1. The heads of damage claimed by the Tenant fall into seven categories:
   • (a) Loss of profits to 30 June 2013: $443,231-$519,557
   • (b) Loss of profits (future) per year: $246,522
   • (c) Loss of goodwill: $207,530
   • (d) Rectification costs of tanks: $39,451
   • (e) Interest on rectification costs: $8,000
   • (f) Liability to BP for vehicle repair costs: $146,997
   • (g) Wasted fuel: $26,528

1. The Landlord concedes that it is liable, under s 52 of the Retail Leases Act 2003, to keep the underground fuel tanks in such repair as is commensurate with their condition as at the commencement of the Lease. However, the Landlord disputes that the Tenant is entitled to the loss and damage claimed by it. The Landlord contends that notwithstanding disruption to the Tenant's business as a result of repair work to the fuel tanks, it has not suffered (or proven that it has suffered) the loss and damage claimed by it. It further contends that its liability (if any) only extends to losses incurred and proven up until 31 August 2012, being the date that the Lease was renewed. After that date, it claims that any defects in the fuel tanks were patently obvious and it therefore had no obligation to effect repairs under s 52 of the Retail Leases Act 2003, given that its obligation to repair was limited to repairing to a condition commensurate with the condition of the fuel tanks as at the date of renewal.
2. It further contends that the Tenant is partly to blame for any loss and damage it has suffered. In particular, the Landlord submits that it was incumbent upon the Tenant, as part of its ordinary business operations, to regularly check the fuel tanks for water content as it is (and was) common knowledge that condensation would always collect at the bottom fuel tanks. It contends that prudent operators of fuel stations must always check all fuel tanks on a weekly basis to ascertain the level of water (which is heavier than petroleum) sitting at the bottom of the tanks, so as to avoid any water being drawn into the fuel turbine turrets (which sit approximately 150 mm above the bottom of the fuel tanks). According to the Landlord, had the Tenant regularly undertaken that task, as recommended by the applicable Australian Standard (AS 4897-2008), it would have averted contaminated fuel entering the fuel dispensing equipment and ultimately causing damage to customers' vehicles.

Does s 52 of the Retail Leases Act 2003 limit liability?

1. The Tenant claims loss of profits for the financial years 2011 to date, together with future loss of profits stemming from what the Tenant contends is damage caused to its business as a result of its reputation being adversely affected by the sale of contaminated fuel. However, the Landlord disputes that the Tenant is entitled to any damages for loss of profit after 31 August 2012. It contends that the original lease term expired on 31 August 2012 and an equitable renewed lease arose thereafter by virtue of the Tenant having exercised its option for renewal.
2. The Landlord concedes that the statutory repair obligation imposed under s 52 of the Retail Leases Act 2003 is strict, in the sense that the Landlord's best endeavours to carry out the required repairs will not excuse a failure to effectuate those repairs.[1] It is common ground that the plant and equipment were not faulty at the commencement of the Lease and that problems only arose after customers complained about contaminated fuel from October/November 2010 onwards. However, Mr McKay of counsel, who appeared on behalf of the Landlord, referred me to an extract of Commercial Tenancy Law,[2] where the authors make reference to Gerraty v McGavin & Another,[3] a case where the High Court considered the effect of a renewal of lease:

Now, what is the position of a lease obtained by the exercise of an option to renew? Clearly it is a new lease, a new demise...

The renewal must therefore be regarded as a new lease, and in any case falls within sec. 15 of the Act.[4]

1. Therefore, Mr McKay submitted that upon the exercise of the option, a new lease existed as from 31 August 2012. He referred me to the decision of this Tribunal in Ross-Hunt Pty Ltd v Cianjan Pty Ltd,[5] in which it was held that the comparator for determining the condition of the demised premises for the purpose of s 52 of the Retail Leases Act 2003 ('the Act') was the date of renewal and not the commencement date of the first term. Section 52 of the Act states, in part:

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into-

(a) the structure of, and fixtures in, the retail premises; and

(b) plant and equipment at the retail premises; and ...

1. I accept that under s 52 of the Act, the comparator is the date of renewal and not the date of the original term of the lease. Consequently, Mr McKay submitted that any claim the Tenant may have will only arise if it can prove that the fuel tanks were affected by new defects that arose after 31 August 2012. Mr McKay argued that this is a difficult task because the Tenant has adduced evidence that Tanks 2, 3 and 4 were all damaged and out of use prior to this date. According to Mr McKay, any repair obligation arising under s 52 of the Act were fixed as at that time. Therefore, the defects affecting Tanks 2, 3 and 4 were pre-existing as at the commencement of the renewed lease and any repair obligations arising under that renewed lease did not compel the Landlord to remedy those pre-existing defects.
2. However, in the present case, the Tenant relies not solely on s 52 of the Act but also the express written terms of the Lease. Clause 6.4 of the Lease states:

6.4 The landlord must keep the structure (including the external faces and roof) of the building and the landlord's installations in a condition consistent with their condition at the start of the lease, but is not responsible for repairs which are the responsibility of the tenant under clause is 3.1, 3.2 and 3.3.2.

1. Clause 1.1 of the Lease sets out various definitions of words and phrases used in the Lease. Importantly, it states:

Start of the lease the first day of the term but, if this lease is renewable under an option in an earlier lease (whether or not this lease is on terms that are materially different to those contemplated by the earlier lease), the starting date of the first lease to contain an option for renewal.

1. Mr McKay conceded that the repair obligations under Clause 6.4, read in conjunction with Clause 1.1, are much more onerous on the Landlord. Under that clause, in any renewed term, the Premises must be maintained in their condition commensurate with the condition of the Premises at the commencement of the original term which, in this case, was 31 August 2007. By contrast, the term imposed under s 52 of the Act is less burdensome, as it requires the Landlord only to maintain the condition of the Premises prevailing at the beginning of the current renewed term.
2. Mr McKay referred me to Savers Inc v Herosy Nominees and Ors,[6] where the Tribunal held that an express clause that extends rather than contradicts the obligation imposed by s 52 of the Act is valid. However, Mr McKay argued that Savers should not be followed. He submitted that a clause in a lease which imposed an obligation on a Landlord, the effect of which was more burdensome than s 52 of the Act, was void pursuant to s 94 of the Act because it was contrary to or inconsistent with s 52 of the Act. Section 94 of the Act states, in part:

94. The Act prevails over retail premises leases, agreements etc.

(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between the parties to a retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).

(2) A provision of a retail premises lease or of an agreement (whether or not the agreement is between the parties to a retail premises lease) is void to the extent that purports -

(a) to exclude the application of a provision of this Act; or ...

1. I have previously considered and applied Ross-Hunt Pty Ltd in Bretair v Cave (No 2).[7] However, in Bretair v Cave, it was not argued that the terms of the lease extended the landlord's obligations to repair and maintain by reference to the condition of the premises at the commencement of the first term, possibly because the lease in question did not contain such a term. Therefore, the question whether the combination of clauses 6.4 and 1.1 of the Lease are contrary to or inconsistent with s 52 of the Act is not answered by my findings in Bretair v Cave.
2. Mr McKay submitted that the terms of the legislation strike a precise balance between the interests of a landlord and a tenant, which the legislature has deemed appropriate. He referred me to an extract of the judgment in Ross-Hunt Pty Ltd, where the Tribunal stated:

The Retail Leases Act and cognate legislation regulates the rights and liabilities between one another of landlords and tenants; it is a zero sum game. A right given to a tenant is an obligation imposed on the landlord. An immunity given to a landlord is a right removed from the tenant. The policy of a statute such as the Retail Leases Act is to draw what Parliament regards as a proper balance between the rights and liabilities of landlords and tenants in a particular area regulated by the Retail Leases Act.

1. Mr McKay submitted that in enacting s 52 in combination with s 94 of the Act, Parliament has evinced a clear intention to lay down a compulsory and uniform standard of maintenance for all retail leases in Victoria. He argued that the legislature has affected a compromise between the competing interests of landlord and tenant; and it is not open to the parties to a particular lease to alter that compromise by forming a contradictory agreement. Mr McKay submitted that the combined effect of Clause 6.4 and 1.1 are plainly contradictory to the intent of s 52 of the Act and are, therefore, void to the extent of that inconsistency.
2. In my view, s 52 does not prohibit the parties from agreeing to extend the Landlord's obligations to repair or maintain its installations. The situation might be different if s 52 was expressed as a provision limiting a landlord's obligation to maintain plant and equipment to a condition consistent with its condition when the lease was entered into. However, the provision does not expressly limit a landlord's obligations but rather, imposes what I consider to be a minimum obligation on a landlord.
3. There is nothing inconsistent or contrary to s 52 for the parties to increase that obligation and in the present case, it made eminent sense for the Landlord to continue to have that obligation upon renewal, given that it held the reversionary interest in the plant and equipment. Further, it is not the case that s 52 is devoid of any limitation. In particular, sub-section (3) sets out various circumstances which limit its operation. Those circumstances do not include limiting the comparator to the commencement of the Lease. In my opinion, it was open for Parliament to have limited the operation of s 52(2) of the Act to the current term by stating words to the effect that a lease is not to include a term which requires the landlord to maintain plant and equipment, other than in a condition commensurate with the condition of the plant and equipment at the commencement of the lease. However, the section is not expressed in such prohibitory terms, nor is it expressed to indicate any intention on the part of the legislature to 'cover the field' in respect of a landlord's repair liability.
4. Consequently, I do not accept that the combination of Clauses 6.4 and 1.1 are rendered void by virtue of s 94 of the Act. That being the case, I will assess the Tenant's claim for loss of profit from FY2010, which includes its claim for loss of profit extending into the second term of the Lease.

1. The Tenant relied upon the expert evidence of Mr David Chin, forensic accountant, to substantiate its claim for loss of profits and loss of goodwill. Mr Chin produced three reports which he adopted as his evidence in the proceeding. The three versions of the reports reflect differing instructions and source documents provided to Mr Chin, which caused him to refine and amend his initial report. In particular, Mr Chin's first report relied upon documents which are headed Product Sales Analysis ('the PSA's'). Those documents provided data as to the quantity of the particular type of petroleum on hand at the conclusion of the month, the quantity of petroleum sold in the month, the cost of petroleum sold and the profit margin on sales. The same figures are provided for confectionery and other categories of goods for sale by the Tenant. However the PSA's were incomplete, with sixteen of the monthly PSA's missing. As a consequence, Mr Chin reconstructed missing data by looking at the total yearly sales figures contained in the Tenant's financial statements.
2. Mr Chin's first report was superseded on 19 September 2013 with his second report. In that report, Mr Chin tried to fill the gaps left by the missing PSA's with data from another set of documents referred to as the daily books, and with PSA's that were belatedly retrieved from the Tenant's computer system.
3. As highlighted by Mr McKay, there were discrepancies between the data recorded in the internal documents furnished by the Tenant, compared with the data recorded in the financial statements forming part of its tax returns lodged with the Australian Taxation Office. He submitted that in 2009, the revenue recorded in the internal documents exceeded the revenue recorded in the Financial Statements by $69,899. In 2010, the difference was $7,425. In 2011, the difference was $57,077 and in 2012, the difference was $349,013.
4. During cross-examination, Mr Chin was unable to provide any definitive explanation as to why such a discrepancy existed. Mr McKay also pointed to differences in the documents recording product costs. He submitted that from 2009 until 2012, the product costs recorded in Mr Chin's first report totalled $26,340,542. However, the Cost of Sales recorded in Mr Chin's second report totalled $26,831,475. Moreover, he argued that the sets of figures contradicted those contained in the financial statements lodged with the ATO ('the Financial Statements'). Again, neither the Tenant nor Mr Chin was able to provide any satisfactory explanation as to how such a discrepancy occurred.
5. Further documents were belatedly produced by the Tenant during the hearing of the proceeding. These documents were referred to as monthly statements. It was said that these monthly statements were used by the Tenant's accountant to prepare the Financial Statements used in the preparation of the Tenant's tax returns. However, the data set out in the monthly statements was, again, inconsistent with the data in the Financial Statements. There was no satisfactory explanation as to why this was so.
6. On 30 September 2013, the Tenant tendered a third report of Mr Chin which he again adopted as his evidence in the proceeding. This report recalculated the Tenant's claim up to FY2012 using the Sales and Cost of Sales figures contained in the Financial Statements. However, as the 2013 tax return was yet to be completed, Mr Chin was unable to use Financial Statements in respect of that year. Consequently, the 2013 financial year was reconstructed using Business Activity Statements and PSA's. Again, this was not without incident as the sales figures in the PSA's for the March quarter differed from the figures in the Business Activity Statements by approximately $120,000. Mr Chin was unable to satisfactorily explain this discrepancy, although he suggested that it might have been due to a timing issue.
7. As I have already indicated, the Landlord's defence rests partly on the ground that the Tenant has failed to provide sufficient evidence to enable the Tribunal to quantify the loss claimed. Mr McKay referred to the High Court judgment in The Commonwealth v Amann Aviation Pty Ltd,[8] as authority for the proposition that the plaintiff in a claim for contractual damages must prove both the fact and the amount of any loss it has suffered.
8. Mr McKay also referred to the judgment of Brooking J in JLW (Vic) Pty Ltd v Tsiloglou,[9] where his Honour, referring to FAI General Insurance Co Ltd v RAIA Insurance Brokers Ltd,[10] stated:

I think that the passage is to be read down by reference to the facts of the case in which the Full Court was concerned, one in which, in the opinion of the court, "precise evidence" was not obtainable. I would respectfully agree with the view expressed by Pincus J. That if the evidence called by the plaintiff failed to provide any rational foundation for a proper estimate of damages the court should simply decline to make one...[11]

1. Mr McKay submitted that the present case falls within the qualification expressed by Brooking J in JLW. He argued that the discrepancy between the internal documents and the documents lodged with the ATO cast real doubt on the credibility of the data used by Mr Chin in his reports. Therefore, Mr McKay argued that none of Mr Chin's reports should be accepted by the Tribunal.
2. I do not accept that submission. In my opinion, the data forming part of the Financial Statements and Business Activity Statements is data that can be relied upon as an accurate assessment of the Tenant's financial position. I have formed this view because of a number of factors. First, the data in the financial statements has, at least to some extent, been scrutinised by an external accountant. In my view, it reasonable to infer that some due diligence was performed to ensure that this data was accurate. Second, the data has been lodged with the ATO. It has not been suggested, nor is there any evidence to suggest, that the Tenant has furnished inaccurate data to the ATO or that it has attempted to avoid its obligations to pay tax. Third, it would appear, looking at the Financial Statements, that they have been prepared using an accrual accounting system, given that they record both opening and closing stock. However, it appears that the internal documents have been prepared using a cash accounting system. This conclusion is reinforced by Mr Chin's opinion that the discrepancies may have been caused by a 'timing issue'. If that were the case, that may explain why there is some discrepancy between the internal documents and the documents lodged with the ATO.

1. Mr McKay submitted that Mr Chin had assessed loss simply on gross profit figures and failed to have regard to the overheads connected with the business and the effect on the overall profitability of the business. He argued that this methodology was not sustainable as a matter of law. He referred me to Bacchus Corp Pty Ltd v Grapes of Australia Management Ltd,[12] where Habersberger J found that net profit figures should be used to quantify a loss of business profits claim arising from a breach of contract. He submitted that the best result open to the Tenant was to have a loss of profit claim assessed on the basis of the calculations supplied by the Landlord's forensic accountant, Mr Michael Rosner. Mr Rosner also prepared an expert report which he adopted as his evidence in the proceeding.
2. In Mr Rosner's supplementary report dated 29 September 2013, he calculates the Tenant's projected net profit based on the assumption that the Tenant's FY2010 net profit of $13,443 was maintained over the period from FY2011 to FY2013. Mr Rosner then makes a direct comparison between projected profits of $13,443 for each of the financial years 2011, 2012 and 2013 with the net losses sustained by the Tenant over the same period. This calculation yields a difference to actual figure of $288,929. In other words, had the Tenant been able to maintain a net profit of $13,443 for the financial years 2011, 2012 2013, it would have been $288,929 better off than what actually occurred.
3. In my view, the calculations made by Mr Rosner are too simplistic and not justified simply on the basis that there are discrepancies with internal documents produced by the Tenant, compared with data furnished to the ATO. Further, I do not accept that Mr Chin's methodology ignores overheads or is based solely on gross profits.[13]
4. Mr Chin has calculated projected net profit and loss based on two scenarios. The first scenario assumes that there is no growth. Therefore, his calculations assume that in the financial years 2010, 2011, 2012 and 2013 gross sales or revenue would have remained static at $8,208,017. Mr Chin then calculated the gross profit margin for the financial years 2010 to 2013 based on actual data sourced from the Financial Statements for the financial years 2010, 2011 and 2012 and a combination of Business Activity Statements and PSA's for FY2013.[14] Using that data, he calculated that the gross profit margin ('the GPM') for the financial years 2010 to 2013 were as follows:

1. Mr Chin then applied the GPM against the projected Sales for the financial years 2011, 2012 and 2013 ($8,208,017, assuming no growth and using FY2010 as the model year) in order to calculate the projected Cost of Sales. This was done using the following formula:

1. The projected Cost of Sales was then deducted from the projected Gross Sales to calculate projected Gross Profit revenue figures over those same financial years:

1. From the Gross Profit revenue figures, actual expenditure was then deducted. The amount of expenditure for the financial years 2010, 2011 and 2012 was derived from the Financial Statements lodged with the ATO. The expenditure for FY2013 was an estimate made by Mr Chin based partly on averaging the previous five years of overhead expenses and adjusting that figure for rent indexation and depreciation. The projected net profit was then compared with the actual net profit over the same years in order to calculate the difference between the actual profit or loss and the projected profit or loss, had Sales continued at $8,208,017 up to and including FY2013 ('the Difference to Actual').
2. Essentially, there are three grounds of criticism raised by Mr Rosner against the methodology adopted by Mr Chin. First, he casts doubt on the 'actuals' data used by Mr Chin, given the discrepancies between the PSA's, Monthly Statements and Financial Statements. As I have already indicated, I am of the view that the Financial Statements used in conjunction with the Business Activity Statements represent the best evidence of revenue and expenditure. Therefore, I reject that criticism.
3. Second, he suggests that the methodology used by Mr Chin is based on gross profits, rather than net profits. In that regard, he criticises the use of actual expenditure recorded in the Financial Statements because it cannot be assumed that this expenditure is static and unaffected by revenue. In response, Mr Chin opines that the Financial Statements show little fluctuation in the expenditure incurred by the Tenant prior to 2010 to the period after 2010. Mr Chin therefore concludes that the expenditure (which does not include the Cost of Sales) remains relatively fixed, irrespective of revenue generated by sales. Indeed, he observes that the fluctuation from year to year is less than 10% and in some years the expenditure is higher than other years, even though sales were less. In my view, the use of actual expenditure figures is appropriate. In that respect, I accept that the fluctuation in expenditure from year to year is not significant and unlikely to be materially linked or proportional to Gross Sales revenue.
4. Third, Mr Rosner disagrees with the percentages of GPM used by Mr Chin in his calculations. According to Mr Rosner, the projected GPM for the financial years 2011, 2012 and 2013 should be the same GPM as calculated for the model year of 2010. He gave the following evidence:

I've looked at the bottom-line figure, the net profit figure, as saying if 2010 is the year in which there was so-called normal trading, then if no external factors, such as the contamination, had taken place and we've accepted that that is the base year, then you could apply that is being illustrative of further performance on the assumption that no contamination took place.[17]

1. In response, Mr Chin said that it was not appropriate to simply extrapolate the GPM of 2010 into future years because many factors influence the GPM from year to year. For example, the profit margin on fuel may fluctuate from year to year. Consequently, he opined that the most accurate depiction of the projected GPM is to use the actual Cost of Sales figures as stated in the Financial Statements, even though sales may have declined as a result of the contamination. In other words, he did not believe that the actual GPM calculated for the financial years 2011, 2012 and 2013 and based on actual Sales and Cost of Sales figures would alter significantly if there was no disruption to the Tenant's business.
2. In my view, Mr Chin's evidence on this point is more compelling. In particular, it is likely that the Tenant's profit margin would fluctuate given the vicissitudes of the retail fuel market. That being the case, it would be unrealistic to maintain the same percentage of GPM from year to year.
3. During the course of the hearing, the expert witnesses gave their evidence concurrently, in addition to giving evidence in the traditional manner. While the experts gave their evidence concurrently, Mr Rosner criticised the use of the PSA's as a reliable source of data for calculating Sales in FY2013.[18] He said that given the discrepancies between the PSA's, the Monthly Statements and the Financial Statements, he had reservations as to their accuracy. Mr Chin responded by indicating that the PSA's were the best documents available to him, given that the Business Activity Statements had only been prepared for the first three quarters of that financial year.
4. During re-examination of Mr Chin, Mr Stirling suggested that another method of calculating the gross Sales for FY2013 was to add the total sales recorded in the three Business Activity Statements, dividing that figure by nine (the number of months covered by those BAS)[19] and then multiplying that figure by twelve, in order to extrapolate the nine months of data recorded in the Business Activity Statements into a full financial year. Mr Chin agreed that this was an acceptable alternative method of calculating the Sales for the FY2013. During re-examination, Mr Rosner conceded that the methodology suggested by Mr Stirling was an appropriate way to deal with any discrepancy between the PSA's and the BAS.
5. In my opinion, the methodology suggested by Mr Stirling and supported by both Mr Chin and to some extent, Mr Rosner, is the most reliable way to determine the aggregate Sales for FY2013. That methodology reduces the net loss for 2013, which was initially recorded as ($204,129) in Mr Chin's most recent report down to ($177,226), calculated as follows:
   • (a) Sales recorded in first three BAS ($3,672,497) x 12 = $4,896,663

(b) Sales ($4,896,663) less GPM (6.33%) = Cost of Sales ($4,586,704)

(c) Sales less Cost of Sales = Gross Profit ($487,185)

(d) Gross profit less Expenditure ($487,185) = Net Profit/Loss ($177,226)

1. As I have already indicated, Mr Chin has calculated projected profit and loss based on two scenarios. The first scenario assumes that there is no growth and the second scenario assumes growth of 2.3%. Mr Chin's opinion that 2.3% growth is feasible is based partly on a comparison with another BP service station in the Campbellfield area, which recorded steady growth in FY2010, FY2011 and FY2012. In addition, he relied upon ABS reports showing an increase in the population of the area in which the Premises are located. Finally, he relied upon ABS data which showed an increase in the number of vehicles registered as further evidence indicating that the Tenant's business was likely to have sustained some growth.
2. Mr Rosner disagrees with the methodology adopted by Mr Chin. He opined that Mr Chin's assumptions failed to consider other material factors such as variations in the price of oil and general economic conditions and their impact on revenue. In particular, he said in his report:

According to the attached IBISWorld Industry Report G4000 Fuel Retailing in Australia (page 4) revenue has declined (in real terms) in the five years to 2012-2013 due to lower fuel prices and continued uncertainty in the global and domestic economies. This report characterises the Fuel Retailing industry has been in decline and with falling participants and a low level of overall profitability (page 10). It states that the "volume of product sales generally grows more slowly than the overall economy".[20]

1. He further points to more fuel-efficient vehicles creating less demand for fuel and specifically notes that the impact of Coles and Woolworths with their retail shopping docket discounts has substantially increased competition and put pressure on other retailers such as BP. He continues:

IBISWorld in its report at page 20 estimates that BP Australia's revenue dropped in constant terms by 3.6% per annum over the 5 years to 2012-13, as compared to the 1.3% yearly rate of decline of the industry in general (IBISWorld Report page 3).[21]

1. Mr Rosner disagrees that the use of ABS statistics as to the number of vehicles registered in Victoria is a reliable source that will gauge any growth. He suggests that the low socio-economic demographic factors counter against that statistic having any weight. Finally, he disagrees that direct comparisons with another service station is a reliable gauge to measure growth. In particular, he opines that direct comparisons need to be assessed taking into consideration each particular location, ease of access, facilities provided and other distinguishing factors.
2. I prefer Mr Rosner's evidence on this point. I do not accept that a comparison between one service station and another is an accurate gauge to determine whether the Tenant's business was likely to grow. There are too many variables, and without evidence demonstrating the similarity between the two distinct business operations, it is speculative to assume that one business's success will be mirrored by the other. I further doubt whether an increase in vehicle registrations in Victoria generally is an accurate gauge to measure growth. In that sense, I accept Mr Rosner's evidence that demographic factors will distort the significance of that data. That being the case, there is insufficient evidence to persuade me, on the balance of probabilities, that the Tenant's business was likely to grow in the years following FY2010. Consequently, I decline to assess loss of profit based on a positive growth rate. In my view, the evidence before me dictates that I assess loss of profit based on a zero growth rate.

What is the difference between the actual and the projected loss or profit?

1. Having regard to my findings and observations set out above, I find that the Tenant's loss of profit is best calculated using the methodology adopted by Mr Chin, subject to the qualification that his calculations are to be assessed on the basis of a zero growth rate.
2. Therefore, I assess the Tenant's loss under this head of damage up to and including FY2013 in the amount of $442,401, being the Difference to Actual amount. My calculations are set out in the following table:

1. As to the Tenant's claim in respect of loss of profits after FY2013, I am not satisfied based on the evidence before me that if the defects in the tanks were still manifest after July 2013, they would remain so for any material period in the foreseeable future. My view is reinforced by the un-contradicted evidence of Mr Wilde of Fleetwood Petroleum, the expert in petroleum tank repairs engaged by the Landlord, that the tanks and all associated infrastructure were operating correctly when he visited the site in the week prior to resumption of the hearing on 30 September 2013. That evidence was confirmed by Mr Jin Fei, a friend of the director of the Landlord and who, for the most part of the dispute, was the relevant contact person on behalf of the Landlord. In particular, his evidence given on 1 October 2013 was that everything, as of that date, had been fixed. Indeed, on 28 October 2013, Mr Smale, Retail Business Manager for BP Australia Pty Ltd, forwarded an email correspondence to the Landlord's solicitors dated 28 October 2013, stating:

I have told the site that all tanks are ok and to start using them, as far as I know they are in use.

1. By contrast, the only evidence in support of this head of damage is the opinion evidence of Mr Chin, which is based on an assumption that there will be a decline in sales in future years of at least the magnitude to those in the past years. In my view, that assumption is based on there being continued disruption to the business as a result of defective fuel tanks.
2. In the absence of evidence confirming that the fuel tanks will remain defective in the financial years subsequent to 2013, the evidence carries little if no weight. Nevertheless, Mr Stirling submitted that it is reasonable to infer that the Tenant will suffer some loss in the financial year 2014 because the reputation of the business was materially damaged as a result of it dispensing contaminated fuel or being unable to meet customer demand in the sale of unleaded petroleum. He contended that it would take many months before the business can get back to where it was.
3. Although one may speculate that the Tenant's business might still suffer from the effects of its business being disrupted as a consequence of the faulty fuel tanks, there is no evidence supporting that conclusion. No financial documents were tendered in evidence confirming any continuing decline in sales for the first part of FY2014 and the Tenant simply assumes that this will be the case.
4. In my view, there is insufficient evidence supporting this aspect of the Tenant's claim. Consequently, I dismiss this part of the Tenant's claim.

1. Mr McKay submitted that the Tenant must prove its losses were caused by the Landlord's breach of the Lease and not by some other intervening cause. He argued that a significant part of the loss suffered by the Tenant was not caused by the Landlord's failure to maintain the plant and equipment but because the Tenant failed to stock its highest selling product, unleaded petroleum, at all times after the water ingress issues manifested. He submitted that prior to the water ingress problems arising; unleaded petroleum sales comprised 70% of the Tenant's sales of petroleum products (excluding diesel and LPG).
2. According to Mr McKay, the Tenant's inventory showed that Unleaded 91 petroleum was not being sold for substantial periods of time throughout the period of the water ingress. In his closing submissions, he stated that Unleaded 91 petroleum was not sold for 317 days up until the Tribunal reserved its decision, which occurred approximately 1064 days after the water ingress problems began. Mr McKay submitted that the failure to sell unleaded petroleum therefore continued for 30% of the time that the water ingress problems were present. Mr McKay argued that Unleaded 91 petroleum could have been sold from the unaffected Tank 5, or such other tanks that were operational from time to time and that it was relatively inexpensive to change over the tanks to effect that outcome.
3. In my view, the difficulty with the argument advanced by Mr McKay is that although it may be possible, with the benefit of hindsight, to map out a procedure for swapping tanks so as to minimise disruption to the sale of Unleaded 91 petroleum, in reality the circumstances in which the Tenant found itself made that procedure either impracticable or too difficult to reasonably adopt. This point is made clear when one examines the history of this dispute. In particular, there are five tanks which store fuel:
   • (a) Tank 1, which has a capacity of 24,000 litres only stores diesel fuel. It has never had any problems relating to water ingress.
   • (b) Tank 2, which has a capacity of 30,000 litres, was originally only used as a storage tank for Unleaded 91 petroleum. It did not have any fuel lines connected to it.
   • (c) Tank 3, which has a capacity of 55,000 litres, stored Unleaded 91 petroleum for supply to the Tenant's customers.
   • (d) Tank 4, which has a capacity of 53,000 litres, stored Ultimate 98 unleaded petroleum for supply to the Tenant's customers.
   • (e) Tank 5, which has a capacity of 30,000 litres, stored Premium 95 unleaded petroleum.
4. According to QiQi Wang, the manager of the Tenant's business, in late October or early November 2010, several customers complained about their vehicles being damaged after purchasing contaminated Unleaded 91 petroleum. At that time, Tank 3 was the only tank servicing the Unleaded 91 fuel bowsers. The Tenant immediately stopped selling Unleaded 91 petroleum. Soon after, Ms Wang informed Mr Fei, the representative of the Landlord, by telephone that there had been reports of water in Tank 3. She told Mr Fei that he would need to repair it. According to Ms Wang, she did not hear from Mr Fei so on 5 November 2010, she retained Leighton O'Brien Field Services Pty Ltd ('Leighton O'Brien') to remove the water and contaminated petroleum from Tank 3. Investigations were subsequently carried out by Leighton O'Brien, following which it recommended, in its report dated 24 November 2010, that:

It is recommended the complete tank top associated with ULP Tank 3 be exposed and its remote fill line be disconnected at the tank top in preparation for Round 2 testing.

1. At that stage, the recommendations made by Leighton O'Brien were premised on a suspicion that the tank shell itself had been breached. No action had been taken by the Landlord up until this point. In fact, it was shortly after this report was prepared, that the Tenant's solicitors wrote to the Landlord by letter dated 3 December 2010 stating:

We are instructed that a part of the Premises has sustained damage which requires urgent repairs. The Tenant has discovered water leaking into one of the underground petrol tanks, which are listed as the Landlords Installations under the Lease.

We advise that the water leakage has rendered the tank useless as a petrol storage facility. The Tenant therefore cannot use the premises for the permitted use, being a petrol service station and convenience store. The tenant therefore cannot operate its business until the defect is repaired and is experiencing a significant loss of income....

1. Although the letter stated that the Tenant was unable to operate its business, this was, in fact, incorrect as fuel other than Unleaded 91 petroleum was still being sold. Nevertheless, the urgency of the situation was certainly highlighted in the above correspondence. According to Ms Wang, sometime in January 2011, Mr Fei told her that a repair person could not repair Tank 3 because of its capacity. On 17 March 2011, Leighton O'Brien reported that Tank 3 had to be decommissioned. According to Ms Wang, soon after that recommendation was made, Mr Fei told her that fuel lines would be connected to Tank 2, to enable that tank to service the Unleaded 91 fuel bowsers.
2. On 24 March 2011, Leighton O'Brien transferred the Unleaded 91 petroleum from Tank 3 and Tank 2 into Tank 5 (which had up until that point stored Premium 95 unleaded petroleum). On 26 May 2011, Footco Solutions attended the Premises to undertake Tank conversion contract services on Tank 5, so that the Tenant could sell Unleaded 91 petroleum from that tank. This meant, however, that Tank 5 was no longer available to store Premium 95 unleaded petroleum.
3. Although a significant period of time was lost between November 2010 and May 2011 before Tank 5 was eventually utilised to sell Unleaded 91 petroleum; that delay is explicable by the fact that ongoing investigations were being conducted on Tank 3, with a view to diagnosing the cause of water ingress into that tank. In my view, it was reasonable for the Tenant to await further advice as to the future of Tank 3 before sacrificing its sale of Premium 95 unleaded petroleum in order to sell Unleaded 91 petroleum. I do not regard that delay as a failure to mitigate or that it was the cause of the Tenant's loss over that period of time.
4. Despite Mr Fei having raised the issue of undertaking work to commission Tank 2 as an operating tank, that work was not completed by the Landlord until June 2011. According to Ms Wang, the Tenant had started selling Unleaded 91 petroleum from Tank 2 from about 8 June 2011. However, in late October or early November 2011, water was also discovered in Tank 2. Further investigations continued and repairs were undertaken which ultimately resulted in the use of Tank 2 resuming after June 2012. However, further water was subsequently discovered in that tank in August 2012. Consequently, no Unleaded 91 petroleum was sourced from that tank from September 2012.
5. Tank 4 stored Ultimate 98 unleaded petroleum. In October 2011, water was discovered in that tank. This was reported to the Landlord on 12 October 2011. However, it was not until 20 February 2012 that the Landlord advised the Tenant that the tank was fit for purpose. However, as a result of the water contamination, the water meters were damaged. Further works were then carried out until the tank and associated equipment were eventually repaired. The Tenant recommenced selling Ultimate 98 unleaded petroleum from that tank after December 2012.
6. In my view, the evidence of Ms Wang demonstrates that the circumstances which befell upon the Tenant made it extremely difficult, if not impossible, to simply swap tanks in order to maximise the sale of Unleaded 91 petroleum and thereby minimise the loss occasioned by it. In that sense, it is common ground that during the period November 2010 until the commencement of this proceeding, at least one or more of the fuel tanks were not operating. In Tuncel v Renown Plate Co Pty Ltd[22] the Full Court of the Victorian Supreme Court discussed the concept of mitigation and accepted the three rules formulated in McGregor on Damages (12th edition) as follows:

(1) The first and most important rule is that the plaintiff must take all reasonable steps to mitigate the loss to him consequent upon the defendant is wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. Put shortly, the plaintiff cannot recover for avoidable loss.

(2) The second rule is that the corollary of the first and is that where the plaintiff does take reasonable steps to mitigate the loss to him consequent upon the defendant's wrong he can recover for loss incurred in so doing; this is so even although the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the plaintiff can recover for loss incurred in reasonable attempts to avoid loss.

(3) The third rule is that where the plaintiff does take steps to mitigate the loss to and in consequent upon the defendant's wrong and the steps are successful, the defendant is entitled to the benefit accruing from the plaintiff's action and is liable only for the loss as lessened; this is so even although the plaintiff would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of the steps not being ones which were required of him under the first rule. Put shortly, the plaintiff cannot recover avoidable loss.[23]

1. In my opinion, what is reasonable conduct by the Tenant is to be evaluated by taking into account of all of the circumstances. This point is made clear in the judgment of Lord Macmillan in Banco de Portugal v Waterlow & Sons Ltd:

Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of the duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.[24]

1. In my view, it is unrealistic to expect the Tenant to have continually swapped tanks at its cost in circumstances where representations were made by the Landlord that it would effect repairs. In addition, it is common ground that the tanks were the Landlord's installations. In my opinion, that is another factor which weighs against a finding that the Tenant has failed to mitigate its loss or that its failure to swap tanks in a more timely manner is the cause of its loss. Consequently, I do not accept that line of defence.

Is there sufficient evidence of a contingent liability?

1. As indicated above, the Tenant claims reimbursement or indemnity in respect of its liability to BP Australia Pty Ltd ('BP'), pursuant to an agreement between the Tenant and BP entitled BP Branded Privately Owned Sites Agreement. Clause A 14.2 of that agreement states:

The Dealer is solely responsible for it agrees to indemnify and hold BP and its employees, agents and contractors harmless from all costs (including without limitation, costs of cleaning up Contamination on or from the Site and legal fees), losses, damages (including without limitation, loss of bargain damages) and claims (including without limitation, claims for injury or death) arising out of:

(b) any Contamination occurring on or from the Site ...

1. The Tenant contends that a claim has been made against it by BP in respect of third-party liability; namely, the cost of repairing vehicles damaged by the contaminated fuel. According to Ms Wang, demands have been made by BP in the form of several email correspondence, such as the following from Mr Smale:

I write this email in reference to email attached below demanding immediate reimbursement of the sum of $101,833.61 paid as compensation to customers who purchased contaminated fuel from you.

We note that we have not received payment, nor have we received a response to out letter [sic].

If payment has not been received by the 15th of February 2012 BP will have little choice but to commence proceedings to recover the amount owed to it.

1. An updated list of all claims allegedly paid by BP was provided to the Tenant under cover of email dated 11 September 2013. The aggregate amount allegedly paid to customers is $146,997.01. That list provides the date that the third-party claims were received, the amount claimed, a description of the incident, which in every case was described as water, the name of third party customer and the amount paid.
2. There is no evidence before me that any amount has been paid by the Tenant in response to the demand made by BP, nor is there any evidence that BP has commenced any proceeding against the Tenant. In addition, there is no evidence from any representative of BP verifying that the list of claims allegedly paid by BP is accurate or that it constitutes a business record or other document from BP.
3. Mr McKay submits that the failure to adduce evidence from BP verifying the claims allegedly made against it is fatal to the Tenant's claim under this head of damage. Mr McKay submits that to the extent that BP was under some legal obligation to compensate customers, the nature and scope of this obligation was not the subject of evidence. He contends that this becomes important when one considers the contractual basis upon which the Tenant asserts that it has incurred a liability to BP. Mr McKay further submitted that it is unclear whether the payments made by BP, if made, were part of a voluntary public relations exercise designed to maintain BP's brand, or were made to discharge a legal obligation owed by BP to the customer. Mr McKay argued that when a legal document requires a person to indemnify another person against 'claims' of a particular type, the word 'claims' does not encompass a voluntary payment by that second person. It refers to claims of legal liability. Consequently, he contends that the Tenant has not proven that it has incurred any liability to reimburse BP for the alleged customer payments.
4. Mr Stirling argued that it is of no consequence whether the Tenant is liable to BP under the agreement between it and BP because it has a right to claim damages against the Landlord at common law in any event. Mr Stirling contends that the essential elements of the claim are made out; namely:
   • (a) there has been a breach of the Lease by the Landlord;
   • (b) that breach of the Lease has directly caused contamination to customer vehicles;
   • (c) the customer would have relevant legal claims as against both the Tenant as the supplier of the fuel product and as against BP, which is the brand owner of the service station; and
   • (d) the vehicles have been rectified by BP and its cost.
5. Mr Stirling submitted that there is no legal defence open to the Landlord to resist the BP claim.
6. I accept that a mere liability is a loss that can give rise to recovery, even if the damage consequent upon a breach has been paid by a third party.[25] However, the difficulty with the claim is that there is no direct evidence establishing that BP has made any payment to the customers of the Tenant or that it or the Tenant has any contingent liability. The evidence is indirect and is in the form of a schedule emailed to the Tenant by Mr Smale of BP. Regrettably, no person from BP gave evidence to prove that document. Moreover, there is no evidence as to what repairs were actually carried out to the customers' vehicles and whether those repairs were justified. Similarly, it is not known whether the amounts allegedly paid to the customers were commensurate with the reasonable cost of repair or, as submitted by Mr McKay, simply ex gratia payments made to protect the BP brand. Therefore, I am not satisfied that, on the balance of probabilities, the amount allegedly claimed by BP represents an accurate record of the cost to repair vehicles damaged by contaminated fuel sourced from the Tenant's premises.

1. Mr McKay raises a further difficulty with the BP claim. In particular, he contends that the Tenant failed to adequately test each of the relevant tanks for water content in accordance with Australian Standard AS4897-2008. Section 7.3.2 of that standard states:

Tanks should be checked regularly for the presence of water. Water should be removed as soon as possible and the cause of water ingress investigated.

1. Evidence was given by Mr Wilde of Fleetwood Petroleum that:

It is industry standard that all tanks be tested for water at least weekly using a water paste that donates the presence of water and the level of water in the bottom of the tank. This water test should have been done by the service station operator on a weekly basis. Competent service station operators, upon finding that the water level was increasing, would call their service technician to remove the water. Once this was done they would monitor the water levels of the tanks daily to ensure no further water was entering the tanks. If water was found to be entering the tank again the tank would be isolated until such time as the problem was located and repaired. As far as I can ascertain the operator had no records of water testing and were not recording the level of water. Had there been scheduled water testing of the tanks this problem would have been identified prior to any contaminated product being sold to the public. If the station operators had carried out this testing correctly sale of the contaminated product to the public could have been avoided.[26]

1. Mr Wilde gave evidence during the course of the hearing that the turbine turrets through which the fuel is drawn from the tanks were set 150 mm from the bottom of the tanks. He explained that this was done to allow a small volume of water to accumulate in the tanks without it being picked up by the turbine turrets. He explained that it was common for there to be a small amount of water at the bottom of the tanks, given that water was heavier than the relevant fuel. He said that the presence of water was caused by condensation, which was a common phenomenon:

Water forms in the tank through condensation. This forms due to the fact that the fuel in the tank is approximately 16 degrees Celsius and the tank is vented to atmosphere. Water is more likely to form in a tank that is drained and refilled more often due to the constant temperature changes. Unless the tank is full all the time there will be an ullage space. Atmosphere (depending on the temperature) hitting the cold fuel then causes condensation on the tank shell. This then rolled down the sides of the tank into the product. It is due to this 'natural' accumulation that water can build up to a problematic level and industry standard is to test for water in tanks. A prudent operator should do so regularly.[27]

1. Mr Wilde explained that there was a grace period during which the water could safely accumulate at the base of the tank without entering the turbine turrets. He further stated that a diligent operator would carry out water paste dipping and call in a contractor if the water levels exceeded 40 or 50 mm. He said that once a water problem had been identified, water paste dipping should occur at least once per day. Mr Wilde explained that water paste dipping requires the operator to apply a reactive paste to a dipping stick, which is inserted into the fuel tank and extends to the bottom of the tank. As water comes into contact with the reactive paste, it changes colour giving the operator an indication of the amount of water sitting at the bottom of the fuel tank.
2. Mr McKay submitted that the Tenant has failed to adduce adequate evidence that water dipping was undertaken either in accordance with the relevant Australian Standard or on a daily basis after the presence of water was first detected. Mr McKay argued that had this been undertaken, the consequential damage allegedly caused to customer vehicles would not have occurred or at the very least, would not have occurred after the Tenant first became aware of the water ingress issues.
3. Ms Wang gave evidence that during the time that she managed the Tenant's business, water paste testing was done regularly from July 2011. That leaves a significant period of time from the time that the first customer complaints were received in October/November 2010 to when the water paste testing was said to be done on a regular basis.
4. During cross-examination, Ms Wang conceded that she had not personally undertaken the water paste dipping. Indeed, her evidence going to the issue whether the Tenant conducted any water paste testing prior to receiving customer complaints in October/November 2010 is equivocal. In particular, the following extract of the transcript demonstrates this point further:

McKay: What I suggest to you is never at any time since you have been manager did you take a dipping reading and then as a consequence of that dipping reading think there might be a problem here in the future and then contact my client.

Wang: I can't see the problem before the problem happened, before the contamination fuel - fuel complaint happen. I can't see any.

McKay: ... As a result, not of people complaining about broken cars, et cetera, but only as a result of your dipping, because you get a dipping reading that shows some water going up, for that reason only did you ever warn my client?

Wang: I can't really remember. I remember I always called Lincoln Faye once the problem happened.

McKay: Correct. And the problem that you refer to, and I can take you to every letter if you want but they all have one theme, which is that these reports of motorists or reports from motorists that complain to you or to BP, or both, and only then do you react. Isn't that right?

Wang: Before that I can't see the problem happen, so that's why I need to contact Lincoln Faye. If he's done the job really properly, fixed the tanks (indistinct), why the problem happened again and again?[28]

1. In my view, it is clear from the exchange between Mr McKay and Ms Wang that Ms Wang did not, at any time prior to receiving complaints from motorists in October/November 2010; contact the Landlord to advise that water levels in the tanks were a problem.
2. Nevertheless, Mr Stirling submitted that Mr Stephen Li, who worked at the Premises until mid-2010, gave evidence that regular monthly fuel dips were carried out by himself and by staff generally. In my view, the evidence of Mr Li does not assist in determining whether water paste dipping was undertaken during the period immediately prior to the first customer complaints being received in October/November 2010. In fact, the following extract of the Transcript indicates that the procedures followed by Mr Li may not have been duplicated by Ms Wang after she became manager in the middle of 2010:

Stirling: Is it also the case that you undertook water tests on the tanks?

Li: Like I do monthly - so every month I do one, each tank.

Stirling: How often would you have done the fuel dipping?

Li: Not often, because that's the night shift's job.

McKay (cross-examination): I am not sure if you had a chance to read Lincoln Faye's statement, but he says that between 2007 and mid-2010 when you were the manager of the business that you did a very good job managing this business. Would you agree with that assessment?

McKay: He says that you kept the place clean and did the dipping, paid the rent on time, all the things that a good manager would do when running a business. Would you agree with that assessment?

McKay: How did you know to carry out the dipping in the first place ...

Li: One of the previous staff, actually he showed me how to use the paste, the water test paste, how - how do I - how do we, like use this kind of like paste. That's how I know.

McKay: when you left the business and ceased being a manager and Qi Qi [Ms Wang] became the new manager did you speak to her about the dipping processes?

McKay: So had Qi Qi run a service station before she came around to BP Kealba service station to the best of your knowledge?

Li: She was working with me for at least half a year.

McKay: So she would have had a chance to observe your practices as a good manager of the service station?

Li: I don't know about her, but I can't remember if I told her about the paste or not.

McKay: Would you say that she was aware from what you saw or heard that she was able to dip the tanks for water?

1. There is no evidence from Ms Wang that she personally undertook any water paste dipping. She said that Alan Wang (no relation), the manager of another BP store affiliated with the Tenant's business, had carried out the water paste dipping and that he had prepared a set of hand written dipping records. Initially, she said that the hand written dipping records were the records recorded in a red folder entitled Fuel Dips. This document was tendered in evidence ('the Daily Dipping Records').[30] However, she later said that the Daily Dipping Records were in fact daily dipping records prepared by her staff members. Indeed, it appears that the Daily Dipping Records prepared by her staff members simply relate to daily fuel levels, rather than measuring the level of water in each tank. Ms Wang then said that a different set of records had been created by Alan Wang. Those records were also produced in evidence.[31] They commence in July 2011 and are in a slightly different format to the Daily Dipping Records. Those records are also entitled Daily Fuel Dips but include an additional column entitled Fuel Condition. In some instances, notations were marked next to particular dates under the column Fuel Condition. According to Mr Stirling, these notations indicated that certain of the tanks had failed. Regrettably, Ms Wang was unable to elaborate further on the meaning to be attributed to the notations. In fact, she conceded that she did not see Mr Wang conduct any water paste dipping or that she had discussed the results of the dipping with him.
2. Regrettably, Mr Wang was not called to give evidence in the proceeding. Apparently, he was unable to be located, although, according to Mr McKay, it subsequently transpired that the Tenant's legal representatives had been communicating with him. Moreover, the dipping records allegedly prepared by Mr Wang did not specifically state the precise water level each day. This factor weighs against a finding that the records produced in evidence were indicative of water paste dipping having taken place on a regular basis.
3. During cross-examination, Ms Wang conceded that her staff had prepared the Daily Dipping Records during the night shift and that Mr Wang had attended the premises each day in the afternoon to conduct his own dipping records. However, when comparing the two dipping records, each record states the same amount of fuel. This is curious, given that one would assume that fuel sales during the course of the day would deplete the amount of fuel in the tanks from when they were measured at night by staff members to when they were measured in the following afternoon by Mr Wang. Ms Wang was unable to explain how the quantity of fuel recorded in both dipping records was the same if the data was collated at different times or days.
4. In my view, the evidence of Ms Wang that there was regular water paste testing is questionable. Indeed, she conceded that she had been in China during the second half of 2011 and in those circumstances; I question the reliability of her evidence concerning this issue. The second set of dipping records does not, in my view, confirm that water paste dipping was conducted by the Tenant on a regular basis. Given the importance of this particular issue, it is curious that Mr Wang was not called to give evidence and verify that he undertook regular water paste dipping. Therefore, as it presently stands, no witness called to give evidence was able to say that they actually witnessed water paste dipping ever having taken place over the relevant period. In my opinion, had water paste dipping taken place on a regular basis, the consequential damage caused to customer's vehicles would have been avoided.
5. Given the above, I find that it is more than likely that although staff members of the Tenant undertook regular fuel dipping, specific water paste dipping did not occur on a regular basis. Having regard to the evidence of Mr Wilde, I consider this to be an essential component in the operation of the Tenant's business and should have been undertaken at least once a week prior to the first customer complaint and daily thereafter.

Did the failure to conduct water paste dipping break the chain of causation?

1. Mr Stirling submitted that even if it was shown that the Tenant failed to conduct regular water paste dipping protocol, the Landlord would still need to establish that the conduct had some relevant impact on the events as they turned out. He gave the example that if water paste dipping was carried out three times a week, on Monday at 4 pm then at the same time on Thursday and Saturday. Then assume that the breach of the tank which caused water ingress of 2,000 litres of water occurred on Monday at 9 pm, damage could be caused to vehicles of the customers before any further fuel dipping occurred and there was nothing that the Tenant could do about that. I do not accept that argument for a number of reasons.
2. First, there is no evidence of any significant and sudden inundation of water into Tank 2, prior to the first customer complaints being received. In my view, a significant and sudden inundation of water into Tank 2 would have shown some irregularity in the daily dipping records for that Tank, when compared to the sales of fuel sourced from that Tank, sufficient to immediately raise the concern of the Tenant that would reasonably warrant conducting water paste dipping on a daily basis. This point was raised when Mr Li gave his evidence, as the following extract of the transcript illustrates:

Stirling: Is it the case that each underground tank has its own fuel dip?

Stirling: And so that what you do is you undo the top of the relevant tank?

Stirling: And you put your hand in and you will be able to pull the fuel stick out?

Stirling: Then you get it down to a certain level to see where fuel sits at that particular time?

Stirling: Then you might record that information, the levels, on a document?

Stirling: Is the point of it is, that if for example-what time would you do the fuel dip?

Li: Normally the shift, the night shift, around like three or four o'clock so in the morning we can see and how we double check.

Stirling: Let's say at the time trading closes off on a Sunday there is 5,000 litres of fuel left in the tank?

Stirling: And then the record show that the next day 2,000 litres of fuel has been sold from that tank?

Stirling: The fuel dip the next day would show 3,000 litres, shouldn't it?

Stirling: If for example a lot water had got into that tank, say 200 litres or 300 litres , the level on the fuel dipping stick would show 3,200 or 3,300 litres?

Li: Yes, there will be extra water get into the tank.

Stirling: So in that way carrying out fuel dipping tests will tell you whether there is significant water getting into the tanks or not?

Li: Yes, that's actually a sign of if there's any water contamination in the tank or not.[32]

1. Consequently, I am of the view that it is unlikely that there was a significant and sudden inundation of water into Tank 2. It is more likely than not that the inundation of water into Tank 2 occurred gradually, with the effect that its impact was not recognised through the daily fuel dipping records. Hence, the need to conduct regular water paste dipping, so as to accurately monitor the rising level of water in the fuel tanks. Regrettably this was not done during the period between Mr Li leaving the business and prior to the Tenant receiving the first of the customer complaints; and in all likelihood, not done with any regularity even after the customer complaints were first received.
2. That being the case, I find that the failure to undertake water paste dipping on a regular basis is an intervening act that broke the chain of causation between the Landlord's failure to maintain the tanks and the damage caused to customers' vehicles.
3. Although, the defects in the fuel tanks constituted an essential condition of the loss, this did not, of itself, constitute the primary cause of that loss.[33] In particular, the evidence of Mr Wilde was that it was common for water to collect at the bottom of the fuel tanks. That was why the turbine turrets were set approximately 150 mm above the bottom of the tanks. That is also why the applicable Australian Standard requires regular water paste dipping in order to monitor the water levels. In that sense, the risk of water being drawn up into the turbine turret and then ultimately reaching the end user is a risk that always exists, notwithstanding the fact that the defects in the fuel tanks increased the propensity for water to be introduced into the fuel tanks. However, it was not, in my view, the cause of the damage to customers' motor vehicles. That was caused by a failure on the part of the Tenant to properly monitor water levels in the tanks in accordance with the applicable Australian Standard. In Medlin v State Government Insurance Commission,[34] the joint judgment of Deane, Dawson, Gaudron and Toohey JJ discussed the relevant principles of causation. Although that case concerned a claim in negligence, the commentary stated below is equally applicable to the law of contract, in the context of this case:

For the purposes of the law of negligence, the question whether the requisite causal connection exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of common sense and experience. And that remains so in a case such as the present where the question of the existence of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage.

... the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendants wrongful act or omission is, as between the plaintiff and the defendant and as a matter of common sense and experience, properly to be seen as having caused a relevant loss or damage.[35]

1. Therefore, I find that on the balance of probabilities, the cause of the damage to customers' vehicles is the failure to properly monitor water levels in the fuel tanks in accordance with the applicable Australian Standard. For that reason, I dismiss this aspect of the Tenant's claim.

1. The Tenant also claims loss of goodwill in the amount of $207,530. This was the amount allocated to goodwill in the sale contract for the purchase of the business by the Tenant. Mr Chin gave evidence that based on the financial figures over the period FY2010 to FY2013, the current estimated goodwill, using the Capitalisation of Future Maintainable Earnings valuation method, would be nil. Therefore, he contended that the original goodwill value of $207,530 has been fully eroded or lost.
2. According to Mr Rosner, the difficulty with the evidence given by Mr Chin is that no calculations using the Capitalisation of Future Maintainable Earnings valuation method were carried out for the financial years prior to FY2010. Therefore, Mr Rosner opines that it is possible that any goodwill calculated at the end of FY2010 using the Capitalisation of Future Maintainable Earnings valuation method would have only showed negligible goodwill value. His evidence was:

My point is that Mr Chin has taken the goodwill paid at the time of the purchase of the business and at that point in time that figure is the difference between the total purchase price of the business and the hard assets bought at that time, and as Mr McKay referred to in his examination of Mr Chin earlier, sometimes that is not necessarily a reflection of the difference between the future maintainable earnings - the good - the price of the business and the actual assets involved, there may be other issues involved.

What my point in respect of goodwill is in this matter, is that the relevant date to be compared is not when the goodwill was purchased but the date that the contamination began, and the difference between that goodwill and the 30th June 2013, which I have taken to be the cut-off point in respect of calculations and assessment.

So to apply the methodology of capitalisation of earnings prior to the point at which contamination took place I've done the exercise, shown as appendix 3 in my recent report, which is not to be taken as definitive. The process involved in valuing the business is both lengthy and should be exhaustive...

In this case, the assets at 30 June 2010 had a written down value of $371,000, which is far in excess of the value of the business determined either on a 3 times multiple, a 5 times multiple, even a considerable multiple which this business will not attract.

So my point is that at that point in time, the beginning of the comparison necessary to establish if in fact goodwill has been lost, it is quite capable of being demonstrated that there was no goodwill at that point in time.[36]

1. Mr Rosner's evidence was given during the concurrent evidence session of the hearing. In response to Mr Rosner's evidence, Mr Chin stated:

I do not have any objection about what he mentioned about the method of calculating the goodwill. I think - totally agree with what his comments were on that.

1. In my view, there is insufficient evidence to establish what the value of goodwill of the business was prior to FY2010. Simply relying upon an amount allocated against goodwill in the contract of sale is not necessarily an accurate measure because the parties may have assigned a figure simply to suit their own needs, without reference to any accounting formula or methodology. Indeed, Mr Chin conceded that very point. He further conceded that he had not been asked to carry out a valuation to determine the goodwill value of the business either on present day data or as at 30 June 2010.
2. Consequently, I am of opinion that it would be erroneous to compare the present day goodwill value based on the Capitalisation of Future Maintainable Earnings valuation method (which may show present value of nil) to a goodwill value ascribed by the Tenant and the vendor, which is not based on the same valuation method but rather, an amount which may simply have been agreed on to suit their own taxation objectives. In my view, it was open for the Tenant to have engaged Mr Chin to conduct a valuation of the business value as at 30 June 2010 and as at the end of FY2013, in order to ascertain whether the value of goodwill has decreased over that period. This was not the done. I therefore find that there is insufficient evidence in order to substantiate this aspect of the Tenant's claim.
3. In any event, as I understand the current situation, all tanks have now been repaired and the business is now fully operational. Although one may speculate that the disruption to the Tenant's business may have had some ongoing adverse effects on its ability to attract patronage, there is no evidence confirming that that is the case. Consequently, I accept the submission made by Mr McKay, supported by the evidence of Mr Rosner, that now that the tanks are working again, there is every reason to believe that any decline in goodwill (if any) will likely be restored in the short term.

1. Mr Sterling submitted on the final day of hearing that the Tenant's claim for the rectification of the pump meter was no longer being pursued. Consequently, I make no finding in relation to that aspect of the Tenant's claim.

1. Ms Wang gave evidence that the Tenant incurred expenses in effecting repairs to the fuel tanks and associated equipment, in an attempt to progress rectification of the tanks. The amount claimed is $39,451. A number of invoices were tendered in evidence in support of that claim. Essentially, the invoices relate to investigations, minor repair work and other work, such as transferring fuel lines from one tank to another in an effort to minimise disruption to the Tenant's business. The amount claimed was not seriously challenged by the Landlord in closing submissions. Moreover, there is no contrary evidence disputing that the amount claimed was expended by the Tenant or did not relate to the repair of the Landlord's installations. Consequently, I will allow that aspect of the Tenant's claim.

1. Ms Wang gave evidence that the Tenant was required to dispose of significant amounts of fuel as part of the rectification work associated with the tanks and associated equipment. The amount claimed by the Tenant under this head of damage is $26,528, made up as follows:

1. Documents were tendered in evidence in support of this claim. As is the case with the cost of repairs, no evidence was adduced by the Landlord disputing that claim, nor was that claim seriously challenged in closing submissions. Consequently, I find in favour of the Tenant and will allow this aspect of its claim.

1. An amount of $8,000 is claimed by the Tenant in respect of interest on rectification costs. There is no evidence, nor were any submissions made as to how this amount was calculated or derived. Moreover, it is not clear to me on what basis interest is claimed. In particular, does it relate to interest paid by the Tenant or is the amount claimed interest in the nature of damages?
2. In the absence of any clear explanation as to how this claim is calculated and on what basis it is made, I decline to order interest on any aspect of the judgment amount at this stage of the proceeding. In that respect, I consider a more appropriate course to reserve the question of interest and costs pending the publication of my orders and Reasons relating to the substantive claim.

1. Having regard to my findings set out above I will order that the Landlord pay to the Tenant an the amount of $508,380, made up as follows:

1. As to the question of costs and interest, I will give the parties liberty to apply. In that regard, I draw the parties' attention to s 92 of the Act.

[1] Woodlock v ADMR Pty Ltd [2011] VCAT 1776.

[2] Commercial Tenancy Law (Third Ed), Bradbrook, Croft & Hay (Lexis Nexis Butterworths) Australia 2009.

[5] [2009] VCAT 829.

[6] [2011] VCAT 1160.

[7] [2013] VCAT 1808.

[8] [1991] HCA 54; (1991) 174 CLR 64.

[9] [1994] VicRp 16; [1994] 1 VR 237.

[11] [1994] VicRp 16; [1994] 1 VR 237 at 245-6.

[12] [2003] VSC 29 at [42] and [46].

[15] Cost of Sales = Gross Sales less GPM.