Danel Investments Pty Limited v Nexstar Investments Pty Limited & Ors

1. The plaintiff (Danel) is, and always has been, a corporation owned and controlled by Angelo Neluschi and Alyson Pevreal. Mr Neluschi and Ms Pevreal are husband and wife.

2. In late 2005, Mr Neluschi and Ms Pevreal were casting around for a suitable business in which to invest and which could be managed by Ms Pevreal with little input from Mr Neluschi, who was a commercial construction site manager and did not have the time or inclination to be involved full-time in a business venture of his own.

3. They saw an advertisement for the sale of a brothel and escort agency business in Fyshwick, ACT, which was at that time trading under the name "Tiffany's" (the brothel business).

4. Danel was incorporated on 17 October 2005 for the specific purpose of acquiring the brothel business.

5. By Agreement for Sale of Business entered into on or about 18 November 2005, between Danel, as purchaser, and Jillian Norma Ponga, as vendor, Danel agreed to purchase the brothel business for $120,000. At that time, the brothel business was being conducted from premises located on the first floor of the building known as 72 Barrier Street, Fyshwick, ACT (the Barrier Street property). Those premises were described as Unit 6 (Unit 6). Unit 6 took up approximately half of the floor space on the first floor of that building. The other half was divided into five office suites known as Units 1-5. A landing separated Unit 6 from Units 1-5.

6. Ms Ponga occupied Unit 6 pursuant to a registered sublease dated 6 April 2004 (RN 1370131 registered on 7 May 2004) (the sublease) granted to her by the owners of the Barrier Street property as at April 2004, Eric Lee and Shirley Esme Lee. The sublease was for an initial term of five years commencing on 1 April 2004 and ending on 31 March 2009. Ms Ponga had an option to renew the sublease for a further period of five years.

7. At about the same time as Mr Neluschi and Ms Pevreal were looking to buy the brothel business, Mr and Mrs Lee sold the Barrier Street property to Christos Vizovitis and Georgia Vizovitis for $1,200,000. That sale was completed on 3 November 2005. Mr and Mrs Vizovitis are the defendants in proceeding No SC 470 of 2007, which is one of two sets of proceedings to be determined by these Reasons for Judgment.

8. The Agreement for Sale of Business provided that the purchase of the brothel business was conditional upon the sublease being transferred to Danel. It also provided for the transfer of the business name "Tiffany's" and for the sale of all of the goods, chattels, plant and equipment located in Unit 6.

9. Completion of the sale of the brothel business took place on 28 November 2005. At that time, Danel did not perfect the transfer of the sublease (although a Deed of Assignment whereby the lessee's interests in and rights under the sublease were assigned to Danel by Ms Ponga was ultimately executed) and failed to attend fully to the transfer of certain business names and the brothel licence attached to Unit 6.

10. By about May 2006, Mr Neluschi and Ms Pevreal had decided to sell the brothel business. They took steps to advertise the sale and secured an agreement in principle for the sale of that business to David James Campbell and Fulvio Gobeo, who are the second and third defendants respectively in proceeding No SC 256 of 2007, for the price of $80,000. Proceeding No SC 256 of 2007 is the other proceeding which these Reasons for Judgment determine. Messrs Campbell and Gobeo later sought to substitute Nexstar Investments Pty Limited (Nexstar), which is the first defendant in that proceeding, as the entity which would acquire the brothel business from Danel. Danel agreed to this substitution.

11. However, the sale to Nexstar was never consummated. Nexstar and its principals discovered that the sublease had remained in the name of Ms Ponga after the sale of the brothel business to Danel and that no Transfer of Sublease instrument recording the transfer of the sublease from Ms Ponga to Danel had ever been registered on the title to the Barrier Street property. They also discovered that Danel was not the registered proprietor of the business names associated with the brothel business although, under the Agreement for Sale of Business, it probably had the right to compel Ms Ponga to transfer those business names to it.

12. Nexstar and its principals took advantage of these circumstances. They negotiated a fresh lease of Unit 6 with the owners of the Barrier Street property, took a lease of the adjacent premises (Units 1-5), gained control of some of the business names associated with the brothel business and participated in a lockout of Danel from Unit 6.

13. Having taken possession of Units 1-5 in late November 2006 and having commenced building works there, Nexstar, with the approval of Mr and Mrs Vizovitis, knocked down the wall which separated Units 1-5 from Unit 6, took possession of Unit 6 and commenced to integrate physically Units 1-5 with Unit 6. Of necessity, these steps led to Danel being excluded from Unit 6. That exclusion took place some time between about 8 December 2006 and 23 December 2006.

14. Thereafter, the whole of the first floor of the Barrier Street property was refurbished. Nexstar then commenced to operate a brothel and escort agency business from the refurbished consolidated premises (being a combination of Units 1-5 and Unit 6) trading under the name "Tiffany's". Other business names were used in advertising for that business, some of which were associated with the brothel business formerly conducted at Unit 6 by Ms Ponga and subsequently by Danel.

15. On 13 April 2007, Danel commenced an action against Mr and Mrs Vizovitis in the Magistrates Court at Canberra (No CL 12 of 2007). On the same day, Danel commenced a proceeding in this Court against Nexstar, Mr Campbell and Fulvio Gobeo (No SC 256 of 2007).

16. In the Magistrates Court proceeding, Danel sued Mr and Mrs Vizovitis for breach of the covenant for quiet enjoyment and the covenant granting exclusive possession of Unit 6 contained in the sublease which it asserted had been assigned to it by Ms Ponga with the knowledge, consent and approval of Mr and Mrs Vizovitis. In that proceeding (which became No SC 470 of 2007), Danel also alleged that Mr and Mrs Vizovitis had breached s 22 of the Leases (Commercial and Retail) Act 2001 (ACT) (the Leases Act) by acting in an unconscionable, harsh and oppressive way towards Danel and had breached s 81 of that Act by materially inhibiting Danel's access to Unit 6, by materially inhibiting the flow of customers to Unit 6 and by adversely affecting the trade carried on by Danel at Unit 6 without reasonable cause.

17. By order made on 27 July 2007, the Magistrates Court proceeding was transferred to this Court to be heard at the same time as proceeding No SC 256 of 2007. The Magistrates Court pleadings stand as the relevant pleadings in this Court. At the commencement of the hearing before me, I ordered that the evidence in proceeding No SC 256 of 2007 be evidence in proceeding No SC 470 of 2007, and vice versa. The two sets of proceedings were heard together.

18. In proceeding No SC 256 of 2007, Danel alleges that Nexstar made certain false representations concerning its intention to purchase the brothel business from Danel and wrongfully took possession of Unit 6 which representations and conduct amounted to misleading and deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1975 (Cth) (the TPA) and s 12 of the Fair Trading Act 1992 (ACT) (the FTA).

(b) By claiming an entitlement to possession of Unit 6; and

(c) By taking possession of Unit 6 and excluding Danel from Unit 6,

Nexstar engaged in unconscionable conduct. Danel claims that Mr Campbell and Fulvio Gobeo were knowingly concerned in and aided and abetted all of these alleged contraventions by Nexstar.

20. Danel also sues Nexstar for damages for passing off.

21. Danel pleads the following at par 30 of its Statement of Claim in proceeding No SC 256 of 2007:

In acting as alleged in paragraphs 15, 16, 17, 21, 22, 23 and 24 the first defendant, the second defendant and the third defendant have acted in contumelious disregard of the plaintiff's legal rights and with a view to deceiving the plaintiff and obtaining the benefit of the plaintiff's business without payment and by chicanery and sharp dealing.

22. Danel claims damages, aggravated damages, exemplary damages, interest and costs.

23. In each proceeding, Danel's core claim for damages is quantified at $80,000 plus interest from 1 January 2007. $80,000 is said to be the value of the brothel business in December 2006. Danel claims that the conduct of the defendants in each case caused it to lose the entire brothel business and its sublease of Unit 6.

24. After reciting the grant of the sublease to Ms Ponga and the sale of the Barrier Street property to Mr and Mrs Vizovitis, Danel alleged the following matters, all of which stand admitted by Mr and Mrs Vizovitis:

(a) On and from about 18 November 2005, Danel entered into possession of Unit 6 and attorned as tenant of Mr and Mrs Vizovitis, notwithstanding that no formal assignment of the sublease had, by then, been executed by Ms Ponga or by either of Mr or Mrs Vizovitis;

(b) On and from about 18 November 2005, Danel paid to Mr and Mrs Vizovitis the agreed rent for Unit 6 under the sublease and Mr and Mrs Vizovitis accepted those payments on that basis, thereafter conducting themselves in every way towards Danel as if it were the lessee of Unit 6;

(c) Subsequently, a formal Deed of Assignment of the sublease was entered into whereby the sublease was assigned by Ms Ponga to Danel with the consent of Mr and Mrs Vizovitis;

(d) Under the Deed of Assignment of the sublease, Mr and Mrs Vizovitis confirmed the existence of the option to renew the sublease contained in the sublease; and

(e) For so long as the sublease remained in force, Danel was entitled to exclusive possession of Unit 6 without interruption or disturbance from Mr and Mrs Vizovitis or other persons claiming through Mr and Mrs Vizovitis.

25. Danel then alleges that, in breach of the sublease, Mr and Mrs Vizovitis purported to enter into a sublease of Unit 6 in favour of Nexstar which purported to give exclusive possession of Unit 6 for a five year period commencing on 1 October 2006 with options to renew for two further periods of five years each. Mr and Mrs Vizovitis admit entering into such a sublease with Nexstar but deny that, by doing so, they breached the sublease. The reason for this denial is said to be that, by the time the sublease in favour of Nexstar was entered into by Mr and Mrs Vizovitis, the sublease had been terminated.

26. It is then asserted that Mr and Mrs Vizovitis allowed Nexstar to take possession of Unit 6 and to exclude Danel from Unit 6. Mr and Mrs Vizovitis admit these matters also but say that they were entitled to act as they did because Danel had abandoned Unit 6 with the consequence that the sublease was terminated pursuant to s 115(2) of the Leases Act.

27. Danel also alleges that Mr and Mrs Vizovitis allowed Nexstar to demolish a solid masonry wall between Units 1-5 and Unit 6 and to occupy Units 1-5 and Unit 6 as one contiguous area from which Nexstar thereafter conducted a brothel business under the name "Tiffany's Palace". Notwithstanding those matters, Mr and Mrs Vizovitis continued to accept rent for Unit 6 from Danel pursuant to the sublease. All of these matters are admitted by Mr and Mrs Vizovitis.

28. Danel alleges that it was denied exclusive possession of Unit 6 and that it has been denied the use and enjoyment of Unit 6 and its fixtures without interruption or disturbance. These matters too are admitted. However, Mr and Mrs Vizovitis contend that Danel lost these entitlements because it had abandoned Unit 6.

29. Mr and Mrs Vizovitis deny breaching s 22 and s 81 of the Leases Act. They nonetheless concede that they must repay to Danel the amount of rent paid by it after the date when Danel is said to have abandoned Unit 6.

30. In answer to the whole of Danel's pleaded case, Mr and Mrs Vizovitis contend that Danel abandoned Unit 6 "... by leaving [the premises] vacant and ceasing to trade at the premises, without providing [Mr and Mrs Vizovitis] with written notice ..." with the consequence that the sublease was terminated and Mr and Mrs Vizovitis were entitled to retake possession of the premises. In addition, Mr and Mrs Vizovitis contend that Danel has not suffered any loss as a consequence of their conduct because it had ceased to trade from Unit 6 at the time the conduct took place. They also seek to rely upon a contention that Danel had operated the brothel business at all material times without an appropriate licence under the Prostitution Act 1992 (ACT) and were therefore in breach of cll 32.1.2, 32.1.3 and 33.1 of the sublease. Finally, Mr and Mrs Vizovitis argue that, if they were guilty of the conduct described in s 81 of the Leases Act, they had a reasonable cause for engaging in that conduct. The particulars justifying that contention are set out in par 14 of the Defence filed on behalf of Mr and Mrs Vizovitis in the following terms:

1. On 20 October 2006 the Applicant told the Respondents that contracts for sale of the business to Nexstar had been entered into. (CB539)
2. At no time prior to 2 January 2007 did the Applicant tell the Respondents that the sale to Nexstar had not completed and had fallen through. (CB829)

1. Until 20 October 2006 the Applicant had not taken the necessary steps to execute the Deed of Assignment of Lease dated 29 November 2005 from Ponga to itself (CB539)

31. The references in these particulars "CB ..." are references to pages in the plaintiff's Tender Bundle (Exhibits A1, A2 and A3).

32. Mr and Mrs Vizovitis admit that Danel was entitled to stand in the shoes of Ms Ponga insofar as her rights and entitlements under the sublease were concerned. They also concede that, if Danel did not abandon Unit 6 as alleged by them, their conduct in granting a fresh lease of Unit 6 to Nexstar and in facilitating Nexstar's taking possession of Unit 6 to the exclusion of Danel were breaches of the sublease. Apart from a challenge to the damages claimed, the proposition that Unit 6 was abandoned by Danel is the only defence propounded by Mr and Mrs Vizovitis to Danel's claim that they breached the sublease.

33. In addition, Mr and Mrs Vizovitis deny that they breached s 22 and s 81 of the Leases Act. They also argue that, if their conduct prima facie falls within the description of potentially contravening conduct given in s 81 of the Leases Act, they had reasonable cause for acting as they did.

34. In particulars provided by letter dated 29 June 2007 from the solicitors for Mr and Mrs Vizovitis to the solicitors for Danel, Mr and Mrs Vizovitis said, in answer to the question: "On what date did [Danel] abandon the premises?", the following:

(a) The exact date is beyond the knowledge of [Mr and Mrs Vizovitis] save that [Mr and Mrs Vizovitis] can say that the premises were abandoned during the month of October or earlier.

35. In the same letter, no response of substance was given to the question: "Precisely upon what date did [Danel] cease trading from the premises?".

36. Thus, according to the case pleaded and particularised by Mr and Mrs Vizovitis, Danel is alleged to have abandoned Unit 6 by no later than October 2006. It follows that Danel is also alleged to have ceased trading from Unit 6 by no later than October 2006.

37. In its current Statement of Claim, Danel alleges that, between about August 2006 and 6 September 2006, Mr Campbell and Fulvio Gobeo, initially on their own behalves, and subsequently on behalf of Nexstar, entered into and pursued negotiations with Danel for the purchase of the brothel business for a purchase price of $80,000.

(i) Either Mr Campbell or Fulvio Gobeo, or both, on behalf of Nexstar, approached Mr Christos Vizovitis directly and negotiated with him for the grant of two fresh subleases, one for Units 1-5 and one for Unit 6;

(ii) Either Mr Campbell or Fulvio Gobeo, or both, on behalf of Nexstar, represented to Mr Vizovitis that interests associated with them intended to purchase or already had purchased the brothel business and that, in those circumstances, Danel would not object to the issue of a fresh sublease for Unit 6 in favour of Nexstar and that the issue of such a fresh sublease was appropriate in all the circumstances; and

(iii) Ultimately, a fresh sublease for Unit 6 and a sublease for Units 1-5 was entered into between Mr and Mrs Vizovitis, as lessors, and Nexstar, as lessee;

(b) On 10 November 2006, Nexstar informed Danel that it had procured a fresh lease of Unit 6 and a lease of Units 1-5 from Mr and Mrs Vizovitis;

(c) On a date after 8 December 2006, Nexstar went into occupation of Units 1-5 and Unit 6 and effected certain changes to those premises which had the effect of restricting or impeding Danel's access to Unit 6;

(d) On or about the same date upon which Nexstar took occupation of Units 1-5 and Unit 6, Nexstar caused a solid masonry wall which stood between Units 1-5 and Unit 6 to be demolished so as to create one contiguous area;

(e) Thereafter, Nexstar took possession of all the plant, equipment, fixtures and chattels in Unit 6 and converted same to its own use causing Danel loss and damage; and

(f) Thereafter, Nexstar conducted a brothel business from the consolidated premises utilising Danel's plant, equipment and chattels as its own and:

... passed off or attempted to pass off that business as Danel's business and has usurped the goodwill attached to the Tiffany's Studio business and otherwise caused Danel loss and damage.

39. Danel contends that the conduct described at [38] above constituted misleading or deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 52 of the TPA and s 12 of the FTA and was unconscionable. It also argues that Mr Campbell and Fulvio Gobeo were accessories to these contraventions on the part of Nexstar.

40. Most of the allegations pleaded by Danel in its Statement of Claim are denied by Messrs Campbell and Fulvio Gobeo and Nexstar.

41. In further amplification of their Defences, Mr Campbell, Fulvio Gobeo and Nexstar assert that Danel was not in lawful occupation of Unit 6 and was unable to transfer or assign any lease of Unit 6 to Nexstar. In addition, the defendants contend that, on 13 December 2006, Mr and Mrs Vizovitis, or their lawyer, represented to them that Danel had never negotiated or obtained an assignment of the sublease and that, for that reason, Mr and Mrs Vizovitis were not opposed to granting a fresh lease in conjunction with a lease over Units 1-5. It is not clear to me what significance the defendants attach to these allegations.

42. Further, Nexstar claims a refund of the $8,000 deposit paid by it to Danel in respect of the proposed purchase of the brothel business.

43. Danel accepts that, if it is unsuccessful in the proceeding against Nexstar, it must refund that amount. It also accepts that, if it is successful in that proceeding, the Court should give credit for that amount in the calculation of Danel's damages. Although it claimed an account of profits, in the alternative, in its Statement of Claim, Danel elected to press for damages in respect of all of its pleaded causes of action. Danel claimed $80,000, being the value of the brothel business, less the deposit of $8,000, plus interest and costs.

44. Danel tendered as Exhibits A1, A2 and A3, three volumes of documents which, generally speaking, constitute the documentary record of the dealings amongst the various parties involved in this litigation. However, it is clear to me that Exhibits A1, A2 and A3 do not contain all of the relevant documents. Further, my understanding of the facts would have been assisted by evidence from one of more of the authors of the documents tendered in Exhibits A1, A2 and A3 for the purpose of explaining, clarifying and, in some cases, qualifying the contents of those documents.

45. The present litigation is noteworthy for the number of persons who might have given relevant evidence to the Court who were not called as witnesses. The only persons who gave evidence at the trial were Mr Neluschi, Ms Pevreal and Fulvio Gobeo. Those who might have been of assistance but who did not enter the witness box were:

The second defendant in proceeding No SC 256 of 2007 and one of the principal negotiators on behalf of the Nexstar interests for the purchase of the brothel business.

The solicitor for Mr and Mrs Vizovitis at all relevant times.

The solicitor at Wood Marshall Williams who represented Danel at all material times.

The employee of Lewenberg & Lewenberg who represented Nexstar, Mr Campbell and Fulvio Gobeo at all material times.

The partner at Lewenberg & Lewenberg with overall responsibility for the transaction on behalf of the Nexstar interests.

A solicitor at Hill & Rummery who acted for Ms Ponga in the sale of business transaction between her and Danel in 2005 and subsequently.

Mr Neluschi's son who went to the premises when Danel was locked out.

46. It is also possible that Ms Ponga and Sam Gobeo, Fulvio Gobeo's son, might also have been able to give relevant evidence.

47. In order for the Court to evaluate properly the unconscionability and misleading and deceptive conduct cases brought by Danel, it is necessary to examine in some detail and with great care the dealings amongst the parties. Much of the primary evidence is constituted by the documentary record and is not and could not be disputed. It is in the area of the inferences to be drawn from that primary evidence where the parties are, to some extent, at issue. In the process of drawing such inferences, in particular, the failure of one or more of the persons to give evidence at the trial may be significant (as to which see Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298).

48. In the next section of these Reasons for Judgment, I propose to set out the facts and matters disclosed by the documentary record and, to the extent necessary, amplified by the oral evidence of the witnesses who were called to testify at the trial.

49. In the course of that exposition of the facts, it will be necessary from time to time to make findings in relation to contested matters. I will do so as necessary. In the case of one or two matters of contest, I propose to deal with them separately.

The Original Acquisition of the Brothel Business by Danel Investments Pty Limited

50. Negotiations for the purchase of the brothel business by Danel commenced in early October 2005. At that time, the business was owned by Ms Ponga. The business traded under the name "Tiffany's". Ms Ponga used the trading name Jilma Enterprises. The business used three registered business names, namely "Gentlemen for Ladies", "Tiffany's Studio" and "Home Boyz". As at October 2005, the date of expiry of the business name registration for each of those business names was:

51. The brothel business operated from Unit 6. It had been operating from that location since at least 1996. Unit 6 is more fully described in the sublease as "Unit 6 on Subleasing Plan 106 being part of the building constructed on land known as Block 15, Section 21, Fyshwick Vol 1291 Folio 80".

52. Ms Ponga occupied Unit 6 pursuant to the sublease.

53. The Barrier Street property comprises a two-storey warehouse style of building located at the corner of Isa and Barrier Streets, Fyshwick. At the ground floor level, approximately eight metres from the corner, there is an entrance to the building which leads to a set of stairs which provides internal access to the first floor. In 2005 and 2006, at the rear of the building, there was an external staircase which led to a doorway at the level of the first floor. This doorway provided access to Unit 6 from the rear of the building.

54. The first floor was divided into six office suites or units. Units 1-5 covered approximately half of the available space. They were small office areas linked by a passageway. Unit 6 comprised the other half of the first floor. It had an area of approximately 225 m2. Unit 6 was where the brothel business was conducted. Unit 6 was divided internally into several separate rooms. At the level of the first floor, access to Unit 6 was through a door on the landing located at the top of the internal staircase. Unit 6 was able to be locked and made secure from persons in the building by locking that door. There was also direct access to Unit 6 from the door at the rear which could also be locked. Thus, Unit 6 was an area on the first floor which was clearly identifiable as separate premises and which was able to be secured and locked off from unauthorised persons seeking to enter the premises.

55. As I noted at [6] above, the sublease was for an initial term of five years commencing on 1 April 2004. According to its terms, it was to expire on 31 March 2009. Rent was payable monthly in advance. The first payment was due on 1 April 2004. Subsequent payments were payable on the first day of each month, the first of which was due on 1 May 2004. The sublease provided for rent reviews on an annual basis. The sublease also contained an option for its renewal for a further five years commencing on 1 April 2009.

2 Rights and Entitlements Granted to Tenant

2.1 Grant

Subject to reservations set out herein, the Lessor grants to the Tenant for the duration of this Lease

2.1.1. exclusive possession of the Leased Premises;

2.1.2. use and enjoyment of the Lessor's Fixtures;

2.1.3. the free and uninterrupted passage of Utilities to the Leased Premises through Common Areas of the Building or the Building;

2.1.4. the entitlement to use those car spaces designated from time to time by the Lessor;

2.1.5. the use by the Tenant and its employees of those toilets and washrooms designated from time to time by the Lessor;

2.1.6. the entitlement to signs as set out in Clause 24.

57. Clause 45.1 provided that Ms Ponga could not transfer, assign or otherwise deal with the sublease. That prohibition was subject to the terms of cl 45.2 of the sublease which authorised an assignment of the sublease subject to compliance with the terms of that subclause. Principal amongst those terms was the need for the landlord's consent.

46. Lessor's covenant for quiet enjoyment

The Lessor covenants with the Tenant that while the Tenant complies with the financial and other obligations under this Lease, and subject to the powers and entitlements conferred on the Lessor under this Lease, and subject to the Lessor having no duty to the Tenant to control the conduct of any third party in tort, contract or pursuant to any property interest, the Tenant may occupy and have the use and enjoyment of the Leased Premises for the term of this Lease without interruption or disturbance from the Lessor and other persons lawfully claiming through or under the Lessor.

59. Clause 48 of the sublease allowed the landlord to carry out work in the building provided that it did not alter or interfere with Unit 6.

60. Clause 60 of the sublease provided that the landlord might remove the tenant's property after termination of the lease.

61. On 30 October 2005, Danel made a formal offer to purchase the brothel business from Ms Ponga for the amount of $120,000. That offer was accepted.

62. On 25 November 2005, Ms Ponga and Danel entered into an Agreement for Sale of Business pursuant to which the brothel business was sold to Danel. Mr Neluschi and Ms Pevreal guaranteed the obligations of Danel under that Agreement.

63. Clause 2 of that Agreement was in the following terms:

PURCHASE PRICE

2. The purchase price shall be apportioned as follows:-

64. Under the Agreement for Sale of Business, completion of that Agreement was to be effected on 18 November 2005 or on such other date as might be mutually agreed in writing between the parties to the Agreement. In fact, completion of the Agreement did not occur until 28 November 2005. On or about 18 November 2005, Danel took possession of Unit 6 and commenced operating the brothel business from that unit.

65. Clause 5 of the Agreement for Sale of Business was in the following terms:

SUBLEASE

5. (a) Completion of this Agreement is conditional upon the Sublessor consenting to a transfer of the Sublease from the Vendor to the Purchaser. The costs of effecting such transfer including the obtaining of the Sublessor's consent and any Mortgagee's consent shall be borne by the Purchaser. The Purchaser undertakes to furnish the Sublessor with such information as shall reasonably be required to satisfy the Sublessor that the Purchaser is a responsible and respectable assignee and the Purchaser further undertakes to sign, deliver and pay the costs of any Deed of Covenant required by the Sublessor. In addition the Purchaser and the Vendor shall supply all such information and sign all such documents and applications as may be necessary in order to effect the said transfer of the Sublease.

(b) If all such consents are not obtained by the date of completion either party hereto may rescind this Agreement and the deposit and all purchase moneys paid hereunder shall be refunded to the Purchaser without deduction except for $300.00 which shall be retained by or accounted to the Vendor towards its legal costs and neither party shall be liable to the other for any other costs or damages or have any claim against the other arising out of this Agreement.

(c) The Purchaser acknowledges he has inspected the said Sublease as varied and satisfied himself as to the terms and conditions thereof.

66. Under the Agreement, Ms Ponga agreed to transfer the business name "Tiffany's" to Danel.

67. Clause 19 of that Agreement was in the following terms:

1. This Agreement shall as to any of its provisions remaining to be performed or capable of having effect following the completion of the transfer to the Purchaser of the Sublease, goodwill, business name, plant, fixtures, fittings, chattels and stock-in-trade hereby agreed to be sold remain in full force and effect notwithstanding such sale and completion.

68. There was attached to the Agreement for Sale of Business an inventory of furniture, electrical items and other items specified by reference to each of the separate rooms or areas within Unit 6. These rooms or areas specified in the inventory were the Reception Area, the Intro Room, Room One, Room Two, Room Three, Room Four, Room Five, Girls Room, Store Room, Toilet, Laundry and Kitchen.

69. By Contract for Sale of Land dated 13 September 2005, Mr and Mrs Lee agreed to sell the Barrier Street property to Christos Vizovitis and Georgia Vizovitis. The purchase price was $1.2 million. Settlement of that purchase took place on 3 November 2005. The sale from Mr and Mrs Lee to Mr and Mrs Vizovitis was expressly made subject to existing tenancies, all of which were specified in the Contract for Sale. In particular, the sublease was identified in Special Condition 4 of that Contract for Sale as one of the subleases to which the sale of the Barrier Street property was subject. As a matter of law, in any event, Mr and Mrs Vizovitis took their superior leasehold interest subject to the sublease.

70. By letter dated 4 November 2005, Hill & Rummery, barristers and solicitors (Hill & Rummery), who were acting for Ms Ponga in the sale of business transaction with Danel, requested the consent of Mr and Mrs Lee to the proposed assignment of the sublease from Ms Ponga to Danel. That letter was sent to Elrington Boardman Allport (Elrington), the solicitors for Mr and Mrs Lee. Elrington responded to the letter from Hill & Rummery by informing them that the property had been sold to Mr and Mrs Vizovitis and that the request which they had made of Mr and Mrs Lee should now be directed to the new owners care of their solicitors, Rod J Barnett and Associates of Fyshwick (Rod Barnett).

71. On 21 November 2005, Hill & Rummery wrote to Rod Barnett. They informed Mr Barnett that Ms Ponga was selling the brothel business. Enclosed with their letter was a copy of the letter which they had sent to Elrington dated 4 November 2005 in which they sought the owners' consent to an assignment of the sublease to Danel. This letter put Rod Barnett and his clients, Mr and Mrs Vizovitis, on notice of the fact that the brothel business was being sold and that, as part of the sale, the sublease was to be assigned to the purchaser of that business. The consent of the owners to the transfer of the sublease was sought.

72. On 22 November 2005, Wood Marshall Williams (WMW), the solicitors for Danel, Mr Neluschi and Ms Pevreal, wrote to Rod Barnett in the following terms:

RE: DANEL INVESTMENTS PTY LIMITED - PURCHASE FROM PONGA

BUSINESS: TIFFANYS - BLOCK 14, SECTION 21 FYSHWICK

YOUR CLIENT LESSOR - VIZOVITIS

We refer to the above and advise that we act generally for Danel Investments Pty Limited.

Our client has recently exchanged Contracts for the purchase of the business of Tiffanys which operates from the property at Block 14, Section 21 Fyshwick.

We understand that you act for the Lessor of the property.

We understand that you have already received a request from the Vendor (Jillian Ponga) for the assignment of Lease to our client pursuant to Clause 45.2 of the current registered Lease.

In the circumstances we would be pleased if you would advise us by return facsimile or otherwise as to your client's requirements in relation to the consent in so far as it relates to our client the purchaser of the business being the prospective incoming Lessee.

If there are any queries in this regard or if you require any further information please do not hesitate to contact the writer.

73. This letter confirmed that the brothel business was being sold and provided details of the new owner of that business.

74. On 25 November 2005, Rod Barnett wrote to Hill & Rummery in the following terms:

Re: PONGA SALE TO DANEL INVESTMENTS PTY LIMITED

ASSIGNMENT OF LEASE - TIFFANY'S

Further to the writer's recent telephone conversation with you on even date we enclose herewith for your attention Deed of Assignment, in triplicate, for execution by your client and Danel Investments Pty Limited.

Would you kindly arrange for the execution of all three copies and return them to this office so that our client might attend to the attestation of the document.

Our account, directed to your office in the first instance is attached for your attention.

75. Enclosed with the letter from Rod Barnett was a Tax Invoice dated 25 November 2005 rendered to Ms Ponga for the amount of $441.10. The narrative set out in that Tax Invoice was as follows:

TO OUR COSTS of and incidental to receiving your instructions with regard to the assignment of the abovementioned Lease, taking further particulars preparing Deed of Assignment, submitting same to you for signature and arranging for our clients to execute the same

76. It follows from a consideration of the letter from Rod Barnett to Hill & Rummery dated 25 November 2005 and the accompanying Tax Invoice that, by 25 November 2005, Rod Barnett had prepared a Deed of Assignment and submitted that Deed to Hill & Rummery in triplicate for execution by Ms Ponga and by Danel. Notwithstanding the terms of the narrative in Rod Barnett's Tax Invoice, it would appear that, as at that date, Mr and Mrs Vizovitis had not signed the Deed of Assignment which Rod Barnett had prepared. Nonetheless, by 25 November 2005, they were clearly prepared to consent to the assignment of the sublease and to signify that consent by signing the Deed of Assignment prepared by Rod Barnett.

77. As I mentioned at [9] above, settlement of the sale of business from Ms Ponga to Danel took place in the morning of 28 November 2005.

78. It appears that the Deed of Assignment which had been prepared by Rod Barnett and forwarded to Hill & Rummery on 25 November 2005 had, by the time of settlement on 28 November 2005, been signed by Ms Ponga. The signed Deed of Assignment was handed to either Mr Neluschi or Ms Pevreal, one or both of whom attended at settlement on behalf of Danel.

79. After settlement had been concluded, but still on Monday, 28 November 2005, Rod Barnett sent the following email to Mr Reis, who was the solicitor at Hill & Rummery dealing with the matter:

The writer refers to his letter of the 25th instant enclosing Deed of Assignment which upon further examination required some amendment due to discrepancies in description.

In addition, the Covenantor's clauses have been changed slightly so that they contain a vestage of something that is sensible.

Hence, we now enclose herewith by way of attachment hard copy of Assignment of Lease which should replace the earlier document forwarded under cover of our letter of the 25th instant.

80. Mr Reis responded almost immediately with an email which was in the following terms:

The settlement took place this morning. My client signed the deed and we gave it to the assignee to take back to his solicitors.

I expect my client will have no difficulty endorsing the changes. But it would be better for you to send those amendments to Charles Parisi. I have no problems advising my client to endorse the changes.

81. Charles Parisi was the solicitor at WMW dealing with the matter on behalf of the Danel interests.

82. I pause to observe that the evidence before me did not identify with precision the particular draft Deed of Assignment which was forwarded by Rod Barnett to Hill & Rummery on 25 November 2005 and which was apparently subsequently signed by Ms Ponga and handed to a representative of Danel at settlement nor did it identify with precision the proposed amended Deed of Assignment forwarded by Mr Barnett to Mr Reis at around 1.00 pm on 28 November 2005, after settlement of the sale of business from Ms Ponga to Danel had been effected.

83. The email from Rod Barnett to Mr Reis explained the necessity for the redraft of the Deed of Assignment as arising from "... discrepancies in description" and the need to make the covenantor's clauses "... sensible ...".

84. There was tendered in evidence a Deed of Assignment bearing date 17 November 2005 between Ms Ponga, as assignor, Danel, as assignee, Mr and Mrs Vizovitis as lessors and Mr Neluschi and Ms Pevreal as covenantors. That document was tendered at pp 157-164 of Vol 1 of the plaintiff's Tender Bundle (Exhibit A1).

85. The Deed of Assignment to which I have referred at [84] above is signed by Ms Pevreal, on behalf of Danel, Mr Neluschi, Ms Pevreal (on her own behalf), Ms Ponga and, importantly, Mr and Mrs Vizovitis. The signatures of Mr and Mrs Vizovitis are witnessed by Mr Barnett.

86. The Deed effects an assignment from Ms Ponga to Danel of the sublease, such assignment to take effect as and from 29 November 2005.

87. Clause 2 of that Deed of Assignment is in the following terms:

2. ASSIGNMENT

2.1 Assignment

The Assignor assigns to the Assignee all its right title and interest in the Lease for all the residue now unexpired of the term of the Lease which assignment will take place on the Assignment Date.

2.2 Further Assurance

The Assignor covenants with the Assignee to do all things and sign all documents necessary including the execution of an instrument of transfer of the Lease to perfect the assignment of the Lease to the Assignee.

4.3 Registration of Transfer of Lease

The Assignee shall register any instrument of Transfer of the Lease executed by the Assignor pursuant to Clause 2.2 of this Deed.

89. Clause 6 of that Deed is in the following terms:

The Lessors consent to the assignment of the Lease by the Assignor to the Assignee on the terms and conditions set out in this Deed.

Upon the execution of this Deed, the Lessors hereby covenant that they shall grant to the Assignee a further option of five years commencing the 1st of April 2009 to the 30th of June 2015 upon the same terms and conditions of the existing Lease save for the Base Rental as at the commencement of the Option Period which shall be reviewed to market.

The Lessors now and forever releases the Assignor from and against all Claims which the Lessors might hereafter maintain against the Assignor in respect of or in any way arising from the Lease provided that this clause shall not apply to any breach of the covenants obligations and provisions of the Lease by the Assignor prior to the Assignment Date.

90. The evidence established that the copy of the Deed of Assignment to which I have referred at [84]-[89] above was produced from the possession, custody or control of Mr and Mrs Vizovitis.

91. It is necessary to consider the circumstances in which this Deed of Assignment came to be executed by all relevant parties. I shall do so later in these Reasons.

92. There appears to be no misdescription of any property or relationship in this Deed. Further, the assignment date (viz 29 November 2005) seems to sit comfortably with the known settlement date of 28 November 2005.

93. By letter dated 29 November 2005 sent to WMW, Rod Barnett said:

Re: DANEL INVESTMENTS PTY LIMITED - PURCHASE FROM PONGA

RE: ASSIGNMENT OF LEASE - "TIFFANY'S" - BLOCK 14, SECTION 21

DIVISION OF FYSHWICK

OUR CLIENTS: C & G VIZOVITIS

Further to previous correspondence in connection with this matter, the writer did in fact forward to Robert Reis at Hill and Rummery a Deed of Assignment which, upon review, needs amendment. Accordingly, we now enclose herewith the Deed of Assignment which has certain amendments when one compares it with the original which we are given to understand is now in the hands of your client.

We would be grateful if you would kindly execute the enclosed copy, in triplicate and arrange for it to be returned to Robert Reis for re-endorsement by his client.

You will note from the changes that whilst they relate to the description of the Landlord as opposed to the Lessor and some minor amendments to the Covenants to be entered into by your clients, the latter version is by far the more appropriate.

We would be grateful if you would kindly co-operate to this extent and arrange for the return of the documentation through Mr Reis in due course.

94. Once again, the evidence before me did not identify with precision the document that was forwarded by Rod Barnett to WMW on 29 November 2005. It is very likely that it was a copy of the document which Rod Barnett had emailed to Hill & Rummery on 28 November 2005.

95. Rod Barnett's letter proceeds upon the basis that the earlier version of the proposed Deed of Assignment was, by 29 November 2005, in the hands of Mr Neluschi or Ms Pevreal, as had been asserted by Mr Reis in his email to Rod Barnett of 28 November 2005.

96. Further, the position seemed to be that, by 29 November 2005, Rod Barnett, on behalf of Mr and Mrs Vizovitis, was seeking to amend the Deed of Assignment after it had been signed by Ms Ponga and possibly by Danel, Mr Neluschi and Ms Pevreal, although the latter circumstance was not clear from the evidence. It also appears to have been the case that, as at 29 November 2005, Mr and Mrs Vizovitis had not signed either version of the Deed of Assignment prepared by Rod Barnett.

97. There was tendered in evidence before me an undated form of Transfer of Sublease under the Land Titles Act 1925 (ACT) (the Land Titles Act). That instrument of transfer is signed by Ms Ponga and appears to constitute an attempt by Ms Ponga and Danel to perfect the assignment of the sublease. That document appears at pp 227-228 of Vol 1 of the plaintiff's Tender Bundle (Exhibit A1). The document has not been executed by Danel nor were certain critical dates and other particulars completed in the appropriate places on the document. There was no direct evidence before me as to the circumstances in which this instrument came to be signed or in which it came into the possession of Danel. Nonetheless, the document was produced from the possession or custody of Danel. It is clearly a document which one would have expected to have been handed over at the settlement of the sale of the brothel business which took place on 28 November 2005 and I find that it was. I should observe at this point, however, that it appears that the Transfer of Sublease was never executed by Danel nor was it ever submitted to the Registrar-General's Office of the ACT Government (the Registrar-General) for registration under the Land Titles Act and was, therefore, never registered. The effect of this state of affairs was that, at all material times, the Register maintained by the Registrar-General showed Ms Ponga as the sublessee under the sublease.

98. Mr and Mrs Vizovitis commenced to invoice Danel for rent in respect of Unit 6 as and from 1 December 2005. Danel diligently paid the rent for Unit 6 up to and including the rent payable on 1 February 2007 in respect of the month of February 2007. Danel continued to pay rent for some months after it was excluded from Unit 6. Mr and Mrs Vizovitis were aware that Danel was in occupation of Unit 6 and was the entity which paid the rent for Unit 6 as and from 1 December 2005.

99. Danel operated the brothel business continuously from 29 November 2005 until it was excluded from the premises in December 2006 in circumstances which I will describe later in these Reasons. There was an issue at the hearing between Danel and some of the defendant parties as to whether or not Danel had in fact continued to operate the business until December 2006. I find that it did. There was a significant body of evidence comprising wages records, suppliers' invoices, banking records and taxation records which support that finding. In addition, both Mr Neluschi and Ms Pevreal gave evidence to the effect that the business had been operating continuously throughout 2006 right up until about the end of the first week of December 2006.

100. On 12 December 2005, Rod Barnett wrote a facsimile message to WMW in the following terms:

Re: DANEL INVESTMENTS PTY LIMITED - PURCHASE FROM PONGA

RE: ASSIGNMENT OF LEASE - "TIFFANY'S" - BLOCK 14, SECTION 21, DIVISION OF FYSHWICK

OUR CLIENTS: C & G VIZOVITIS

The writer refers to his letter of the 29th November in which he forwarded to you an amended Deed of Assignment for execution by your client, Danel Investments Pty Limited.

We would be grateful if you would kindly provide us with an update as to the status of this document. The writer presumes that the document is on its way to Mr Reis at Hill and Rummery. Please confirm.

101. On 7 February 2006, Rod Barnett sent an email to Hill & Rummery in the following terms:

As you know, I forwarded to Wood Marshall Williams, Lawyers for the attention of Mr Charles Parisi, the Deed of Assignment. I have not received this document back from either Mr Parisi or yourself. Would you kindly advise the current status of the Deed of Assignment in view of the fact that your client is primarily liable for the rental until the Assignment is executed by both parties and our client as Landlord.

Also, nothing seems to have been done in relation to payment of our costs which were submitted to your office on 20 November last. Perhaps, in the circumstances, you might follow this up and advise me as to the current status accordingly.

102. On 17 March 2006, Rod Barnett chased up Hill & Rummery for the amended Deed of Assignment. On that day, he wrote a letter in the following terms:

Re: DEED OF ASSIGNMENT PONGA TO DANEL

UNIT 6, 72 BARRIER STREET FYSHWICK

OUR CLIENT: C & G VIZOVITIS

The writer refers to his original letter of the 25th of November last in which he forwarded a Deed of Assignment which required some further amendment. On the 29th of November an amended Deed of Assignment was forwarded to Wood Marshall Williams, for the attention of Charles Parisi and the execution by Danel Investments Pty Ltd.

On the 12th of December 2005 a further reminder was sent to Mr Parisi and no response has been received from either your firm or Wood Marshall Williams in relation to the matter. On the 7th of February the writer wrote to you an email, reminding you that the Deed of Assignment still had not been returned nor had there been any payment of our costs.

We have conferred with our client and as far as he is concerned Mr Ponga remains liable under the terms of the Lease and will enforce any default which may be incurred by Danel Investments. Whilst he was prepared to release your client from any further liability our clients are only prepared to do so provided that both the Deed of Assignment and incorporated Deed of Guarantees are returned to our clients duly executed.

We bring this matter to your attention as your client is personally liable under the terms of the original lease and in the circumstances is thus exposed to any default on the part of the incoming assignee.

We await your early advice.

103. On 30 March 2006, Rod Barnett wrote a further letter to Hill & Rummery in the following terms:

Re: DEED OF ASSIGNMENT - PONGA TO DANEL INVESTMENTS PTY LTD

UNIT 6, 72 BARRIER STREET, FYSHWICK

OUR CLIENT: C & G VIZOVITIS

We refer to our letter of 17 March to which we do not appear to have received a reply. We would be grateful if you would kindly advise the current position concerning the Deed of Assignment for the reasons stated in our previous correspondence.

104. On 15 May 2006, the ACT Office of Fair Trading granted a Brothel and Escort Agency Licence (brothel licence) to Danel in respect of Unit 6. That registration bore Registration No 16500208. The particulars of the trading names under which the brothel and escort agency was to be conducted under that registration were "Tiffany's Studio", "Gentlemen for Ladies" and "Home Boyz".

105. That registration appears to have been renewed for the period up to 8 November 2006 although there is some doubt about this. Some records of the ACT Office of Fair Trading suggest that the registration was effective only up to 30 September 2006.

106. On 15 June 2006, Hill & Rummery wrote to Rod Barnett in the following terms:

RE: PONGA SALE TO DANEL INVESTMENTS PTY LIMITED

ASSIGNMENT OF LEASE - TIFFANY'S STUDIO

We refer to previous correspondence.

Could you please return as a matter of urgency the Deed of Assignment in triplicate to our office.

We await your immediate response in relation to this matter.

107. Rod Barnett responded promptly to the letter from Hill & Rummery dated 15 June 2006. He said:

Re: DEED OF ASSIGNMENT - PONGA TO DANEL INVESTMENTS PTY LTD

UNIT 6, 72 BARRIER STREET, FYSHWICK

OUR CLIENT: C & G VIZOVITIS

We acknowledge receipt of your letter of the 19th instant which is somewhat perplexing. You have asked us to return, as a matter of urgency, the Deed of Assignment, in triplicate, to your office.

The Deed of Assignment was originally forwarded to you on 25 November last and a copy of our letter forwarding that document is attached for your general reference.

The writer surmises that it may have been your intention to direct this correspondence to Wood Marshall & Co for the attention of Mr Charles Parisi.

If, on the other hand, that presumption is wrong and you are missing the Deed of Assignment previously forwarded to you under cover of our letter of 25 November last, we can provide you with further copies of the Deed of Assignment and the entire process could start all over again.

Please advise by return the current position.

108. By mid 2006, Mr Neluschi and Ms Pevreal had decided to extricate themselves from the brothel business. The sale of the business was advertised in June 2006. Mr Neluschi said that he had several seriously interested prospective purchasers (10 or 11). But his evidence was the only evidence of this. No evidence from any of these prospective purchasers was called on behalf of Danel.

109. Mr Campbell was interested in the business and negotiations commenced with him in earnest around about 25 July 2006. At the commencement of her dealings with Mr Campbell, Ms Pevreal provided to him Mr Vizovitis' name and telephone number.

110. On or about 11 August 2006, an agreement in principle was struck for the sale of the business by Danel to Mr Campbell and his associate, Fulvio Gobeo, for $80,000. That purchase price was struck after some gentle negotiation between the parties. The terms of that arrangement were recorded by Ms Pevreal in an email which she sent to Fulvio Gobeo on 11 August 2006. In that email she said:

Hi Fulvio,

These are the details which I have forwarded to my lawyer. My lawyer has confirmed that a contract will be sent to your post office box this afternoon. My lawyer has also confirmed that what you have referred to as a Declaration of Income is referred to as "warranties of Income" in New South Wales and that a Warranty of Income is not a legal requirement in a contract for sale of a business in either New South Wales or the ACT.

"The name of the purchaser for the contract is:

David Campbell and Sam Gobeo or Nominees

32 Broadhurst Street

Kilmore Vic

Contract to be sent to:

P O Box 3

Coburg Vic

Purchase Price: $80,000

Fulvio has advised that exchange will take place as soon as contract is received. Settlement to take place 2 weeks after exchange.

With the contract they want details of our bank account to deposit 10% deposit into. This is:

Account Name: Danel Investments Pty Ltd

Bank: National

BSB: 082 201

A/c: 5923700725

Will talk to you soon.

Regards

Alyson

111. It would appear that WMW sent a letter to Mr Campbell and Mr Sam Gobeo (who is Fulvio Gobeo's son) on the same day. In that letter, the author (Mr Parisi of WMW) asked Mr Campbell and Mr Gobeo to inform WMW "... as to whether negotiations in relation to the Lease have now been finalised as we will incorporate a special condition in the Contract in that regard". That statement followed a paragraph in the letter in which Mr Parisi said:

We understand that you are currently discussing with the Landlord the possibility of obtaining a Lease of the entire premises including the neighbouring premises.

112. It was, therefore, contemplated by Danel and by the Campbell interests at least from 11 August 2006 that Mr Campbell and/or Fulvio Gobeo would approach the owners (Mr and Mrs Vizovitis) and discuss the possibility of obtaining a lease over the remaining part of the first floor (Units 1-5). In the event that agreement was reached in respect of Units 1-5, it was expected that the Campbell interests might then take a lease over the whole of the first floor (Units 1-6). Of course, it was expected by Danel and the Campbell interests at that time that Unit 6 could only be part of such a fresh lease if the sale of the brothel business to the Campbell interests went ahead and was completed.

113. The reference to "the neighbouring premises" in that letter was clearly a reference to Units 1-5.

114. On 18 August 2006, WMW sent a letter to Mr Campbell and Mr Sam Gobeo. That letter was in the following terms:

RE: DANEL INVESTMENTS PTY LTD - SALE OF BUSINES

TIFFANYS IN ACT

We refer to the above and to previous correspondence and confirm that our client has now received the sum of $8,000.00 in their bank account as being the deposit for the purchase of the above business.

In order to formalise Contracts we now enclose for your attention the following:

1. Duly executed Contract by Danel Investments Pty Limited in relation to the sale of the business which includes an updated Inventory; and
2. Fresh counter copy of the updated Contract with the updated Inventory for your execution.

Accordingly we would be pleased if you would sign the fresh updated Contract on behalf of the Purchasers and return it to our office at your earliest time and convenience.

We will accept that the date for exchange of Contracts was the date that you paid the deposit namely 14th August, 2006.

Accordingly completion will occur within 2 weeks.

In the interim should you have any queries please do not hesitate to contact the writer.

115. On 29 August 2006, Lewenberg & Lewenberg (Lewenberg) sent its first letter to WMW. Lewenberg acted for Mr Campbell, Mr Fulvio Gobeo and Mr Sam Gobeo. The letter from Lewenberg dated 29 August 2006 was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We wish to advise that we act on behalf of the above named Purchasers who have forwarded to our office draft copy of the Contract of Sale in this matter.

We are advised by our client that out client has paid to you deposit of 10% of the purchase price which sum you hold as stake holder pending settlement. Please confirm that the deposit money have been placed into an interest bearing account.

In relation to the stock in trade please provide a list of the remaining stock that will be left on the premises on the settlement date.

We note that the sale is subject to the business name being transferred to the Purchaser. We would be greatful if you would provide us with relevant form for transfer of business name in order that we may have the documents signed by our client in anticipation of settlement.

In relation to GST aspect we confirm that the agreement is the supply for going concern and accordingly no GST will be payable.

Please provide us urgently with copies of the following:-

1. Lease of the premises in order that we may arrange for Transfer of Lease to be prepared.
2. Copy of the License applicable to the premises in order that appropriate transfer may be prepared.

Please note that the settlement date of the Contract is to be subject to transfer of the license and also subject transfer of the existing lease to out client.

As soon as the above accordingly would be greatful if you would forward copies of the documentation via express post in order that we may proceed further with this matter.

Should you have any queries or require or require further clarification please do not hesitate to contact Mary Altavilla of this office.

116. WMW responded by letter dated 30 August 2006 in the following terms:

RE: DANEL INVESTMENTS PTY LTD - SALE TO CAMPBELL & GOBEO - BUSINESS OF TIFFANYS IN ACT

We refer to the above and to previous correspondence in particular your letter of 29th August, 2006 and accordingly advise as follows:

1. We confirm our client has received from your client the 10% deposit in relation to the purchase of the above business.
2. We understand that your client directly deposited the funds into our client's account and we will make arrangements with our client to ensure that the funds are placed into an interest bearing deposit.
3. In the interim we would be pleased if you would provide us with details of your client's tax file number.
4. In relation to the sale we confirm that it is a sale of going concern and GST will therefore not be applicable.

In the interim we advise that we will forward today to you by express post the following documentation:

(a) Copy of Deed of Assignment of Lease;

(b) Copy of current Lease of the premises;

(c) Copy of current Certificate of Registration of a brothel and escort agency under the Prostitution Act 1992.

(d) Sale of Business Agreement for your clients' execution.

We understand that your client has already made contact with the Landlord (Chris Vizovitis) and has commenced discussions in relation to the transfer of lease.

In the interim should there be any queries please do not hesitate to contact the writer otherwise we would be pleased to receive duly executed Contract for the Sale of Business in due course.

117. Nexstar produced a document on discovery described as an undated handwritten file note. It appears to me to be in the handwriting of one of the lawyers working for Lewenberg who was dealing with the transaction, although it is not described in that way in the list of documents filed by Nexstar. It was probably written by Mary Altavilla who was, at that time, an employee of Lewenberg. The file note records the fact that the "lease" (referring to the sublease from Mr and Mrs Lee to Ms Ponga) was for a term commencing on 1 April 2004 and ending on 31 March 2009. The note records that the term of the lease had three years left to run. The note also records the fact that the sublease contained an option to renew for a further five years. The file note also records that the brothel and escort agency licence was in respect of Unit 6 only and makes mention of Unit 4. It follows that Nexstar, Mr Campbell and Fulvio Gobeo were all well aware by no later than the end of August 2006 of the existence of the sublease, of the identity of the parties to the sublease and of the essential terms of the sublease. They all also knew that Danel was in occupation of Unit 6, apparently pursuant to the sublease.

118. By letter dated 1 September 2006, Lewenberg wrote directly to Mr Vizovitis. In that letter, Lewenberg said:

RE: PREMISES AT 72 BARRIER STREET FYSHWICK ACT

OPERATING UNDER THE NAME OF "TIFFANY'S"

OUR CLIENT: DAVID CAMPBELL & FULVIO GOBEO PROPOSED PURCHASE FROM DANEL INVESTMENTS PTY LTD

We wish to advise that we act on behalf of the abovenamed who in the process of negotiating Contract of Sale for the purchase of the above business situate at the above premises.

Accordingly, we would be grateful if you would provide us with a copy of the Lease and details of any information that you may require in respect of the Purchasers in order that we may then arrange for Transfer of Lease to be prepared. The purchasers intend to nominate a company to purchase the business.

In the meantime we would also be grateful if you would advise us as to whether there are any amounts that you require to have adjusted prior to the settlement date.

At this juncture settlement is anticipated (subject to all transfers being effected) to be effected on the 1st of October 2006.

Should you have any queries or require or require further clarification please do not hesitate to contact Mr. Alex Lewenberg or Mrs. Mary Altavilla of this office.

119. By letter dated 4 September 2006, Lewenberg responded to the letter from WMW dated 30 August 2006. Their response was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We thank you for your letter of 30th of August last enclosing documentation.

Please note that the Purchasers wish to nominate a company to purchase the business and accordingly, we would be grateful to have your advice as to whether the Purchasers in the Contract of Sale may be amended to read David Campbell and Fulvio Gubeo and/or nominee.

The Contract of Sale is also to be subject to Transfer of Brothel and Escort Agency Licence number 16500208.

We advise that our clients have made application for Transfer of the Licence, have completed all Police checks and are now awaiting response from the Federal Police to notify the Department of acceptance of our clients. As soon as we receive a response we will advise you immediately in order that the settlement of the sale may proceed.

We note that the Licence and Lease is in respect of Unit 6 on Subleasing Plan number 106. Please provide urgently a copy of the Plan in order that our clients may identify the property being leased. We are advised that the address provided to our client was number 4, 72 Barrier Street.

In the meantime we advise that we are preparing Transfer of the Lease and will then forward Contract of Sale together with Transfer of Lease for execution by the parties in anticipation of settlement shortly.

In the meantime we would be grateful if you would ascertain from the Landlord as to whether the existing terms of the current Lease, when preparing the Transfer of Lease, may be varied to provide for another further term of five years.

We await your urgent advice.

120. On the same day (4 September 2006), WMW wrote to Lewenberg in the following terms:

RE: DANEL INVESTMENTS PTY LTD - SALE TO CAMPBELL & GOBEO - BUSINESS OF TIFFANYS IN ACT

We refer to the above and to previous correspondence; please advise if you have forwarded the duly executed counterpart contract.

Once we receive your executed Contract we will attend to the formal exchange of Deeds.

Should you have any queries please do not hesitate to contact the writer.

121. By 4 September 2006, Mr Neluschi was pressuring Mr Campbell to settle. This pressure was being applied in circumstances where no exchange of the Agreement for Sale of Business had yet taken place. At around this time, Mr Campbell was discussing with "Renee" at Lewenberg the possibility of him and Fulvio Gobeo obtaining a lease for the adjacent vacant suite on the same level as Unit 6 (viz Units 1-5).

122. On 5 September 2006, Lewenberg wrote to Mr Vizovitis in the following terms:

RE: PREMISES AT 72 BARRIER STREET FYSHWICK ACT

OPERATING UNDER THE NAME OF "TIFFANY'S"

OUR CLIENT: DAVID CAMPBELL & FULVIO GOBEO PROPOSED PURCHASE FROM DANEL INVESTMENTS PTY LTD

Further to our letter of 1st September last we are advised by our client that there is another premises available in the same building for Lease.

We are instructed by our clients to request your advice as to whether you would be prepared to Lease to our clients the other premises for a period of 5 years with two further options of 5 years each, on the following terms and conditions:

1. 6 months rent free period to enable our clients to complete fitout of the premises.
2. 18 months at a rental of $200.00 per week.
3. Following the initial 18 month period, rent be increased to $400.00 per week.

We would also be grateful to have your advice as to whether the Lease which our clients will be taking transfer of on settlement of the purchase of Tiffany's conducted at the above premises, the term be extended to provide for a further option of 5 years.

We await your urgent advice.

123. On 5 September 2006, Mary Altavilla spoke with Mr Parisi of WMW. The upshot of that conversation was that, when Lewenberg had completed their searches, they intended to send to him the Agreement for Sale of Business, Transfer of Lease and Transfer of Business Names.

124. The next day, 6 September 2006, Lewenberg sent a letter to WMW which was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We refer to previous correspondence and advise that we will now amend the Contract of Sale to note the Purchaser as Nexstar Investments Pty Ltd ACN 121 568 454, of Level 1, 340 Little Lonsdale Street Melbourne.

In the meantime, please provide inventory as to the plant and equipment being sold with the business as this has not been provided for in the Contract of Sale.

The Contract of Sale will also be amended to note that the sale is subject to Transfer of Licence registration number 16500208 to our client.

Please also urgently advise as to whether there is a Mortgage in respect of the above premises. If there is a Mortgage, please provide Mortgagees Consent urgently. We are currently undertaking searches.

Kindly confirm the amendments.

We also enclose herewith draft Transfer of Lease for your perusal and approval.

As soon as we receive your advice in relation to the Contract of Sale the documents will be executed and forwarded to you express post in anticipation of exchange.

We await your urgent advice.

125. There was tendered in evidence a form of Transfer of Lease relating to Unit 6 to which the parties were Mr and Mrs Vizovitis, Danel and Nexstar. This document was produced from the possession, custody or control of Danel. This document is found at pp 61-67 of Vol 1 of the plaintiff's Tender Bundle (Exhibit A1). As tendered in evidence, the document is executed by Mr Neluschi, on behalf of Danel, by Messrs Campbell and Fulvio Gobeo, on behalf of Nexstar, and by Mr Campbell and Fulvio Gobeo on their own behalves. The document in evidence has not been signed by either Mr or Mrs Vizovitis. The transfer relates to a transfer of Unit 6. It appears to be undated. It purports to effect a transfer of the sublease from Danel to Nexstar. The document is drawn upon the basis that Danel was the lessee under the sublease.

126. On 7 September 2006, Lewenberg wrote to WMW in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We refer to previous correspondence and are instructed by our client that the sale is subject to Transfer of Business names Tiffany's Studio, Gentlemen for Ladies and Homeboyz.

We note that business names Gentlemen for Ladies and Tiffany's Studio are registered in the name of Jillian Norma Ponga.

Accordingly, we enclose herewith particulars of business name duly completed and would be grateful if you would arrange for Jillian Norma Ponga to sign the forms in readiness for you to provide to us as settlement. The forms will then be signed by our clients and registered following settlement.

Please confirm that the particulars will be available for collection at settlement on the 1st of October 2006.

In the meantime we note that the Transfer of Lease document forwarded to this office has not been signed by the Landlord. Please ensure that the original Lease and Transfer of Lease are signed by all parties and available for collection on or before the 1st of October 2006.

Please ensure that the Deed of Assignment is also signed by Angelo Nerushchi on behalf of Danel Investments Pty Ltd on the first page of the execution page.

We await your urgent response.

127. On the same day, a second letter was sent by Lewenberg to WMW. This letter was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

Further to our recent correspondence and subsequent discussions we confirm that all documentation has been delivered to the ACT Office of Fair Trading and are informed by the Office of Fair Trading that they are presently awaiting results of the Federal Police Report to be forwarded to the department. In all other respects all application forms have been completed in readiness for the Transfer of the License.

In the meantime we enclose herewith the following:-

1. Contract of Sale duly signed by the Director and Secretary of the Purchaser Company. Please note the amendments made namely:

a) Name of Purchaser.

b) Completion of Clause 9.1.1 and 9.1.2.

c) Inclusion of Clause 40.

The above contract is forwarded to you subject and conditional upon inventory as requested in our previous correspondence being forwarded.

Kindly forward identical Contract of Sale signed by the Vendors together with copy of inventory to complete exchange.

1. Transfer of Lease in triplicate duly signed by the New Tenant and New Tenants Guarantors for execution by the Vendor and Landlord.
2. Notification of change in Ownership or Control of Brothel and Escort Agency is to be signed by your client as the old owner and returned to us together with exchange of Contracts.

We confirm that you will hold these documents in Trust pending completion of Searches.

When returning the Contract of Sale please also forward Transfer of Business name in respect of:-

a) Gentleman for Ladies.

b) Homeboys

c) Tiffany's Studio.

We await your urgent response.

128. On the same day (7 September 2006), Lewenberg forwarded an application for a brothel licence to the ACT Office of Fair Trading. The applicant was Nexstar. In the covering letter sent to the Office of Fair Trading, Lewenberg said that Nexstar was in the process of negotiating completion of a purchase of the above business (referring to Tiffany's at Unit 6).

129. On 7 September 2006, Lewenberg sent to Mr Vizovitis a further copy of their letters to him dated 1 September 2006 and 5 September 2006.

130. On 7 September 2006, Mr Vizovitis spoke with Ms Altavilla. Ms Altavilla made a file note of that conversation. The last two paragraphs of that file note recorded the following:

Chris advised that he had spoken to our clients, he had offered them the premises at number 4 and they advised that the rental was too much. Advisng Chris that proposals in our letters will set out what our clients required and if acceptable to him he would contact us.

He also advised that as far as he is aware the original Transfer of Lease has not been assigned but that was not his problem he won't cancel that. He still wants the lease to run its term and once that lease expires if our clients lease the other premises, he will talk to them about a new lease. He consents to them taking over, he is happy with them and did not seem to require any further information.

131. On 8 September 2006, by letter sent by way of express post, Lewenberg applied to the Registrar-General on behalf of Nexstar to register the business name "Homeboyz". That application to register that business name was signed by Mr Campbell and by Fulvio Gobeo.

132. Obviously, by that time, Lewenberg, Mr Campbell and Fulvio Gobeo had all realised that the registration of that business name had lapsed.

133. On or about 9 September 2006, Ms Pevreal sent a letter on the letterhead of Danel. The letter does not identify the person or organisation to whom it was sent.

134. Having regard to the contents of the letter, it is fairly obvious that it was sent to Mr Parisi of WMW. It was sent at a time when no exchange of the Agreement for Sale of Business between Danel and Nexstar had taken place and when difficulties were starting to emerge with that transaction. The letter was in the following terms:

As you know the actual lease hasn't been assigned to us because we didn't return it to the Landlord's solicitor.

• Even though we had the landlord's consent to the assignment initially, could he now refuse to assign the lease to us? If this was the case am I right in assuming that we have no business to sell if the landlord won't grant a lease to the premises, which is acceptable to the purchasers?
• The Deed of Assignment has been signed by Jillian Ponga, from whom we purchased the business, but hasn't been signed by the Landlord. Can he refuse to sign it?
• Wouldn't this mean that the Lease still exists but is in Jillian Ponga's name - but this wouldn't null and void the lease's existence will it?

I have forwarded the Lease Assignment to you by Express Post today. I have signed it but Angelo hasn't. When you have it I will ask Angelo to call in and sign it in your offices.

• Another area of concern for me is if the purchaser pulls out and in the worst case scenario, we have to walk away from the business, I thought that not have an executed assignment of lease would limit any further liability regarding payment of rent under the term of the lease. If we sign the assignment and the purchaser pulls out, are we then liable for rent for the duration of the lease until somebody else takes over the premises (presumably free of charge as we wouldn't be operating any business there)?

I will call you later today to discuss my concerns with you.

Regards

Alyson Pevreal

135. The letter extracted at [134] above contained various thoughts of Ms Pevreal in respect of which she sought advice from WMW. The questions which were asked were pertinent. However, I do not regard the note as setting out decisions to which Ms Pevreal and Mr Neluschi had already come. Obviously, by 9 September 2006, they were both very concerned that the transaction may not, in fact, go ahead.

136. On 12 September 2006, WMW wrote to Lewenberg. That letter was in the following terms:

RE: DANEL INVESTMENTS PTY LTD -SALE TO CAMPBELL & GOBEO - BUSINESS OF TIFANYS IN ACT

We refer to the above and to previous correspondence in particular your letter of 7th September, 2006.

We confirm that we have received from you your clients' duly executed Contract for the Sale of Business.

We advise that we are holding the Contract in escrow subject to finalisation of the sale terms and conditions.

In this regard we advise that our client has instructed us that they will only agree to the sale of the business on the basis that completion shall be the earlier of 1st October, 2006 or upon the transfer of the Brothel and Escort Agency registration number 16500208.

Should this be in order then we would be pleased to receive your confirmation that we may make the necessary arrangements to exchange Contracts by altering the Special Condition.

In addition we advise that the Contract that was executed by your client has since been updated to include the Inventory.

We now enclose a copy of the Inventory and ask that you confirm that we may insert the Inventory into the executed Contract prior to exchange.

137. On 13 September 2006, Rod Barnett sent a facsimile transmission to Lewenberg. That facsimile transmission was in the following terms:

Re: YOUR CLIENT: DAVID CAMPBELL & FULVIO GOBEO

PROPOSED PURCHASE FROM DANEL INVESTMENTS PTY LTD

PREMISES: 72 BARRIER ST, FYSHWICK

Thank you for your letter of the 1st instant directed in the first instance to our client, Mr Chris Vizovitis.

Whilst we can provide you with a copy of the original Lease, Danel Investments Pty Ltd does not occupy the premises under the terms of the original Lease issued in this matter in favour of Mr J M Ponga, a former owner.

Danel Investments Pty Ltd has never negotiated an assignment of that Lease, notwithstanding the fact that several attempts have been made to contact their Solicitors with regard to the Deed of Assignment which was originally forwarded to that firm, for that purpose.

On record, we have Danel Investments represented by Wood Marshall, Lawyers, (reference Charles Parisi - telephone number 9938 2444).

In any event, it may be more appropriate for a fresh Lease to issue in this matter. We are given to understand that your clients wish to take advantage of a further area over and above unit 6 which was formally occupied by Tiffany's. We further understand that our client is not opposed to that arrangement in principal but undoubtedly further negotiation will be required in relation to the total area if it is your client's intention to take that additional area over.

Undoubtedly you will correspond with us on this point in due course.

138. Mr Barnett did not explain in his facsimile transmission why it was that, in his opinion, Danel did not occupy Unit 6 under the terms of the original sublease issued by Mr and Mrs Lee in favour of Ms Ponga.

139. On 21 September 2006, Rod Barnett wrote to Lewenberg setting out proposals concerning both Unit 6 and the adjacent area (Units 1-5) at the property. In that letter, Rod Barnett again asserted that Danel had no security of tenure. The heading to that letter had undergone a subtle change from the heading of Rod Barnett's last letter (the letter sent on 13 September 2006 set out at [137] above). The "proposed purchase" was no longer mentioned. That letter was in the following terms:

Re: PREMISES AT 72 BARRIER ST, FYSHWICK

CURRENT BUSINESS NAME: "TIFFANY'S" UNITS 1-6, BLOCK 15, SECTION 21 DIVISION OF FYSHWICK

The writer refers to his recent telephone conversations with you and your previous correspondence addressed, in the first instance, to our client, in relation to a proposal concerning the entire first floor of the premises known as 72 Barrier St, Fyshwick, mentioned above.

For your client's edification, we enclose herewith copy of the Subleasing Plan registered with the Registrar of Titles in the ACT which has been registered for forty one years. As a consequence, the measurements shown in the Subleasing Plan are necessarily in feet and inches, but can be converted for the purpose of this Lease should you wish to check our client's calculations.

We also enclose for your attention a copy of the original Lease held by Jullian Ponga, which unfortunately was never assigned to Danel Investments and as such Danel Investments at best, occupy the premises on a monthly tenancy.

No security of tenure has been granted to Danel Investments in view of the fact that there seems to have been a recalcitrance on the part of the incoming assignee to sign a Deed of Assignment of the original Lease.

Be that as it may, we note your clients' request for a fresh Lease in respect of the entire first floor, rather than office 6 which was the only part of the premises formerly occupied by Tiffany's. We note that it is your clients' proposal that your clients wish to lease the premises for an initial period of five years but by way of separate Leases, one in respect of office 6, the other in respect of offices 1 to 5. Our client is prepared to agree an initial term of five years in each case, with a further two options of five years.

Hence, dealing with each Lease in turn, it is our client's instructions to advise as follows:

Office 6 (base rent $20,500.00* exclusive of GST).

*This represents the base rent referred to in the Lease plus two increments of 3% pursuant to the rent review dates set out in item 16 of the original Lease.

Initial Term: 5 years

Commencement Date: 1st October 2006

Termination Date: 30th September 2011

Rent Review: Three percent per annum (3%)

Option Periods: There will be two options, each of five years, the first commencing on 1st October 2011 and 1st September 2016 respectively.

Outgoings: Nil.

Insurance: Plate Glass and Public Liability

New Lease - Offices 1 through to 5 (base rent $18,407.00 per annum exclusive of GST)

Commencement Date: 1st October 2006

Termination Date: 30th September 2011

Rent Review: Three percent per annum (3%)

Option Periods: There will be two options, each of five years, the first commencing on 1st October 2011 and 1st September 2016 respectively.

Rent Holiday: 4 months from 1st October 2006 to 31st January 2007

Outgoings: Nil

Insurance: Plate Glass and Public Liability

You will note that the rental in respect of the new premises (offices 1 through to 5), has been calculated on a pro rata basis at the existing level of rental currently enjoyed by Tiffany's. The area occupied by offices 1 through to 5 is slightly less than the area of office 6, hence the differential in rental levels.

Would you kindly take your client's instructions as to the proposals in respect of both Leases and we suggest that you contact Mr Vizovitis direct with regard to any further negotiation, whereupon we shall await instructions from our client in this regard.

140. As at 21 September 2006, when Rod Barnett wrote the letter which I have set out at [139] above, Ms Ponga had signed a version of a Deed of Assignment of the sublease and delivered that document to Mr Neluschi or Ms Pevreal, on behalf of Danel. By then, Mr and Mrs Vizovitis, through Rod Barnett, had informed both Hill & Rummery and WMW that Mr and Mrs Vizovitis were willing to consent to the assignment of the sublease to Danel and were prepared to sign the Deed of Assignment prepared by their solicitor, Rod Barnett. Rod Barnett did not know whether any or all of Danel, Mr Neluschi or Ms Pevreal had, by then, signed the Deed of Assignment which had been delivered to them at the settlement of the sale of business transaction between Ms Ponga and Danel which took place on 28 November 2005. Whilst it was true that, as at 21 September 2006, no instrument of Transfer of Sublease in registrable form in respect of the sublease had been lodged with the Registrar-General or registered on the title to the Barrier Street property, it was an inaccurate, misleading and troublesome oversimplification of matters for Rod Barnett to assert, as he did, that Danel had no security of tenure in respect of Unit 6.

141. Lewenberg responded to Rod Barnett's letter by letter dated 25 September 2006. That letter was in the following terms:

RE: YOUR CLIENT: MR. CHRIS VIZOVITIS

OUR CLIENT; DAVID CAMPBELL AND FULVIO GOBEO

PREMISES: 72 BARRIER STREET, FYSHWICK - PROPOSED LEASE

We thank you for your letter of 21st September last and note that copy of the Sub-Leasing Plan registered with the Registrar of Titles in the ACT was not enclosed and we would be grateful if you would provide a copy.

We also note that copy of the original Lease (full copy) was not received. The copy of Lease that we hold notes the Landlord as Eric Lee and Shirley Esme Lee. Please confirm that this is the correct Lease.

In relation to the terms of the Lease, please not that the Lease provides that rental commences at $21,256.68 inclusive of GST and accordingly our client requires rental to be in accordance with the existing Lease.

In relation to proposed Lease in respect of offices 1-5, we are instructed by our client to advise that unless the Landlord is prepared to accept the Lease on the terms as proposed by our client, our client is not in a viable position to accept the Lease on those terms and conditions.

We await your urgent response.

We thank you in anticipation.

142. Lewenberg passed on Rod Barnett's letter to them dated 21 September 2006 to Mr Campbell and to Fulvio Gobeo on 22 September 2006.

143. On 26 September 2006, Mr Parisi of WMW was on leave. The evidence does not make clear for how long Mr Parisi was on leave.

144. On 26 September 2006, Ms Altavilla telephoned WMW and attempted to speak to Mr Parisi. He was not available because he was on leave. She raised with Mr Parisi's secretary a problem which had arisen: She had learned that the brothel licence held by Danel in respect of Unit 6 was about to expire on 1 October 2006 and, if it expired, that it could not then be transferred to Nexstar. In the event that it were to expire, a new licence would have to be issued and that step would involve a higher fee and further investigations. Ms Altavilla asked the person to whom she spoke to ascertain whether Danel proposed to renew the licence.

145. On 27 September 2006, Lewenberg wrote to Rod Barnett in the following terms:

RE: YOUR CLIENT: MR. CHRIS VIZOVITIS

OUR CLIENT; DAVID CAMPBELL AND FULVIO GOBEO

PREMISES: 72 BARRIER STREET, FYSHWICK - PROPOSED LEASE

We refer to previous correspondence and discussions and your advice that we may contact the Landlord direct.

We advise that we have this day spoken to the Landlord who confirmed that new Lease for the existing Lease would be entered into on the same terms and conditions. We enclose herewith copy of the Schedule page setting out the rental details and confirm that the rental is to be on the same terms.

We also confirm that the commencement date of the Lease is to be within 7 days of receipt of Transfer or Renewal off Brothel and Escort Agency Licence No. 16500208.

Accordingly, we would be grateful if new Lease be prepared for a period of 5 years with 2 further options of 5 years each and forwarded to us urgently for signature by our clients.

We confirm that the Tenant is Nexstar Investments Pty. Ltd. (ACN 121 568 545).

We also note that copy of the original Lease (full copy) was not received. The copy of Lease that we hold notes the Landlord as Eric Lee and Shirley Esme Lee. Please confirm that this is the correct Lease.

In relation to proposed Lease in respect of offices 1-5, we await our client's instructions. At this juncture our client will proceed with Lease of existing premises.

We thank you in anticipation of an early response.

146. The expression "... new Lease for the existing Lease ..." in the second paragraph of that letter appears to be a reference to a proposal for a new lease in respect of the existing premises (viz Unit 6). This letter is the first explicit manifestation of a relatively firm intention on the part of Nexstar to take a fresh lease of Unit 6 rather than an assignment of the existing lease of Unit 6. It followed Rod Barnett's assertions that Danel did not have security of tenure in respect of Unit 6 and also the receipt of information by Lewenberg which suggested that Danel might have difficulties transferring all of the relevant business names and the brothel licence for Unit 6. In addition, at the time, Danel was applying unwelcome pressure to settle the purchase. At the same time, Mr Campbell and Fulvio Gobeo had decided to defer further consideration of whether they would take a lease of Units 1-5.

147. On 27 September 2006, Ms Altavilla spoke directly with Mr Vizovitis. In that conversation, Mr Vizovitis told her that he was happy for the terms of the existing lease to remain and for those to be incorporated into a new lease for the existing premises. There was some further discussion about Units 1-5 but no resolution in relation to that part of the premises.

148. On 28 September 2006, Rod Barnett wrote to Lewenberg in the following terms:

Re: PREMISES AT 72 BARRIER STREET, FYSHWICK

CURRENT BUSINESS NAME: "TIFFANY'S" - UNITS 1-6, BLOCK 15, SECTION 21 DIVISION OF FYSHWICK

The writer refers to his correspondence of 21st September last and is given to understand that there have been some direct negotiations with our client, Mr Vizovitis.

As a result of those negotiations there has been some change in respect of the terms which relate to the base rent in relation to both office 6 and the remaining part of the building.

Hence, dealing with the changes in respect of each Lease in turn, we note that it is our client's instructions that the terms might be set out as follows:

Office 6 (base rent $1,610.36* exclusive of GST ($1,771.40 inclusive of GST).

*This is the level of rent currently enjoyed by the current incumbents of office 6.

Initial Term: 5 years

Commencement Date: 1st October 2006

Termination Date: 30th September 2011

Rent Review: Three percent per annum (3%)

Option Periods: There will be two options, each of five years, the first commencing on 1st October 2011 and 1st September 2016 respectively.

Outgoings: Nil.

Insurance: Plate Glass and Public Liability

New Lease - Offices 1 through to 5 (base rent $1,500.00 (exclusive of GST), $1,650.00 (inclusive of GST).

Commencement Date: 1st October 2006

Termination Date: 30th September 2011

Rent Review: Three percent per annum (3%)

Option Periods: There will be two options, each of five years, the first commencing on 1st October 2011 and 1st September 2016 respectively.

Rent Holiday: 4 months from 1st October 2006 to 31st January 2007

Outgoings: Nil

Insurance: Plate Glass and Public Liability

Would you kindly take your client's instructions as to whether or not these terms are acceptable and if not, what parts are acceptable? Once that has been determined, it will be the writer's intention to forward to you a Disclosure Statement in respect of the new Leases.

We note your comments made in your letter of the 25th instant in which you indicate that you did not receive a full copy of the old Lease. We enclose herewith a copy of that Lease for what it is worth but wish to advise that this Lease was originally drawn by other Solicitors who acted on behalf of the earlier Landlords, Mr and Mrs Lee.

As you are possibly aware, our client has acquired the lease premises and whilst the old Lease applies so far as the current occupants are concerned. Fresh Leases will be drawn in respect of both tenancies. Hence, the contents of that Lease maybe of limited value to you. In any event we enclose same for your reference.

With regard to the Subleasing Plan, we note that we omitted to forward you a Subleasing Plan under cover of our earlier correspondence. A copy of that Subleasing Plan is now enclosed.

149. From the heading to that letter it is clear that its subject matter was Units 1-6. Further, Rod Barnett expressly acknowledged in that letter that the "... old lease ...", referring to the sublease, applied to Danel's occupancy.

150. By letter dated 29 September 2006, Lewenberg wrote to Rod Barnett in the following terms:

RE: YOUR CLIENT: MR. CHRIS VIZOVITIS

OUR CLIENT; DAVID CAMPBELL AND FULVIO GOBEO

PREMISES: 72 BARRIER STREET, FYSHWICK - PROPOSED LEASE

We thank you for your letter facsimile of 28th September last and would be grateful if you would arrange for preparation of Lease for the premises Unit 1-6, Block 15 on the terms and conditions as set out.

However at this juncture our client can not take up the offer of Lease for offices 1-5 as it is not viable for our client o pay the rent as required by the Landlord.

We would be grateful to receive Lease for the premises 1-6, Block 15 being the premises where the business Tiffany's presently operates as soon as possible.

We again confirm that commencement date is to read 1st of October 2006 or within 7 days of Transfer of Renewal of Brother and Escort Agency Licence No. 16500208.

151. The reference in the first and third paragraphs of this letter to Units "1-6" should be understood as a reference to Unit 6 only.

152. By letter to the Registrar-General dated 29 September 2006, Lewenberg applied on behalf of Nexstar to register the business name "Tiffany's Palace". On the same day, attempts were made to secure a licence to conduct a brothel business at Unit 6. Ultimately, by licence granted on 8 November 2006, Nexstar obtained a brothel licence in respect of Unit 6. That licence was valid for the period from 1 October 2006 to 30 September 2007. It bore the same registration number as the licence previously held by Danel (No 16500208). Presumably, after 8 November 2006, Danel had no prospect of retrieving the brothel licence by merely dealing with the Office of Fair Trading.

153. Danel believed that it had let the brothel licence No 16500208 lapse on 30 September 2006. On 3 October 2006, WMW, on behalf of Danel, sought to resurrect the registration of that licence. In their covering letter to the ACT Office of Fair Trading, WMW said that Danel "[had been] withholding renewing the licence as settlement of the sale was due prior to the date for renewal but due to unforeseen circumstances settlement has been delayed".

154. By letter dated 4 October 2006, WMW wrote to Hill & Rummery in the following terms:

RE: DANEL INVESTMENTS PTY LIMITED FROM PONGA

BUSINESS: TIFFANY'S

We refer to the above matter which was completed in December 2005. We advise that our clients have now negotiated to sell the business and note that the Deed of Assignment of Lease was forwarded to us on 29th November, 2005. It would appear that we forwarded the Deed to our clients and they signed them in January 2006 but have never returned them to our office until now. We enclose herewith a copy of a letter from Rod J Barnett & Associates in this regard.

We would be obliged if you would please attend to same and return the documentation to Robert Reis at Hill and Rummery as a matter of urgency as we need to settle the onsale of the business as soon as possible.

Should there be any queries in this regard please do not hesitate to contact Mr Charles Parisi of our office. Your urgent attention to the matter would be appreciated.

155. Parts of this letter are a mystery. It is not clear which letter from Rod Barnett was enclosed with this letter nor does the penultimate paragraph make any sense. It is not clear also whether or not a version of the Deed of Assignment from Ms Ponga to Danel was enclosed with that letter. More importantly, there is no evidence as to why that letter was sent at that time. Until that letter was written, WMW had shown no interest in the Deed of Assignment between Ms Ponga and Danel.

156. On 10 October 2006, Rod Barnett sent a draft lease in respect of Unit 6 to Lewenberg. Enclosed with that letter was a Disclosure Statement under the Leases Act. The Disclosure Statement for Unit 6 suggested that Nexstar was already in occupation of Unit 6 as at 10 October 2006. This was not the fact.

157. On 13 October 2006, Lewenberg returned the Disclosure Statement duly signed by Mr Campbell on behalf of Nexstar. Lewenberg asked Rod Barnett to forward a re-engrossed lease for signature by their clients. They went on to say:

In relation to new Lease - offices 1-5, we advise that our client has reconsidered and will now take a Lease on the terms and conditions as set out in your letter of 20th September last subject to Brother and Escort Agency Licence being extended to those premises.

158. Rod Barnett forwarded the re-engrossed lease for Unit 6 to Lewenberg on 16 October 2006. On 17 October 2006, he forwarded to Lewenberg a draft lease and Disclosure Statement in respect of Units 1-5.

159. Lewenberg returned the executed lease for Unit 6 to Rod Barnett under cover of a letter dated 19 October 2006.

160. On that day, Mr Campbell requested Lewenberg to obtain permission from Mr and Mrs Vizovitis to gain access to the vacant portion of the upper floor (Units 1-5) for the purpose of measuring and inspecting the premises.

161. On 20 October 2006, WMW wrote to Rod Barnett in the following terms:

RE: DANEL INVESTMENTS PTY LTD - PURCHASE FROM PONGA - ASSIGNMENT OF LEASE

BUSINESS: TIFFANYS ACT

ASSIGNMENT OF LEASE TO NEXSTAR INVESTMENTS PTY LTD

We refer to the above and to previous correspondence.

As you may be aware our client has recently entered into Contracts for the sale of the above business to Nexstar Investments Pty Limited.

The terms and conditions of the sale contract is that we assign to the Purchasers the existing Lease for the premises from your clients Vizovitis.

We note in accordance with your previous correspondence dated 29th November, 2005 that upon the completion of the purchase of the business from Ponga it seems that the Deed of Assignment of Lease was incorrectly executed and a fresh copy was then forwarded to the Vendors for Jill Ponga for her execution and return.

We advise that only today have we been informed that Jill Ponga is making arrangements with her Solicitor to ensure that the Deed of Assignment is executed to be returned to your office in order to enable us to then complete the original Assignment of Lease between Ponga and our client.

Should the above be acceptable to your client then we advise that we will seek your requirements in order to enable our client to assign the Lease on completion to the Purchaser Nexstar Investments Pty Limited.

If there are any queries in this regard or if you wish to discuss the matter please do not hesitate to contact the writer.

162. On the same day, WMW wrote to Lewenberg in the following terms:

We refer to the above and to previous correspondence and would be pleased if you would advise as to whether your client has now received approval from the Office of Fair Trading and clearance from the Federal Police to enable them to be the holders of a Brothel and Escort Agency.

In this regard, we would also be pleased to hear from you as to whether there has been any further discussions with the Landlord in order to enable the Assignment of Lease to proceed or otherwise.

Should there be any queries in this regard please do not hesitate to contact the writer.

DANEL INVESTMENTS PTY LIMITED - SALE TO NEXSTAR INVESTMENTS PTY LIMITED

BUSINESS OF TIFFANY'S IN ACT

164. On the same day (20 October 2006), WMW wrote to Hill & Rummery and said:

RE: DANEL INVESTMENTS PTY LIMITED FROM PONGA

BUSINESS: TIFFANY'S ACT

We refer to the above and to previous correspondence in particular our letter of 4th October, 2006.

We note that we had forwarded to you the original Deed of Assignment of Lease needs to be re-executed and returned by your client.

However to date we have not heard any further from you and we ask as a matter of urgency if you could advise as to whether the Deed has now been executed and if so whether arrangements can be made to ensure that it is returned to our office at your earliest time and convenience.

If there are any difficulties in this regard or if you wish to discuss the matter please do not hesitate to contact the writer.

165. Hill & Rummery wrote to Ms Ponga by letter dated 23 October 2006. That letter was in the following terms:

RE: SALE TO DANEL INVESTMENTS PTY LIMITED

BUSINESS: TIFFANY'S

I refer to my telephone conversation with you on 17 October 2006 and we regret that the letter I drafted that day was not sent to you immediately.

Please find enclosed a copy of a letter received from Wood Marshall Williams on 9 October 2006 together with my response sent today.

I have included the Deed for execution by you. I have marked each place where you should sign. You need to sign twice near the stickers which read "sign here". You will also see that there are provisions for an adult person to witness your signature. The witness, who needs to be over 18 years of age and could be related to you, should sign where indicated with pencil. The name of the witness should be printed underneath their signature in the space provided as well as their address which should be placed underneath the name. Should you have any doubts as to how to execute this document please contact me directly before signing.

I do not think you should pay the further costs though it is in your best interests for the Deed to be finalised. You would note I have requested the solicitors acting for the purchaser to pay your costs. Should they fail to agree, I will have to request you pay the costs incurred by this firm since settlement which I note should not exceed $275.00 inclusive of GST.

I understand that Rob had tried to finalise this issue, which should have being resolved before the sale, but he gave up in frustration when he failed to get responses from Wood Marshall Williams Lawyers.

Indeed, I have followed the matter up as recently as August and it is only the fact that Danel Investments appear to be trying to sell the same business when the matter has become urgent for them.

Would you kindly ensure that the Deed is returned to us as otherwise I will have not other way of ensuring that your further legal costs are paid by Danel Investments or other parties involve in this transaction, which should have been completed so long ago.

...

P.S. Since dictating this letter I spoke to Mr Charles Parisi from Wood Marshall Williams on 20 October, 2006. Mr Parisi is the solicitor for Danel Investments.

Mr Parisi apologised for the fact that his clients failed to sign this Deed and return it to us last January.

The matter is now urgent and Mr Parisi has asked that you sign the deed and return it directly to his client. Mr Parisi also considers that it is not fair to his client if it asked to pay the costs this firm has incurred since settlement of your sale.

Our account for costs incurred since settlement is enclosed. It is up to you what you now wish to do. In my view you should provide the executed deed to Danel Investments in exchange for an amount to pay the enclosed account.

166. On the same day (23 October 2006), Hill & Rummery wrote to WMW in the following terms:

RE: SALE TO DANEL INVESTMENTS PTY LIMITED

BUSINESS: TIFFANY'S

I refer to previous correspondence.

I received your letter dated 4 October 2006 on 9 October 2006.

I spoke to my client, Ms Jillian Ponga on 17 October 2006.

I am sending the Deed submitted by you to my client with a request that she signs it and returns it to my office.

Would you kindly confirm that your client is happy to pay my client's costs incurred since settlement last December. Such costs are assessed by me at $440.00 inclusive of GST.

...

PS. Since dictating this letter, I note that I spoke to you by phone in response to your facsimile of 20 October, 2006. I have passed on your request to my client that the deed be provided directly to your client. If my client does provide it directly to your client, would you confirm that an executed copy of the deed has been submitted to Rod J Barnett & Associates (the Solicitors for the Landlord).

167. On 25 October 2006, Lewenberg returned to Rod Barnett a duly executed Disclosure Statement in respect of the proposed lease for Units 1-5. As at 25 October 2006, Mr Campbell was pressing the owners for access to Units 1-5 in order to commence the fitout.

168. By facsimile transmission sent on 26 October 2006, Rod Barnett wrote to WMW:

Re: DANEL INVESTMENTS PTY LTD - PURCHASE FROM PONGA

ASSIGNMENT OF LEASE

Thank you for your facsimile of the 20th instant. It is interesting to note that finally we have in fact received a response in relation to our letters of 29th November 2005, our fax of 12th December 2005 and various other correspondence being forwarded to Hill & Rummery, the Solicitors acting for Ponga.

We enclose herewith for your reference copy of Deed of Assignment which was originally drawn in this matter but has not been executed.

We also enclose herewith a copy of our Tax Invoice issued on 25th November 2005 which required payment by the Assignee, namely Danel Investments in respect of the preparation of the Deed of Assignment.

We would be grateful if you would kindly impress upon your client the importance of paying our account so that this matter can be finalised. In any event, there is a possibility that fresh Leases are in the process of being negotiated but not withstanding this, our client does require payment in respect of that account.

This would be a pre-condition of the Leases being granted in final form.

We look forward to hearing from you in that regard.

169. By sublease dated 30 October 2006, Mr and Mrs Vizovitis purported to lease Unit 6 to Nexstar for a period of five years commencing on 1 October 2006 and ending on 30 September 2011.

170. As at 30 October 2006, the sublease (viz the registered sublease from Mr and Mrs Lee to Ms Ponga) was still on foot and remained registered on the title to the Barrier Street property. It may have been a matter of controversy as at that date whether it had been validly assigned to Danel but it nonetheless remained in force and registered on the title to the property as at 30 October 2006. It should be remembered that, not only did Ms Ponga have a sublease of the premises registered in her name until 31 March 2009, but she also had an option for a further term of five years.

171. On 1 November 2006, WMW wrote to Lewenberg in the following terms:

RE: DANEL INVESTMENTS PTY LTD - SALE TO NEXSTAR INVESTMENTS PTY LIMITED

BUSINESS OF TIFFANYS IN ACT

We refer to the above and to previous correspondence and would be pleased if you would provide us with a reply to our letter 20 October 2006. In particular our client wishes to make arrangement for the settlement of the matter by 4:00 pm Friday 3rd October 2006 otherwise we are instructed to serve a notice to complete.

We note that we are advised that your client no longer requires the assignment of the existing lease as he has negotiated a fresh lease which includes additional space.

Should there be any queries in this regard please do not hesitate to contact the writer.

172. In early November 2006, Nexstar was proceeding with all speed to secure a lease of Units 1-5.

173. In a file note dated 3 November 2006, Ms Altavilla recorded that she had spoken with Alex Lewenberg as to whether she should respond to the letter from WMW to Lewenberg dated 1 November 2006. She records in her file note that Mr Lewenberg told her:

No, don't respond, wait until we get the lease and then we will do other things.

174. Lewenberg returned to Rod Barnett the executed lease for Units 1-5 on 9 November 2006. On the same day, Lewenberg received instructions from Mr Campbell to get a brothel licence for Units 1-5 and leave Unit 6 as it was, for the moment. It seems that, by 9 November 2006, Mr Campbell may have already received the new brothel licence in respect of Unit 6 (see [152] above).

175. On 9 November 2006, Lewenberg returned to Rod Barnett the duly executed Sublease for Units 1-5.

176. On 9 November 2006, Mr Campbell informed Lewenberg that a representative of Danel had informed the staff of the brothel that, if he (Campbell) went near the premises, they were to call the Police. Danel's representative also said that they would try to prevent the construction workers who were going to work on Units 1-5 from entering the premises as well. Mr Campbell spoke with Lewenberg at around 10.00 am on 9 November 2006.

177. On the same day, Mr Parisi telephoned Ms Altavilla at about 9.25 am but they did not speak at that time.

178. At about 5.00 pm on 9 November 2006, Lewenberg chased Ms Fairleigh, of the ACT Office of Fair Trading, in relation to the brothel licence for Units 1-5 which Nexstar was seeking. Lewenberg had been assiduously pursuing the grant of a brothel licence for both Units 1-5 and Unit 6 for some considerable time. Eventually, because little progress had been made, Mr Campbell instructed Lewenberg to get the Brothel and Escort Agency Licence for Units 1-5 only and to leave Unit 6 for the moment. But, as I have noted at [174] above, Mr Campbell probably had the brothel licence in respect of Unit 6 which was issued to Nexstar on 8 November 2006.

179. On 10 November 2006, Lewenberg wrote a letter to WMW which was headed "Without Prejudice". That letter was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We refer to your telephone discussion with our Mr. Lewenberg on Thursday afternoon the 9th November last and we confirm that to date your client had not exchanged parts of contract nor has your client obtained entitlement to occupy the premises that may justify and legally entitle your client to transfer and assign to our client your client's rights in relation to the subject premises.

Having regard to your client's inactivity to protect our client's claims our client had obtained and secured an indenture of Lease from the lesser of the subject premises and our client proposes, as a tenant, to retake the subject premises.

In view of this our client requires that your client vacates the premises not later than by 4.00 pm on Friday the 17th November, 2006.

It is clear that your client had abandoned the business operation by your client's failure to obtain security of tenure.

180. The letter is significant because it asserts an entitlement on the part of Nexstar to possession of Unit 6 and therefore an entitlement to evict Danel from those premises as well as a contention on the part of Nexstar that Danel had abandoned the business operation at Unit 6. The basis of this so-called "abandonment" of the business and the premises was that Danel had failed to obtain security of tenure.

181. On the same day, Lewenberg wrote an open letter to WMW in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

Having regard to the Vendor's failure to exchange parts of contracts and the Vendor's repudiation of proposals for the sale and purchase of the business by your client to our, our client accepts your client's repudiation of the agreement and requires that you forthwith refund to our client the holding deposit monies paid together with interest.

Unless your client repays the deposit monies within the next seven days our instructions are to commence proceedings for the recovery of monies due.

182. In accordance with their instructions, Lewenberg then pursued the Office of Fair Trading for a brothel licence in respect of Units 1-5.

183. On 15 November 2006, WMW wrote to Rod Barnett and to Lewenberg.

184. The letter to Rod Barnett was in the following terms:

RE: DANEL INVESTMENTS PTY LTD - PURCHASE FROM PONGA - ASSIGNMENT OF LEASE OF PREMISES AND

ASSIGNMENT OF LEASE TO NEXSTAR INVESTMENTS PTY LTD

BUSINESS: TIFFANYS ACT

PREMISES: Unit 6 on Subleasing Plan 106

We refer to the above and to previous correspondence in particular your letter dated 26 October 2006.

We understand that Ms Pongo has provided you with the duly executed deed of assignment of the lease of the above premises. We would be pleased if you would confirm that our understanding is correct and if so we ask that you provide us with your clients counter signed copy of the deed of assignment of lease by return mail.

We note that your costs as indicated in your tax invoice of 25 November 2005 of $441.10 are outstanding and we advise that our clients will attend to the payment of the account shortly. In this regard we advise that if you provide us with your bank account details our clients will make payment by direct deposit.

We further note that in your correspondence of 26 October 2006 you indicated that Nextstar Investments Pty Ltd being the purchasers of the business from our clients were in the process of negotiating a new lease with your clients. We would be pleased if yo advise whether a new lease has now been granted or otherwise.

185. The letter to Lewenberg was in the following terms:

RE: DANEL INVESTMENTS PTY LTD -

SALE TO CAMPBELL AND GOBEO

BUSINESS - TIFFANYS IN ACT

We refer to the above and to previous correspondence in particular your without prejudice correspondence of 10 November 2006 and the open correspondence of the same date.

With reference to your correspondence we advise as follows;

Open Letter dated 10 November 2006

We do not agree with that contracts have not been exchanged as you have suggested. We note that our clients executed contract was sent to your clients under cover of letter dated 18 August 2006 together with a copy of the contract that was to be executed and returned to our office.

On 4 September 2006 we wrote to you and advised that the contracts were exchanged upon receipt by us of your clients duly executed counter copy of the contracts. Under cover of letter dated 7 September 2006 received in our office on 8 September 2006 you sent us your clients executed counter copy of the contracts. Accordingly the contract for sale of the business has been effectively exchanged as of 8 September 2006 deed.

We disagree that our client has repudiated in any form whatsoever the agreement for the sale of the business of Tiffanys in the ACT.

In this regard we do not accept that your client has the right to terminate the agreement for alleged repudiation.

Notwithstanding the above we consider that our clients have a enforceable agreement for the sale of the business to your clients and terms of the agreement are found in your clients executed contract. If need be we will seek to obtain an order for specific performance of the agreements and or the sale of business contracts.

In this regard we consider your clients' own conduct in seeking to terminate the contracts when there was no right to do so is in effect repudiation by your client of the agreement. Our client does not accept the repudiation by will reserve its rights to damages should your client fail to complete the purchase as anticipated.

In accordance with the discussion with the writer of 9 November 2006 we reiterate that our client is ready willing and able to complete the sale of the business and will expect your client to do so.

Without Prejudice correspondence dated 10 November 2006

Once again we confirm that contract have in fact been exchanged and we do not accept any suggestion to the contarary. Notwithstanding we draw your attention to our letters dated 20 October 2006 and 1 November 2006 and again note that it is unacceptable for your client to suggest that we are unable to provide your client with a assignment of the premises in the circumstances that your client has acted not only in breach of the terms of the sale of business agreement but has clearly waived (by his actions in obtaining a new lease of the premises) any obligations by our clients to secure an assignment of the lease.

Your client is not entitled to the occupation of the premises and in this regard your client is on notice that any action to disrupt our clients occupation of the premises will result our client seeking injunctive relief together with a claim for damages for loss of business goodwill and loss of profits.

So that there is no misunderstanding our client will not and does not have to vacate the subject premises.

With regards to the tenure of the premises we note that your clients are aware that our client were attending to the settlement of the deed of assignment of lease that our client received from a previous owner of the business. We note that the deed of assignment has in fact been executed by all our clients and the previous owners of the business and we understand is in the possession of the lessors solicitors. We expect the lessor to finalise the assignment of lease in accordance with the deed of assignment, - however should he fail to do so then we advise that we are instructed to proceed with an urgent equity application for orders that our client be assigned the lease of the premises.

Completion of the Sale

In the circumstances we advise that unless completion of the sale of the business is attended to immediately then we will be left with no alternative but to seek enforcement of the terms of the agreement through an order for specific performance.

Furthermore our client reserves its rights to claim any damages from your clients.

186. On the same day (15 November 2006), WMW served a Notice to Complete on Lewenberg by which Danel purported to fix a time for the completion of an allegedly binding agreement for sale of business. The Notice to Complete fixed 3.00 pm on 25 November 2006 at the office of WMW for completion.

187. In a follow up letter to Lewenberg dated 16 November 2006, WMW articulated various arguments as to why Danel had the benefit of a legally binding contract with Mr Campbell and Fulvio Gobeo for the sale of the brothel business.

188. On 16 November 2006, Ms Fairleigh informed Ms Altavilla that the Registrar had given approval for Nexstar to trade from Units 1-5 as a brothel and escort agency and would complete the paperwork in the following week.

189. By letter dated 17 November 2006, Lewenberg wrote to WMW asserting that there was no binding contract for sale of business. In that letter, Lewenberg asserted that no contract had ever been exchanged. Somewhat inconsistently, Lewenberg concluded their letter with the following:

Having regard to your clients default our client accepts your clients repudiation of the Agreement and consequently negotiations between our respective clients for the purchase of the above business are at an end.

190. Two other letters were written by Lewenberg to WMW on 17 November 2006. In one of those letters, Lewenberg said:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

Further to your letter of 15th November last we confirm that Contracts have not been exchanged.

We further confirm that your client has not obtained entitlement to occupy the premises and has no legal entitlement to offer Transfer and Assign to our client any rights in relation to the subject premises as your client had not secured Assignment of the Lease to the subject premises from the Lessor of the premises.

Accordingly we refer you to without prejudice letter dated 10 November 2006 and request that your client vacates the premises as indicated and refund the deposit monies paid.

Unless deposit monies are repaid within 7 days our instructions are to commence proceedings for the recovery of monies due to our clients.

191. On 20 November 2006, WMW wrote to Lewenberg in the following terms:

RE: DANEL INVESTMENTS PTY LTD -

SALE TO CAMPBELL AND GOBEO

BUSINESS - TIFFANYS IN ACT

Further to our previous correspondence we advise that we are instructed that our clients have today spoken to the lessors who have confirmed that they have not granted your client a lease of the premises that are currently occupied by our clients however the lessor has confirmed that he has entered into discussions with your clients and has agreed to for grant of a new lease of the entire premises (including the additional area) on the basis and understanding that it that any lease is conditional on your clients completing the purchase of the business from our client and no other. That is your clients do not have any right to occupier the premises whatsoever and any threat or demand to the contrary is baseless and without merit at law or in equity.

Furthermore your client's representations to the Department of Fair Trading that they have the entitlement to occupier the premises are, in the circumstances, clearly misleading. The lessor has advised our clients that he is more than happy to confirm his position to your clients if they wish to make contact with him.

Once again we are left with no alternative but to demand that you clients settle the purchase of the business as required in our notice to complete otherwise the failure of which will result that our client will enforce any rights for damages.

192. On 20 November 2006, Rod Barnett wrote to WMW in the following terms:

Re: DANEL INVESTMENTS PTY LTD PURCHASE FROM PONGA - ASSIGNMENT OF LEASE

BUSINESS: TIFFANYS, ACT

PREMISES: UNIT 6 ON SUBLEASING PLAN 106

Thank you for your letter of the 15th instant. We can confirm that we do hold the Deed of Assignment, duly executed and enclose herewith for your attention a counterpart copy of the document recently executed by the Landlords, C & G Vizovitis.

We do note, however, that our account for the Deed remains outstanding. In the circumstances, would you kindly arrange for your remittance in payment of this account.

193. On the very same day, Rod Barnett wrote to Hill & Rummery in the following terms:

Re: DEED OF ASSIGNMENT - PONGA TO DANEL INVESTMENTS PTY LTD

UNIT 6, 72 BARRIER STREET, FYSHWICK

OUR CLIENT: C & G VIZOVITIS

We act on behalf of C & G Vizovitis and note that you in the past have acted on behalf of Jillian Ponga who was the former owner of the business known as "Tiffanys" in Fyshwick.

This business is now about to be surrendered and in the circumstances would you kindly arrange for your client to execute the Surrender of Lease in view of the fact that a fresh Lease is being taken out by the new owners, Nextstar Investments Pty Ltd, who purchased the business from Danel Investments, to which the original business was transferred.

We look forward to receiving the Surrender document back at this office as soon as possible.

194. By 20 November 2006, Mr Campbell was also pressing for access to Unit 6. Lewenberg spoke with employees of Rod Barnett in an endeavour to obtain a commitment about access. On 20, 21 and 22 November 2006, conversations took place but no resolution was reached.

195. On 22 November 2006, Lewenberg wrote to WMW in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We refer to previous correspondence and confirm that no exchange of Contract of Sale has been effected.

We refer you to our letter of 7th September 2006 and note that to date no response has been received from you.

Would you please advise the following:-

1. Day Contract of Sale was sent to our clients with copy of inventory and amendments made as per our correspondence.
2. Mode of delivery to our client,.
3. Would you forward copy documents that you say that you forwarded to our client.

You will appreciate that our client claims that they have received no documents from you and having regard to our previous communication, we would expect that you as reputable legal practitioner of good standing would forward the documents to the legal practitioner acting for the party rather than the party personally.

196. On 23 November 2006, WMW wrote to Lewenberg. In that letter, WMW set out Danel's position in relation to the assertion made by Lewenberg on behalf of the Campbell interests that no binding contract for sale of business had been entered into. The letter was in the following terms:

RE: DANEL INVESTMENTS PTY LTD -

SALE TO CAMPBELL AND GOBEO

BUSINESS -TIFFANY'S IN ACT

We refer to your earlier facsimile of today and accordingly advise as follows;

1. On 11 August 2006 we were instructed that an agreement had been made by our respective clients for your client to purchase the business for the sum of $80,000. At the same time we were instructed by our clients to forward a contract for the sale of the business and a copy of the lease to your clients for their consideration.

On the same day a draft contract and the copy of the lease was posted to your client PO Box 3 Coburg VIC by express post (registration number BN6902023).

1. On or about 18 August 2006 our clients advised that they had received by direct deposit the sum of $8,000 from your clients being the 10% deposit for the purchase of the business.

On the same day our clients provided us with updated details for the business inventory which was inserted into the contract that was then executed by our clients and the original executed contract was then sent to your clients by post with a fresh copy of the contract for your clients to sign and return to us.

1. On 4 September 2006 we wrote to your firm and advised that we required you to forward your clients counter signed contract and once received we would consider it exchanged (as your clients already held our clients executed contract)
2. On 7 September 2006 we received by expressed post your clients counter executed contract.
3. On 12 September 2006 we wrote to you advising that we will hold the contract in escrow subject to a number of final matters being agreed to.
4. On 15 September 2006 we received your letter dated 12 September 2006 confirming that all matter are agreed to and accordingly we then considered the contract were exchanged. Again we note that we were of the view that you were holding our clients executed contract.

We note that we communicated directly with your clients whilst they were unrepresented, however we since 29 august 2006 when we became aware of your instructed we have always communicated only through your office.

For your assistance we enclose the following;

(i) Copy of email from our clients dated 11 August 2006, providing instructions in relation to the sale

(i) Copy of letter to your clients dated 11 August 2006; and

(ii) Copy of letter to your clients dated 18 August 2006

197. The letter referred to in par 6 of WMW's letter dated 23 November 2006 was not in evidence.

198. On the same day, WMW attempted to resurrect the brothel licence held by Danel in respect of Unit 6 by sending a letter to Ms Fairleigh. In that letter, WMW asserted that a binding contract for sale of business had been entered into between Danel and the Campbell interests on 7 September 2006.

199. On 23 November 2006, WMW forwarded to Lewenberg a copy of an executed Deed of Assignment between Ms Ponga, Danel, Mr and Mrs Vizovitis, Mr Neluschi and Ms Pevreal apparently dated 17 November 2005. This is the document which was tendered at pp 157-164 of Vol 1 of the plaintiff's Tender Bundle (Exhibit A1). WMW reiterated to Lewenberg that their client had no right to occupy Unit 6.

200. The sublease for Units 1-5 was executed on or about 24 November 2006. The term of that sublease is for a period of five years commencing on 1 October 2006 and ending on 30 September 2011. The tenant (Nexstar) has options to renew for a further two periods of five years each, the last of which is to terminate on 1 October 2021. The term matches the term of the sublease of Unit 6 granted by Mr and Mrs Vizovitis to Nexstar.

201. On 28 November 2006, WMW pursued the renewal of Danel's brothel licence for Unit 6 with Ms Fairleigh. On the same day, Ms Fairleigh informed Ms Altavilla that Nexstar could trade from Units 1-5 as the business operation had been approved by the Office of Fair Trading.

202. On 4 December 2006, Danel purported to terminate the contract for sale of business with Nexstar. On that day, WMW sent the following letter to Lewenberg:

RE: DANEL INVESTMENTS PTY LTD - SALE TO CAMPBELL & GOBEO and/or NEXTSTAR INVESTMENTS PTY LTD

BUSINESS OF TIFFANYS IN ACT

We refer to the above and to previous correspondence and note that your client has still failed and neglected to settle the above contract notwithstanding the terms and conditions of our client's Notice to Complete.

In this regard we note that the Notice to Complete required your client to complete this purchase on or before 25 November 2006 which he has failed to do.

In the circumstances our client has instructed us to now terminate the agreement for the sale of the business and our client has forfeited the deposit of $8,000.00.

Our client reserves its right to seek damages from your client in the future.

203. As at 5 December 2006, Christos Vizovitis and Georgia Vizovitis were shown as the registered proprietor of the property. Four registered subleases appeared as registered encumbrances and interests on the Certificate of Title for the property. The first of these was the lease to Ms Ponga (RN 1370131). That lease was shown on the Register as having been registered on 7 May 2004.

204. On 6 December 2006, WMW again wrote to Ms Fairleigh chasing up Danel's renewal of its brothel licence in respect of Unit 6.

205. On 7 December 2006, Lewenberg wrote to WMW in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We thank you for your letter of 23rd November 2006.

We find it curious that the Landlord's Solicitor had confirmed to our office in writing that:-

1. Danel Investments Pty Ltd does not hold a current Lease.
2. Its occupation of the premises is not under any Lease.
3. That the Tenant named in the Lease is JM Ponga who we understand is not in occupation of the premises.

Having regard to the above, please provide and explanation so that our client is aware of who they are dealing with and also supporting material to evidence whether your client has right to sell.

If you hold a current Lease, provide our office with a photocopy of same and we will pay the fees of making photocopy.

An assertion that you have a Lease without production of copy is grossly insufficient with dealings in purchase and sale of businesses. Please provide your response.

At present there is no valid Contract of Sale. You client had failed to comply with the basic obligation that the Vendor has cast upon the Purchaser in a sale of a business. What do you sell?

If your client does have a Lease then produce copy of it and evidence of registration of the Lease entitlements.

Unless this matter is brought to conclusion within the next 7 days our instructions are to commence proceedings to recover deposit monies held in respect of consideration that totally failed by action or inaction of the Vendor.

206. On the same day, in a separate letter, Lewenberg demanded a refund of the $8,000.00 deposit paid by Nexstar in respect of the proposed sale.

207. At around this time, Danel closed the brothel business. Mr Neluschi said that the closure was temporary and just for the Christmas holidays. He said that, when he closed the business at this time, he secured Unit 6 by changing the locks on the door at the rear of the premises and on the front door of Unit 6. He did not remove any of the fixtures, fittings, furniture, plant or equipment normally kept at the premises. This evidence was corroborated by Fulvio Gobeo at the trial. Shortly after, Nexstar took possession of Units 1-5 and also occupied Unit 6.

208. On 12 December 2006, Rod Barnett lodged with the Registrar-General of the ACT the lease of Unit 6 which his clients (Mr and Mrs Vizovitis) had granted to Nexstar. On 20 December 2006, the Registrar-General issued a requisition in respect of that lodgement. In that requisition the Registrar-General said that he did not propose to register the lease from Mr and Mrs Vizovitis to Nexstar because there was a current sublease over Unit 6 which was not set to expire until 31 March 2009 (viz the sublease to Ms Ponga).

209. At around about the same time, Nexstar took steps to register additional business names.

210. On 19 December 2006, the Registrar-General's Office registered the business names Homeboyz and Tiffany's Palace in the name of Nexstar, effective from 11 September 2006 and 3 October 2006 respectively.

211. By letter dated 20 December 2006 from WMW to Lewenberg, WMW denied on behalf of Danel that Danel was obliged to refund the deposit paid by Nexstar on account of the proposed contract for sale of business.

212. On 22 December 2006, the Registrar of Brothels and Escort Agencies for the ACT issued a licence to Nexstar for the operation of a brothel and/or escort agency at Units 1-5. The trading names of the business were specified as Pleasure Palace and Tiffany's Palace.

213. On 23 December 2006, Ms Pevreal's son visited the premises. He observed that the rear door to Unit 6 had been altered and that there was a notice on the premises informing readers that the lease of the upper level had been taken over by Fulvio Gobeo and others.

214. On the first working day after this revelation (viz 27 December 2006), Ms Pevreal phoned WMW. She was advised that she would have to go to court in the ACT and take action against Mr and Mrs Vizovitis.

215. On 2 January 2007, Mr Neluschi flew to Canberra. Mr Neluschi travelled to the premises and made the following observations.

216. The glass door at the front of the building at ground level was locked. There was a chain with a padlock securing the chain threaded through the handles on the inside of the door. Affixed to the glass of the front door was a copy of the fresh sublease which Mr and Mrs Vizovitis had granted to Nexstar. There was also a notice informing readers that the premises were patrolled by a security firm. Fulvio Gobeo said that he did not place these locks on the front door nor did he attach the copy sublease and other notice to the glass in the front door. I accept that evidence. The only reasonable inference is that these things were done by or at the behest of Mr Vizovitis.

217. Confronted with these observations, Mr Neluschi telephoned Mr Vizovitis and informed him that Danel had been locked out of Unit 6. Mr Vizovitis apparently claimed that he knew nothing about any of this. Mr Vizovitis said he would send a man called "Tony". A man called Tony arrived at the premises about 15-20 minutes later. Mr Neluschi and Tony went around the back. The upstairs door to Unit 6 was boarded up. There was a hole in the wall providing access to Units 1-5. The besser block wall between Units 1-5 and Unit 6 had been knocked out. There was a hole in the wall approximately 2 metres wide. That wall had effectively been demolished. There was debris on top of the receptionist's desk in Unit 6. There were bricks strewn everywhere throughout the tenancy. There were workers working in Units 1-5.

218. Mr Neluschi came to the realisation that there was not much he could do at that time. He telephoned Ms Pevreal and told her what he had seen.

219. On the same day, Ms Pevreal telephoned Rod Barnett. He told her that he had issued a sublease to Nexstar. He told Ms Pevreal that he had done that because representatives of Nexstar had told him that they already had possession of Unit 6 and were about to or already had settled the sale of business with Danel. Rod Barnett said that no-one had advised him that a Notice to Complete had been served or that the contract had been terminated. Rod Barnett told Ms Pevreal that he would "look into the matter" when he returned to work on 8 January 2007. He said that the Nexstar lease would be "revoked" because they did not have "good title". He also said that he had only acted on instructions from Mr Vizovitis. Ms Pevreal then drew Rod Barnett's attention to the fact that it was as recently as about 20 November 2006 that Mr and Mrs Vizovitis had signed the Deed of Assignment of the sublease from Ms Ponga to Danel. Rod Barnett told Ms Pevreal that her understanding of that circumstance was incorrect and that Mr Vizovitis had signed that document long before. This was another matter which Rod Barnett said that he would "look into" when he returned to work on 8 January 2007.

220. In his evidence at the trial, Fulvio Gobeo said that, in about October 2006, Mr Vizovitis had told him that he was going to "throw them out" of Unit 6. This was a reference to evicting Danel. Fulvio Gobeo also said that, in about late November or early to mid December 2006, Mr Vizovitis had told him that Danel had vacated the premises. Fulvio Gobeo was cross-examined about these two pieces of evidence but his evidence was left unshaken. There was no evidence to the contrary and I accept these two pieces of evidence given by Fulvio Gobeo.

221. In a file note prepared by Ms Pevreal on or about 2 January 2007, when she was attempting to deal with the lock out of Danel from Unit 6, the following note appears:

Advised PW that we live and work in Queensland - we were only keeping the premises to sell to somebody else - "we never intended to work it ourselves again". Also couldn't afford to pay a security firm for 24 hour surveillance.

222. Ms Pevreal was cross-examined about this note. She answered the questions put to her that she and Mr Neluschi did not intend to continue to operate the brothel business long term. She said that, as at December 2006, they did intend to resume the business after the Christmas holidays but only for so long as they needed to in order to secure a sale of the business. She said that their operation of the business was not intended to be "long term". She accepted that they both wanted to sell the business but argued that they would get a better price if they continued to operate the business. I accept this evidence. It would not have made much commercial sense for Danel to walk away from the business and sublease at this point in time, especially when they intended to sell the business, if they could.

223. Some of the assertions made by Rod Barnett to Ms Pevreal in the conversation which he had with her on 2 January 2007 were untrue. As will be apparent from the findings which I make later in these Reasons concerning the timing of the execution of the Deed of Assignment of the sublease from Ms Ponga to Danel, Mr and Mrs Vizovitis did sign that document on or about 17 November 2006. To suggest that they had signed the document much earlier was untrue. Further, it was at the very least misleading to say to Ms Pevreal that the only reason Rod Barnett had issued the sublease to Nexstar was because he had been misinformed as to the state of play concerning the sale of the business by Danel to Nexstar. The real reason that he had issued that sublease is apparent from his correspondence: That reason was that, in his view, Danel did not have security of tenure. It was he, rather than any representative of Nexstar, who first put that proposition into the ring.

224. On 2 January 2007, WMW wrote to Rod Barnett in the following terms (omitting formal parts):

RE: DANEL INVESTMENTS PTY LTD LEASE FROM VIZOVITIS

We refer to previous correspondence in this matter. As you are aware we act for Danel Investments Pty Ltd. We note that our clients had taken an assignment of the existing lease from Ponga and had negotiated to sell the business with a re-assignment of the lease to Nexstar Investments Pty Ltd and its principal David Campbell and Sam Gobeo. We note that contracts were exchanged for the sale of the business conducted in the leased premises but the purchaser did not complete the contract within the time allowed. A notice to complete was issued and expired without settlement having been effected. In the circumstances our client has treated the contract as terminated and the purchaser's lawyers were notified accordingly.

Notwithstanding this it appears that you and your client were allowed to believe that the purchasers were entitled to take a new lease of the premises. They have proceeded to change the front door to the building, the front door to the premises, to place chains on the front door to the building and to create openings between the premises separately leased by them from your client and the premises leased by our client.

All of these activities appear to have been unlawful as against our clients and to have been based on false and misleading conduct on the part of the purchasers.

We enclose a copy of our letter of even date to the solicitors for the purchaser. In the circumstances it is essential to our client that our client be given access to the premises and that the work necessary to ensure that the premises are in a condition which allows a resale of the business to proceed are carried out.

If we are correct in our understanding that a new lease may have been granted to the purchasers in respect of our client's premises and if in issuing that lease you have relied on any express or implied representations by the purchasers or by their lawyers as to their entitlement to the lease we would be pleased if you could:

(a) provide us with a copy of the lease and

(b) provide us with details of the material on which you and your clients relied in issuing the lease.

We note that when Alyson Pevreal spoke with you earlier she was of the understanding that you had sent extensive correspondence to our office without response. Our file does not disclose any correspondence to which no reply has been given other than your letter of 29 November 2006 which did not appear to require a direct reply and which in any case related to the assignment to our client rather than the assignment to our client's proposed purchaser. If in fact there is any outstanding correspondence kindly let us know. We also understand that the costs which were outstanding to your firm have now been paid. Again if there are any issues in this regard we would appreciate your letting us know.

225. On the same day, WMW wrote to Lewenberg in the following terms:

RE: DANEL INVESTMENTS PTY LTD SALE OF BUSINESS TO CAMPBELL & GOBEO

We refer to previous correspondence in this matter. We note that the contract between our clients has been terminated through default on your client's part. We are instructed that your clients have:

(a) obtained a lease of the premises from the landlord notwithstanding that our client's lease remains in place;

(b) changed the front door of the premises so that it can be accessed from the inside only.

(c) created openings between the premises leased separately by your clients so that there is permanent access between them and

(d) changed the locks on the front door to the building and have placed a chain securing the front door on the inside so that our client's premises cannot be accessed.

As we understand the position the landlord has permitted these matters to occur because your clients and possibly your firm have allowed the landlord's solicitors to believe that as between our client and your clients your clients were entitled to do so.

Clearly that is not the case. The sale to your clients has not been completed and the contract has been terminated lawfully by the vendor. Our clients remain entitled to the benefit of the existing lease.

Our clients have negotiated to sell the business to another purchaser but will be unable to secure the sale and complete it unless our client has access to the building and to the premises and the premises are reinstated to their condition prior to the works carried out by your clients including closing the openings between the premises leased by your clients and our client's premises.

You will appreciate that our clients may suffer very substantial loss if the required action in this regard is not taken promptly. We are forwarding a copy of this letter to the solicitors for the lessor. In the absence of confirmation within three (3) business from the date of this letter that your clients will take the necessary action to rectify the matters complained we will advise our clients that they should:

(a) initiate proceedings in the Supreme Court for a mandatory injunction and declaratory relief and/or

(b) carry out the work themselves and then seek recovery from your clients.

Your urgent response is requested.

226. Rod Barnett responded to WMW's letter of 2 January 2007 on 8 January 2007. Mr Barnett's response was in the following terms:

Re: DANEL INVESTMENTS PTY LTD PURCHASE FROM VIZOVITIS

BUSINESS: TIFFANYS, ACT

PREMISES: UNIT 6 ON SUBLEASING PLAN 106

Thank you for your letter of 2 January.

The writer did, in fact, enter into a conversation with Alyson Pevreal who rang whilst the writer happened to be in the office although it was closed during this period of time.

1. It is true that our client has in fact issued a fresh Lease in favour of Campbell and Gobeo who appear to be the Directors of a company, namely Nexstar Investments Pty Ltd.
2. Our client authorised the issue of a new Lease in favour of Nexstar Investments Pty Ltd, pursuant to the fact that the premises appeared to be abandoned at the time by your client upon the basis that we had received on 20 October last, notification from you that your client had entered into contractual arrangements with Nexstar Investments transferring the business.
3. At that time the premises appeared to be abandoned and in the circumstances we presume that the new owners of the business were taking possession. We then received notification from Lewenberg and Lewenberg seeking the issue of a fresh Lease document rather than relying on the earlier assignment.
4. You are reminded that at the time of your approach on 20th October, whilst a Deed of Assignment had been issued by this office, no response had been received and indeed, prior to 20th October, notification was received from Lewenberg and Lewenberg to the effect that they had effective right to possession, in view of the fact that the contract was being proceeded with.
5. No further details have been provided by your office, with the greatest respect, as to the termination of the Contract and it is only now that we are aware, through your office, that termination of the Contract took place rather than it being completed to the satisfaction of both parties.
6. You are also reminded that the premises at that time had all the ear-marks of being totally abandoned. A copy of the stamped Lease issued by our client to Nexstar Investments Pty Ltd is attached for your attention and you will note that the Lease commenced on 1st October 2006.
7. It is true that there seems to have been a degree of misrepresentation on the part of Nexstar Investments Pty Ltd as to their locus standi in relation to possession of the premises.

However, in view of the fact that Nexstar Investments Pty Ltd appear to be in possession of the premises, we do, with the greatest respect, caution your client against taking unilateral action to regain possession without the assistance of a Court Order.

We would assume that any attempt at repossession by your client would undoubtedly be resisted by Nexstar Investments Pty Ltd and whilst our clients are loathe to take sides in this issue, the provisions of the Leases (Commercial and Retail) Act, are quite clear that no possession may be taken in respect of premises without the requisite order being made through the Courts. Indeed, whilst this may be a matter for your client, we are wondering what might be served by Danel Investments Pty Ltd wishing to repossess the subject property, in view of the fact that there has been a fundamental breach of Contract for which your client can seek recourse for breach of contract in the normal way.

Having commented on the above, however, it is our clients' instructions that they would be more than prepared to abide by any Order of the Court as to possession and reinstate the assigned Lease held by Danel Investments, if in fact this was the finding of the Court. It seems clear from our clients' perspective, that our clients acted to provide Nexstar Investments Pty Ltd with a new Lease upon the misrepresentation that the Contract had been completed. The position seems to have been further exacerbated by the fact that no notification was received from your office that your client had encountered any breach of Contract and further that the premises had all the earmarks of being surrendered.

Furthermore, we might make the observation that since we have issued a new Lease in favour of Nexstar Investments Pty Ltd, the Lease remains effectively valid and is not subject to any contrary order of the Court, your client is released from any responsibility under the Lease which may, in fact, be an advantage to your client, it being left with a claim for damages for breach of Contract against Nexstar Investments.

If, on the other hand, your client wishes to re-take possession of the subject premises, perhaps you would notify us of the application being made to the ACT Magistrates Court to seek such possession pursuant to the provisions of the Leases (Commercial and Retail) Act.

227. Rod Barnett subscribed the words "Without Prejudice" at the top of his letter dated 8 January 2007.

228. Lewenberg responded to WMW's letter to them dated 2 January 2007 on 9 January 2007. Lewenberg's response was in the following terms:

RE: DAVID CAMPBELL & FULVIO GOBEO PURCHASE OF BUSINESS FROM DANEL INVESTMENTS PTY LTD

TIFFANY'S IN ACT

We thank you for your letter of 2 January last received in our office on return from Christmas break on the 8th of January 2007 and respond as follows:

1. Our client had obtained the Lease from the Landlord on the basis that your client does not hold a Lease and this has been confirmed by the Landlord's Solicitor.
2. As our client now holds a Lease and our client is entitled to occupation of the premises and deal with the premises.

We confirm there has never been a Contract of Sale in place as Contracts of Sale forwarded to you and amended were not exchanged despite numerous requests by this office.

Unless deposit monies paid are refunded to this office by return mail proceedings will be issued shortly for the recovery of deposit paid to your client as a holding deposit pending negotiation for the sale and purchase of the business. The allegations contained in your correspondence are without basis and denied.

Should your clients take any steps to institute proceedings, these proceedings will be strenuously defended.

In the meantime kindly return the deposit monies paid by our client by return mail.

229. On 11 January 2007, Lewenberg wrote two letters to Rod Barnett. In those letters, Lewenberg sought the return of the lessee's copy of the leases for Units 1-5 and Unit 6, duly stamped.

230. On 12 January 2007, WMW wrote to Rod Barnett. Under cover of that letter, WMW forwarded to Rod Barnett the Lewenberg letter to WMW dated 9 January 2007. WMW's letter to Rod Barnett was in the following terms:

RE: DANEL INVESTMENTS PTY LTD LEASE FROM VIZOVITIS

We refer to previous correspondence in this matter and now enclose a copy of a letter dated 9 January 2007 received by us from Lewenberg & Lewenberg, solicitors. In relation to the Lease aspects we would be pleased if you would indicate whether you have advised Lewenberg & Lewenberg or any other party that out client does not hold a Lease of the premises.

With reference to the Contract for Sale it is our client's position that there was a Contract based on part performance. That Contract has been terminated and the deposit moneys forfeited.

We note further to our comments in our earlier correspondence that if a concurrent Lease has been granted one of the consequences is that the Lessee under the concurrent Lease is obliged to perform the Lessee's obligations which would include allowing our client possession of the premises and quiet enjoyment. Equally, however, our client would be obliged to pay the rent to the holder of the concurrent Lease. Accordingly, if the Lease to the Purchasers is in place it would appear that our client's obligation is to make future payments of rent to the Purchasers as the Lessees under the concurrent Lease rather than to your client. For this reason it is in your client's interests to ensure that the purported further Lease is terminated.

We will be obliged to advise our client to make future payments of rent to the Lessee under the concurrent Lease in the absence of any information indicating that other advice should be provided.

We look forward to receiving your urgent response.

231. On 15 January 2007, at a time when the problems which the conduct of the parties had caused were well and truly manifest, in a conversation between Ms Altavilla and Mr Barnett, Mr Barnett told Ms Altavilla that he (Barnett) thought that Danel had abandoned Unit 6 and had been in arrears of rental when Nexstar "came into the picture". This was not the fact. He said to Ms Altavilla that, as far as he was concerned, Danel did not have a lease. He said that his clients (Mr and Mrs Vizovitis) were entitled to lease Unit 6 to whomever they wanted.

232. On 17 January 2007, WMW wrote to Lewenberg in the following terms:

RE: DANEL INVESTMENTS PTY LTD SALE OF BUSINESS TO CAMPBELL & GOBEO - TIFFANYS IN ACT

Thank you for your letter of 9 January, 2007. We note as follows:

1. Our client does hold a lease in respect of the premises.
2. Our client has continued to pay rent in respect of the premises.

1. The landlord's solicitors have acknowledged to us that our client holds a lease.

1. Please provide us with evidence of the alleged confirmation by the landlord's solicitor that our client does not hold a lease.
2. If your client holds a lease granted subsequent to the lease pursuant to which our client is entitled to occupation of the premises, your client's lease will constitute a concurrent lease.
3. As you are no doubt aware, the consequence of that is that your client is obliged to comply with the lessor's obligations under our client's lease including our client's right to possession and quiet enjoyment.
4. Our client will be obliged to pay future rent to your client.
5. Your client will in turn be obliged to pay rent to the landlord but will not be able to enjoy possession of the premises while our client's lease continues.
6. The issues regarding the Contract of Sale have been canvassed thoroughly in the previous correspondence.
7. It is clear that there was a Contract, that your client failed to complete the Contract and the deposit monies have been forfeited.

Please advise us where the rent should be paid to your client and advise us what arrangements can be made for our client to have access to the premises in accordance with their lease.

We look forward to hearing from you.

233. On the same day, WMW sent a copy of that letter to Rod Barnett.

234. On 18 January 2007, WMW wrote to Rod Barnett in the following terms:

RE: DANEL INVESTMENTS PTY LTD LEASE FROM VIZOVITIS

Thank you for your letter of 8 January 2007. We note in response as follows:

1. Noted. It appears that the lease which has been provided to the purchasers was issued while our client was arranging assignment of the existing lease from the original lessee and prior to your client signing the assignment documents which were witnessed by your Mr Barnett. Clearly no lease should have been issued by or on behalf of your client except conditionally upon our client's lease being terminated pursuant to the arrangements, of which you and your client were aware, for the sale of our clients' business.
2. We are instructed that there is absolutely no basis on which a view could have reasonably been formed that the premises were abandoned by our client. We are instructed that our clients have continuously operated their business in the premises. In mid-December they did place a notice indicating that the premises were closed temporarily for refurbishment as they had done in the previous year. We are instructed that there is ample documentary evidence to show that our clients continued to trade in the premises up until the middle of December including eftpos payments, payments in respect of services to the premises, etc. We note that there is an apparent conflict between your paragraphs 1 and 2. Paragraph 1 appears to suggest that the lease was issued in favour of Campbell & Gobeo whereas paragraph 2 says that the lease was issued in favour of Nexstar Investments Pty Ltd. We agree that we had notified you that our clients had negotiated to sell the business to Nexstar Investments Pty Ltd. This simply reinforces the fact that no lease should have been granted to Nexstar Investments Pty Ltd except to allow the contract between our clients and that company to be completed.
3. We repeat that there was simply no basis on which you, your clients or the purchasers could have understood that the premises were abandoned and if possession has been given to and taken by the purchasers, this has occurred unlawfully. If Lewenberg & Lewenberg have led you to believe that their clients were entitled to a lease of the premises and to possession of them then they have been guilty of misleading and deceptive conduct as they were clearly aware of the contractual situation at all times.
4. We have been in continuous contact with your office with regard to the Deed of Assignment and indeed your clients signed the Deed of Assignment subsequent to 20 October 2006 and your Mr Barnett witnessed their signature. We would ask you to provide us with a copy of the notification you received from Lewenberg & Lewenberg referred to in this paragraph. We note that there is nothing in the contract which entitles their clients to possession except pursuant to completion of the contract. As you have been aware for some time the contract was not completed and was in fact terminated.
5. With equal respect there was no obligation on our part to notify you that the contract had been terminated.
6. We again note that the premises had no "ear marks" or indeed any other marks of being abandoned and indeed every indication would have been to the contrary. We are at a loss to understand how your client could have granted a lease in respect of the premises to Nexstar Investments Pty Ltd commencing on 1 October 2006 when you were not formally advised of the sale of the business until 20 October 2006.
7. We would be pleased if you would provide us with a copy of the material evidencing the misrepresentations.

We would respectfully suggest that it is interests of your client to ensure that possession of the premises is restored to our clients without the necessity of a court application. As you would appreciate significant costs will be incurred if one is necessary. It appears from our clients' enquiries that whilst the purchasers have carried out unlawful work connecting the premises they are not actually operating in the premises formerly occupied by our clients and that if they voluntarily give up possession their exposure to legal action would be minimised.

Our client has an obligation to minimise its loss and this can best be done by securing possession of the property, recommencing trading and effecting a sale of the business.

We note that our client has an obligation at law to proceed in this manner so that the loss which it suffers as a result of the breach of contract on the part of the previous purchasers is mitigated.

With reference to the penultimate paragraph on the second page of your letter we would again ask you to provide a copy of the material which you say constituted a misrepresentation that the contract had been completed. We repeat that there was no obligation on our clients' part or indeed on our part to notify you or your client that the contract had not been completed. There remained the possibility of the negotiations being revived.

We note with respect that where a second lease is granted by a lessor over the same premises it can only operate as a concurrent lease, that is a lease of the reversionary interest expectant on termination of the existing lease. The granting of the new lease does not in any way release our client from responsibility under the lease.

We further note that the landlord has continued to accept our clients rental payments. Our clients' requirements are that:

(a) possession of the premises be restored to them; and

(b) the unlawful works carried out by the former purchasers be made good.

Our clients have suffered and will continue to suffer trading losses as a result of not having possession of the premises.

It is clearly in your client's interests to ensure that our clients' rights are restored as soon as possible. The issues regarding misrepresentation whilst they may found an action on our clients' part are primarily a matter between your client and the lessee under the second lease.

235. On the same day (viz 18 January 2007), Rod Barnett wrote to Lewenberg and said:

Re: C & G VIZOVITIS LEASE TO NEXSTAR INVESTMENTS PTY LTD

PREMISES: UNITS 1 TO 5, 72 BARRIER ST, FYSHWICK

UNIT 6, 72 BARRIER ST, FYSHWICK

We advise that stamped copies of the Leases in both cases have been issued in this matter and copies of the operative provisions of those Leases are attached of your general attention.

We do note, however, that your right to occupation of Unit 6 is in dispute with Danel Investments Pty Ltd and we would, of course, appreciate receiving an update of your advices as to whether this issue can be resolved.

It does seem to us that whilst we have issued the Lease in favour of Unit 6, the right to occupation seems to be disputed by Danel Investments notwithstanding the fact that we were led to believe that a formal sale had taken place.

In those circumstances, it is our client's instructions that if the dispute cannot bed resolved between the respective parties, undoubtedly the matter will have to be resolved in the ACT Magistrates Court pursuant to the provision of the Leases (Commercial and Retail) Act.

We will of course, abide by any Court Order which evolves from any such proceedings being taken.

With regard to your final query concerning where rental is to be paid in respect of unit 1 to 5, we advise that a post-box situated directly in front of the off licence on the ground floor, is available for the lodgement of rental cheques. We trust that this arrangement for the collection of rental is satisfactory to you.

If we can be of any further assistance, kindly have no hesitation in contacting this office.

...

P.S. The Lease for units 1-5 is still at Office of State Revenue. It will be forwarded to you shortly.

236. On 19 January 2007, Lewenberg wrote to Rod Barnett in the following terms:

RE: NEXSTAR INVESTMENTS PTY LTD LEASE FROM C & G VIZOVITIS

PREMISES: UNITS 1-5, 72 BARRIER STREET, FYSHWICK & UNIT 6, 72 BARRIER STREET, FYSHWICK

We thank you for your letter of 18th January 2007, received in our office on the 19th of January 2007.

We are informed by our client that Danel Investments Pty Ltd had:-

1. Abandoned the premises;
2. Attended the premises after abandonment and removed items such as computers etc; and

1. Left old mattresses and old furniture etc on the premises.

The balance of belongings of Danel Investments Pty Ltd have been stored by our client in one of the rooms at the premises, however we are advised that the items are only fit to be disposed of.

We advise that as far as our client is concerned there is no issue in respect of the Lease in favour of Unit 6. You have confirmed in previous correspondence that Danel Investments Pty Ltd does not have a Lease and our client on contacting the Landlord direct has negotiated Lease with the Landlord and has taken rightful occupation of the premises.

We note your advice in relation to the post box situated at the front of the premises in relation to rental and have advised our client of this arrangement, however in the meantime we enclose herewith in respect of Unit 6, cheque in the sum of $1,711.40 being the rental due and payable for the month of January.

We would be grateful if you would forward the cheque to the Landlord and in due course acknowledge receipt.

In relation to Unit 5, we note that the rental commences on the 1st of February next.

We thank you for your assistance.

237. On 24 January 2007, Rod Barnett responded to the letter from WMW dated 18 January 2007. Mr Barnett's response was as follows:

Re: VIZOVITIS LEASE TO DANEL INVESTMENTS PTY LTD BUSINESS: TIFFANYS, ACT

PREMISES: UNIT 6 ON SUBLEASING PLAN 106

Thank you for your letter of the 18th instant. We have now had an opportunity of conferring with our client and taking further instructions with regard to the status of the premises.

To assist you, perhaps we should make our client's position clear:

1. Our client readily agrees that a Deed of Assignment was in fact executed (be it at a somewhat late stage) in the belief that this was a pre-cursor to your client selling the business to Nexstar Investments Pty Ltd ("Nexstar").
2. It is true that we were approached by Nexstar and were given to understand that at that stage, Nexstar was in negotiation with Danel Investments Pty Ltd ("Danel") with regard to the purported sale of the business.
3. Nexstar indicated its preference that rather than take an assignment of the Lease which currently existed, they wished to negotiate a new Lease in respect of both parts of the premises comprising the entire first floor.

The parties accordingly entered into negotiations and Leases were drawn and executed and have subsequently been stamped.

1. At the time of providing those representing Nexstar with possession of the subject premises, there is absolutely no doubt from the witnesses we have interviewed, that the premises were abandoned.

Our client's son attended the premises and noted that the premises were vacant apart from some ancillary furniture which was in a dilapidated condition and which had no value. That furniture was then subsequently stored in another part of the premises.

If, as alleged, your client maintains that, through a representative of Danel, it was in continued possession of the premises, our client certainly saw no evidence of this. Our client naturally presumed that the premises had been surrendered and saw no impediment to allowing Nexstar into occupation and in the circumstances we believe our clients were acting reasonably in the belief that your client company was showing no further interest in the premises.

1. With the greatest respect, we consider that your client is being disingenuous if it suggests that it was continuing to occupy the premises and use those premises pursuant to the provisions of the Purposes Clause contained in the original Lease.
2. It is evident that Nexstar is now in possession of the subject premises and whilst the lease in its favour has not yet been registered, that company remains in possession of the premises.
3. It seems clear that there is now a dispute between Nexstar and Danel concerning the existence of a previous Contract. We note that it is asserted by your client that the Contract is effectively void ad initio and as such she is entitled to revert to original possession.

Our clients would take a contrary view upon the basis that our clients can produce adequate evidence to show that the premises were abandoned and your client did not use the premises effectively for the purposes under which the Lease was granted.

It seems to us that if your client wishes to regain possession of the premises, there is no alternative but for your client to make application to the ACT Magistrates Court for an Order that possession be granted in favour of your client. We anticipate that if such proceedings were instigated, we would be a party to those proceedings and would abide by any Order the Court made.

We make mention of the fact, however, that so far as our clients are concerned, costs are not an issue in view of the fact that the forum which would necessarily be used, does not entertain any order for costs.

We do, however, have instructions to accept service of any proceedings which your client might wish to initiate.

238. On 24 January 2007, Rod Barnett wrote to Lewenberg in the following terms:

Re: C & G VIZOVITIS LEASE TO NEXSTAR INVESTMENTS PTY LTD

PREMISES: UNITS 1 TO 5, 72 BARRIER ST, FYSHWICK

UNIT 6, 72 BARRIER ST, FYSHWICK

Thank you for your letter of the 19th instant.

We appreciate the additional information and note that it was our clients' clear understanding that the premises had been abandoned at the time possession was given to your client.

Be that as it may, we have pointed out to Wood Marshall Williams that if they wish to assert their client's right to possession, they will have to make an application in this jurisdiction for possession of the premises and this jurisdiction rests with the ACT Magistrates Court.

It may well be that Danel Investments Pty Ltd ("Danel Investments") will pursue the matter but we will then leave it to the Court to decide on the question of abandonment and usage of the premises.

It seems clear that at the time that Danel Investments was occupying the subject premises, the premises were not being utilised for the purposes for which the Lease had been granted.

In the meantime, you have indicated that you hold rental due to our client of $1,771.40 and have enclosed a cheque by way of ordinary mail.

As soon as we have the cheque cleared through our Trust Account, we shall forward you a receipt. However, all future payments should be made as directed previously.

239. On 30 January 2007, WMW sent a long response to Rod Barnett's letter dated 24 January 2007. That response was in the following terms:

RE: DANEL INVESTMENTS PTY LTD LEASE FROM VIZOVITIS BUSINESS: TIFFANY'S, ACT

PREMISES: UNIT 6 ON SUBLEASING PLAN 106

With further reference to your letter of 24 January 2007, we note as follows, using your paragraph numbering:

1. Noted. As there was nothing in the correspondence to indicate that your client's execution of the Deed of Assignment of Lease was conditional upon our client's proposed sale of the business to Nexstar Investments Pty Ltd, our client is entitled to rely on the Deed of Assignment.

1. Noted. Clearly your client had no right to grant a new lease giving immediate possession to Nexstar unless our client's Lease was surrendered and this has not occurred. Any lease granted to take effect while our client's Lease remained in force could only operate as a concurrent lease with the consequences indicated in our earlier correspondence.
2. We are instructed that any evidence which you have obtained regarding the alleged abandonment of the premises is simply wrong. You have not indicated when possession was given to Nexstar. You are aware from the previous correspondence that the business was not operating during the Christmas break and as advised to you a sign was placed on the door indicating that it was closed for refurbishment. Apart from that period however we are instructed that there is documentary evidence to show that the business was trading continuously. Our client has EFTPOS statements, American Express accounts and telephone records which will verify the position in this regard. The business was managed by Angelo until 9 October 2006 when he left for Argentina to recruit staff. From that time until the business was closed for the Christmas break it was managed by Alyson Pevreal's son, Daniel. When Angelo spoke with your client and your client's son on 28 December 2006, they denied that the Lease had been terminated or that there was any problem in relation to the premises. We are instructed that when Angelo attended the premises on the weekend of 9th and 10th December 2006, all of the furniture was in place in accordance with the Inventory in the Contract of Sale issued to Nexstar's principals. Some of the furniture had been purchased during the previous twelve months. No doubt the demolition works which had been carried out by Nexstar could have given the impression that the furniture and fittings were in poor condition. After this work no doubt they were.

We note that your client had no right to assume that the premises had been surrendered. The seriousness of granting a new lease of the premises while there was a current Lease could surely have warranted more thorough enquiry. In any case your client's position in this regard is inconsistent with the fact that your client continued to accept rental payments from our client.

1. It is scarcely disingenuous for our client to believe something which is based on fact and supported by documentary evidence. With the greatest of respect it is your clients who are being disingenuous and selfserving if they seriously formed the view suggested by you.
2. If your clients have purported to give a valid lease of the premises entitling Nexstar to possession, then your clients are in breach of the covenants for quiet enjoyment in our client's Lease. If the lease which your clients have granted to Nexstar is a concurrent lease then our client is entitled to possession as against Nexstar.
3. Whilst it is true that Nexstar has denied the existence of a Contract between itself and our client, the issues between those parties have no relevance to your client's obligations under the Lease. The allegations by Nexstar in this regard are denied and do not affect our client's entitlement to possession. If our client's position in relation to the sale is correct, there was a Contract which has been terminated and therefore Nexstar has no right to possession pursuant to it. If the position taken by Nexstar is correct, that is that there never was a Contract between Nexstar and Danel Investments, then again there is no contractual basis on which Nexstar is entitled to possession. The only possible basis for Nexstar being entitled to possession would be if our client had surrendered the Lease and a valid lease allowing immediate possession had been given to Nexstar. That is clearly not the case.

We seek your urgent response in relation to the concurrent lease issues. On our understanding of the legal position, our client's obligation is to pay the rent to Nexstar if your client persists in the view that a lease has been granted to that company.

240. There was no evidence that that letter was ever responded to by Rod Barnett.

241. On 30 January 2007, Lewenberg wrote a further letter to WMW. That letter was in the following terms:

RE: CAMPBELL & GOBEO - PURCHASE OF BUSINESS FROM DANIEL INVESTMENTS PTY. LTD.

We have your letter of the 17th January and there appears to be little that your client has instructed you that was set out in your letter of the 17th January that is either accurate or reflects accurately the circumstances in this matter.

Our client does hold a lease to the premises, your client does not.

In fact your client has not secured a formal lease, your client has abandoned the premises for non-payment of rental.

We do not wish to waste costs by providing you with photocopy of registered lease that our client holds to the premises.

If you are receiving instructions which having regard to your correspondence is unlikely, then you will be aware that your client is not in occupation of the premises and our client has been in occupation for some time.

Our client does not desire for your client to be a tenant, our client is selective as to who our client accepts as a tenant.

We anticipate that proceedings will be served upon your office shortly.

In view of this the matters set out in your correspondence, apart from being inaccurate, are also illogical and we don't propose to become involved in unproductive or wasteful correspondence.

242. On 30 January 2007, Lewenberg wrote to WMW in the following terms:

RE: CAMPBELL & GOBEO - PURCHASE OF BUSINESS FROM DANIEL INVESTMENTS PTY.LTD.

We have your letter of the 17th January and there appears to be little that your client has instructed you that was set out in your letter of the 17th January that is either accurate or reflects accurately the circumstances in this matter.

Our client does hold a lease to the premises, your client does not.

In fact your client has not secured a formal lease, your client has abandoned the premises for non-payment of rental.

We do not wish to waste costs by providing you with photocopy of registered lease that our client holds to the premises.

If you are receiving instructions which having regard to your correspondence is unlikely, then you will be aware that your client is not in occupation of the premises and our client has been in occupation for some time.

Our client does not desire for your client to be a tenant, our client is selective as to who our client accepts as a tenant.

We anticipate that proceedings will be served upon your office shortly.

In view of this the matters set out in your correspondence, apart from being inaccurate, are also illogical and we don't propose to become involved in unproductive or wasteful correspondence.

243. On 31 January 2007, Lewenberg wrote to WMW and informed WMW that all goods and chattels which had been left on the property by Danel would be disposed of by Nexstar unless removed by Friday 9 February 2007.

244. On 1 February 2007, Hill & Rummery returned to Rod Barnett a Surrender of Lease duly executed by Ms Ponga. This document had earlier been prepared by Mr Barnett and submitted to Hill & Rummery on 20 October 2006. The evidence before me did not establish whether that Surrender of Lease was ever lodged for registration and, if so, whether it was registered.

245. Thereafter, Danel retained new solicitors, Meyer Vandenberg. On 16 March 2007, Meyer Vandenberg wrote to Rod Barnett in the following terms:

Danel Investments Pty Ltd and Christos and Georgia Vizovitis

Premises: Unit 6 in Subleasing Plan 106 - Section 21, Block 15, Fyshwick (Barrier Street, Fyshwick, ACT)

We confirm that we act for Danel Investments Pty Limited. We understand that you act for Christos and Georgia Vizovitis.

We are instructed that on or around 29 November 2005 our clients purchased the business known as "Tiffany's Studios" located at the premises. The premises were subject to a lease originally granted by Eric Lee and Shirley Esme Lee to Jillian Norma Ponga (RN 1370131). Notwithstanding that a Transfer of Lease document was not filed at the ACT Registrar General's Office, your client agreed to the transfer of lease to our client. We are instructed that your client has accepted rental payments from our client since the date of the purchase of the business.

We have read correspondence to suggest that your clients claim that our client has abandoned the premises. Our client strongly denies this and instructs that at all times it continued to make rental payments in a timely fashion to your client in accordance with the lease. Our client has not received a termination notice, nor did it receive any correspondence from your client enquiring whether it has abandoned the premises.

We are instructed that, notwithstanding our client's lease, your clients have issued a new lease over the premises to Nexstar Investments Pty Limited. We are instructed that our client no longer has access to the premises and is not in occupation. Your client's repudiation of the lease does not recognise our client's legal and equitable interest in the premises.

In the circumstances, without prejudice to our client's rights under the lease, it is futile for our client to continue to pay rent and outgoings in the premises, and our client will cease making any further payment to your clients forthwith.

Our client reserved its rights to commence action for compensation and damages against your clients. Would you please confirm that you will accept service on behalf of your clients.

246. That letter provoked a terse response from Rod Barnett in which he stated that Mr and Mrs Vizovitis had instructed him to accept service of any proceedings that Danel might wish to instigate and that the parties had agreed, on a without prejudice basis, that Danel need no longer pay rent. Danel had paid rent to Mr and Mrs Vizovitis as required by the sublease throughout the period from 1 December 2005 to 1 February 2007. Danel had not been in arrears of rent at any time from December 2005 to February 2007.

247. Subsequently, Nexstar renewed from time to time its brothel licence in respect of Units 1-5. When the building works carried out by Nexstar were completed, it began to carry on a brothel business on the first floor of the Barrier Street property under the name "Tiffany's". The external façade of the building remained the same as it had been when Danel operated its brothel business from Unit 6. Above the front door, there is a large, coloured, illuminated sign consisting of a stylised "Tiffany's" name. That sign was in place when Danel was in occupation of Unit 6 and has remained there during Nexstar's occupation.

248. Mr Campbell ceased his involvement with Nexstar and the brothel business conducted by Nexstar in April 2007.

249. One of the most valuable assets of the brothel business in 2005 was the sublease. The sublease was the source of Ms Ponga's entitlement to occupy Unit 6. In a sale of business transaction where the business is being sold as a going concern and where the business is operating from leased premises, it is both essential and normal for the purchaser to insist that the vendor assign the benefit of the lease to the purchaser. Sale of business agreements commonly provide for such an assignment as a term and condition of the sale. If such an assignment requires the consent of the lessor, the transactional documents generally also require the vendor of the business to procure that consent.

250. The sale of business transaction between Ms Ponga and Danel in the present case conformed to the general expectations outlined at [249] above.

251. On 25 November 2005, Rod Barnett submitted a draft Deed of Assignment to Hill & Rummery, who were then acting for Ms Ponga. Rod Barnett had previously been requested to obtain the consent of Mr and Mrs Vizovitis to an assignment of the sublease from Ms Ponga to Danel and the fact that he promptly prepared the draft Deed of Assignment after that request was made implies that Mr and Mrs Vizovitis were content to consent to the proposed assignment. Mr and Mrs Vizovitis did not give evidence at the trial nor did Rod Barnett. There is nothing in the evidence before me to suggest that either Mr or Mrs Vizovitis had any reservations about consenting to the proposed assignment of the sublease from Ms Ponga to Danel. In those circumstances and taking account of the fact that Rod Barnett submitted a draft Deed of Assignment to Hill & Rummery on 25 November 2005, I find that, as at that date, Mr and Mrs Vizovitis were willing to consent to the proposed assignment of the sublease from Ms Ponga to Danel.

252. Settlement of the purchase of the brothel business by Danel from Ms Ponga took place during the course of the morning on 28 November 2005. It appears that either Mr Neluschi or Ms Pevreal, or both, attended at settlement. At settlement, Mr Reis, of Hill & Rummery, delivered to either Mr Neluschi or Ms Pevreal the Deed of Assignment in the form submitted to him by Rod Barnett under cover of Rod Barnett's letter of 25 November 2005, duly executed by Ms Ponga. When delivered at settlement, the Deed of Assignment had not been signed on behalf of Danel or by Mr Neluschi or Ms Pevreal. Nor had it been signed by either Mr or Mrs Vizovitis at that time.

253. In the afternoon of 28 November 2005, after settlement of the purchase of the brothel business had been effected, Rod Barnett submitted a revised Deed of Assignment and requested that Ms Ponga and the Danel interests execute the Deed in its revised form. Mr Reis responded to that request promptly by stating that he had delivered an executed Deed of Assignment to either Mr Neluschi or Ms Pevreal at settlement and that, notwithstanding that fact, he expected that his client would be prepared to execute the revised Deed of Assignment submitted by Rod Barnett.

254. The next day (29 November 2005), Rod Barnett sent a copy of the revised Deed of Assignment to WMW with a request that WMW procure the Danel interests to execute the Deed of Assignment in its revised form. The evidence does not disclose whether Mr Parisi, of WMW, acted on that request or whether the Danel interests acted on that request at that time.

255. At regular intervals in the period from December 2005 to the end of March 2006, Rod Barnett chased up the execution of the revised Deed of Assignment with both WMW and Hill & Rummery. The tone and contents of Rod Barnett's communications in this period support the conclusion that Mr and Mrs Vizovitis remained willing to consent to an assignment of the sublease from Ms Ponga to Danel and to execute a Deed of Assignment in the revised form drafted by Rod Barnett.

256. In mid June 2006, Rod Barnett again attempted to procure an executed Deed of Assignment in the revised form. He did not succeed in doing so at this time.

257. As far as the documentary record goes, the question of the execution of the Deed of Assignment remained dormant until early October 2006.

258. By then, it had probably become apparent to Mr Parisi and his clients that there were going to be difficulties in consummating the sale and purchase transaction with Nexstar.

259. On 4 October 2006, WMW wrote to Hill & Rummery (as to which see the letter extracted at [154] above). The letter is a curious one - it is addressed to Hill & Rummery and yet asks Hill & Rummery to return documents to Hill & Rummery. However, the letter does record that the Danel interests apparently executed a version of the Deed of Assignment in January 2006. The letter also seems to suggest that the signed version was delivered to WMW by either Mr Neluschi or Ms Pevreal around about early October 2006. It is not at all clear to me what it was that WMW was asking Hill & Rummery to do in their letter dated 4 October 2006.

260. On 20 October 2006, the question of the execution of a Deed of Assignment of the sublease from Ms Ponga to Danel was again raised in correspondence amongst the parties. WMW wrote to Hill & Rummery apparently pursuing the return of an executed Deed of Assignment. On the same day, they wrote to Rod Barnett foreshadowing a need to have the executed Deed of Assignment also signed by Mr and Mrs Vizovitis urgently in order to enable settlement of the sale of business transaction with Nexstar to be completed.

261. On 23 October 2006, Hill & Rummery sent a version of the Deed of Assignment to Ms Ponga with a request that she execute the document as a matter of urgency. Mr Reis requested Ms Ponga to forward the executed Deed directly to Mr Neluschi or Ms Pevreal. He wrote to WMW on the same day informing them that he had submitted a version of the Deed of Assignment to Ms Ponga for execution by her and had requested her to return the executed document directly to Mr Neluschi or Ms Pevreal.

262. On 26 October 2006, Rod Barnett sent a copy of the original Deed of Assignment to WMW. By then, of course, steps were in train to have a version of the Deed of Assignment executed by all relevant parties.

263. There is no direct evidence as to what happened between 23 October 2006 and 20 November 2006.

264. There was no evidence from any of Ms Ponga, Rod Barnett, Mr Reis or Mr Parisi as to what happened in this period. None of those persons was called as a witness at the trial. However, the correspondence passing amongst the parties in late October 2006 makes clear that, at that time, a fresh version (either in its original form or in the revised form) of the Deed of Assignment had been submitted to Ms Ponga for execution by her with a request that she forward the executed document directly to either Mr Neluschi or Ms Pevreal. I infer that Ms Ponga did as she had been requested to do. Once received by either Mr Neluschi or Ms Pevreal, I infer that they executed the Deed as required. Given that a duly executed version of the Deed of Assignment was in the possession of Rod Barnett by 20 November 2006, I also infer that the Deed of Assignment executed by Ms Ponga and the Danel interests had been returned to Rod Barnett or to Mr Vizovitis prior to 20 November 2006 with a request that Mr and Mrs Vizovitis also execute the Deed.

265. In the circumstances, there is every likelihood that the Deed of Assignment which was doing the rounds in late October 2006 was ultimately signed by all relevant parties. The only Deed of Assignment tendered in evidence which bears the signature of all relevant parties is the document at pp 157-164 of Vol 1 of the plaintiff's Tender Bundle (Exhibit A1). As I have mentioned at [84] above, that document bears the date "17 November 2005".

266. I think it is very likely that Mr and Mrs Vizovitis executed the Deed of Assignment that was being passed around amongst the other parties and their lawyers in late October 2006 shortly before 20 November 2006. Rod Barnett says as much in his letter to WMW dated 20 November 2006. It is very likely that the document which is at pp 157-164 of Exhibit A1 was signed by Ms Ponga and the Danel interests in late October 2006 and ultimately by Mr and Mrs Vizovitis on 17 November 2006. When the document commenced its travels in late October 2006 before being executed by anyone, it was almost certainly undated although, if it was a reprint of the document drafted by Rod Barnett in 2005, the year shown in typescript in the undated document would almost certainly have been "2005". The number and words "17th" and "November" are handwritten on the document at pp 157-164 of Exhibit A1 and were likely written into the Deed when it was executed by Mr and Mrs Vizovitis. It seems to me that all of the above circumstances point to a conclusion that the document which is at pp 157-164 of Exhibit A1 was signed by Ms Ponga and the Danel interests in late October 2006 and by Mr and Mrs Vizovitis on 17 November 2006 and I so find. I also find, therefore, that a counterpart of the Deed of Assignment which appears at pp 157-164 of Exhibit A1 was sent by Rod Barnett to WMW under cover of his letter to WMW dated 20 November 2006.

267. As I have mentioned at [11] above, no instrument of Transfer of Sublease was ever registered on the title to the Barrier Street property with the consequence that the Certificate of Title in respect of that property continued to show the lessee under the sublease as Ms Ponga, notwithstanding that a Deed of Assignment of that sublease was ultimately executed by all relevant parties and delivered to the lawyers representing the Danel interests.

268. Under the Torrens System, the interest of the lessee under a registered lease (or, in the ACT, a registered sublease) is equivalent to a legal interest in the demised premises by way of leasehold.

269. In the ACT, a registered sublease may be assigned at law by the execution and registration of a form of Transfer of Sublease in the prescribed form. Upon the instrument being registered, the estate or interest of the assignor (the named sublessee in the registered sublease) as specified in the instrument of transfer will pass to the assignee. Thereafter, the assignee will become subject to and liable for all of the same requirements and liabilities to which the assignee would have been subject and liable if he or she had originally been named in the sublease (see s 77 and s 78 of the Land Titles Act). It is registration which completes the transaction and which effects a transfer of the legal estate.

270. In the present case, as and from about 20 November 2006, Danel held a duly executed counterpart of the Deed of Assignment a copy of which was tendered in evidence at pp 157-164 of Exhibit A1. Danel also had possession of a form of Transfer of Sublease signed by Ms Ponga. There were some particulars which needed to be inserted into that document before it would be in registrable form. It would also need to have been signed by Danel and probably by Mr and Mrs Vizovitis. There was no evidence before me as to the practice of the Registrar-General when presented with a Transfer of Sublease. In some jurisdictions, the relevant authority will not register the transfer in the absence of proof that the landlord had consented to the transfer. In those circumstances, given that the Transfer of Sublease is not signed by either Mr or Mrs Vizovitis, I am not prepared to find that Danel had possession of a Transfer of Sublease in registrable form.

271. Under the Deed of Assignment, Ms Ponga assigned to Danel all of her right, title and interest in the sublease for the residue of the term as and from 29 November 2005. She also covenanted to do all things necessary to perfect the assignment.

272. The Deed of Assignment was effective as an agreement to assign the legal interest (ie the registered estate enjoyed by Ms Ponga under the sublease). It created an equitable interest in that estate in favour of Danel. Danel had the right to compel Ms Ponga to perfect the assignment. Mr and Mrs Vizovitis had notice of the assignment and of the covenant for further assurances and consented to both. The assignment was specifically enforceable at the suit of Danel.

273. Danel took up possession of Unit 6 on or about 18 November 2005 with the knowledge and consent of Mr and Mrs Vizovitis. It thereafter paid rent to Mr and Mrs Vizovitis for Unit 6.

274. The sublease remained on foot at all relevant times. The attempt to procure its surrender made by Rod Barnett late in the piece was ineffective: As at the date when the surrender signed by Ms Ponga was returned to Rod Barnett (1 February 2007), Ms Ponga had already agreed to assign the sublease. She had nothing to surrender. The purported surrender of lease was ineffective. In any event, it was never registered.

275. In the circumstances outlined at [265]-[274] above, Mr and Mrs Vizovitis could not validly sublease Unit 6 to Nexstar as they purported to do as and from 1 October 2006 by the sublease dated 30 October 2006. The leasehold estate or interest which they purported to create in favour of Nexstar was co-extensive with the leasehold estate or interest granted to Ms Ponga under the sublease. The sublease in favour of Nexstar was never registered. In those circumstances, Ms Ponga's estate or interest under the sublease must prevail.

276. Upon the creation of a valid lease, there is both privity of contract and privity of estate between lessor and lessee. The former arises from the existence of a contract between the parties and the latter arises from the tenure between the parties. In the present case, Mr and Mrs Vizovitis consented to the assignment of the sublease from Ms Ponga to Danel and released Ms Ponga from all future obligations and liabilities under the sublease. Absent specific provision in the relevant Deed of Assignment, the privity of estate between the assignee and the lessor creates liability in the lessor only in respect of covenants which run with the land (Milmo v Carreras [1946] KB 306 at 310 per Lord Greene MR).

277. In the present case, the covenants relied upon by Danel (viz for quiet enjoyment and exclusive possession) run with the land (Manchester, Sheffield & Lincolnshire Railway Company v Anderson [1898] 2 Ch 394 at 402 per Lord Lindley MR). Therefore, I do not need to decide whether, in any event, the Deed of Assignment effected a transfer of the benefit of the personal covenants in the sublease by which Mr and Mrs Vizovitis were bound. I am inclined to think that Danel did obtain the benefit of all of the covenants in the sublease. For present purposes, however, I do not need to decide this question.

278. The practical effect of the Deed of Assignment was that, on and after 20 November 2006, Danel stood in the shoes of Ms Ponga under the sublease and could enforce the covenants contained therein directly against Mr and Mrs Vizovitis.

279. These conclusions are consistent with the admissions made in the Defence filed on behalf of Mr and Mrs Vizovitis in proceeding No SC 470 of 2007 which I have noted at [24]-[29] above.

280. The answer to this question must be a resounding: "No". The proposition advanced on behalf of Mr and Mrs Vizovitis that Unit 6 was abandoned by Danel by no later than 20 October 2006 is unsustainable.

281. The brothel business was being carried on at Unit 6 throughout 2006 up until about the end of the first week of December 2006 when the business closed down - Mr Neluschi says for the Christmas holidays and the defendants say "permanently". But Mr Neluschi secured Unit 6 when he went there in December 2006. He even changed the locks. It is clear beyond argument that, even if the brothel business had ceased to operate, Danel had not abandoned the premises.

282. In order for the Court to find that Danel had abandoned Unit 6, there would need to be evidence that Danel had vacated (in the sense of abandoned possession of) Unit 6 and did not intend to return. There would need to be evidence that Danel had repudiated the sublease. That evidence would need to establish that Danel had renounced the bargain reflected in the sublease.

283. Here, Danel secured the premises and left all of the fixtures, goods and chattels in Unit 6. Nothing was removed. Furthermore, it continued to pay the rent due under the sublease, without interruption. There was nothing in the conduct of Danel demonstrated in the evidence that could conceivably support a conclusion that it had abandoned Unit 6, let alone that it did so at some time before the end of October 2006.

284. The three matters relied upon in par 14 of the Defence filed on behalf of Mr and Mrs Vizovitis (as to which see [30] above) are not capable of constituting abandonment in the relevant sense.

285. I therefore find that the sublease remained on foot at all relevant times and was not abandoned.

286. It follows that, after about 20 November 2006, Danel stood in the shoes of Ms Ponga under the sublease.

287. A lessee does not necessarily abandon leased premises just because he or she ceases to carry on at those premises the same business that might have been carried on there in the past, even for a long time. If the lessee ceases to carry on such business but leaves his or her belongings there or leaves there the fixtures, fittings, plant and equipment which had previously been used in the business, it is unlikely that the mere cessation of trade would be held to constitute abandonment (Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] VicRp 72; [1994] 2 VR 505 at 516).

288. Furthermore, even if items are removed from the premises, that fact alone will not necessarily constitute abandonment. A clear indication that the lessee has walked away from the premises and from his or her obligations under the lease is required. Mr and Mrs Vizovitis have fallen well short of proving any such thing. There was, after all, no suggestion in the communications between WMW and Rod Barnett leading up to December 2006 that Danel was going to abandon the premises and its obligations under the sublease. Although Ms Pevreal may have toyed with the idea of doing so in early September 2006, I find that neither she nor Mr Neluschi ever actually decided to cause Danel to walk away from its obligations or from the premises.

289. At some time between about 8 December 2006 and 23 December 2006, workers retained by Nexstar went into the first floor area of the Barrier Street property and began to carry out building works there. They amalgamated Units 1-5 and Unit 6 and demolished the rooms and designated areas within Unit 6. In the course of carrying out that work, those workers destroyed or damaged the fixtures and fittings in Unit 6 and much of the furniture, plant and equipment kept there.

290. By 2 January 2007, it would have been impossible for Danel to re-occupy Unit 6 and conduct the brothel business from those premises without first undertaking a considerable amount of reconstruction and repair work. Any attempt to retake possession would have met stiff resistance from Nexstar and probably also from Mr and Mrs Vizovitis.

291. Had Danel attempted to conduct the brothel business from other premises, those other premises would have to have been found, secured and fitted out before the business could begin to operate. New equipment would have had to have been acquired. New marketing would have had to have been undertaken. The goodwill of "Tiffany's" was probably very much associated with its location in the Barrier Street property.

292. Nexstar and its construction workers took possession of Units 1-5 and Unit 6 because Nexstar had been granted a sublease over Units 1-5 and Unit 6 by Mr and Mrs Vizovitis. Mr and Mrs Vizovitis' conduct in granting those subleases was the principal enabling factor in Nexstar's taking possession of those premises and treating them as their own. I find that Mr Vizovitis was well aware by December 2006 that Nexstar intended to take possession of Units 1-5 and Unit 6 and to carry out building works there with the express intention of physically amalgamating the two areas covered by Units 1-5 and Unit 6.

293. The conduct of Mr and Mrs Vizovitis in granting a sublease of Unit 6 to Nexstar and in approving and facilitating the taking of possession of Unit 6 by Nexstar constituted a breach of cll 2.1.1, 2.1.2, 2.1.6 and 46 of the sublease. Those breaches caused Danel to lose the entire brothel business. There was no real prospect that the business could be re-established at the Barrier Street property or elsewhere for some considerable time. To attempt to do so was problematic.

294. In Kintella Pty Ltd v Scotte t/as Scotte's City Walk 1 Hour Photo [1999] ACTSC 100, the facts of which were somewhat different from those in the present case, Crispin J held that the measure of damages for breach of the covenants for quiet enjoyment and exclusive possession involved assessing the difference between the position in which the plaintiff would have been if the wrongful act had not occurred and the position in which the plaintiff has been placed as a result of the wrongful act. In that case, the plaintiff was in default under the lease and liable to be evicted. It had tried to sell its business for several months but had been unable to do so. All that it had was a chance that it might have sold the business had the lessor not breached the lease. Crispin J valued that chance at a much lower figure than the full value of the business.

295. In the present case, the critical wrongful act was knowingly permitting Nexstar and its employees and subcontractors to take possession of Unit 6, to demolish the wall between Unit 6 and Units 1-5 and to destroy the configuration of Unit 6 with the concomitant destruction of and damage to the fixtures, fittings, goods and chattels located within Unit 6. The granting of a sublease of Unit 6 to Nexstar was only a step along the way but was nonetheless a step which facilitated the physical acts perpetrated by Nexstar and its construction workers. It was the demolition activities which caused the total loss of Danel's brothel business. Those activities were carried out with the knowledge and approval of Mr Vizovitis who facilitated them. This is not a case where some third party has entered the premises and caused damage in circumstances where the lessor had no involvement in that occurrence and was not aware of it until after the event.

296. Mr and Mrs Vizovitis are to be held responsible for the conduct of Nexstar.

297. Danel is entitled to receive the full value of its lost brothel business and its lost sublease as at December 2006.

298. Counsel for Danel submitted that I should assess the value of that business at $80,000 being the amount which a real purchaser (Nexstar) had agreed to pay in the second half of 2006. Counsel for the defendants submitted that the business was floundering and was close to failing completely.

299. It is clear that the breaches of contract (breaches of covenant) which I have found do not entitle Danel to recover the value of the lost sale to Nexstar. Those breaches did not cause that sale to go off. There were no doubt many reasons for that outcome. However, I do not need to investigate those reasons for present purposes.

300. Counsel for Danel puts a simple proposition: The conduct of Mr and Mrs Vizovitis caused Danel to lose its entire business and its sublease and the value of that business and sublease was $80,000 in December 2006 because that was the price struck in an arm's length transaction only a few months before the loss occurred.

301. I think that this submission is correct and I propose to accept it.

302. The evidence established that three cheques were sent by Danel to Mr and Mrs Vizovitis after 1 January 2007 as payments due under the sublease. Two were for rent (ie the rent due on 1 January 2007 and the rent due on 1 February 2007) and one was for a cash bond payment of $5,314.20.

22 Prohibited conduct in dealings

(1) A party to a lease, or a party to negotiations for a proposed lease, must not, in dealings with another party to the lease or negotiations, engage in conduct that is unconscionable or harsh and oppressive.

304. In Kintella Pty Ltd at [31], Crispin J held that if the wrongful conduct is "illegal" in the sense that it constitutes a breach of contract, there is no room for s 22(1) to operate. His Honour held that the true area of operation of the section is where the conduct does not amount to a breach of contract or the commission of a tort but is nonetheless unconscionable or harsh and oppressive. I am content to follow the reasoning of Crispin J on this point. However, I think that it is both unconscionable and harsh and oppressive for Mr and Mrs Vizovitis to retain any payments made to them by Danel after 1 January 2007 given that Danel was excluded from Unit 6 and not permitted to enjoy the benefits accorded to it under the sublease.

305. Danel does not need to rely upon s 81 of the Leases Act in the present case. I, therefore, propose to put s 81 aside.

306. There will be a verdict and judgment in favour of Danel against Mr and Mrs Vizovitis for the total of the following amounts:

(a) $80,000 being the value of the lost brothel business and the lost sublease;

(b) The sum of all payments made by Danel to Mr and Mrs Vizovitis after 1 January 2007; and

(c) Pre-judgment interest on the total of the amounts referred to in (a) and (b) above at the rates provided in the Rules of Court for such interest, such interest to be calculated in respect of the period from 1 January 2007 up to the date when final orders are made.

307. Mr and Mrs Vizovitis must pay Danel's costs of proceeding No SC 470 of 2007, including the costs of the hearing before me.

308. In his letter to Lewenberg dated 13 September 2006 (which is set out at [137] above), Rod Barnett asserted that Danel had no security of tenure in respect of Unit 6. That communication was the catalyst for the Nexstar interests to pursue more vigorously the grant of a new lease directly to Nexstar in respect of Unit 6.

309. Subsequently, Rod Barnett took steps to procure a surrender of the sublease at the very same time as co-operating with WMW to secure the signatures of all relevant parties on the long outstanding Deed of Assignment.

310. Both Rod Barnett and Mr and Mrs Vizovitis actively pursued the prospect of granting a sublease of Unit 6 to Nexstar when they were well aware of the existence of the sublease, the fact that Ms Ponga had agreed to assign the sublease to Danel, the fact that Danel was in occupation of Unit 6 and paying rent for that privilege and the fact that Danel was assiduously trying to consummate the sale of the brothel business to Nexstar believing that Mr and Mrs Vizovitis would co-operate in sorting out the difficulties which existed in respect of the Deed of Assignment between Ms Ponga and Danel. Rod Barnett's conduct in not alerting Danel to what was really going on in the period from late September 2006 in the dealings between Mr and Mrs Vizovitis and Nexstar was, at the very least, sharp practice. The conduct of Rod Barnett and his clients in leading Nexstar to believe that Danel did not have security of tenure over Unit 6 was the principal reason that the present litigation was commenced and pursued.

311. In my view, the matters to which I have referred at [307]-[310] above justify an award of indemnity costs. I propose to order that Mr and Mrs Vizovitis pay Danel's costs on an indemnity basis.

312. In order to ensure that the amount of the judgment which I direct to be entered accurately reflects these Reasons for Judgment, I will not fix the quantum of that judgment today but will invite the parties to submit their respective calculations of the amount of the judgment which each contends that I should order. Each party may support their respective calculations with a submission of no more than two pages. I will then determine the amount of the judgment on the papers.

The Case Against Nexstar, Mr Campbell and Fulvio Gobeo

313. In this proceeding, Danel has not alleged that Nexstar or, alternatively, Messrs Campbell and Fulvio Gobeo, ever became bound under a legally binding contract to purchase the brothel business from Danel. No such allegation had been made in the proceeding at any time before the commencement of the hearing. On the second day of the hearing, an application to amend the Statement of Claim was made by Danel. One of the amendments sought was an amendment to include a claim for breach of contract. I refused leave to include such an amendment on the ground that it would be futile and, in any event, that it was sought to be made too late.

314. In addition, Danel has not sued any of the defendants in this proceeding for damages for trespass, for interference with Danel's contractual relations with Mr and Mrs Vizovitis (constituted by the sublease and the Deed of Assignment) for breach of s 51AC of the TPA (or its ACT equivalent) or for any other tort.

315. The conduct relied upon as constituting misleading or deceptive conduct or conduct that was likely to mislead or deceive is pleaded in paragraphs 15, 16 and 17 of the Statement of Claim. The essence of the complaint is that Nexstar, through either or both Mr Campbell or Fulvio Gobeo, told Mr Vizovitis that "... they or some of them intended to purchase or had purchased the plaintiff's business and that in the circumstances the plaintiff would not object to the issue of the sublease referred to in paragraph 15 above in favour of the first defendant [Nexstar] and that the issue of such a sublease was appropriate in all the circumstances".

316. Danel was unable to commit itself to a particular time when the alleged representation pleaded in par 16 of the Statement of Claim was made nor was it able, with any degree of precision, to articulate the terms of the representations. Fulvio Gobeo denied misrepresenting the position to Mr Vizovitis concerning the proposed sale of business.

317. The documentary record discloses that, right from the start, both WMW and Danel were aware that Mr Campbell and/or Fulvio Gobeo were proposing to speak with Mr Vizovitis about the possibility of obtaining a lease of the entire premises including Units 1-5. The matter was specifically adverted to in the letter from WMW to Mr Campbell and Sam Gobeo dated 11 August 2006. Of course, at the commencement of the dealings between the Campbell interests and Danel, the context in which that approach to Mr Vizovitis was to be made was the sale of the business by Danel to the Campbell interests. In effect, the expectation of Danel was that, provided that the sale of business was completed, it was a matter for the Campbell interests as to whether they took a transfer of the sublease or entered into a fresh lease with Mr and Mrs Vizovitis. Nonetheless, Mr Neluschi, Ms Pevreal and Mr Parisi were all well aware that there would be contact between representatives of the Campbell interests and Mr and Mrs Vizovitis with a view to discussing the possibility of those interests taking a fresh lease over the entire premises.

318. In those circumstances, the circumstance that an approach was ultimately made by the Campbell interests to Mr and Mrs Vizovitis could hardly be said to be misleading or deceptive as it was entirely within the range of expectations which Mr Neluschi and Ms Pevreal had at the time.

319. The first approach to Mr Vizovitis appears to have been made on behalf of the Campbell interests by Lewenberg by way of their letter dated 5 September 2006. In that letter, Lewenberg raised the possibility of their clients taking a lease of Units 1-5 for a period of five years with two further options of five years each.

320. As Lewenberg's enquiries progressed and searches were carried out, from about 7 or 8 September 2006, Lewenberg and the Campbell interests became aware that a number of matters which they would have expected to have been attended to following completion of the sale of the business from Ms Ponga to Danel had not, in fact, been attended to. The business name registration of the business name "Home Boyz" had lapsed. The brothel licence was fast approaching its expiry date and, most critical of all, Danel appeared to have neglected to perfect the assignment of the sublease from Ms Ponga to it.

321. On or about 13 September 2006, Lewenberg received the facsimile transmission from Rod Barnett which I have extracted at [137] above. This was Rod Barnett's first correspondence with Lewenberg concerning this transaction. He took the opportunity to plant the idea into the thinking of the Campbell interests and that of their solicitors, Lewenberg, that Danel did not have security of tenure in respect of Unit 6. He wrongly asserted that Danel did not occupy Unit 6 under the terms of the sublease.

322. This was the first indication that Mr Campbell, Fulvio Gobeo or Lewenberg had received that Danel may not have the capacity to transfer secure tenure in respect of Unit 6 to the Campbell interests. It is likely that this assertion made by Rod Barnett, who, after all, was the solicitor for Mr and Mrs Vizovitis, the landlords, troubled the Campbell interests a good deal. It was Rod Barnett who planted the seed in the minds of the Campbell interests that the sale of business agreement could never be completed because Danel would inevitably be unable to guarantee tenure of Unit 6. This idea was reinforced from time to time thereafter (eg see Rod Barnett's letter to Lewenberg dated 21 September 2006 which is set out at [139] above). Rod Barnett went even further in that letter suggesting that Danel was in occupation only as a "monthly tenant". Rod Barnett informed Lewenberg that his clients were prepared to grant a fresh lease in respect of the entire first floor or two fresh leases, one in respect of Units 1-5 and one in respect of Unit 6.

323. Thereafter, the Campbell interests initially informed Rod Barnett that they would proceed with a fresh lease of Unit 6 but were not prepared to go ahead with Units 1-5 because the rent being sought by Mr and Mrs Vizovitis was too high. Ultimately, a decision was made by the Campbell interests to take a lease of Units 1-5 as well.

324. Rod Barnett and Lewenberg then set about finalising a fresh lease for Unit 6 and, once a decision was made by the Campbell interests to take a lease of Units 1-5, to finalise a lease of those units. The decision by the Campbell interests to proceed to take a lease of Units 1-5 was made on or about 13 October 2006.

325. Neither Mr Vizovitis nor Mrs Vizovitis gave evidence at the trial. Neither did Mr Barnett.

326. There is very little evidence, apart from the documentary record contained in Exhibits A1, A2 and A3, of the dealings between the Campbell interests and Mr Vizovitis, on behalf of himself and his wife, in the period from early September 2006 to about mid October 2006, by which time the plan to take two fresh leases was fairly much set in stone.

327. Fulvio Gobeo gave evidence at the trial and persistently asserted that the only reason that Nexstar, Mr Campbell and he behaved as they did was that they had been assured by Rod Barnett and by Mr Vizovitis that Danel did not have security of tenure. He also denied making the pleaded representations to Mr Vizovitis. In any event, Fulvio Gobeo had reached the stage by mid to late September 2006 of thinking that Danel would never be in a position to complete the sale of business transaction and that he and his associates were perfectly entitled to deal directly with Mr and Mrs Vizovitis.

328. The above chronology of events supports a conclusion that it was Rod Barnett who set the hares running down the path which culminated in the events of early to mid December 2006. It was he who, time and again, told Lewenberg that Danel did not have security of tenure. The evidence does not go so far as to explain whether Rod Barnett was acting as he did on the express instructions of Mr Vizovitis or whether he acted as he did in the interests of Mr and Mrs Vizovitis but without express instructions. In the end, it does not matter whether Rod Barnett was acting on express instructions, or not.

329. There was no evidence to suggest that the dealings between Rod Barnett and Mr Vizovitis, on the one hand, and the Campbell interests and Lewenberg, on the other hand, after about mid September 2006 whereby a lease of the whole of the first floor or, alternatively, two fresh leases, one of Unit 6 and one of Units 1-5, were under discussion, were predicated upon the proposition that Nexstar had a binding contract for the sale of the brothel business with Danel and either would settle that contract or, alternatively, had already settled that contract.

330. The pleaded case for misleading and deceptive conduct has not been made out on the evidence. More importantly, I think that the pleaded case is inconsistent with what was actually going on at the time. The Campbell interests were told, and no doubt believed, that Danel did not have security of tenure in respect of Unit 6. In addition, they had come to learn that there were other difficulties with the proposed sale of business transaction. If what Rod Barnett was telling Lewenberg were true, the Campbell interests were free to attempt to secure a fresh lease of the entire first floor or two fresh leases, one in respect of Unit 6 and one in respect of Units 1-5.

331. The misleading and deceptive conduct case fails.

332. As pleaded, the unconscionability case is based upon "... the unwritten law of the Australian Capital Territory". The cause of action pleaded, therefore, is not one which has its source in any statute. A statute forms part of the written law of a polity.

333. Danel appears to rely upon equitable doctrines of the kind explained by the High Court in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. The concept which underlay the decision in that case was that it was unconscientious for the bank to take advantage of a special disability under which the mortgagors found themselves in their dealings with the bank, that disability having been known to the bank. In effect, the High Court held that the bank could not take advantage of that special disability.

334. There is no special disability in this case of the type which was considered in Amadio. The participants in the dealings amongst the parties were all relatively sophisticated commercial people, each of whom was represented by a firm of solicitors. The difficulties in which Danel found itself in its dealings with the Campbell interests in late 2006 were largely of its own making: It had failed to perfect the assignment of the sublease, it had not secured registration of the relevant business names, it was running the gauntlet to some extent on the renewal of the brothel licence and it seemed to be insensitive to the growing frustration of the Campbell interests which developed as the above matters were progressively revealed.

335. The claim in equity based upon the principles explained in Amadio or akin to those principles must fail.

336. The evidence discloses that, from about March 2007, Nexstar traded from the whole of the first floor of the Barrier Street property as a brothel under the name "Tiffany's". The external badging of that business by means of a neon sign on the front of the building remained as it had been when the business was conducted by Danel. Nexstar's advertising of the business utilised names which were close to the business under which Danel had operated during its occupation of Unit 6.

337. However, by March 2007, Danel had ceased to trade. There was no business in existence as at that date which could be passed off by Nexstar. Further, and in any event, the damages claimed by Danel (the loss of the value of the brothel business and the loss of the sublease) were not caused by the actions of Nexstar post March 2007. Rather, the loss and damage for which Danel seeks compensation in this proceeding was caused by the seizing of possession by Nexstar in about mid December 2006 and the demolition and refurbishment of the first floor of the Barrier Street property which necessarily involved the demolition of the various rooms contained within Unit 6.

338. For these reasons, the passing off case also fails.

339. All of the pleaded causes of action raised by Danel against Nexstar, Mr Campbell and Fulvio Gobeo have failed. There is no occasion to consider any award of exemplary or aggravated damages. In any event, I very much doubt whether such an award could conceivably be made in respect of the claims made by Danel in this proceeding.

340. Danel has completely failed as against the defendants in this proceeding. There is no basis upon which it can continue to retain the $8,000 deposit paid by Nexstar to it in July or August 2006. That deposit must be refunded together with interest calculated at the rates prescribed under the Rules of the Court.

341. Danel has failed completely as against the defendants in this proceeding and would ordinarily suffer an order for costs accordingly.

342. However, it seems to me that, when appropriate regard is had to the course of dealings amongst the parties to this litigation, it was not inappropriate for Danel to bring the present proceeding in circumstances where it was not, and could not be, aware of the precise dealings which had occurred between the Vizovitis interests and the Campbell interests concerning Units 1-5 and Unit 6 in the period from about mid September 2006 up to about mid December 2006. As Counsel for Danel submitted, it was not readily apparent to his client which of the two camps were the real villains in the piece or, indeed, whether they both were.

343. Having considered the documentary record and the other evidence in both proceedings, I am satisfied that the root cause of the conduct of Mr and Mrs Vizovitis and the Campbell interests in seizing possession of the whole of the first floor of the Barrier Street property and excluding Danel from Unit 6 was the repeated assertion made by Rod Barnett to Lewenberg to the effect that Danel did not have tenure in respect of Unit 6. The consequences of that assertion, once made, included some rather crude attempts on the part of Rod Barnett to make good the assertion. For example, at the very same time as he and his clients assisted Danel to secure and execute a Deed of Assignment of the sublease from Ms Ponga to it, Rod Barnett attempted to procure a surrender of that sublease, no doubt in an endeavour to render nugatory the Deed of Assignment which he had co-operated in finalising. In addition, at various points in the course of dealings amongst the parties, Rod Barnett attempted to cover up the role which he had played in causing the lock out of Danel. He was the source of the idea that Danel had abandoned Unit 6. Apparently, he suggested to Lewenberg that Danel was in arrears of rent in late 2006. He even suggested to WMW, quite late in the piece, that perhaps Danel would be better off accepting its eviction and suing for damages for breach of contract.

344. In my view, it would not be reasonable to visit the costs of this proceeding on Danel. I have considered whether it would be appropriate to order that Danel pay the defendants' costs of this proceeding and that Danel should recover, as part of the costs which I propose to order in respect of proceeding No SC 470 of 2007, the amount which it is ordered to pay the defendants in this proceeding. I think that such an approach is rather cumbersome and pays too much regard to the formalities of the structure of the two sets of proceedings.

345. The substance of the matter is simply this: Rod Barnett and his clients actively pursued a course of action which was wrongful in the sense that it constituted a breach of the sublease which entitled Danel to relief. That wrongful conduct was the principal reason that Danel was compelled to bring this proceeding, given that it was not really in a position to know which of the two camps on the other side of the dealings was truly responsible for the destruction of its tenancy. I have held that the root cause of the destruction of that tenancy was the conduct of Rod Barnett and his clients. I think that I should address the question of costs directly. The proceedings were heard at the same time, with evidence in one being evidence in the other. The substance of the matter is that the proceedings were essentially one proceeding brought by the same plaintiff against two groups of defendants.

346. In those circumstances, I propose to order that Mr and Mrs Vizovitis pay the costs of Nexstar, Mr Campbell and Fulvio Gobeo of and incidental to this proceeding.

347. As with the proceeding brought by Danel against Mr and Mrs Vizovitis, I will defer making orders today and will direct the parties to submit orders which they contend reflect these Reasons for Judgment in accordance with the timetable matching the timetable I propose to direct in respect of the other proceeding.

I certify that the preceding three hundred and forty-eight (348) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Foster.

Solicitor for the plaintiff: Ben Aulich & Associates

Counsel for the first and third defendants: Mr RP Clynes

Solicitor for the first and third defendants: Phelps Reid