Findings of Fact
17 Mr Musumeci is the principal of Fresh Express. At all relevant times Fresh Express traded in the wholesale fruit and vegetable market, specialising in rockmelons, honeydew melons and tomatoes. It purchased these items either from growers or through a credit co-operative comprised primarily of wholesalers at the Flemington fruit and vegetable market in Sydney and sold them to retail fruit and vegetable shops. There seems little reason to doubt that Fresh Express was a successful wholesaler. Mr Musumuci clearly also had an extensive knowledge of the retail fruit and vegetable market. Through a company Sibmeld Pty Limited, jointly owned with Mr Harris he also had an interest in a retail fruit and vegetable business known as Ashfield Fruit World.
18 Mr Gerace had operated over a period of some thirty years a number of retail fruit and vegetable outlets either through his own companies or in partnership with others, including a shop called Erina Fresh and another called Charlestown Fresh. The latter was run together with Mr David Harris. Fresh Express, as wholesaler, had dealt with Mr Gerace or other outlets in which he was involved over a number of years. Mr Musumeci and Mr Gerace had known each other for at least ten years.
19 In early 1997 Mr Gerace responded to an advertisement which had been placed by or on behalf of Mr Cerreto concerning a shop for lease. Mr Gerace spoke to Mr Cerreto who asked about his experience in the fruit and vegetable business. It would seem that Mr Cerreto knew of Mr Gerace from the Flemington Fruit and Produce Markets, although he had not been formally introduced to him.
20 Mr Cerreto told him either then or in a later conversation that in addition to the shop which had been advertised he had a bigger and better shop at North Ryde in Cox Road. Later Mr Gerace arranged to meet Mr Cerreto. It would seem that this meeting did not take place at the shop. At the meeting Mr Cerreto told Mr Gerace (according to Mr Gerace) in relation to the Cox Road shop that he was looking for a rent of between $1,200 and $1,400 per week. According to Mr Cerreto he told Mr Gerace that he was looking for a rent of $1,800 plus outgoings, that Mr Gerace countered with an offer of $1,000 on the basis of receiving three months free rent and that Mr Cerreto said that he agreed to a rental of $1,000 per week, a rent free holiday for three months and that thereafter the rent would increase by an agreed amount per year. Although nothing turns upon this discrepancy I see no reason to disbelieve Mr Cerreto and accept his version of the conversation.
21 According to Mr Gerace he asked whether there would be a need to spend money on fitting out the shop and was told that Mr Cerreto already had all the fixtures and fittings in the shop and there would only be the need for a tenant to pay rent and outgoings.
22 Later Mr Cerreto met Mr Gerace at the Cox Road shop. Mr Gerace complained that the cash register was no good and Mr Cerreto agreed to replace it. Mr Musumeci on the other hand gave evidence that he knew that Mr Gerace had in fact purchased the cash registers and that he knew the person from whom they were purchased. Mr Gerace also told Mr Musumeci that there would be a need for electrical work to be done, some shop fitting work and there would be a need for four new counters. Mr Cerreto is said by Mr Gerace to have agreed, although it is not clear to what this agreement related. Mr Cerreto presented a different version. He said that Mr Gerace told him that he might wish to make alterations to the shop fittings. Mr Cerreto said that he agreed to that but said that the fixtures and fittings were always to remain the property of the lessor. According to the affidavit evidence of Mr Cerreto Mr Gerace agreed to this. I think that Mr Cerreto's version is rather an attempt to bolster his case and think that it is more likely than not that nothing was said then, at least, about ownership of the fittings and fixtures.
23 It seems that later a shop fitter went to the premises. Mr Cerreto was present. According to Mr Cerreto there was a discussion about the need to demolish some benches and build new ones. That such a discussion took place is likely. I accept that Mr Cerreto agreed to the work being done. However, again I think it is unlikely that thereafter Mr Cerreto said that if the work was done the new benches would become his property and that Mr Gerace acquiesced in that. But whatever may have been said about new benches I do not accept that at that meeting, Mr Cerreto said to Mr Gerace "If one day you sell the shop, any buyer can negotiate separately with me for the use of those fittings."
24 Some days later another discussion took place between Mr Gerace and Mr Cerreto in which there was discussion about the name of the lessee. Mr Gerace says that he nominated a company AMO Pty Ltd; Mr Cerreto says that Mr Gerace suggested that the lease be in his own name subject to advice from an accountant. This difference is immaterial, although since the initial correspondence between Mr Gerace's solicitor (Mr Muriniti) and Mr Cerreto's solicitor (Mr Cheung) referred to the proposed lease as being a lease to AMO Pty Ltd, it is more likely that at the outset Mr Gerace had nominated the company as the lessee. I accept Mr Cerreto's evidence, however, that either then or soon after he, Mr Cerreto, advised Mr Gerace that a guarantee of the lessee's obligations under the lease would be required.
25 Mr Cerreto gave permission to Mr Gerace to start work on fitting out the shop before the solicitors had prepared the lease documents.
26 Some time in March 1997, Mr Gerace approached Mr Musumeci for financial assistance to "kick-start" the fruit and vegetable business in Cox Road, North Ryde. He told Mr Musumeci that he needed approximately $50,000 by way of a loan at interest. Mr Musumeci indicated that he would need some security. Mr Gerace referred to the fact that at that time he already owed Mr Musumeci a lot of money. The amount turned out to be $85,000. The preceding advances were, it must be said, unsecured. According to Mr Gerace he said to Mr Musumeci that if Mr Musumeci helped, Mr Gerace would pay him not only the money that he already owed but also the additional money to be lent for the new business. Mr Gerace apparently offered by way of security "all the plant and equipment in the shop". The money was, so Mr Gerace's affidavit says, needed to buy cash registers and scales, to rewire the shop, make counters and to buy stock.
27 Mr Gerace's affidavit deposes that when Mr Musumeci asked about the coolroom Mr Gerace responded by saying that the landlord had given him the coolroom, the fixtures and fittings in the shop because the previous owner had left them there when he left. That significant part of the conversation, if it occurred, was not repeated by Mr Musumeci in his evidence. Nor is there anything in Mr Gerace's evidence leading up to this first conversation with Mr Musumeci which suggests that there had been any conversation prior to Mr Gerace meeting Mr Musumeci which had taken place between Mr Cerreto and Mr Gerace in which Mr Cerreto said that he would give Mr Gerace any fixtures or fittings at all. While something may well have been said about the coolroom and fixtures it is unlikely that Mr Gerace said what the affidavit narrates, if only because the real facts were that these items had been owned by Alramon and leased by that company to the previous tenant. As that tenant was obliged to do under the lease he or it certainly left the items, or at least the majority of them on the premises when possession was vacated.
28 I also doubt that Mr Gerace said to Mr Musumeci as Mr Gerace deposes that he owned the fixtures and fittings so that these items could be given as security. Again Mr Musumeci does not in his evidence suggest that Mr Gerace did say this. I think it is more likely that when Mr Musumeci asked about security Mr Gerace did say that the only security he could offer was plant and equipment but that no discussion took place then about the items that would be offered as security or for that matter the ownership of them. No doubt it was implicit in that conversation that Mr Gerace was the owner of the plant and equipment. Mr Musumeci by then was aware that Mr Gerace was purchasing some fixtures and fittings and constructing or reconstructing others.
29 The conversation concluded with Mr Musumeci saying that he would speak to his lawyers and get back to Mr Gerace.
30 Either the same day or the next day Mr Musumeci called Mr Freeman a partner in the firm Blessington Judd. Mr Musumeci told Mr Freeman that he was thinking of lending some money on the security of plant and equipment in the borrower's fruit shop. According to Mr Musumeci he told Mr Freeman that he did not want to lend Mr Gerace any more than the $85,000 already owing until the "documentation" was right. According to Mr Freeman, whose evidence I accept to the extent there is any conflict with Mr Musumeci, the latter said after noting that he planned on lending Mr Gerace a further $50,000 that he, Mr Musumeci thought that the only way Mr Gerace was likely to have any prospect of repaying the $85,000 already owned was for Mr Musumeci to lend Mr Gerace $50,000 so that he could set up and equip a fruit shop business and repay the money over time. Mr Musumeci gave Mr Freeman details of the borrower, the shop and the owner of the shop. Mr Freeman noted that his firm through another office at Chatswood also acted for Mr Cerreto. As security for the additional advance there was to be a mortgage over the lease, a charge over the company and a personal guarantee.
31 Also in March 1997 Mr Cerreto contacted Mr Cheung was at the Chatswood office of Blessington Judd and instructed him to prepare a lease of Shop 8 to a company owned by Mr Gerace. The company was at some time thereafter nominated as AMO Pty Ltd.
32 According to Mr Cheung's affidavit evidence (and, as I have already noted, I accept Mr Cheung's evidence as being truthful so far as his memory permitted) during the course of a telephone conversation with Mr Cerreto to obtain instructions Mr Cerreto said to Mr Cheung words to the effect:
"It is part of my deal with Gerace is [sic] that I will give him the fixtures and fittings so that he can operate the shop".
Mr Cheung responded:
"Why are you giving him such a good deal?"
Mr Cerreto replied, so Mr Cheung says, in words to the following effect:
"While Gerace has no money, he knows the fruit business. He'll be able to turn it around. Plus, I'm getting good rent."
33 This evidence is critical to the Fresh Express case. It is said to prove that Mr Cerreto, acting for Alramon had transferred, or agreed to transfer the relevant fixtures and fittings to Mr Gerace, or his company and so as to permit the company to charge them to Fresh Express as security. It is clear enough that Mr Cheung understood that this was what Mr Cerreto was instructing him. Mr Cheung rejected a suggestion that Mr Cerreto in this conversation had said that he was giving Mr Gerace the fittings and fixtures to use in connection with the fruit shop which was proposed to be leased to Mr Gerace's company. On the other hand Mr Cerreto denies that he said any words to the effect that he had given Mr Gerace the fittings and fixtures. Rather he said that his instructions were that he was giving Mr Gerace the fixtures and fittings to use in the proposed fruit shop because Mr Gerace had no money to buy fixtures.
34 Mr Cerreto did not recall Mr Cheung saying that Mr Cerreto was giving Mr Gerace a good deal, but that if he did, this would probably have been in connection with the rental holiday. Further, he denied that the rent that was to be paid was a good rent. Rather he pointed out that it was less money than he had been getting from previous tenants. It may be noted here there is no evidence one way or another whether the rent which Mr Gerace agreed to pay to Mr Cerreto, taking account of the rent free holiday, was other than a normal commercial rent.
35 Mr Cheung made no note of this conversation, although he agreed in cross-examination that it would have been incumbent upon him to have done so and to have obtained details, such as whether the transfer of fittings was by way of sale or otherwise.
36 I have had the opportunity of seeing both Mr Cheung and Mr Cerreto in the witness box. Mr Cerreto's English is, it must be said, poor. Indeed, Mr Cheung noted that he often received his instructions from Mr Cerreto's son rather than from Mr Cerreto and I would think it was likely that this came about precisely because Mr Cerreto's English was not good. In cross-examination Mr Cerreto acknowledged that he had looked at the lease document to Toutounji (a former tenant) but that there were a lot of words in it that he did not understand. He said he looked at the conditions and summary of lease particulars. I do not find it at all surprising that Mr Cerreto would not understand in detail the language used in a commercial lease, although I have no doubt that by looking at the conditions and summary he would understand whether the lease was generally in accordance with his instructions. I doubt that he would understand the difference between the lease to Toutounji which gave the right to use lessor's fixtures and the lease to Mr Gerace's company which was silent on the matter, although I accept that Mr Cerreto was aware of the fact that the lease was silent on the question of ownership of the fittings and fixtures. On the other hand I have some doubt whether Mr Cerreto contemplated that the question of ownership of fittings and fixtures would be sorted out at a later time as he said in his oral evidence.
37 Ultimately the question for me is whether it is more probable than not that Mr Cerreto intended to convey to Mr Cheung that he had agreed to transfer (or had transferred before the lease was entered into) the fittings and fixtures left on the premises by the previous tenant and which were owned by Alramon to Larridren. Despite my acceptance of Mr Cheung's evidence I do not think that this is what Mr Cerreto intended to convey, even if, as I accept, this is what Mr Cheung believed was said to him. I reach this conclusion for a number of reasons. First there is nothing at all in Mr Gerace's evidence that suggests that Mr Cerreto ever offered or agreed to transfer title in the fixtures and fittings to Mr Gerace's company. If indeed Mr Cerreto had agreed to do so it might be expected that Mr Gerace would give evidence about exactly what Mr Cerreto had said. Secondly, it would seem to be strange to say the least that a landlord would give away fixtures which on Mr Musumeci's evidence were worth $60,000 and which, in Mr Cerreto's assessment were worth $80,000. This is particularly so when one considers that if, for some reason there was default in the lease or otherwise it came to an end the landlord would not be able to deal with a new tenant on a going concern basis, that is to say, by offering a new tenant use of a coolroom and other equipment obviously necessary for the operation of a fruit and vegetable retail business. Rather I think that in the conversation to which reference has been made Mr Cerreto, when using a word such as "give" intended to convey no more than that the fittings and fixtures would be available to the tenant for use. Given the poverty of Mr Cerreto's English it would not be surprising that he and Mr Cheung thereafter were at cross purposes when Mr Cheung pointed out that Mr Gerace had been given a good deal.
38 In or about early May Mr Freeman rang Mr Musumeci and told him that it was necessary that he provide a list of the plant, fixtures and equipment over which there was to be a charge to secure the new loan. Mr Musumeci phoned Mr Gerace and asked him for the list. Mr Gerace told Mr Musumeci that he would get his solicitor to give the list to Mr Musumeci's solicitor. By the time Mr Freeman spoke to Mr Gerace's solicitor on the matter the lessee of the business had become Larridren.
39 When Mr Freeman received the list of plant and equipment he called Mr Musumeci and told him that he would start to prepare the documentation.
40 A few days later Mr Musumeci visited Mr Gerace at the shop premises. According to Mr Musumeci's affidavit evidence while there he received a phone call from Mr Freeman. This phone call and related calls are critical to the Fresh Express case. It is the content of these calls to the extent they involved him which Mr Freeman denies. According to Mr Musumeci the conversation proceeded as follows:
"Mr Freeman: Andrew, my Chatswood office has informed me that Sam Cerreto is not happy with the proposal of you taking security over the fixtures, fittings, plant and equipment.
[Mr Musumeci]: What do you mean?
Mr Freeman: He's advised our office that all the equipment, fixtures and fittings belong to him and not to Tony Gerace."
41 Mr Musumeci then says that the conversation was interrupted and he spoke to Mr Gerace along the following lines:
"[Mr Musumeci]: Sam Cerreto is not prepared to sign the documents because he believes that the equipment, fixtures and fittings are his.
Mr Gerace: Well that's not true because I have agreed with Mr Cerreto that the equipment, fixtures and fittings are mine.
[Mr Musumeci ]: Well, what are we going to do?
Mr Gerace: Just tell Steve to put the phone down and I'll call Cheung, and I'll explain the whole thing to him."
42 According to Mr Musumeci, Mr Musumeci then spoke to Mr Freeman and told him that Mr Gerace was going to call Mr Cheung and that Mr Cheung would explain things to Mr Freeman.
43 According to Mr Musumeci Mr Gerace then rang Mr Cheung and said:
"Mr Cheung, it's Tony Gerace here, in relation to Cox Road, North Ryde. I was just advised by Mr Musumeci who was advised by his solicitor, Mr Freeman, that Sam Cerreto is not prepared to sign the documents that have been sent to him because of the security that I'm providing to Andrew in relation to the fixtures, fittings and equipment. Let me explain to you that when I originally discussed this business deal with Mr Cerreto, it was agreed that I would have the fixtures, fittings and equipment of the premises and that if I couldn't have these there was no way I could put this deal together. Could you please speak to your client and advise me as soon as possible."
44 Thereafter Mr Gerace spoke to Mr Cerreto by telephone and said (according to Mr Musumeci):
"Sam, this is Tony. I've just been on a call with your solicitor in relation to this security over the plant fixtures and fittings. Have you told th em that you're objecting for Andrew to take security over them? If you haven't, could you please tell your solicitor to advise Andrew's solicitor that there's no problems."
45 Later, according to Mr Musumeci Mr Cerreto called back to say that he had spoken to his solicitor. Following that call Mr Gerace told Mr Musumeci that Mr Cerreto had spoken with Mr Cheung and told him that everything was in order and that the signing of the documents would proceed. Mr Musumeci then says that he telephoned Mr Freeman and said:
"Steve, Tony has rung Cheung and told him that Cerreto agreed that the fixtures, plant and equipment were his and could be given to me as security. He then called Sam who agreed with this and Tony tells me that Sam has confirmed this with Cheung."
46 A week or so later Mr Freeman called Mr Musumeci and asked him to come into the city to execute the deed of charge, guarantee, mortgage of lease and deed of consent.
47 As already noted Mr Freeman denied that any of these conversations, so far as they were said to involve him, occurred. So far as Mr Freeman's evidence is concerned it would seem that he was never told by Mr Musumeci or anyone else about the arrangement which was said to exist between Mr Cerreto and Mr Gerace regarding the fittings and fixtures. Indeed, had he been made aware of it one might think that he would had felt the need to document the transaction in some way so as to ensure that the charge over fixtures was validly over fixtures which Larridren had power to charge to secure the Fresh Express debt. The fact that he did not do so rather suggests that he was unaware of any arrangements that might exist between Mr Cerreto, Mr Gerace and Fresh Expess.
48 Mr Gerace's evidence, on the other hand, is somewhat corroborative of the evidence of Mr Musumeci. He says that Mr Cerreto called him when he learned that Mr Musumeci was to take a charge over the plant and fittings and complained that the equipment had been given to Mr Gerace not to pass on to someone else. The conversation is denied by Mr Cerreto. Mr Cerreto is said by Mr Gerace to have said that he understood that Mr Musumeci was taking a charge over the plant, fixtures and fittings of the shop. According to Mr Gerace he said to Mr Cerreto:
"The fittings are mine, what the hell has that got to do with you?"
Mr Cerreto is then said to have replied: "I gave you the equipment, not to pass it on to someone else."
Mr Gerace then says that he said: "The only way I can borrow any money is to offer someone security and the only security I have is fixtures and fittings."
Mr Cerreto is then said to have said: "Ok. That's fine."
49 Mr Gerace's affidavit then continues by referring to the visit by Mr Musumeci to the shop and the phone call from Mr Freeman. According to Mr Gerace the following conversation then occurred:
"Musumeci: Tony, I have Stephen Freeman on the phone. He's telling me that his Chatswood office has told him that the Landlord isn't happy with your proposal that I have security over the fixtures, fittings, plant and equipment.
[Mr Gerace]: That's not true because I've had this conversation with Sam (Cerreto) a few days ago and he said it was alright.
Musumeci: Stephen is telling me that Sam's [sic] not in ageement with you about the security."
[Mr Gerace]: That's not true.
Musumeci: Well, Sam is not prepared to sign any documents.
[Mr Gerace]: That's not true at all.
Musumeci: Well, what are we going to do about this?
[Mr Gerace]: Can you tell your solicitor to wait for a few minutes, I'll call Sam's lawyer and explain the whole thing to him.
Musumeci: Alright [sic]"
50 According to Mr Gerace he then rang Mr Cheung complaining that Mr Cerreto was not prepared to sign over the fixtures, fittings, plant and equipment so that they could be security for the loan to Mr Musumeci. Mr Cheung is said by Mr Gerace to have said that this was correct. Thereupon Mr Gerace claims to have said to Mr Cheung:
"When I originally met Sam we agreed that the only way I would be in a position to take Cox Road was for him to give me the fixtures, fittings, plant and equipment in the shop. A few days ago I had a call from Sam in relation to the security that Andrew is taking and as far as I understand we had an agreement, because without that agreement I can't take this shop. Could you kindly speak to Sam and call me back so that we can fix this problem straight away."
According to Mr Gerace Mr Cheung then agreed that he would seek instructions.
51 Mr Gerace then says that he spoke to Mr Cerreto and told him that he had spoken to Mr Cheung. He says that he told Mr Cerreto that he had told Mr Cheung that Mr Cerreto had agreed for Mr Musumeci to take security over the fixtures, fittings, plant and equipment and asked Mr Cerreto to ring Mr Cheung straight away. Mr Cerreto is said to have agreed. Later Mr Musumeci told Mr Gerace that he had spoken to Mr Freeman and that everything was all right.
52 However, it is important to note that Mr Cheung denied that any conversation along these lines to which he was a party had taken place.
53 As I have already noted there is no account in Mr Gerace's evidence of conversations that would necessarily have had to take place between Mr Gerace and Mr Cerreto to lead to title in the fittings and fixtures passing to Larridren. To be fair to Mr Gerace, however, his affidavit suggests that in discussing with Mr Musumeci the possibility of Fresh Express advancing further money he did say that the landlord had given him the coolroom, the fixtures and fittings in the shop because the previous owner had left them there when he left, thereby at least suggesting that something must have taken place. There is a problem of course about this because it would seem that the fixtures, or at least most of them were landlord's fixtures in the previous lease, that is to say they had not just been left on the premises by the tenant, they were required to be left on the premises by the lease itself.
54 I should note that the applicant sought to rely on the differences between Mr Cerreto's lease with his former tenant, Mr Toutounji, and the lease with Larridren to suggest that the fixtures and fittings in the shop had, in fact, been given to Mr Gerace by Mr Cerreto. The two leases that Mr Cerreto agreed with Mr Toutonji contained the following clause:
"7.19 The Lessor warrants that the items in the demised premises and listed in Annexure 'A' are the unencumbered property of the Lessor, and apart from the small coolroom [sic] listed on page 2 of the list which must be returned to the Lessor within 48 hours of the Lessor's demand, the rest are for the Lessee's exclusive use during the currency of the lease. The Lessee acknowledges that they are all in good and proper working condition, in a clean and well-maintained state and undamaged as at the date of the commencement of this lease. The Lessee shall be responsible, at the cost of the Lessee, to keep and maintain the said fixtures, fittings, plant machinery and equipment in a clean, well maintained [sic] state and in a good and proper working condition and on expiration or sooner determination of the lease, to return them to the Lessor in the state that they were at the time of commencement of the lease, fair ware and tear excepted."
This clause was missing from the Larridren lease. It was also noted that the Disclosure Statement in the Larridren lease said that no fixtures and fittings were provided by the Lessor under the lease. The applicant submitted that differences between the two leases should be taken as evidence that Mr Cerreto intended that the agreements between the parties would be different as he had given title over the fixtures and fittings to Mr Gerace. For the reasons set out in paragraph 36 above I do not think that the difference between the two lease can be said to evince a change in Mr Cerreto's understanding of the ownership of the fixtures and fittings in the shop. It is more likely that the difference between the two leases is merely an expression of Mr Cheung's misapprehension as to the arrangement intended to be reached between his client and Larridren.
55 There is a real difficulty about accepting the evidence (particularly when it is denied by Mr Cerreto) that suggests that Mr Cerreto would give away the fittings and fixtures. One might ask, not unreasonably, why would Mr Cerreto do that? Despite a submission by senior counsel for Fresh Express there is nothing in the evidence to suggest that the rent which Mr Gerace's company was to pay was so specially high that a landlord would make such an extraordinary gift to a tenant. Nor is it suggested that at this time, at least, Mr Musumeci was to provide a guarantee of the lease. The only name suggested as a guarantor at that time was Mr Gerace's girlfriend or fiancée, Laura Scullion. While I can understand that Mr Cerreto might well have agreed to facilitate a borrowing by Mr Gerace to enable fit out work to be undertaken where that might work to the benefit of the freehold in an amount worth at least that of the fixtures over which security was to be given, that does not seem to be the case here. Indeed, it seems here that the fittings and fixtures to be made available to Fresh Express as security (or at least as the Fresh Express case would have it based on the estimation of Mr Musumeci) were worth between $60,000 and $80,000, whereas the money to be advanced by Fresh Express under the additional loan was no more than $50,000.
56 Further, I think that it is more probable than not that Mr Musumeci understood that Mr Gerace was doing fit out work involving new counters etc and that any reference to a mortgage or charge over fittings and fixtures in conversations between them, was really a reference to the fittings and fixtures which Mr Gerace was having built and not fixtures or fittings that belonged to Alramon.
57 On 13 May or thereabouts, Mr Musumeci spoke by phone with Mr Freeman. As a result Mr Freeman acting for Fresh Express wrote to his partner Mr Cheung acting for Mr Cerreto. Mr Freeman advised that Fresh Express had agreed to advance certain moneys to Larridren and that as security for the money it required a mortgage over the lease that was to be granted by Alramon to Larridren. Enclosed with that letter was a draft agreement to grant a mortgage over the lease. No reference at all is made in the letter to any mortgage or charge over fittings and fixtures which were owned by Alramon and which were to be transferred to Larridren. This merely reinforces the view I take that at least to that stage there had been no suggestion that there was to be a transfer of ownership by Alramon of the fittings and fixtures which it owned and which were physically on the premises of the Cox Road shop.
58 On the same day Mr Freeman wrote to Mr Gerace's solicitor, Mr Muriniti. The letter encloses a draft deed of charge of fixtures as well as the draft mortgage. Mr Freeman requested Mr Muriniti to insert in the deed of charge a schedule of the assets to be charged with appropriate serial numbers. The letter says that Mr Freeman had advised Mr Musumeci not to proceed with the making of any part of the advance until both the deed of charge and mortgage were registered.
59 In fact it would seem that Mr Musumeci ignored the advice, or alternatively had already advanced monies before receiving Mr Freeman's advice. Notwithstanding that Mr Musumeci gave oral evidence that he would not have made the advance of $50,000 which he had otherwise agreed to make to Mr Gerace unless there was in place a mortgage over the fittings and fixtures of the Cox Road shop formerly owned by Alramon and transferred to Larridren this evidence was clearly not true. There was tendered in evidence bank records which showed that on 13 May there was cleared through the bank account of Fresh Express with Westpac a cheque for $15,000 which it is now admitted was a part of the additional advance of $50,000 which Mr Musumeci had agreed to make and which was made out in favour of Larridren. In other words before the security said to be a prerequisite to the making of any additional advance to Larridren had been signed and registered Fresh Express had already advanced more than one quarter of the additional amount it had agreed to advance. Indeed, it would seem that the $15,000 advance was made before Mr Musumeci even knew precisely what the fittings and fixtures were over which he was to get security.
60 While on the subject of the dates on which cheques were drawn in favour of Larridren for the additional $50,000 advance it may be said that the evidence was quite unsatisfactory. The company's ledger showed advances to Larridren as having been made on 16 May, although it is conceded this was not correct. It seems that cheque butts may not have been dated. Certainly the only cheque butt available, that for the cheque of $15,000 had no date on it. Of it, all that could be said is that it was drawn no later than 13 May 1997. Since it was an ordinary cheque it is quite likely that the cheque was dated earlier than the date on which it was cleared through the company's bank account. But whether it was the case that all cheque butts were undated, Fresh Express was unable to produce any cheque butts or bank statements indicating either when cheques were drawn or cleared through the company's bank. They apparently could not be located. And despite Mr Musumeci deposing in his affidavit to the effect that one cheque for $50,000 had been drawn in favour of Larridren after the security had been put in place it is clear that there was more than one cheque drawn and quite unclear when any subsequent cheque was drawn.
61 Another unsatisfactory part of this evidence is that the initial statement of claim asserted that the original loan to Mr Gerace was $80,000, whereas later in evidence the amount was said to be $85,000. The ledger which shows the loan suggests that there was one loan amount of $84,850.76. However, the suggestion that there was only one advance is clearly incorrect. The evidence now suggests that the amount, whatever it was, was advanced over a period of some 18 months in some at least of which time Mr Gerace was employed by Sibmeld which, it will be recalled, was a company in which Mr Gerace was personally interested. The bookkeeper for Fresh Express, Carmen Attard, gave evidence that the loan was made in 3 parts either to Mr Gerace directly through a company (affiliated with Fresh Express) called Nature Knows Best or to a company called Suprem which was a Melbourne business owned by Mr Gerace.
62 On 13 May 1997 Mr Muriniti faxed to Mr Freeman a list of the fixtures. The list reads as follows:
"(1) 3 Registers and Tec Scales Computerised.
(2) 1 Automatic SL 5700 Scale
(3) 4 Clock Scales
(4) 1 Pallet Jack
(5) 1 Net Machine
(6) 1 Forklift
(7) 1 Coolroom
(8) 30 Trolleys
(9) All counters and shelves in the shop
(10) Racks in the storeroom
(11) All stock from time to time."
The list is similar to the schedule of fittings and fixtures which was contained in the lease from Alramon to Toutounji, the previous tenant who had operated the Cox Road fruit shop and who had vacated the premises around March 1997, giving rise to the arrangement being negotiated of a lease of those premises from Alramon to Larridren. However the number and nature of some items is different.
63 Mr Cheung had prepared a draft of the proposed lease in March 1997 which he had forwarded both to Mr Muriniti acting for Mr Gerace and to Mr Cerreto. On 13 May 1997 (or according to Mr Freeman on 8 May - nothing really turns on the date) Mr Freeman spoke to Mr Cheung by telephone and announced that he was acting for Fresh Express and that that company had agreed to advance money to Larridren, the company which was to be the lessee of the shop premises. The telephone conversation was confirmed by a facsimile from Mr Freeman to Mr Cheung enclosing in draft a Deed of Consent to a mortgage over the lease. Mr Cheung rang Mr Cerreto that day and advised him of the conversation and of the possibility of a conflict of interest as he and Mr Freeman were partners. Mr Cerreto did not have a problem about the potential conflict. It seems on the same day that Mr Cheung explained to Mr Cerreto the effect of the Deed of Consent to the mortgage of the lease. Mr Cheung advised Mr Cerreto that he should require a guarantee of the lessee's obligations under the lease from Fresh Express in the event that there should be a default by Mr Gerace's company.
64 On 14 May Mr Cheung wrote to Mr Cerreto saying that he saw no reason to object to the mortgage of the lease. Nor did he see any reason for objecting to the request to consent to it. He wrote: "I do not see the ground for objecting, particularly when you want the present lessee whom you know to take up the lease." Certainly the letter enables one to find that Mr Cerreto was keen to have Mr Gerace's company as tenant. But it does not follow from this that Mr Cerreto was so keen as to give away the fittings and fixtures (including the built in coolroom) to that company.
65 There was thereafter further correspondence passing between Mr Cheung and Mr Freeman and Mr Cheung and Mr Cerreto. It may be noted that the lease particulars which Mr Cheung prepared contained no reference to fixtures and fittings and that on 19 May Mr Cheung told Mr Freeman that a guarantee from Fresh Express was required.
66 It was not until 28 May 1997 that Mr Cheung received from Mr Muriniti the lease documents executed by Larridren and Mr Gerace and not until 30 May 1997 that the lease and Deed of Consent were signed by Alramon. The Deed of Consent appears not to have been signed by the parties other than Alramon until sometime around 2 June 1997.
67 Although the documentation had not been completed it would seem that Larridren commenced trading approximately a week before the end of May 1997. The lease showed a commencement date of 22 March 1997 with the rent free period continuing until May of that year.
68 From an early date it must have been clear that Larridren had financial difficulties. On 27 May 1997 Mr Muriniti told Mr Cheung that Larridren would have difficulty in making the payment of $4,345.24 for the June rent, the first rental payable under the lease. In fact this amount was paid out of the money which Fresh Express advanced.
69 It seems that around August 1997 Larridren defaulted in repaying amounts it owed Fresh Express. Certainly this was what was alleged by Fresh Express and it does not seem to have been denied by Mr Gerace. The evidence does not make it clear when the monies were repayable, although Mr Freeman's instructions from Mr Musumeci were that the $50,000 was to be repaid in December and the $85,000 was to be repaid in April 1998. In any event on 2 September 1997 Mr Musumeci instructed Mr Freeman to give Mr Gerace a 14 day notice of demand. It seems that the demand was effectively ignored. On 23 September Mr Freeman was instructed by Mr Musumeci that there was a default and notified Mr Cheung of the default and that Fresh Express was going to take over the lease.
70 On some date in September 1997 Mr Gerace, it seems, left a message on Mr Cerreto's answering machine saying that he was leaving the business and was giving the keys to Mr Musumeci who was to take over the shop the next morning.
71 Mr Cheung advised Mr Cerreto of the intention of Fresh Express to take over the lease. On instructions Mr Cheung wrote on 24 September 1997 to Mr Freeman thanking him for the advice and indicating that he was instructed that the following chattels belonged to Alramon, viz:
"a. Steel frame timber benches located around the walls
b. Mirrors
c. Three check out counters
d. Fork lift
e. Cool room and
f. Wrapping machine."
The emphasis on instructions probably reflects the understanding Mr Cheung had that the fixtures had been transferred to Larridren.
72 By 30 September 1997 Mr Freeman had notified Mr Cheung that Fresh Express had taken possession of the premises. It appears that there had been difficulty in registering the lease and mortgage of the lease as a result of there being a mortgage on the title of the premises. Mr Freeman suggested that rather than that Fresh Express take over the existing lease a new lease be granted to Fresh Express in identical terms to overcome concerns about registration of the lease and mortgage of lease. Mr Cerreto advised Mr Cheung that he had no objection to this course. Mr Cheung conveyed this to Mr Freeman in a letter dated 30 September 1997. The penultimate paragraph of the letter reads:
"And as regards our letter of 24 September 1997, Alramon Pty Ltd maintains that the chattels belong to Alramon Pty Ltd."
73 Nothing appears to have happened then until 6 November 1997 when Mr Cheung wrote to Mr Freeman asking whether Fresh Express had given Mr Freeman any further instructions. On 18 November Mr Cheung wrote to Alramon advising that Fresh Express was to take up a new lease for the balance of the original term and on the same terms and conditions. He enclosed a disclosure statement for the information of Alramon. The disclosure statement notes that the lessee was to pay for all fittings, fixtures, etc required by the lessee for the business and that no fixtures etc were to be provided by the lessor.
74 That evening Mr Cerreto faxed Mr Cheung a list of fittings and fixtures which, presumably Alramon claimed to be its property. It seems that Mr Cerreto had before sending the facsimile told Mr Cheung that he wanted an acknowledgment of ownership of these items in the disclosure statement. The list was as follows:
"* 3 check out benches
- Rheem hot water service
- CROWN pallet jack, Model number: GYSS5-NT
- LARGE COOLROOM Including: Motor Serial number 152770
Model Number F35170A
- Office
- 1 Rapping [sic] Machine: COLLAR electric: Serial Number 2911
- 2 Double Shelfing [sic] Benches all around the walls of the shop including mirrors
- Datsun Fork lift vehicle - Model Number FG 103
Capacity - 1300kg
Engine Model D-11
- 1 Boral gas bottle."
Otherwise Mr Cerreto had no difficulty with the disclosure statement.
75 On 19 November Mr Cheung sent an amended disclosure statement to Mr Freeman with the request that it be signed by Mr Musumeci as guarantor and Fresh Express as lessee. The amended statement contained an acknowledgement to be given by Fresh Express that the fittings enumerated in the previous paragraph were fixtures of the lessor. There was another change concerning a bank guarantee requirement which is not presently relevant.
76 There was some cross-examination directed at why Mr Cerreto had in September or November, and apparently for the first time, raised with his solicitor and with Mr Musumeci the question of the role of fixtures in the lease. Mr Cerreto said that as between Mr Gerace and him they both had understood which fixtures belonged to Mr Cerreto, albeit that they had never got around to put it down in writing. Mr Cerreto said that he had been careful to put down in the list only those items that were clearly the property of Alramon. It may be noted that the list in the letter of November 1997 differed from the list in the letter of 24 September 1997. The discrepancy was, Mr Cerreto said, merely an oversight. Mr Cerreto was vague as to whether he had read with care the correspondence as it emanated from Mr Cheung.
77 On the whole I would accept Mr Cerreto's explanation. The correspondence in question is really the first time that Mr Cerreto had to face the real prospect of having Fresh Express as a tenant. If one accepts, as I do, that as between Mr Cerreto and Mr Gerace there had been no suggestion that the fittings and fixtures were to be transferred to Mr Gerace but that, subject to any new items, whether they were cash registers or fork life truck or otherwise which Mr Gerace may have acquired in commencing the business of Larridren they were the property of Alramon, on the premises and ready for use in the retail store it would not be surprising that Mr Cerreto would want to have the position as to fixtures made clear as between himself and Mr Musumeci, particularly when it would have been obvious that Mr Musumeci would not want to operate the shop himself but more likely would be seeking another operator of the shop at least in the future. That is a more likely explanation for Mr Cerreto raising the question of the fittings and fixtures than the explanation which senior counsel for Fresh Express urged upon me, namely that for reasons which are hard to explain Mr Cerreto deliberately and falsely asserted for the first time that he had title to the items, despite having transferred that title to Larridren beforehand.
78 It is appropriate at this stage to note that in the time Larridren had occupied the shop it had erected new signage, constructed three new counters at the front of the shop, two very large counters in the middle of the shop, constructed decking under the counters in the shop, purchased three cash registers and brought five scales into the shop. Mr Cerreto did not seek to assert ownership of most, at least, of these items.
79 It is clear that Mr Cerreto required terms in the proposed new lease to Fresh Express that were different from those in the lease to Larridren. A bank guarantee of rent was proposed where previously there had been none. Title to the fixtures and fittings enumerated was to be acknowledged. When no agreement as to the terms of the new lease was forthcoming Mr Cerreto instructed his solicitors to threaten Fresh Express with termination of the existing lease. On 1 December 1997 Blessington Judd attempted to serve upon Mr Musumeci a notice terminating the lease. By this time, however, it was clear to both Mr Freeman and to Mr Cheung that they could no longer continue to act for Mr Musumeci and Mr Cerreto at the same time.
80 On 21 January 1998 McCabes, by then the new solicitors for Mr Musumeci and Fresh Express wrote to Alramon (it seems that at that time Mr Cerreto had not yet instructed a new solicitor) asserting that the notice of termination was invalid. The letter referred to the draft of a new lease and indicated that with the exception of the item relating to fixtures and fittings Fresh Express agreed to all terms in the Disclosure Statement. As to the fixtures and fittings the letter said:
"It is our clients' position that the following fixtures are the assets of Larridren Pty Limited as a result of a specific agreement between Larridren Pty Limited and Alramon Pty Limited when entering the initial lease.
The list of equipment
Three checkout benches;
Rheem Hotwater service;
Crown pallet jack model number GYSS5-NT;
Large Coolroom motor, serial number 152770 model number F35170A;
One wrapping machine collar electric serial number 2911;
Two double shelfing [sic] benches all round the walls of the shop including mirrors;
One Datsum forklift vehicle, model number FG103 capacity 1300 kilos engine number D-11;
One Boral Gas Bottle."
Again it may be noted that this claim of ownership did not seek to cover most, at least, of the items acquired by Larridren after it commenced to fit out the shop.
81 The letter requested Alramon to confirm that these items in fact formed part of the equipment owned by the Tenant. On 9 February, when there was no reply McCabes followed up the letter requesting a reply as a matter of urgency. When no written reply was received McCabes wrote again on 4 March 1998. It seems that in between the last two letters there was a telephone conversation in which Mr Cerreto denied that the fittings and fixtures listed belonged to Mr Gerace. Mr Cerreto made it clear that he was not prepared to enter a lease unless Fresh Express accepted that Alramon owned the fixtures and fittings. As Mr Cerreto said in his oral evidence: "I wasn't prepared to give him the fixtures and fittings. That's what they wanted."
82 By 24 July 1998 Fresh Express, which by then had changed solicitors, threatened legal proceedings. The nature of the threatened proceedings was not mentioned.
83 From the time Fresh Express took possession of the business until 30 April 2000 Fresh Express carried on the fruit and vegetable business, employing a manager to run it. Details of the business results are dealt with hereafter under the heading of Damages. On or about 1 May Fresh Express vacated the premises. They remained vacant thereafter until the middle of February 2001.
84 According to Mr Cerreto Fresh Express left the premises in a messy condition which took between three or four days and two weeks to clean up. There were, he said, rats, cockroaches rubbish and dirt to be removed, windows to be cleaned and the premises required painting. The roller door in the premises was damaged and had to be fixed and there was some repair work to benches, trolleys and the like. The painting was not done until July/August 2000, the window cleaning on 20 May 2000, the repairs for benches were only completed by the end of July 2000.
85 Between the end of July and December 2000 Mr Cerreto endeavoured to lease the shop. He said that he advertised it for lease in the Sydney Morning Herald three times (each at a cost of $150 per advertisement) and left a large sign in the window of the shop indicating that it was for lease. There were some 40 inquiries from prospective tenants in response to the advertisements. No tenant was, however, forthcoming. The premises were still vacant in September 2000 when Mr Cerreto swore an affidavit dealing with the damages claimed to be suffered by Alramon in its cross-claim. Mr Cerreto said in that affidavit that he then intended to open the premises and trade from it himself as a fruit and vegetable market from 1 December 2000. At the time of hearing Alramon had gone into possession (probably in February 2001) and had operated the shop for some time, but had then vacated the premises to allow some building work to be carried out.
86 According to Mr Cerreto's evidence the majority of prospective tenants with whom he spoke were insisting upon rent free periods. Some wanted up to twelve months. Mr Cerreto was not in favour of rent free periods, he said, save that he had agreed to give Mr Gerace a three month rent free period. Some tenants were not "bona fide" by which Mr Cerreto meant that they had no experience in fruit and vegetables or did not speak English fluently.