Landlord shall also maintain the services and the exterior walls of the premises in good and substantial repair."
[23]
"The tenant may not make any alteration or addition to the premises without the Landlord's consent which consent must not be unreasonably withheld or delayed. In carrying out alterations or additions the Tenant must comply with all requirements of authorities and all laws. Alterations or additions must be completed within a reasonable time and in accordance with plans and specifications approved by the Landlord."
[24]
[9] The primary witnesses for the plaintiff were its director Ms Carolyn French and its former director, Mr Daniel Kelly, who managed the plaintiff's nightclub. At the time the events the subject of the claim occurred, Ms French and Mr Kelly were in a de facto relationship. Ms French kept the books for the business.
[25]
[10] There are a number of matters to consider in evaluating the evidence of Ms French and Mr Kelly. The statements made and actions taken by Ms French and Mr Kelly on behalf of the plaintiff, as events in relation to the Liquor Licensing proposal to limit the capacity of the nightclub and the QFRS issue of travel distances and fire exits unfolded between November 2004 and March 2005, should be considered in the context that these events were unexpected and raised complex issues involving the Council, Liquor Licensing and QFRS and the plaintiff's relationship with the first defendant. Ms French and Mr Kelly were dependent on information given to them by others to explain what was happening. The attitude adopted by Ms French and Mr Kelly when the plaintiff's business was closed on 7 January 2005 was initially influenced by the fact that they thought they would be challenging the s 69 notice with the support of the first defendant. Their attitude was subsequently influenced by the first defendant's abandonment of them. It was not surprising that Ms French and Mr Kelly could not recall the detail of the series of conversations put to them in cross-examination that had been documented by others, such as Mr Cooper, but not by them or not by them to the same extent. In many instances the legal significance of events that occurred or advice that was given or information provided was also lost on them. The fact that Ms French had to be recalled to correct earlier evidence was an illustration of that. As will be apparent from my fact-finding, I do not accept all the evidence of each of Ms French and Mr Kelly, but that is not because of any lack of honesty on their part, but because of misunderstandings that affected their perception of events and conversations or there is other evidence which is more reliable in the circumstances.
[26]
[11] The director of the first defendant with whom Mr Kelly had direct dealings in relation to the lease was Mr Fernando Liuzzi. Mr Liuzzi was born in 1938 and his first language is Italian. There was medical evidence (exhibit 27) that Mr Liuzzi is suffering from a disease that has affected his mobility and his speech. The difficulty in communicating with Mr Liuzzi was confirmed by the first defendant's solicitor who had telephone contact with him. Mr Liuzzi's evidence was therefore given in the form of an affidavit sworn on 31 March 2010 (exhibit 28) and there was no opportunity for cross-examination of Mr Liuzzi. Despite that, the plethora of contemporaneous documents in relation to conversations and arrangements that involved Mr Liuzzi and the availability of evidence from Mr Travaglini and Mr Cooper has assisted in my assessment of the evidence where there were discrepancies between the evidence adduced on behalf of the plaintiff and that adduced on behalf of the first defendant or the second defendant.
[27]
[12] Mr Cooper's evidence was dependent on his reference to the notes and correspondence on the second defendant's files. He conceded that he did not have an independent recollection of most of the telephone attendances without recourse to the file notes and correspondence. In evaluating Mr Cooper's evidence, I have had regard to the fact that Mr Cooper was acutely conscious of the circumstances in which, and the purpose for which, the second defendant came to be acting for the plaintiff in relation to the capacity issue for the nightclub and that, from the time the s 69 notice was issued by QFRS, the first defendant was the second defendant's primary client in relation to the s 69 notice.
[28]
[13] The following summary of relevant facts is taken from my assessment of the evidence.
[29]
[14] The building in which the premises were situated was constructed in 1997. The nightclub was constructed in accordance with plans prepared by Barlow, Gregg & Associates (Barlow Gregg). The witnesses gave evidence by reference to one of the approved plans for the nightclub which was plan number 3 of 7 dated April 1997, Drawing No H6135 AO2, version B (the 1997 plan).
[30]
[15] A certificate of classification for the nightclub was issued by the council on 14 October 1997. The total floor area of the premises was shown as 634m² and was described as class 9b (nightclub).
[31]
[16] Mr Kelly had been a director of Hollywood Legends Pty Ltd that had conducted the Incas Niteclub from the premises between 1997 and late 2001. That company was in administration between 14 December 2001 and 8 March 2002 as a result of a dispute amongst the directors. After the administration period expired, liquidators were appointed to the company. The first defendant re-took possession of the premises in March 2002 and Mr Liuzzi, a director of the first defendant, arranged for Mr Kelly to be the nominee/manager of the first defendant to satisfy licensing requirements and that enabled Mr Kelly to prepare the premises for conducting a new nightclub business promoted by Mr Kelly.
[32]
[17] Although it was suggested on behalf of the plaintiff that there was a close relationship between Mr Liuzzi and Mr Kelly that resulted in Mr Liuzzi providing assistance to Mr Kelly in relation to the plaintiff's business, I have concluded that the support that was provided by the first defendant to Mr Kelly to enable the plaintiff's business to commence in 2002 was a business decision for the first defendant. It was in the first defendant's interest to assist the plaintiff in the financing of the refurbishment of the nightclub, so that the first defendant obtained a new tenant for operating the nightclub from the premises.
[33]
[18] Alterations were made to the premises which were organised by Mr Kelly and involved demolition of the stage area and re-locating the bar area to where the stage area had been. The original location of the bar was converted to a glass enclosed area. Mr Liuzzi had reached an arrangement with Mr Kelly that Mr Liuzzi's company would pay for the refurbishments that Mr Kelly required to the premises, but that Mr Kelly would eventually repay the cost of those refurbishments. A number of the invoices for the refurbishments were included in exhibit 1. They are endorsed by Mr Kelly or Ms French as appropriate for payment and then were paid by the first defendant. The first defendant made a handwritten list of each of the expenses which were acknowledged by Mr Kelly (exhibit 14). The total amount recorded by the first defendant as being spent on the refurbishments was $224,390. Mr Kelly paid the first defendant $20,000 on 14 February 2003 and Mr Liuzzi then rounded the amount owed to $200,000. To support the repayment of that loan, the plaintiff gave the first defendant a mortgage debenture over its assets, Mr Kelly and Ms French guaranteed the repayments under the mortgage debenture and Mr Kelly gave the first defendant a collateral mortgage over his house property. The fact that the first defendant also paid $7,500 to Mr Kelly as an employee during the financial year ended 30 June 2003 does not alter the conclusion that Mr Kelly was responsible for organising the refurbishments and that his company would ultimately bear the cost of them.
[34]
[19] Mr Liuzzi states in his affidavit that he told Mr Kelly that he was to be responsible for organising any alterations that he wanted to make to the premises, including obtaining any consent from the Council or any other Government body. There are no contemporaneous documents to support that assertion and Mr Kelly denies that was the arrangement. Even if that were what Mr Liuzzi told Mr Kelly, that could not displace the first defendant's responsibility for ensuring that all formalities associated with the refurbishments to its premises were complied with. Barlow Gregg prepared the plans for the 2002 refurbishments for the nightclub. No evidence was given of any advice sought by either Mr Kelly or Mr Liuzzi from Barlow Gregg about the need for Council approval. It appears to have been a matter that was overlooked by both the plaintiff and the first defendant.
[35]
[20] The plaintiff was incorporated on 13 May 2002 with Mr Kelly as its sole director. Although the commencement date of the lease was 1 June 2002, the first defendant did not sign the lease or transfer the liquor licence for the premises to the plaintiff until satisfied that the business would operate successfully. The lease was not registered. The plaintiff assumed unfettered control of the business from late 2002. No evidence was given by Mr Kelly that he relied on the representation contained in clause 6.2 of the lease, in order to execute the lease.
[36]
[21] The licence for the premises was transferred from the first defendant to the plaintiff on 18 October 2002. The plaintiff obtained an on premises (cabaret) licence which enabled the business to remain opened until 5am, although no further patrons could enter the premises after 2am. It was the only nightclub in the Hervey Bay area that was able to remain open until 5am. On 4 December 2002 Mr Kelly ceased to be a director of the plaintiff and Ms French became the sole director of the plaintiff. By late 2004, the business opened only on Friday and Saturday nights. The nightclub traded without any issues until November 2004. It was trading profitably.
[37]
[22] On 20 November 2004 Mr Vlasits, a Government Liquor Licensing officer, telephoned Mr Kelly and then sent a letter to Mr Kelly by facsimile referring to conversations that they had on that day and advising:
[38]
"I received advice late last night that a popular band, "Spider Bait", was playing at the above premises on the evening of 20 November 2004 and that up to 1500 persons were expected to attend the concert.
[39]
I attended at the premises at 0315 this morning and found that the final exit width at the designated exits was an approximate total of 5 metres.
[40]
According to past information I have received from the Queensland Fire and Rescue Service (QFARS), the exit width at the premises would only permit a maximum of 500 persons to be in the premises at any one time, however taking into account that the long exit path of approximately 6 metres near the exits I believe that the number could be increased to 600 persons."
[41]
[23] Mr Kelly had informed Mr Vlasits that the plaintiff's contract with the band Spider Bait put a limit on the crowd of 1,000 patrons. Mr Vlasits recommended in the letter of 20 November 2004 that the plaintiff take the information about capacity of the fire exits into account to ensure the safety of staff and patrons and advised that he intended seeking clarification from QFRS in relation to whether there should be a limit on the number of persons that may be on the premises at any one time.
[42]
[24] Mr Pamenter of QFRS attended at the premises on or before 8 December 2004 to measure them for the purpose of calculating the maximum occupancy. He noticed the differences between the premises and the plans that were held by QFRS. Mr Pamenter calculated the maximum population permitted in the premises based on exit width as 510 persons.
[43]
[25] On 9 December 2004 QFRS sent a facsimile to Mr Kelly advising that QFRS had measured the premises and calculated the maximum number of persons permitted on the premises at any one time pursuant to s 10(1) and s 10(2) of the Building Fire Safety Regulation 1991 and the Building Code of Australia (BCA) Table D1.13 and D1.6. The letter advised that QFRS recommended that appropriate control measures be implemented to ensure that the number of persons in the nightclub did not exceed 510.
[44]
[26] On the same date Mr Vlasits sent Mr Kelly a facsimile noting the advice from QFRS that showed that only 510 persons were permitted to be on the premises at any one time and drawing the attention of Mr Kelly to s 148A(4) of the Liquor Act 1992 (Qld) (LA) that states that the licensee must provide and maintain a safe environment in and around the premises. The facsimile noted that punitive action may be initiated if the maximum occupancy number were exceeded.
[45]
[27] Mr Kelly telephoned Mr Liuzzi about this facsimile and was told by him to seek advice from Mr McQuaid of the second defendant. Ms French forwarded the QFRS facsimile dated 9 December 2004 to solicitor Mr McQuaid. Ms French and Mr Kelly were referred by Mr McQuaid to a litigation solicitor in the firm, Mr Cooper. Mr Cooper was given to understand that there was a special relationship between Mr Liuzzi, on the one hand, and Mr Kelly and Ms French, on the other, and that the second defendant had been requested by Mr Liuzzi to give Mr Kelly and Ms French every assistance.
[46]
[28] Mr Cooper attended on Mr Kelly and Ms French on 9 December 2004 and noted their concerns about the communication from Mr Vlasits. The second defendant's file was opened to give advice to the plaintiff on the capacity issue and not any issue relating to the lease. The concern that Ms French and Mr Kelly had about the suggestion that a limit was to be applied to the number of patrons at the nightclub arose from the fact that there was no capacity imposed on the licence when the nightclub started under the lease and they felt that their premises was being singled out unfairly for attention by Liquor Licensing.
[47]
[29] Mr Cooper's contemporaneous handwritten note of this attendance recorded that capacity for 1,000 persons was required for general events and special dates such as Christmas and New Year. The note showed "700+ for Saturday nights." Mr Cooper made notes of being informed that "Basically never overcrowded" and that in 8½ years of trading there were no incidences and "No complaints when crowded." Mr Cooper recorded that he was advised to the effect that if the capacity of the nightclub were restricted, that would result in zero profit and actual loss, and the business will close and the sale of the business will be frustrated. Mr Cooper noted that he was also advised that the leasing and projections were based on no restrictions on capacity and that Mr Kelly and Ms French would never have agreed to the rent of $11,888 per month, if there were restrictions on the capacity of the nightclub. To the extent that Ms French and Mr Kelly conveyed that their business would be lost, if the capacity of the nightclub were restricted, that was an over reaction on the part of Ms French and Mr Kelly to convey the extent of their concern about what they saw as victimisation, and was not a considered view. I also accept that Mr Kelly's evidence that trading at 700 patrons or above was exceptional (which is consistent with the takings in exhibit 6), but that was overstatement made in pursuing the status quo.
[48]
[30] Mr Cooper then undertook research about the lawfulness of a limit on the capacity of the premises of 510 people. In the light of the history that Mr Kelly and Ms French gave of operating a nightclub from the premises, Mr Cooper was sympathetic to then view that the plaintiff's business was being targeted by Liquor Licensing.
[49]
[31] Mr Michael Corser who is a building approval officer with QFRS and who had done the final inspection on the nightclub when it was constructed in 1997 inspected the premises on 13 December 2004 with another QFRS officer, Mr Charman. Another meeting was arranged for the next day. On 14 December 2004 Mr Kelly met with officers of QFRS including Mr Corser, Mr Clark of the Council and Mr Vlasits at the premises. Mr Corser was concerned that construction work had been carried out to the premises that had not been approved by QFRS that caused what he described as "extended travel distances." Mr Cooper also attended to inspect the premises on 14 December 2004 and observed, but did not participate, in this meeting. On 15 December 2004 Mr Kelly sent a letter to Mr Clark (exhibit 10) about the discussion concerning fire exits at the meeting. Mr Kelly was in regular telephone contact with Mr Liuzzi about the QFRS and Liquor Licensing interest in the premises.
[50]
[32] Mr Cooper's research suggested to him that the limitation on the capacity that had been notified by QFRS was a notice given under s 104G of the Act and recommended that the plaintiff object to the limitation on capacity pursuant to s 104L of the Act. Those instructions were obtained by Mr Cooper from the plaintiff. Mr Cooper's strategy was to obtain the benefit for the plaintiff of being relieved from complying with the limitation on capacity during the Christmas-New Year period.
[51]
[33] By letter dated 23 December 2004, the second defendant notified QFRS of the plaintiff's objection pursuant to s 104L of the Act to the imposition of a limitation of capacity of patrons at the nightclub and noted the relief from penalty given to an objector under s 104P of the Act.
[52]
[34] On 24 December 2004 QFRS responded by letter sent by facsimile to the second defendant's letter of 23 December 2004 advising that an appeal under s 104L of the Act was not available to the plaintiff and that the plaintiff was not entitled to the benefit of s 104P of the Act. By the time the facsimile was received by the second defendant, Mr Cooper had left for his holidays. Another employee of the firm sent a copy of the QFRS letter by post to the plaintiff. That letter noted that QFRS was not allowing the plaintiff relief under s 104P of the Act. The plaintiff did not receive the information conveyed in that letter until Mr Cooper contacted Ms French by telephone on 28 December 2004. He read to her the QFRS letter of 24 December 2004. Ms French advised Mr Cooper that Peter Nell at Liquor Licensing was "not concerned." The note then recorded "Deal with anything that comes now in new year. Keep trading as normal." This was the gist of the suggested course of action by Mr Cooper to Ms French. He did not advise the plaintiff to limit patrons to 510.
[53]
[35] Mr Nell attended at the nightclub around 3am on 1 January 2005. He observed the premises as overcrowded and was told by a staff member that they estimated the number on the premises as 999.
[54]
[36] On 5 January 2005, Mr Vlasits issued a requisition under s 218 of the LA to produce all video recordings kept by the business relating to the period between 5 pm on 31 December 2004 and 5.30 am on 1 January 2005. Mr Kelly telephoned Mr Liuzzi and informed him of the requisition. The plaintiff initially objected to that requisition, but then Ms French attended at the Liquor Licensing office to provide the requisitioned videotapes on 7 January 2005. Shortly afterwards Ms French was served with the s 69 notice. Mr Kelly immediately informed Mr Liuzzi by telephone of this development.
[55]
[37] The s 69 notice that was issued on 7 January 2005 noted that QFRS had identified the following hazard:
[56]
"The premises are being used as a nightclub and the means of escape are not adequate for that purpose and they may not be safely and effectively used at all material times in the event of fire, namely travel distances are excessive and alternative exit paths are not readily or easily accessible."
[57]
[38] The notice required the plaintiff to take the following action:
[58]
"From 1700 hours on 07/01/05 suspend trading upon and within the above mentioned premises;
[59]
Do not recommence trading unless and until the means of escape, including travel distances and alternative exit paths for the proposed use have been approved in writing by the relevant local authority and the Queensland Fire and Rescue Service Prosecutions Section has been provided with a copy of the approval."
[60]
[39] On 10 January 2005 the first defendant appointed Mr Gregg of Barlow Gregg as the first defendant's agent to deal with the s 69 notice. Mr Gregg was authorised to and did engage the second defendant for the purpose of obtaining advice from senior counsel and to do all things necessary to protect the first defendant's interests arising from the s 69 notice. Mr Gregg sent a copy of that letter of authority to the second defendant on 11 January 2005 for Mr Cooper's attention and spoke to Mr Cooper on 11 January 2005. Mr Gregg approved of Mr Gore QC being retained to give the advice required by the first defendant in relation to the s 69 notice.
[61]
[40] Mr Liuzzi telephoned Mr Kelly and asked him to meet Mr Gregg and Mr Cooper at the nightclub about preparation of plans to address the s 69 notice. On 14 January 2005 Mr Cooper, Mr Gregg and Mr Kelly attended at the premises for the meeting at which Mr Gregg gave an update on his negotiations with the Council. At this meeting Mr Gregg expressed to Mr Cooper that he could continue to act for the plaintiff, in addition to acting for the first defendant, in relation to the s 69 notice.
[62]
[41] Later that day Mr Cooper visited Mr Kelly and Ms French at their home. Although Mr Cooper did not make any note on the file and does not recall the occasion, he does accept that he had been to the home of Mr Kelly and Ms French and the second defendant's time billing report shows that on 14 January 2005 Mr Cooper had a conference with Mr Kelly and Ms French at their home "regarding lease damages and options" for which $400 was charged which indicates that the time charged was two hours. I am satisfied that Ms French and Mr Kelly are accurately recalling the occasion when they state that Mr Cooper stayed for dinner and was there for over two hours.
[63]
[42] I will deal with the evidence about the discussions that took place on Mr Cooper's visit to the home of Ms French and Mr Kelly, when dealing with whether Mr Cooper gave advice to them in relation to the plaintiff's obligations under the lease.
[64]
[43] On 17 January 2005 Ms French sent to Mr Cooper a list of losses incurred by the plaintiff in relation to the nightclub, as a result of not being able to trade.
[65]
[44] On 19 January 2005 Mr Cooper had one of the second defendant's employees follow up Mr Gregg to inquire whether or not the second defendant was to proceed to obtain the advice from counsel. Mr Gregg instructed the second defendant to wait for further instructions from him. On 20 January 2005 Mr Cooper reported to Ms French that he was being held up by Mr Gregg.
[66]
[45] Mr Cooper spoke to Mr Gregg on 25 January 2005 and was updated on the lodgement of the building application which Mr Gregg considered was likely to get QFRS approval, but Mr Gregg flagged that there was a future problem between the first defendant and the plaintiff over the plaintiff's concern about capacity issues with Liquor Licensing. Mr Cooper then reported to Ms French on Mr Gregg's update and in his note of that conversation recorded "I said - conflict is now a problem they need to protect themselves & agree with Fred to a post building compliance plan." The significance of Mr Cooper raising the potential conflict between the plaintiff and the first defendant did not make any impression on Ms French.
[67]
[46] Mr Gregg sent a written report to Mr Cooper on 25 January 2005 in which he advised of the steps he had taken on behalf of the first defendant since the meeting that was held at the premises. He confirmed that Barlow Gregg had lodged a building application with the Council on 24 January 2005 for modifications including the construction of a new fire exit located within 20 metres of the mezzanine floor stairway to the south-east corner of the premises that he considered should overcome the section 69 notice. Mr Gregg also reported that he had been approached by Mr Kelly and Ms French to recommend to Mr Liuzzi termination of the current lease, but that he had not raised that with Mt Liuzzi, as he was unsure of what benefits would flow to the first defendant with a termination of the lease at that time. Mr Gregg gave the formal instructions to brief counsel as to the prospects of success of the first defendant recovering damages from QFRS on the basis that the first defendant could anticipate a claim for significant damages from the plaintiff based on the issues raised by the s 69 notice.
[68]
[47] After receiving these written instructions from Mr Gregg, Mr Cooper had a telephone discussion with Mr Kelly. Mr Cooper made a note of the discussion which I accept is a record of the matters discussed, even though Mr Kelly does not recall this conversation. Mr Kelly told Mr Cooper about conversations which he had with Mr Liuzzi in which Mr Kelly conveyed that a limit of 650 was not the issue, but that the nightclub would not be able to put on bands and that he wanted to walk away, but that when Mr Liuzzi asked him whether that was what he wanted to do, he informed Mr Liuzzi that he wanted to fight, but it was achieving nothing. Mr Kelly told Mr Cooper that Mr Liuzzi had told him to ring Mr Cooper to get him to sue on Mr Kelly's behalf and that Mr Liuzzi said "We fight them together."
[69]
[48] Mr Cooper spoke to Mr Liuzzi by telephone on 27 January 2005 who confirmed the instructions to obtain advice from counsel on taking action in relation to the s 69 notice and to work together with the plaintiff to formulate a joint and complementary claim.
[70]
[49] The second defendant sent a brief to Mr Gore QC on 1 February 2005 on behalf of both the first defendant and the plaintiff in relation to the s 69 notice, although the second defendant expressly recognised the conflict of interests that involved. The second defendant requested advice of counsel as to how the plaintiff could be separately represented by "friendly" counsel that would allow the plaintiff's claim against the first defendant to be incorporated in the first defendant's claim in relation to the s 69 notice. The instructions sought counsel's advice for the first defendant in relation to its liability in respect of the s 69 notice and what actions it could take in relation to the s 69 notice. Mr Cooper read over to Ms French at least the facts incorporated into the instructions to ensure the observations about factual matters were accurate.
[71]
[50] On 23 February 2005 the Council approved the plans that had been submitted by Barlow Gregg for the modifications to the premises.
[72]
[51] On 3 March 2005 Ms French sent Mr Cooper a list of three creditors. She requested Mr Cooper to send a letter to them explaining why their accounts had not been paid. Those letters were sent by Mr Cooper on 11 March 2005 by facsimile, although each letter is dated 11 February 2005. Each letter requested an extension of two months to pay the account and contained the following paragraph:
[73]
"As you are no doubt aware the Bermuda Triangle Nite Club was were (sic) closed by Queensland Fire and Rescue Services and are (sic) no longer trading. Queensland Fire and Rescue Services closed the Nite Club on the basis of defects with the building structure. This was not an issue for the Nite Club but for the building owner. The closing of the Nite Club without notice has done immeasurable damage and it may be that the Club will never be able to trade again. We have sought advice from Queens Counsel on the matter and are expecting his advice in the near future. Our clients apologise for the delay in dealing with your outstanding accounts. We expected the advice from Counsel to have (sic) be returned to us at a much earlier juncture however the issues are significant and convoluted."
[74]
[52] The plaintiff received an email from a Liquor Licensing officer on 15 March 2005 confirming that the application to renew the extended hours permit to trade after 3am for the nightclub would be considered only after satisfactory completion of the rectification works required by the s 69 notice. The email advised that if that was not achieved by 30 April 2005, a new application for the extended hours may be required. The email also advised that a management plan would be required to cover matters such as patron safety, numbers of patrons allowed in the premises at any time, how that was to be supervised and dispersal of patrons. Mr Vlasits expanded on the proposed management plan in his email dated 16 March 2005. It contained more detail about what should be included in the proposed management plan, including details on how the plaintiff proposed to keep the number of persons on the premises at any one time to no more than 600. It also foreshadowed that a condition would be added to the licence requiring crowd controllers to be employed in specified ratios including a minimum of four crowd controllers for between 141 and 200 patrons and one crowd controller for each additional 100 patrons or part thereof. One of the proposed conditions was also that no more than 600 persons were on the premises at any one time.
[75]
[53] Mr Kelly first saw the plans that the first defendant had Barlow Gregg prepare for works to the premises that would meet the requirements of the s 69 notice on or about 20 March 2005 when he met Mr Liuzzi in his office and they went to the nightclub. Mr Kelly indicated to Mr Liuzzi that he did not think those plans would work for the business in relation to the office tills system and the location of post-mix machines.
[76]
[54] The second defendant received a draft of the memorandum of joint advice from Mr Gore QC and Mr Fynes-Clinton of counsel (the joint advice) on 21 March 2005. This advice expressed the opinion that there was a reasonably strong argument that the s 69 notice was not lawfully given and had no legal operation, but that there were procedures for QFRS to pursue its requirements in relation to the fire exits and travel distances under part 9A of the Act.
[77]
[55] Mr Cooper attended with Mr Sheldon of the second defendant on Mr Liuzzi and another director of the first defendant, Mr Travaglini, on 21 March 2005 to discuss the issues with respect to the building and the lease of the premises. Following that meeting, Mr Kelly attended at the site office used by the first defendant for a meeting with Mr Liuzzi at which Mr Travaglini was also present. At this meeting Mr Kelly was told that he owed three months' rent. Mr Liuzzi told Mr Kelly that he was not going to sue QFRS and asked Mr Kelly "What are we going to do with the building?" Mr Liuzzi also asked Mr Kelly, if he would go back into the premises. Mr Kelly responded to the effect that the business was not financially viable under the lease and that a new or amended lease may be an option. Although Mr Travaglini's recollection of this response was not exactly the same as Mr Kelly's recollection, it was of sufficiently similar effect, in that he recalled Mr Kelly said that it was not financially viable to run a nightclub with 600 people, to satisfy me that Mr Kelly conveyed to Mr Liuzzi that the plaintiff may have a difficulty in conducting the nightclub under the existing lease, if there were a restriction on the number of patrons. Mr Liuzzi asked Mr Kelly to return the keys of the premises. Mr Kelly refused to hand back the keys and advised that he would seek legal advice. Mr Kelly left the meeting in a distressed state.
[78]
[56] In submissions, it was suggested on behalf of the first defendant that Mr Liuzzi conveyed to Mr Kelly at this meeting that the first defendant was proposing to undertake the works to rectify the premises. In cross-examination, Mr Kelly stated that Mr Liuzzi did not tell him that he was going to complete the works, although Mr Kelly conceded that Mr Liuzzi "asked me if I could go back in there, that's for sure, yes." Mr Travaglini's evidence did not suggest that Mr Liuzzi informed Mr Kelly in an unqualified way that the first defendant was proposing to undertake the works. Mr Travaglini expressed it in this way:
[79]
"Well, Fred Luizzi (sic) asked Daniel, Daniel Kelly if we were to fix the problem he had with the nightclub, he would go back and run the nightclub and he flatly refused to do so and he said, 'I'm not interested in running the nightclub unless I can put over 1,000 people in the nightclub'."
[80]
[57] I find that at this meeting with Mr Kelly on 21 March 2005 that Mr Liuzzi was exploring options with Mr Kelly, including ascertaining what Mr Kelly's response was, if the first defendant did undertake the works. That process, however, fell short of advice from Mr Liuzzi to Mr Kelly that the first defendant was proposing to undertake the works.
[81]
[58] I accept Mr Kelly's evidence that he was trying to get a better deal from Mr Liuzzi at this meeting. It made commercial sense for the plaintiff to endeavour to negotiate the terms of the lease, because of the prospect of conditions imposed by Liquor Licensing as to capacity and additional security staff. That the meeting involved negotiations that did not reach any conclusion is consistent with Mr Kelly's refusal to hand the keys back without seeking legal advice.
[82]
[59] From that time Mr Kelly had no further personal contact with Mr Liuzzi and Mr Kelly and Ms French considered that their relationship with the first defendant had broken down. Ms French telephoned Mr Cooper after Mr Kelly's meeting with Mr Liuzzi. Mr Cooper has recorded that Ms French told him that Mr Liuzzi said to Mr Kelly that he was not going to sue QFRS, he asked for the keys to the nightclub back "as not getting rent," and the Liquor Licensing problems discussed between them. Mr Cooper has made a notation that reflected his surprise at finding out that the rent was not being paid. That notation is consistent with and I accept Mr Cooper's evidence that was the first he had heard that the plaintiff was not paying the rent. Mr Liuzzi attended on Mr Cooper the following day and gave instructions that the first defendant wanted the premises and the keys back. Mr Cooper spoke to Ms French and informed her that the plaintiff needed to seek legal advice from other solicitors.
[83]
[60] The plaintiff consulted solicitor Mr Justin Geldard of Suthers Lawyers on 23 March 2005. He was provided with a copy of the joint advice. On 30 March 2005 Ms French sent to Mr Geldard copies of letters and correspondence that she had concerning the dealings that Mr Cooper had with the relevant authorities and Ms French requested Mr Geldard's opinion on the plaintiff's claims against the first defendant and QFRS and referred to the plaintiff's "financial position & hardship this is causing & will continue to cause." Ms French also requested advice on whether the plaintiff would be required to continue business under the same lease should the first defendant undertake the alterations.
[84]
[61] In a letter dated 4 April 2005 the plaintiff's solicitors advised the second defendant that the plaintiff required the first defendant to comply immediately with the requirements of the s 69 notice and undertake the various rectification works required to have the building made compliant with the provisions of the Act.
[85]
[62] On 6 April 2005 Mr Geldard sent a brief to Mr Howe of counsel to advise the plaintiff about the s 69 notice and whether it was the plaintiff or the first defendant that was obliged under the lease to carry out the rectification works and whether the plaintiff had an action against the first defendant or any other party arising from the warranty in clause 6.2 of the lease.
[86]
[63] On 20 April 2005 Mr Geldard received instructions from the plaintiff to request extensions from various creditors of the plaintiff in relation to outstanding accounts on the basis that the plaintiff had not been trading and would need further time to pay.
[87]
[64] The second defendant by letter dated 20 April 2005 responded to the plaintiff's solicitors' letter dated 4 April 2005. They asked for confirmation that should the first defendant expend the moneys to modify the building for the purpose of the s 69 notice the plaintiff would re-enter the premises under the existing lease terms. The plaintiff did not respond to that inquiry.
[88]
[65] The first defendant served a notice to remedy breach of covenant dated 5 May 2005 (the breach notice) under s 124 of the Property Law Act 1974 on the plaintiff. The notice claimed that the plaintiff was in arrears for rent for January to April 2005 of $47,597.08 and had failed to pay outgoings under the lease for rates and insurance of $9,261.08.
[89]
[66] The plaintiff took advice from its solicitors and counsel after being served with this notice. Mr Geldard recalled that by the time he met with Mr Kelly and Ms French on 9 May 2005, they were struggling financially. He gave them an estimate of the legal costs for taking proceedings in the Supreme Court or the Liquor Appeals Tribunal of between $20,000 and $40,000 and they instructed they could not meet those costs. Mr Geldard recorded on his file note for his attendance of 9 May 2005 his advice "Don't sell fittings until business closed."
[90]
[67] On 12 May 2005 Mr Geldard spoke by telephone to Ms French. He was asked whether the plaintiff should take the fixtures from the premises. Ms French and Mr Kelly had conveyed to Mr Geldard that they were concerned that it was likely that the plaintiff's business would close down, but Mr Geldard could not say whether their concern was due to financial pressures or as a result of their dealings with the first defendant.
[91]
[68] On 13 May 2005 Mr Geldard received a letter from Ms French that made it clear she was accepting that it was likely that the first defendant would terminate the lease and she made arrangements to meet Mr Geldard at the premises to give him the keys and an inventory. Ms French was also seeking advice on how to protect the plaintiff's equipment and business name.
[92]
[69] Mr Howe of counsel provided a written memorandum of advice dated 13 May 2005 to Mr Geldard. Mr Howe expressed the view that there was tension between clauses 6.2 and 9.2 of the lease and concluded that the plaintiff was obliged to carry out the works to comply with the s 69 notice, but may be able to set off or counter claim against the first defendant for the costs of doing so. A conference was held on 19 May 2005 attended by Ms French and Mr Kelly with Mr Geldard and Mr Howe.
[93]
[70] The plaintiff's solicitors wrote to the second defendant on 23 May 2005 asserting that the breach notice was invalid and that the first defendant was obliged under the lease to attend to the structural alterations required to be made to comply with the s 69 notice. The plaintiff's solicitors claimed that the plaintiff's inability to make rent payments since January 2005 was as a result of the first defendant's fundamental breach of the lease. The plaintiff's solicitors also claimed that the plaintiff had been informed by the first defendant that it was disputing with the Council the rates assessment that was the basis for the claim for rates in the breach notice and that the plaintiff had never received a copy of the premium notice that related to the claim for the annual insurance premium as an outgoing in the breach notice. The plaintiff's solicitors advised that they would be forwarding the plaintiff's cheque in payment of the insurance premium within the next seven days (which was not done). The plaintiff's solicitors also advised:
[94]
"Furthermore, we note that your client, gave our clients verbal instructions not to pay any further expenses or overheads in relation to the nightclub. This advice was conveyed to our clients in March, 2005 when your client was in Hervey Bay to receive from your office the advice of Mr Gore QC."
[95]
[71] Because the plaintiff did not remedy the breaches specified in the notice or otherwise take action in respect of the notice, the first defendant entered and took possession of the premises and purported to terminate that lease on 8 June 2005. On the same date the first defendant's solicitors responded to the plaintiff's solicitors' letter dated 23 May 2005, noting that the plaintiff had made no attempt to challenge the s 69 notice and had given no indication that it was likely to do so and had refused or neglected to pay the rent and attempted to shift all blame to the first defendant. The letter denied the plaintiff's allegations that the rates and insurance premiums were not owing and made the point that, if that was what the plaintiff thought the position was, the plaintiff could have paid the outstanding rent in any case.
[96]
[72] The first defendant undertook the works at the premises to meet the concerns of QFRS between June and October 2005. Those works included constructing a fire tunnel out of reinforced blockwork walls with an opening made through the existing external concrete wall of the building to provide an additional fire exit and address the issue of travel distances within the premises to a fire exit. A certificate of classification for the premises which covered these additional works was issued on 14 October 2005. A new lease of the premises was granted to a third party as from 1 November 2005. The first defendant sold the chattels in the premises that were the subject of the mortgage debenture to the third party on 11 November 2005 which reduced the debt owed by the plaintiff under the mortgage debenture. The debt was further reduced in November 2009 by sale proceeds from Mr Kelly's property.
[97]
[73] As between the plaintiff and the first defendant, the following issues are raised in this proceeding:
[98]
(a) did the first defendant breach the warranty in clause 6.2 of the lease?
[99]
(b) which party to the lease was obliged to carry out the alterations to the premises to comply with the s 69 notice?
[100]
(d) what was the legal effect of the termination of the lease?
[101]
(e) what was the cause of the loss of the plaintiff's business?
[102]
(f) is the plaintiff entitled to any damages from the first defendant?
[103]
(g) what is owing by the plaintiff to the first defendant under the lease and the
[104]
[74] As between the plaintiff and the second defendant, the following issues are raised in this proceeding:
[105]
(a) what was the extent of the plaintiff's retainer of the second defendant?
[106]
(b) what advice was given by Mr Cooper to the plaintiff in relation to its obligations under the lease?
[107]
[75] As between the first defendant and the second defendant, the following issues are raised in this proceeding:
[108]
(a) did a retainer exist between the first defendant and the second defendant for the period preceding 7 January 2005?
[109]
(b) did the second defendant breach its duty owed to the first defendant between 7 January and 21 March 2005?
[110]
[76] The plaintiff asserts that the warranty in clause 6.2 of the lease covered the defects identified by the s 69 notice. The first defendant asserts that the warranty in clause 6.2, as a matter of construction of the clause within the lease, applied only as at the date of commencement of the lease. In order to give this limited construction, the first defendant relies on the circumstances in which the 2002 refurbishments to the premises were undertaken at the request and under the direction of Mr Kelly prior to the granting of the lease to the plaintiff. Despite Mr Kelly's involvement in the 2002 refurbishments, the first defendant was the owner of the building and the parties proceeded to enter into the lease after the 2002 refurbishments were underway. The warranty in clause 6.2 is expressed in clear language and there is nothing in its terms or arising from the circumstances in which the lease was granted that justifies limiting its application to the commencement date of the lease.
[111]
[77] Although the first defendant called Mr Edwards who worked for the Council at the time the 1997 certificate of classification issued for the premises and was able to give evidence of the assessment of travel distances to fire exits that he considered permitted the issue of that certificate of classification, the expert evidence of accredited building certifier Mr David Kay was a more extensive and persuasive analysis. On the basis of Mr Kay's evidence which I accept, the premises never complied with the Act in relation to the distances to fire exits. Mr Kay was of the opinion that the approved building plans in 1997 did not comply with the BCA, because the distance between alternative paths of travel was less than 6 metres and the travel from the rear mezzanine stairway which exceeded 20 metres was not provided in approximately opposite directions. Mr Kay considered that the alterations effected to the premises in 2002 required a building approval, and there should have been a certificate of classification sought for the altered premises. Mr Kay was also of the opinion that the premises as shown in the May 2002 drawing did not comply with the BCA for exits and travel distance. Mr Kay confirmed that the work shown in the January 2005 plan would achieve compliance with the BCA for exits and travel distance and that it was structural work. Mr Kay also expressed the opinion that the 2005 work was necessary, irrespective of the occupancy numbers and use made of the premises within the class 9b classification.
[112]
[78] The premises never complied with s 104C of the Act and therefore the premises were always vulnerable to being closed down for lack of compliance with the Act with the consequence of being unable to be used for the permitted purposes under the lease or for any other purposes that would be covered by the class 9b classification. In addition, the occupation of the premises without a certificate of classification based on the 2002 alterations to the premises was unlawful, as a result of a breach of s 95 of the Standard Building Regulation 1993.
[113]
[79] It is not necessary to decide in this matter whether the s 69 notice was validly issued. The issue of the s 69 notice brought to the attention of the plaintiff and the first defendant the defect in the premises that could have been the subject of a proper requisition by QFRS or action by the Council. That defect amounted to a breach of the warranty in clause 6.2 of the lease by the first defendant.
[114]
Which party was obliged to alter the premises to comply with s 69 notice?
[115]
[80] Although there may have been means by which the QFRS could have taken action in relation to the deficient fire exit distances applying to the premises, other than the issue of the s 69 notice, the s 69 notice had the effect of initiating remedial action in respect of the premises.
[116]
[81] It is common ground between the plaintiff and the first defendant that the nature of the works required to comply with the s 69 notice was structural. The effect of clauses 9.1 and 9.2 of the lease is that the plaintiff was not required to undertake the structural works to comply with the s 69 notice. Although the structural alterations did not fall strictly within the description of the works that the first defendant was obliged to undertake pursuant to clause 9.3 of the lease, as between the first defendant and the plaintiff, the first defendant's responsibility for undertaking those structural alterations arose, because it was otherwise in breach of the warranty contained in clause 6.2 of the lease.
[117]
[82] As a result of the first defendant's breach of the warranty in clause 6.2 of the lease, the plaintiff was prevented from trading. This deprived the plaintiff of the benefit of the lease for a not insignificant period. There was nothing in the lease that prevented the plaintiff from claiming a set off for the damages it was suffering as a result of being unable to trade due to the first defendant's breach of the warranty in clause 6.2 of the lease against its obligations to pay rent and other outgoings under the lease: Knockholt Pty Ltd v Graff [1975] Qd R 88, 90, 92. There were good grounds for the plaintiff to challenge the giving of the breach notice by the first defendant for the plaintiff's failure to pay rent since January 2005 and the outgoings under the lease. Relevantly for analysing the legal significance of what subsequently occurred, the first defendant could not proceed to forfeiture of the lease, when it was in breach of the warranty in clause 6.2 of the lease. If the first defendant was not entitled to seek the forfeiture of the lease, it was not proper for the defendant to serve the breach notice on the plaintiff.
[118]
What was the legal effect of the termination of the lease?
[119]
[83] The plaintiff did not challenge the breach notice or seek relief against the forfeiture of the lease and did not prevent the first defendant from taking possession of the premises on 8 June 2005.
[120]
[84] On the basis that the first defendant should not have given the breach notice because of its breach of the warranty in clause 6.2 of the lease, the taking of possession of the premises by the first defendant on 8 June 2005 which was accepted by the plaintiff brought the lease to an end. It is not appropriate to characterise those events as a termination or forfeiture of the lease by the first defendant. It is properly characterised as the bringing of the lease to an end by a surrender by operation of law: Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687, 694. .
[121]
What was the cause of the loss of the plaintiff's business?
[122]
[85] The factual issue that must be determined between the plaintiff and the first defendant is whether the plaintiff was willing to continue to operate the business, if there were a capacity limit of 510 or 600 patrons and/or the imposition by Liquor Licensing of the foreshadowed condition requiring additional security staff. The view expressed in evidence by Ms French and Mr Kelly is that if a capacity limit were imposed on the nightclub, the plaintiff would have been able to make adjustments to the operation of its business to overcome that restriction, such as by imposing a cover charge or increasing drink prices. The first defendant relies on various statements made by Ms French or Mr Kelly between December 2004 and March 2005 to the effect the business was not viable, if there were a restriction on the capacity, to assert that was the cause of their failure to operate the business after 7 January 2005.
[123]
[86] Mr Kelly had been involved in running a nightclub from the premises since 1997 without any restraint imposed by Liquor Licensing or otherwise on the number of patrons who could attend the premises, other than the finite capacity of the premises. It is against this background that the initial reaction of Mr Kelly and Ms French to the suggestion by Mr Vlasits made on 20 November 2004 that the capacity of the premises was limited to 500 to 600 persons that was then formalised by the notice from Liquor Licensing on 9 December 2004 imposing the maximum occupancy of 510 persons must be considered. The protests of Ms French and Mr Kelly at the consequences that such a maximum occupancy had for the plaintiff's business was directed at procuring the removal of a restriction that they considered arbitrary and unrelated to the operation of the nightclub.
[124]
[87] The plaintiff's business at the time it was forced to cease trading was a valuable asset. The real consequences of the maximum occupancy was to stop the practice of putting on a band which required sales greater than 600 tickets either to attract the band or to make a profit after allowing for the additional costs of the band and to require some system for controlling the number of patrons within the premises at any one time. Most of the time the nightclub operated with less patrons than the proposed limit, but I accept the evidence of Ms French and Mr Kelly that if a maximum occupancy were imposed they would have continued with adjustments to their manner of operation of business, rather than abandon a valuable business. Their success to that stage in trading supports this conclusion.
[125]
[88] Mr Kelly's attitude to Mr Liuzzi on 21 March 2005 about the business not being viable was expressed in circumstances where Mr Kelly was endeavouring to get Mr Liuzzi to renegotiate on the lease. The course that meeting took undoubtedly came as a surprise to Mr Kelly, because there was a change in the first defendant's attitude of support for the plaintiff.
[126]
[89] The pressure that Ms French kept on Mr Cooper to ascertain what was happening in relating to obtaining the joint advice on the s 69 notice was consistent with her willingness for the plaintiff to resume trading.
[127]
[90] The failure of the plaintiff to respond to the request for a commitment from the first defendant made in its solicitors' letter of 20 April 2010 loses significance when it was a demand made in circumstances where the first defendant was in breach and was making no attempt to address the damages being sustained by the plaintiff as a result of the breach.
[128]
[91] It is unreasonable for the first defendant to assert that the plaintiff failed to mitigate its loss by not diligently pursuing a judicial review application in respect of the s 69 notice, when the plaintiff was waiting for the joint advice with the concurrence and encouragement of the first defendant. The joint advice recognised that a technical victory in relation to the s 69 notice would not have addressed the underlying problem with the premises. The change in attitude of the first defendant on 21 March 2005 required the plaintiff to seek further legal advice. Events then overtook the plaintiff. These events did not alter the fact that the loss of the plaintiff's business was caused by the business being closed on 7 January 2005 due to the first defendant's breach of warranty.
[129]
[92] Three experts gave evidence on the value of the plaintiff's business as at 7 January 2005: Mr Eales who is a valuer and Mr Hains and Mr Box who are accountants. Mr Eales and Mr Hains were called by the plaintiff and Mr Box was called by the second defendant. The plaintiff primarily relied on Mr Eales' valuation. The first defendant relied on Mr Box's report. Mr Hains (who did reports dated 20 and 25 July 2006) and Mr Box (who did a critique of the reports of Mr Hains and Mr Eales on 21 March 2009 and a report dated 5 February 2010) conferred and prepared a joint statement of reports dated February 2010. In the joint statement of experts, the accountants identified the areas of agreement between them and the areas of difference which remained following their conferences. Both Mr Hains and Mr Box assessed future maintainable earnings and applied a capitalisation rate to calculate the capitalised value of the business and also applied an asset based approach for the assets and liabilities surplus to the operations of the business.
[130]
[93] Mr Box did an addendum to his report dated 17 March 2010 and Mr Haines did a response to that addendum also dated 17 March 2010. Mr Hains and Mr Box conferred on these further reports on 19 March 2010. They prepared a joint statement of experts (exhibit 11) in which they noted that they were unable to agree constructively on any issues pertaining to the addendum to Mr Box's report or the response to that addendum prepared by Mr Hains. The four main issues of disagreement were identified as:
[131]
(a) Mr Hains does not consider that the customer numbers adopted by Mr Box reflected actual patronage of the nightclub, but that they may be used as a minimum basis for calculation;
[132]
(b) Mr Hains does not consider that the imposition of a limit on patronage would lead to the value of the business reducing to nil, but that it was more reasonable to proceed on the basis that the proprietor of the business would provide an operational response to maintain profitability;
[133]
(c) Mr Box did not consider it reasonable to suggest that the plaintiff would be able to increase their profitability to the extent indicated in Mr Hains' addendum report;
[134]
(d) Mr Box agrees that some saving and labour costs may be experienced by the business, but it would depend on staffing mix and security requirements and it was not possible to estimate a potential saving based on the information provided.
[135]
[94] In valuing the plaintiff's business as at 7 January 2005, it was common ground that Ms French worked 15 hours per week in the business and that Mr Kelly's hours were in the range of 14 to 16 hours for the two nights per week that the business operated.
[136]
[95] Mr Eales valued the fair market value of the plaintiff's business (including plant, equipment and goodwill) as at 7 January 2005 at $500,000. Mr Eales' valuation is based on sales of nightclub businesses in other Queensland regional centres. These sales post dated the date of valuation and the nightclub businesses did not appear comparable to the plaintiff's business in the circumstances in which they operated. In addition, Mr Eales made use of trading figures of the business that succeeded the plaintiff's business in the premises to calculate maintainable earnings. He also excluded the proprietor's wages and depreciation in these calculations which increased the net profit. Despite Mr Eales' specific industry experience, there is substance in the criticisms made by the first defendant of Mr Eales' valuation based on the absence of comparable sales around the valuation date, the use of the trading figures of the successor business where it appeared the successor business was operated on a different basis to the plaintiff's business, because it generated significantly higher wages figures, and Mr Eales' approach to depreciation and the proprietor's wages.
[137]
[96] In the first joint statement of experts, both Mr Hains and Mr Box agreed on the assessment of the loss of the business as at 7 January 2005 as $353,594 based on assessing future maintainable earnings based on the average earnings for the plaintiff's business for the year ended 30 June 2004 and the annualised results from the period ended 31 January 2005, that the proprietor worked 15 hours per week and trading from 31 January 2005 onwards would have continued at pre-closure levels.
[138]
[97] Further information was given to Mr Hains and Mr Box for the March reports. The instructions given to, and assumptions made, by Mr Hains accord with the evidence that I accept and the conclusions that I have reached about the actual operations of the nightclub before it closed down and the strategies that Mr Kelly would have implemented on behalf of the plaintiff to address any limit on the number of patrons that was imposed by Liquor Licensing. From the loss of the business assessed at the date of cessation of the business by Mr Hains of $353,594 there needs to be deducted the value of the plant and equipment that was realised on the sale of that plant and equipment to the successor tenant. I therefore assess the damages for loss of business due to the first defendant's breach of warranty as $213,594. The plaintiff is entitled to interest on that sum from 7 January 2005 to the date of judgment pursuant to s 47(1) of the Supreme Court Act 1995.
[139]
What is owing by the plaintiff to the first defendant?
[140]
[98] The first defendant's counterclaim is against the plaintiff and Ms French as the guarantor of the plaintiff's obligations. The first defendant's breach of the lease which prevented the plaintiff from trading from 7 January 2005 prevents recovery of the amounts claimed by the first defendant under the lease subsequent to that date. The only rent that the first defendant can successfully recover from the plaintiff is the rent for seven days owed for January 2005 up until trading was suspended which is an amount of $2,776.50. The only outgoings that the first defendant can claim are for the Council rates for 2003/2004 ($6,353.48), the proportionate part of the Council rates for 2004/2005 until 7 January 2005 ($4,773.55) and 2004 water usage of ($351.35). This makes a total amount recoverable by the first defendant against the plaintiff under the lease (and Ms French under her guarantee) of $14,254.88 on which interest must be paid in accordance with the lease.
[141]
[99] The plaintiff's reply and answer to the first defendant's counterclaim sets up a claim that it would be unconscionable for the first defendant to enforce the mortgage debenture against the plaintiff and the guarantee against Ms French. The enforcement by the first defendant of the mortgage debenture and the supporting guarantee which secured a debt that was incurred by the plaintiff at the commencement of the lease where the debt reflected the value of the expenditure by the first defendant on the refurbishments does not attract the principle of unconscionability: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51 at [11] and [14].
[142]
[100] There does not appear to be any defence to the outstanding amount under the mortgage debenture which was $92,646.88 as at 12 November 2009 with interest at 14% per annum from that date until the date of judgment.
[143]
What was the extent of the plaintiff's retainer of the second defendant?
[144]
[101] The plaintiff pleads that on or around 7 January 2005 it retained the second defendant through Mr Cooper to provide advice about the s 69 notice. The plaintiff was aware that from the time of the issue of the s 69 notice the second defendant was also acting on behalf of the first defendant in relation to the s 69 notice. When the s 69 notice issued, the plaintiff and the first defendant had a common interest in dealing with the s 69 notice.
[145]
[102] In paragraph 25A of the statement of claim, the plaintiff pleads that it was an implied term of its retainer of the second defendant that the second defendant would exercise all due care and skill in advising the plaintiff in respect of its rights and obligations under the lease and in respect of the steps that it ought to take to ensure the lease was not terminated by the first defendant. The second defendant denies those alleged terms could be implied into the retainer that existed between the plaintiff and the second defendant.
[146]
[103] Mr Cooper was cognisant of the difficult position that the second defendant was placed in acting for both the plaintiff and the first defendant in relation to the s 69 notice. That is acknowledged in the instructions that he gave Mr Gore QC to advise in relation to the s 69 notice. In view of the circumstances that had given rise to the first defendant's referral of the plaintiff to the second defendant for legal advice in December 2004 on the capacity issue which progressed to requiring advice in relation to the s 69 notice, the retainer by the plaintiff of the second defendant was confined to giving advice on those specific matters.
[147]
Did Mr Cooper give advice to the plaintiff in relation to its obligations under the lease?
[148]
[104] The nature of the advice that the plaintiff alleges was given by the second defendant through Mr Cooper is set out in paragraphs 26, 27, 28 and 30 of the statement of claim that:
[149]
(a) it was the first defendant's obligation to carry out the rectification work pursuant to the lease in order to comply with the s 69 notice;
[150]
(b) the plaintiff should not operate the business until the rectification work was carried out on the premises in compliance with the s 69 notice;
[151]
(c) the plaintiff should not re-enter and trade in the premises until the first defendant had completed the rectification work pursuant to the s 69 notice; and
[152]
(d) the plaintiff should not pay rent to the first defendant until the rectification work was completed.
[153]
[105] According to Ms French, Mr Cooper told Mr Kelly and her on the evening of 14 January 2005 when he was at their home that they had to sue the first defendant. She said that Mr Cooper advised them that they had 17 years left on the lease and that at $100,000 per year, they would be entitled to claim up to $1.7m for damages, if the first defendant did not fix up the building, because it was his responsibility to fix the building. She said that he asked her to do up a list of what the plaintiff would lose, if the nightclub were not reopened. Ms French said that on that occasion and during other conversations with Mr Cooper, he told her not to pay the rent, because the first defendant had to fix the building.
[154]
[106] Mr Kelly recalled that during Mr Cooper's visit to his home on 14 January 2005 they were discussing the nightclub and Mr Cooper advised that it was the first defendant's responsibility to do the works at the nightclub and Mr Cooper advised Mr Kelly not to pay any rent at the nightclub, but to pay outgoings. Mr Kelly recalled that Mr Cooper asked for a copy of the lease which Mr Kelly obtained for him. Mr Kelly stated that Mr Cooper explained that the plaintiff should not pay the rent, because it could not trade in the premises. Mr Kelly also said that Mr Cooper told them that the plaintiff should not go back into the premises under the existing lease and that the plaintiff had to be put back in the position it was before the premises were closed down.
[155]
[107] Mr Cooper accepts that he asked Ms French to provide the list of losses incurred by the business, as a result of being closed, on a hypothetical basis for the purpose of putting together the first defendant's claim against QFRS. Mr Cooper considers that he would never have emphatically advised that it was the first defendant's responsibility to fix up the premises, but if he did say something to that effect it was in the context of considering what the position was with QFRS, if the s 69 notice were valid. Mr Cooper was adamant, however, that he did not advise Ms French (or Mr Kelly) that they did not have to pay rent to the first defendant.
[156]
[108] From the outset of being informed of the issue of the s 69 notice, Mr Cooper had doubts about the validity of the s 69 notice and considered that the s 69 notice raised a building issue which made it likely that it was a matter for the first defendant, rather than the plaintiff. Mr Cooper was also cognisant, however, that the first defendant's intention was to obtain the advice of senior counsel on the validity of the s 69 notice before taking any action. In those circumstances, I accept that Mr Cooper did not advise Ms French and Mr Kelly in terms that it was the obligation of the first defendant to carry out the works required to the premises in order to comply with the s 69 notice, but it is likely that he conveyed the tentative views he had formed on this aspect, pending the receipt of the joint advice, for the purpose of explaining why he wanted details of the losses that the plaintiff was incurring, as a result of being unable to trade.
[157]
[109] Any advice that Mr Cooper gave to Ms French and Mr Kelly, pending receipt of the joint advice, on the effect of the s 69 notice had to convey that the plaintiff was unable to trade from the premises, as that was the effect of the terms of the notice. That was not assuming an additional obligation of giving advice to the plaintiff on the terms of the lease.
[158]
[110] I accept Mr Cooper's evidence that he did not advise Ms French and Mr Kelly not to pay the rent under the lease to the first defendant. That is consistent with the surprise he recorded when informed on 21 March 2005 that the plaintiff had not been paying rent. It is also consistent with the care with which Mr Cooper approached the potential conflict of interest between the plaintiff and the first defendant.
[159]
Did the first defendant retain the second defendant prior to 7 January 2005?
[160]
[111] The first defendant pleads that it retained the second defendant to advise it in relation to the notice given by QFRS on 9 December 2004 to the plaintiff limiting the capacity of the nightclub to 510 persons.
[161]
[112] There was no reference to any such retainer in Mr Liuzzi's affidavit. Reliance by the first defendant for proof of the retainer on a reference to Mr Liuzzi in a file note made by Mr Cooper on 17 December 2004 was not supported by Mr Cooper's explanation of that file note, which I accept, that it was a note made after Mr Cooper had researched the provisions of the Act and listed possible steps to take including informing, or having Ms French inform, Mr Liuzzi of the failure of the building to comply with the Act. The other document (a file opening sheet) on which the first defendant relied to prove that the second defendant was also retained by the first defendant from 21 December 2004 was satisfactorily explained away by one of the current partners of the second defendant in his affidavit sworn on 30 April 2010 (exhibit 33).
[162]
[113] The first defendant has failed to prove that it retained the second defendant prior to 7 January 2005.
[163]
Did the second defendant breach its duty owed to the first defendant after 7 January 2005?
[164]
[114] The only aspect of the first defendant's claim against the second defendant for breach of duty after 7 January 2005 that is set out in paragraph 62 of the first defendant's counterclaim that remained in issue at the conclusion of the trial was the allegation that depends on the finding that the plaintiff did not pay rent (and outgoings) from January 2005 in consequence of advice given by Mr Cooper to the plaintiff. In view of my finding that Mr Cooper did not advise the plaintiff not to pay the rent to the first defendant, the first defendant has no basis for pursuing a claim against the second defendant.
[165]
[115] The plaintiff has succeeded in its claim against the first defendant and the first defendant has succeeded partly on its counterclaim against the plaintiff and Ms French. The plaintiff has been unsuccessful in its claim against the second defendant. The first defendant has been unsuccessful in its claim against the second defendant.
[166]
[116] I will hear submissions from the parties on the terms of the orders that should be made to reflect these outcomes.
[167]
[117] I will also give the parties the opportunity to consider these reasons, before hearing submissions on appropriate costs orders.
[168]
[118] I will therefore adjourn the proceeding to a date to be fixed for the purpose of finalising the terms of the orders and the issue of costs.