2.1.2 In relation to Burrito Bar and Sushi Kuni, I have provided a Scenario A and B due to:
• Non-cash credits that Burrito Bar was entitled to at the commencement of its lease, but which were not applied until September 2017.
• The balance of the security deposit for the original (previous) operator of Sushi Kuni was not refunded but applied to the arrears of that tenant. Whilst the lease was assigned effective 30 April 2017, the monies were not allocated to the tenant ledger until September 2017.
In each instance,
• Scenario A reflects what was actually recorded in Savills' MRI system, and
• Scenario B reflects the impact of applying either the non-cash credit or the balance of the security deposit to the month it would appear to properly relate to.
Total Incentives and abatements
2.1.3 In Section 7 of my Report I reconciled:
(1) the total incentives and abatements for each of the Food Court Tenants as per the Incentive deeds; and
(2) the total incentives and abatements received by and/or applied to each of the Food Court Tenants.
2.1.4 My analysis indicates that the Food Court Tenants did not receive non-cash credits in excess of their entitlements under the Incentive Deed.
2.1.5 The timing of when the non-cash credits were applied to the tenant's ledgers was not always strictly in accordance with the terms of the Incentive Deeds. However, this would appear to have been to the disadvantage of the tenants rather than the landlord.
Security deposits and bank guarantees
2.1.6 In Section 6 of my Report I accounted for all security deposits in the process of my reconstruction of the rental accounts.
2.1.7 I am satisfied that all security deposits and bank guarantees were paid or evidence submitted by 31 October 2017.
2.1.8 My review of the ledger provided by Savills indicates that a deposit for Redcliffe Noodle Kitchen of $744 has been omitted.
Tenant Arrears Reports
2.1.9 The Tenant Arrears Reports provide a detailed current status of all amounts invoiced and not paid by the tenant (account balance) including the arrears position.
2.1.10 These reports are a snap shot of the tenant's account, taking into account information recorded up to the date the report is printed and not necessarily for an entire month.
2.1.11 Based on the Tenant Arrears Reports I examined, they appear to accurately record what they purport to represent.
188 Mr Hellen was instructed to make certain assumptions which are controversial and which arise from his analysis of the end of month MRI reports together with copies of bank statements. As explained by Mr Hellen, in order to allocate cash receipts to tenant accounts he relied upon certain comments, in the form of annotations to the documents, applied by Mr Neil Shah which identified and allocated various receipts. Mr Neil Shah did not give evidence and the submission of Mr Fernon is that I should not make findings of fact that rest on those untested assumptions where there is a dispute.
189 Mr Gwynne was engaged by Elanor not to undertake an independent reconciliation similar to Mr Hellen, but to review and comment upon the rental arrears calculations and analysis of Mr Hellen. In response, Mr Gwynne produced a report dated 21 June 2023. His summary analysis in section 2 is:
2.0 SUMMARY
2.1 Based on my review of the Hellen Report and of the documentation at BH-1, I note the following:
Bel Cibo
2.2 Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.2.1 of his report to incorrectly record Bel Cibo as being in advance in September 2017 & October 2017.
2.3 In addition, I cannot identify the source of 2 payments allocated by Mr Hellen in his calculation.
Burrito Bar
2.4 Mr Hellen's calculation in paragraph 6.3.2 is supported by the documentation at BH-1.
2.5 I note that the arrears position in September 2017 is after an allowance for non-cash credits which were raised in October 2017.
Dizzy Dukes
2.6 There is a difference of the arrears calculations at paragraph 6.4.1 of the Hellen Report and as per the Documentation at BH-1. This is due in part to the allocation of part of the security deposit to rent and other payments the source of which is not clear.
Kebab Express
2.7 Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.5.1 of his report to incorrectly record Kebab Express as being in advance. The documentation at BH-1 indicates that by October 2017, Kebab Express was up to date.
Mass Nutrition
2.8 The table at paragraph 6.6.1 of the Hellen Report does not correctly record Mr Hellen's analysis at schedule 5.1.
2.9 I otherwise note that Mr Hellen's analysis at Schedule 5.1 is in line with the documentation at BH-1
Mumbai Blue
2.10 Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.7.1 of his report to incorrectly record the extent to which Mumbai Blue was in advance. IN [sic] addition his calculation of advance includes a payment the source of which cannot be identified.
Redcliffe Noodle Kitchen
2.11 Mr Hellen's calculation of the advance position of Redcliffe Noodle Kitchen includes payments allocated to rent however the source of those payments is not evident in the documentation at BH-1. Therefore the advance position calculated by him might be overstated.
Thai Me Down
2.12 Mr Hellen's calculation at 6.10.1 is in line with the documentation at BH-1
Sushi Kuni
2.13 Mr Hellen's calculation at paragraph 6.9.3 is in line with the documentation at BH-1.
2.14 I note that his calculations include the application of the security deposit of the prior operator of Sushi Kuni to clear arrears, some of which were accrued by the new operator.
190 Mr Hellen and Mr Gwynne attended a joint expert conclave before a registrar of this Court, and in consequence produced a joint experts' report dated 30 June 2023. They reached significant agreement in relation to a number of disputed issues. Through their discussion, Mr Hellen made certain adjustments to the schedules of his report relating to Bel Cibo, Kebab Express, Mumbai Blues and Redcliffe Noodle Kitchen. An important matter that the experts agreed upon is recorded in the joint report:
In respect of all the Food Court tenants, the only significant differences between the Experts is in respect of the timing of recording of transactions.
191 I was impressed by the professionalism, the degree of cooperation and the obvious significant amount of work that Mr Hellen and Mr Gwynne applied and undertook in the discharge of their duty as independent and impartial expert witnesses in this proceeding. The joint expert report cuts through the considerable minutiae of documentation that each expert was instructed to review and was reproduced in the court book. The joint report attaches nine schedules, one for each of the Food Court Tenants. A number of important matters were agreed in the schedules or in concurrent evidence. Importantly and in summary:
(1) No tenant was in rental arrears as at 31 October 2017 save for Burrito Bar in the amount of $11,022.85;
(2) Kebab Express, Thai Me Down and Mass Nutrition were not in any arrears at any time between December 2016 and October 2017;
(3) Redcliffe Noodle Kitchen was not in arrears before 31 July 2017. There is a difference of view thereafter. On Mr Hellen's analysis, this tenant was in credit in the amount of $17,856.25 in September 2017 and in credit in the amount of $10,293.43 in October 2017, but overall, there is agreement that the tenant balance in accordance with the MRI reports is nil between December 2016 and October 2017. There is an unexplained difference of $10,293.43 between Mr Hellen's assessment of cash received and the cash applied according to the Savills records.
192 Before I turn in more detail to the joint expert report and the concurrent evidence, it is important to understand the explanation for the remaining differences between Mr Hellen and Mr Gwynne. The evidence of Mr Hellen was:
MR HELLEN: Your Honour, Mr Gwynne's instructions were to look at the differences between my report and the Savills report, so, really, all of the comments and the differences are always going to be between my report and my findings and the Savills findings - - -
HIS HONOUR: I see.
MR HELLEN: - - - and those variances are the reasons why they differ, and that's what we've worked on together.
HIS HONOUR: Do you agree with that, Mr Gwynne?
MR GWYNNE: That's correct, your Honour.
HIS HONOUR: All right.
MR GWYNNE: And those variances are why they differ.
193 This emphasises the point made earlier: Mr Hellen undertook a complete reconciliation, whereas Mr Gwynne examined the work of Mr Hellen and compared it with the MRI records.
194 Dealing with each of the remaining Food Court Tenants, the joint analysis reveals the following.
195 For Bel Cibo, the MRI records show the tenant in arrears in each month between December 2016 and September 2017. The arrears amount as at July 2017 is $16,271.53, which reduces to $10,242.95 as at September 2017. In contrast, Mr Hellen allocated an amount of $22,687 to the security deposit which left an arrears balance of $4,216.42 in July 2017 reducing to $3,368.58 as at August 2017, in contrast to the Savills arrears amount of $10,142.58 as at August 2017. The reason for the difference as explained by Mr Gwynne relates to a payment of $10,764.70, which was received on 28 April 2017, but not allocated in the Savills records until May 2017, with a due date of 28 April 2017. In contrast, Mr Hellen allocated this payment in the month of receipt. Mr Hellen agreed with Mr Gwynne's explanation for the point of difference, explaining further that the bank statement that he viewed disclosed receipt of the funds on 28 April 2017, and on that basis, he allocated the payment to that month rather than the following month, which is when the payment appears in the Savills records.
196 I note however, that there is a material dispute about whether an amount of $12,000 recorded as a payment in December 2016, which in fact was received on 28 November 2016. Based on a notation made by Mr Neil Shah, Mr Hellen allocated this entire amount to Bel Cibo in December 2016. In contrast an amount of $6,000 is allocated in January 2017 in the Savills records. In Mr Gwynne's view, the difference of $6,000 related to another tenancy that is not in issue in this proceeding - Montezuma's. When Mr Hellen was taken to these documents he accepted that $6,000 "definitely" should be allocated to Bel Cibo, but explained that "through a painstaking process of going through all of the other documentation - and there was no other $6,000, we needed $6,000 to balance it - we used that $6,000 to balance it." A little later, Mr Hellen explained that he had worked through "all of the documentation available over a very long period of time" and in consequence did his best to allocate payments "when they were most likely to have occurred". For most of those payments he had evidence to support his allocations, but ultimately as to this difference of $6,000 he said that the position was "unclear". He then emphasised a point that he made earlier in his evidence that Savills records are "very messy".
197 Ultimately, Elanor carries the onus of proof to demonstrate that this additional $6,000 should not be allocated to the arrears account of Bel Cibo and that in consequence, I should find that the arrears position as at July 2017 was $16,271.53 and should not be adjusted by crediting an amount of $12,000 in order to reduce it to $4,271.53, which is very close to the figure derived by Mr Hellen of $4,216.42. I am not satisfied on the evidence that the Savills records are sufficiently accurate to establish the fact of arrears for Bel Cibo in the amount contended by Elanor. What is clear from Mr Hellen and Mr Gwynne's analysis is that amounts were received, but not allocated in MRI correctly in the month of receipt. Mr Hellen undertook an extensive reconciliation of the Savills records by reference to primary source documents, such as the bank statements and tax invoices, and I prefer his comprehensive analysis to the more limited task that Mr Gwynne performed without interrogating the correctness of the Savills records. The arrears position as at July 2017 was $4,216.42.
198 For Burrito Bar, the joint reconciliation of the experts reveals that as at July 2017 this tenant was in credit in the amount of $14,782.10, which deteriorated to an arrears of $11,022.85 by October 2017. According to the Savills records there was a zero balance in July 2017, and then an arrears of $11,022.85 in October 2017. The July balance difference is explained by a non-cash credit that was ultimately applied against the rent to September 2017, but which was not posted until October 2017. Mr Hellen maintained his view that credits raised in October 2017 should be taken into account in the period to which they relate, in this case September 2017. On closer analysis, Mr Hellen explained that some of those credits appeared to relate to March to May 2017, although in the documents available to him he was not able to "work it out" with precision. Once again, to the extent that there remains a difference between Mr Hellen and Mr Gwynn's analysis, I prefer Mr Hellen's evidence and I find accordingly because of the thoroughness of the reconciliation that he undertook and the fact that he did not work from the assumption that the MRI records were correct. As at July 2017 Burrito Bar was in credit in an amount of $14,471.59.
199 There are significant differences in the joint analysis for Dizzy Dukes. For July 2017, Mr Hellen calculates that this tenant was in credit in the amount of $27,265.28, which by October 2017 reduced to nil. According to the Savills records, the tenant was in arrears in the amount of $2,889.17 in July 2017, which increased to an arrears of $28,606.92 in September 2017 but which then became a nil balance as at October 2017. The tenant was required to pay a security deposit of $41,250. On 20 April 2017, Savills received a bulk deposit to its bank account of $87,510.52 on behalf of Dizzy Dukes and Mumbai Blues. Of this amount, following a reconciliation of the cash receipts records, Mr Hellen allocated $27,500 and $2,664.45 to the rent account of Dizzy Dukes.
200 In contrast, Mr Gwynne initially identified two payments that were received in February and April 2017 of $13,750 and $27,500, in total $41,250. In Mr Gwynne's opinion, Mr Hellen should not have allocated the sums identified by him to rent. In oral evidence, Mr Hellen explained that when he first undertook his analysis, he assumed that because the amounts of $13,750 and $27,500 totalled the amount of the security deposit, that it should be allocated to the security account. However, on analysis of other documentation, he identified payments in September 2017 of $2,513.82, $11,327.76 and $2,600 which ought to have been applied to the security deposit but were not receipted as such. Mr Hellen then went to the tenant arrears report for Dizzy Dukes for April 2017 which records a last payment of $27,500 as having been made on 20 April 2017. This is the amount that he had initially believed was a part payment of the security deposit. In contrast, that document distinguishes between this payment and the security deposit amount by way of a bank guarantee in the sum of $41,250.
201 Mr Hellen next drew attention to a contemporaneous email sent by Mr Neil Shah to Ms Coco on 26 September 2017 which recorded, amongst other things, an amount of $11,250 received from Dizzy Dukes, in which Mr Shah directed to be transferred to the security deposit account. Mr McQuade drew Mr Gwynne's attention to an email sent by a Mr Chaubal of Dizzy Dukes to Ms Coco on 18 September 2017, which attached a bank receipt for payment of $15,000 for the bank guarantee. He then identified other payments recorded in email correspondence on 22 and 25 September 2017 in the further sums of $15,000 and $11,250, in order to make up the total payment of $41,250 to the bank guarantee. Mr Gwynne accepted that these amounts should be allocated to the security deposit, which leaves for allocation the earlier amounts identified by Mr Hellen of $27,500 and $2,664.45 paid on 20 April 2017. I find in accordance with the evidence of Mr Hellen that these amounts should have been allocated to rent.
202 The result is that I accept the reconciliation of Mr Hellen that Dizzy Dukes was not in arrears at any point between December 2016 and October 2017 in contrast to the arrears recorded in the Savills records.
203 At this point in the conclave, I asked Mr Hellen and Mr Gwynne to respond to a general question concerning the accuracy of the monthly Tenant Arrears Reports produced from MRI. My question, and the answer given by each expert, was:
HIS HONOUR: Given - and this is a general question but, given these discrepancies, which you gentlemen have identified, what confidence, if any, do you place on the monthly tenant arrears teports as accurately stating the arrears position?
MR HELLEN: Your Honour, I don't think it does.
HIS HONOUR: Mr Gwynne.
MR GWYNNE: Well, that certainly highlights an issue in the allocation of that 27,500, your Honour, and whether it should be security deposit or rent ...
HIS HONOUR: I see. Well, your view about the confidence one can place on the monthly Tenant Arrears Reports has been accurate.
MR GWYNNE: Well, that certainly - the inference I would make there is that there's some confusion, so it may well be inaccurate.
204 That answer, together with the earlier evidence of Mr Hellen that the Savills records are "very messy" leads me to find that I should not conclude that any of the Food Court Tenants were in arrears of rent within the period December 2016 to October 2017, unless those records are consistent with the expert evidence, in particular that of Mr Hellen.
205 Kebab Express is the next tenant and may be shortly dealt with. Despite the Savills records, which record that this tenant was in credit in July 2017 in the amount of $4,396.68 (and there is no entry for any other month), the actual amount of the credit balance in July 2017 was $7,785.01 and there was a nil balance in each of the months of August, September and October 2017, which is the joint position of the experts. This finding further highlights the unreliability of the Savills records.
206 Mass Nutrition may also be briefly dealt with. The Savills balance is a credit of $5,041.67 in July 2017 and no arrears for any month from December 2016 to October 2017. The experts agree but do note another error in the Savills records. Although $5,041.67 was paid in February 2017, it was not allocated to the tenant account until July 2017.
207 Mumbai Blues is next. Mr Hellen's reconciled balance for July 2017 is an amount of $3,164.63 in arrears, which by October 2017 improved to a credit amount of $8,864.01. In contrast, the Savills records disclose arrears for July 2017 of $8,847.96 and a nil balance in October 2017. In explanation of the differences, Mr Hellen said that he could not be "absolutely certain" but, by the time he had undertaken a complete reconciliation for this tenant, he had $8,864.01 leftover, which he then applied to the October 2017 balance. Mr Gwynne pointed out that this amount was allocated in accordance with a narration on a bank statement from Mr Neil Shah, and the amount does not appear at all in the Savills records. On that basis, Mr Gwynne questioned the assumption made by Mr Hellen. In response Mr Hellen said that it was "very curious" that the amount annotated by Mr Shah was exactly the same amount as the excess sum that he calculated. In resolving this item, I am not satisfied that Elanor has discharged its onus of proving the accuracy of the Savills records. I accept the evidence of Mr Hellen, that having undertaken a complete reconciliation, there is an amount outstanding which he applied to rent. The point is that the Savills records do not explain the difference.
208 Redcliffe Noodle Kitchen is marked as "not known" on the Savills records for the period December 2016 until July 2017. And then in August 2017, the rent account is shown in arrears in the amount of $6,302.87, reducing to an arrears of $5,606.34 in September 2017. In contrast, Mr Hellen calculates that the tenant was in credit in the amount of $16,654.01 in May 2017, and remained in credit, with the balance reducing each month, until October 2017 when the credit was $10,293.43. Mr Hellen explained that the final credit was allocated by him to rental, because it was money that was left over in consequence of his reconciliation, although he did rely on the identification by Mr Neil Shah of two payments of $16,654.01 and $14,063.91 as relating to this tenant. Mr Gwynne points out that he was not able to identify any documentation which supports these allocations. My finding is that despite the fact that Mr Hellen placed some reliance upon the identification of two amounts by Mr Neil Shah, the basis of which was not established in evidence given by him, I am not satisfied that Elanor has established the arrears balances as recorded in the Savills records for August and September 2017 because of my overall finding that these records are not reliable. In any event, the joint position of the experts is that there were no arrears in July 2017, and none before that month.
209 For Sushi Kuni, Mr Hellen substantially revised his initial calculations in the course of the joint expert conclave. He presented two scenarios for this tenant, although when the entire period between December 2016 and October 2017 is analysed and reconciled, the experts agree that the ultimate balance is nil. He adopted different scenarios because there was a change in the tenant, although not the name of the restaurant. The tenant left in April 2017 and the lease was assigned. In any event, as at July 2017, Mr Hellen on the first scenario calculates a credit amount of $12,333.20 and on the second an arrears amount of $11,802.83, in comparison with the arrears amount of $21,088.72 recorded in MRI. However, by September 2017, Mr Hellen calculates that the tenant was in advance on either scenario in the amount of $17,687.64, in contrast to the Savills records which record a credit of $1,613.19. A reason for the differences was identified by Mr Gwynne in that in September 2017 the balance of the previous tenant's security deposit was applied by Mr Hellen which resulted in the alteration from an arrears in the second scenario to a credit.
210 I find for Sushi Kuni, that there were arrears of rental in April, May, June, July and August 2017, but regular payments were being made such that the arrears total did not materially increase within that period: according to the second scenario of Mr Hellen the amount fluctuated between $15,708.59 and $11,139.78 and according to the Savills records the amounts were between $15,708.69 and $19,942.61. What is clear is that despite those arrears, by September 2017 the tenant was in credit on either analysis and, by October 2017, the balance was nil.
211 Thai Me Down is the final tenant. There is no material difference between the experts, save for a timing issue. Mr Hellen has this tenant in credit in the amount of $6,176.50 between February and July 2017, reducing to a nil balance between August and October 2017. The Savills records do not record any amount outstanding prior to July 2017, a credit of $6,176.50 in that month and thereafter a nil balance to October 2017.
212 Where there are material differences between the experts, Elanor also relies on the evidence of Ms Coco together with a large number of documents that are referenced in the first affidavit of Mr McNaughton at paragraphs [99]-[220]. Within that bundle there is contained individual tenant ledger accounts, emails between Food Court Tenants or their representatives and persons responsible for the management of the Centre, tenancy arrears reports for the period December 2016 until October 2017, the Savills receivables ledger and correspondence sent by Savills to various tenants in relation to the asserted arrears position. Elanor contends that, without discrimination, all of this documentation comprises financial records within the meaning of s 286 of the Corporations Act 2001 (Cth) which pursuant to s 1305 have prima facie evidentiary status.
213 There are difficulties with that submission. Section 286 is concerned with financial records which correctly record and explain corporate transactions, financial position and performance so that true and fair financial statements may be prepared and audited. It is doubtful that correspondence between Savills and the various Food Court Tenants relating to claimed rental arrears are financial records within the meaning of this provision. It has been held that transaction documentation such as source material are not accounting records for the purposes of financial reporting as required under the Corporations Act: Van Reesema v Flavel (1992) 7 ACSR 225 (King CJ, Bollen and Prior JJ); Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; 39 ACSR 443 at [46] (Warren J). Financial records are an inclusively defined term at s 9 which refers to invoices, receipts and orders, documents of "prime entry" and working papers and other documents that are needed to explain the methods by which financial statements are made and adjusted.
214 I am prepared to accept that individual tenancy receivables ledgers are financial records within this provision, together with the tenancy arrears reports. But I do not accept that correspondence between Savills and individual tenants relating to asserted rental arrears, claimed payments and requests for extensions are financial records. The statutory obligation is to keep written financial records that correctly record and explain the transactions, financial position and performance of a company. The provision does not in my view extend to consequential correspondence, which may have been based on information contained in the financial records, nor does it extend to more general correspondence between Savills and individual Food Court Tenants. Correspondence of that character in my view is of a different character to the categories of documents defined as financial records in the Corporations Act.
215 There is significant evidence from Mr Hellen, portions of which are agreed by Mr Gwynne, to the effect that the Savills tenancy arrears reports and individual tenancy receivables ledgers contain material errors. That is demonstrated by my findings above in relation to the arrears position of each of the Food Court Tenants in accordance with the reconciliation undertaken by Mr Hellen. Additionally, Mr Hellen in his expert report of 3 May 2023, identifies numerous instances where money received was not allocated to a tenant ledger in a timely way, the timing of non-cash credits applied to a tenant ledger was not always strictly in accordance with the Incentive deeds, some deposits were omitted entirely, some amounts required for security deposits, bank guarantee requirements and fit out contributions were not recorded in the receivables ledgers for some tenants, Savills did not raise charges or rent free amounts to individual tenant ledgers and some rent abatement amounts were not applied in even monthly amounts. All of this is detailed in paragraphs 2.1.2, 2.1.5, 2.1.8, 2.3.8, 7.5.4 and the analysis that comprises the schedules to the report.
216 In some respects, Mr Hellen revisited and adjusted components of that schedule in his revised schedule that is attached to the joint expert report. Those alterations do not support the overall proposition that the tenant receivables ledgers were accurately maintained by Savills. And it is from those ledgers that the tenancy arrears reports were generated, and the correspondence about asserted arrears was composed. I accept the evidence of Mr Hellen, who succinctly summarised by his overall comment that the Savills accounts "are very messy". It follows that the prima facie evidence status of the Savills records as comprising financial records, is displaced.
217 It follows from my findings in relation to each of the Food Court Tenants based on the joint expert report and concurrent expert evidence and my conclusion to reject the prima facie evidentiary status of some of the Savills documentation, that I reject Elanor's submission that I should go behind entries in the joint expert report, accept components of the evidence of Mr Gwynne or otherwise have regard to and make findings in accordance with the Arrears Schedule analysis prepared by counsel , which is an annexure to the closing submission of Elanor.
218 In conclusion, the result of all of my findings is that of the nine Food Court Tenants, as at 31 July 2017, only 3 were in arrears: Bel Cibo with arrears of $4,216.42, Mumbai Blues with arrears of $3,164.63 and Sushi Kuni which on one scenario was in credit but on the alternative was in arrears in the amount of $11,802.83. I am not satisfied that Elanor has established for the six remaining Food Court Tenants in issue that as at July 2016, there were arrears of more than 30 days for rental or other amounts payable under the leases.
219 Thus, to that extent Elanor has established that the arrears position differed from the July Arrears Report, which brings one back to the basal claim of Elanor: has it established objectively that the Arrears Representations is made out by reference to that report and the oral conduct of Mr Shah in not disclosing that there were rental arrears as at 30 August 2017? This requires analysis of all of the relevant circumstances.