Fresh Express Pty Limited v Cerreto

Persons Involved 5 The persons mainly involved were: Fresh Express Andrew Musumeci its Director Stephen Freeman of Blessington Judd (Sydney City) its solicitor Alramon Salvatore (Sam) Cerreto its Director Rutland Cheung of Blessington Judd (Chatswood) its solicitor Larridren Anthony (Tony) Gerace its Director L C Muritini its solicitor George Toutounji - previous tenant of the shop 6 Mr Gerace swore an affidavit which was read at the trial but he unfortunately died before any cross-examination.

The Toutounji lease 7 By a lease dated 17 October 1994 Alramon leased the shop to Mr Toutounji for a term of one year from the date of execution with options to renew for two further terms of three years each. 8 By cl 7.19 the lessor warranted that the items in the demised premises listed in annexure A were the unencumbered property of the lessor and, apart from a small cool room which was to be returned to the lessor within 48 hours of the lessor's demand, were for the lessee's exclusive use during the currency of the lease. Annexure A set out various fixtures and fittings including tills, checkout benches, scales, telephones, a hot water service, a pallet jack, a large cool room, mirrors and a public address system. The lease was prepared by Mr Cheung on behalf of Alramon. 9 The business of Mr Toutounji at the shop was not successful. In about March 1997 he vacated the premises and his lease was terminated.

Initial Gerace/Cerreto conversations 10 Mr Cerreto advertised another shop for lease and Mr Gerace responded. Mr Gerace had some thirty years experience in retail fruit and vegetable outlets. He had dealt with Fresh Express which was a fruit wholesaler. Mr Cerreto knew of Mr Gerace from the Flemington Fruit and Produce Markets, although they had not been formally introduced. When Mr Gerace telephoned Mr Cerreto the latter told him that he had a bigger and better shop in Cox Road. 11 Shortly afterwards a meeting took place at Mr Gerace's home. After offer and counter-offer as to rental a figure of $1,000 per week, with a rent-free holiday of three months and an agreed increase after a year, was agreed. According to Mr Gerace, he asked: "Do I have to spend any money on fitting out the shop?" Mr Cerreto replied: "No. I already have all the fixtures and fittings in the shop for you. You just have to pay me the rent and outgoings." Mr Cerreto's version was that Mr Gerace said that he wanted to alter the fittings and he (Mr Cerreto) said that Mr Gerace could do so but that the fixtures and fittings "are always to remain the property of the lessor". His Honour thought that Mr Cerreto's version was an attempt to bolster his case and that it was more likely than not that nothing was said at that stage about ownership of the fittings and fixtures. 12 Much of the argument on the appeal turned on his Honour's findings as to what was said subsequently by Mr Cerreto, Mr Gerace and others. However, it needs to be remembered throughout that not only was there no direct evidence of the alleged transfer or agreement to transfer itself, but the evidence of the alleged parties to it was to the contrary. Mr Gerace's version merely has Mr Cerreto promising to make the fixtures and fittings available to him for the term of the lease without extra charge. Moreover, this was an issue on which Fresh Express bore the onus. Cerreto/Cheung conversations 13 Mr Cerreto had a number of conversations with his solicitor Mr Cheung about the lease. Mr Cheung deposed that about the time the Toutounji lease was terminated (early March 1997) Mr Cerreto instructed him to prepare a lease of the shop to a company controlled by Mr Gerace. 14 In the course of one of those conversations, according to Mr Cheung, Mr Cerreto said words to the following effect: "It is part of my deal with Gerace that I will give him the fixtures and fittings so that he can operate the shop". 15 Mr Cheung then said to Mr Cerreto "Why are you doing him such a good deal?" 16 Mr Cerreto said "While Gerace has no money, he knows the fruit business. He'll be able to turn it around. Plus I'm getting good rent". 17 In his affidavit Mr Cerreto agreed that he had such a conversation with Mr Cheung but with respect to that conversation "and on other occasions" he said words to the effect "I am giving Gerace the use of the fixtures and fittings so he can use them in the shop but I am to retain ownership of those items" He denied that he gave the explanation attributed to him by Mr Cheung but rather said: "Although Gerace has no money, he knows the fruit business and he will be able to build up the business and it will be good for the Centre" 18 His Honour regarded this as one of two sets of conversations on which the case of Fresh Express "substantially depend(ed)". His Honour accepted Mr Cheung's evidence, but did not accept that Mr Cerreto intended to convey that he had transferred or agreed to transfer the fixtures and fittings to Mr Gerace's company, even though Mr Cheung believed this to be the case. His Honour reached that conclusion for the following reasons: · Mr Gerace's affidavit did not assert such an agreement · It was unlikely that a landlord would give away fixtures and fittings worth, on Mr Musumeci's evidence, $60,000 and according to Mr Cerreto $80,000 · There was nothing to suggest that the rent (which had been bargained down from Mr Cerreto's asking figure) was so specially high that the landlord would make such an extraordinary gift to the tenant · If there was default under the lease the landlord would not be able to deal with a new tenant on a going concern basis · Given the "poverty of Mr Cerreto's English", it was likely that he meant "give" in the sense of making the fixtures and fittings available to the tenant; he and Mr Cheung were thereafter at cross purposes Correspondence Muriniti/Cheung 19 On 13 March 1997 Mr Muriniti wrote to Mr Cheung enclosing details of the proposed lease which had been sent by Mr Cerreto to Mr Gerace. Those details included against the item "Shop Fittings" the statement "All work to be carried out by Lessee". Mr Muritini noted that his client was "most anxious to enter into occupation without delay" and requested a draft lease. 20 Mr Cheung replied on 14 March enclosing a draft agreement for lease. Gerace/Musumeci conversations - arrangements for finance 21 Before Mr Gerace received the lease documents he received permission from Mr Cerreto to start working on the shop. He started looking for new scales and cash registers and for quotations for rewiring, painting and fitout of new counters, including three cash register checkouts. 22 Mr Gerace needed finance for his proposed venture. He had previously had dealings with Mr Musumeci, and indeed already owed him $85,000. In about early April 1997 he approached Mr Musumeci. He said that he needed around $50,000 to buy some cash registers and scales, do rewiring of the shop, make counters and buy stock. Mr Musimici asked him about the coolroom and Mr Gerace said: "The Landlord has given me the coolroom, the fixtures and fittings in the shop because the previous owner left them in there when he left" Mr Musumeci asked: "What kind of security do I have for the money that I am about to lend you?" Mr Gerace said "I own the fixtures and fittings so you have them as security and anything else that you want" A few days later Mr Musumici told Mr Gerace that he was prepared to lend the money, that he had spoken to his lawyers and would take security "over what you have offered". He said that his solicitor needed a list of the plant, fixtures and fittings and equipment that he would be taking as a charge and Mr Gerace said that he would get his solicitor to provide it. 23 The foregoing is Mr Gerace's version. Mr Musumeci's version, although briefer, is, except for two matters, not substantially different. He deposed that when he enquired as to the security to be provided Mr Gerace said: "I'll give you the plant and equipment in the shop." Mr Musumeci however makes no mention of Mr Gerace saying that the landlord had given him the coolroom, the fixtures and the fittings because the previous owner had left them there. His Honour thought Mr Gerace's account unlikely. He had not deposed to such a conversation between Mr Cerreto and himself. Moreover, the fact was that the items were owned by Alramon and leased to Mr Toutounji, who was obliged to leave them there when he left. 24 His Honour also doubted that Mr Gerace had told Mr Musumeci that he owned the fixtures and fittings so that these items could be given as security. His Honour thought it likely that Mr Gerace had only said that the security he could offer was plant and equipment but that nothing was said about the particular items or who owned them. It was implicit in the conversation that Mr Gerace was, or would be, the owner of plant and equipment because Mr Musumeci was by then aware that Mr Gerace was purchasing some fixtures and fittings and constructing or reconstructing others. Musumeci/Freeman conversation-instructions 25 Mr Musumeci deposed that he phoned Mr Freeman on the same day or the next day and gave him instructions about the loan. Mr Freeman puts the date of the call as 8 May. Mr Musumeci told Mr Freeman that he planned to lend Mr Gerace a further $50,000 as the only prospect for the repayment of the $85,000 already owed was for him to lend Mr Gerace $50,000 so that he could set up and equip a fruit shop business and repay the money over time. 26 According to Mr Musumeci, he said that security would be the plant and equipment in the shop. According to Mr Freeman, whose evidence his Honour preferred in cases of conflict, the proposed security mentioned by Mr Musumeci was a mortgage over the lease, a charge over Mr Gerace's company and a personal guarantee. Mr Freeman told Mr Musumeci that the landlord of the shop was Mr Cerreto, who was a client of Mr Freeman's partner Mr Cheung at Blessington Judd's Chatswood office. Nevertheless Mr Musumeci said that he was happy for Mr Freeman to act for him. Documentation 27 Mr Freeman then spoke by telephone with Mr Muriniti who told him that the company acquiring the business would be Larridren and that company would give Mr Musumeci a first registered charge over its assets. On 13 May Mr Freeman wrote to Mr Muritini enclosing security documentation in the form of a charge and mortgage over lease, advising that a draft lessor's consent had been submitted to the solicitors for Alramon and requesting that Mr Muritini insert a schedule of fixed assets. Mr Freeman understood the assets to be those referred to by Mr Muritini in his conversation. Mr Freeman's understanding was that the $50,000 to be loaned was to purchase assets and fit out the shop. On the same day Mr Freeman also wrote to Mr Cheung enclosing proposed deed of consent. 28 Also on 13 May Mr Muritini wrote to Mr Freeman advising of assets to be listed in the charge currently being prepared. These included cash registers and scales, a pallet jack and net machine, a forklift, a coolroom, 30 trolleys, "all counters and shelves in the shop", racks in the storeroom and "all stock from time to time". 29 Also on 13 May, and well before the completion of documentation, Fresh Express advanced $15,000 to Larridren. 30 Subsequently Mr Cheung advised Mr Freeman that Mr Cerreto was insisting on a guarantee from Mr Musumeci "whilstever Gerace owes them money". Mr Freeman obtained Mr Musumeci's approval to this stipulation, but on the basis that he must be advised if Mr Gerace was in default. 31 On 28 May Mr Muritini forwarded to Mr Freeman deeds of charge and guarantee executed by Larridren and Mr Gerace and to Mr Cheung executed lease documents. 32 On 30 May Mr Muritini sent Mr Freeman a list of the assets to be annexed to the deed of charge. The assets are the same as those detailed in the letter of 13 May. 33 The lease from Alramon to Larridren is dated 30 May 1997, with a commencing date of 24 March 1997. Notwithstanding Mr Cheung's understanding that Mr Cerreto had agreed to transfer the fittings and fixtures to Larriden in consideration of Larriden entering into the lease, the document does not expressly deal with that transfer. On the other hand, the lease contains no equivalent to the provision in the Toutounji lease warranting the lessor's ownership of fixtures; see [8] above. In the disclosure statement the following appears: "Finishes, fixtures, fittings, equipment and services to be provided by the lessor? No. Lessee has to pay for the finishes, fixtures, fittings and services to be provided by the lessor? No. Finishes, fixtures, fittings, equipment and services to be provided by the lessee. The lessee will pay for all fittings, fixtures, equipment or services required by the lessee for its business."

Conversations Musumeci/Gerace/Freeman/Cerreto/Cheung at and from the shop 34 On a day in about the middle of May Mr Musumeci visited Mr Gerace at the shop. There then occurred a series of conversations which constitute the second of the two sets of conversations regarded by his Honour as critical to the Fresh Express case. To the extent that they are alleged to have involved him, Mr Freeman denied those conversations. 35 Mr Musumeci deposed that while he was at the shop Mr Freeman phoned. 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." 36 Mr Musumeci said that the conversation was then 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." 37 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. 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." 38 Thereafter Mr Gerace spoke to Mr Cerreto by telephone and said (according to MrMusumeci): "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 them 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." 39 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." 40 As already mentioned, Mr Freeman denied involvement in any such conversations. Generally his evidence was that he was never told by Mr Musumeci or anyone else about any arrangement between Mr Cerreto and Mr Gerace regarding the fittings and fixtures. His Honour observed that had Mr Freeman been so aware he would have felt the need to document the transaction in some way so as to ensure that Larridren had power to charge the fittings and fixtures as security for liability to his client Fresh Express. 41 Mr Gerace´s evidence, on the other hand, was somewhat corroborative of the evidence of Mr Musumeci. He deposed 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. This conversation was denied by Mr Cerreto. Mr Cerreto was 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: 42 "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 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 then said: "OK. That´s fine." 43 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: 44 "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 not in agreement 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." 45 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 claimed to have said to Mr Cheung: 46 "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. 47 Mr Gerace said that he then spoke to Mr Cerreto and told him that he had spoken to Mr Cheung. 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 agreed. Later Mr Musumeci told Mr Gerace that he had spoken to Mr Freeman and that everything was all right. 48 Mr Cheung denied taking part in any such conversation insofar as it was said to have involved him. 49 His Honour did not accept Mr Musumeci's or Mr Gerace's accounts insofar as they conflicted with those of Mr Freeman and Mr Cheung. His Honour reasoned: · Mr Gerace's evidence of his conversations with Mr Cerreto did not include any reference to the title in the fittings and fixtures passing to him · Although Mr Gerace did say that he had said to Mr Musumeci that the landlord had given him the coolroom, fixtures and fittings because the previous owner had left them there when he left, in fact those assets, or most of them, belonged to the landlord anyway and had to be left on the premises by the departing tenant by virtue of the lease itself · While cl 7.19 of the Toutounji lease was missing from the Larridren lease and the Disclosure Statement in the latter said that no fixtures and fittings were provided by the landlord, the difference was more likely to be the result of Mr Cheung's misapprehension as to the arrangement intended to be brought about between his client and MrGerace, having regard to the former's poor English · Mr Cerreto denied the evidence · There was no motive for Mr Cerreto to make "such an extraordinary gift to a tenant" · While it might make sense for Mr Cerreto to facilitate a borrowing that would result in work being done for the benefit of the freehold greater than the fixtures and fittings made available as security, in this case the suggestion was that assets worth $60,000 to $80,000 were being provided to secure an additional advance of no more than $50,000 · It was 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 and fittings that belonged to Mr Cerreto or his company · Mr Freeman wrote on 13 May to Mr Cheung enclosing a draft agreement for a mortgage over a lease, but the letter contains no reference to any transfer of fixtures and fitting from Alramon to Mr Gerace's company

Default By Larridren 50 Larridren encountered financial difficulties almost immediately. On 27 May 1997 Mr Muritini told Mr Cheung that Larridren would have difficulty making the payment of $4,345.24 for the June rent, the first rental payable under the lease. In fact this amount was payed out of the money advanced by Fresh Express. By August Larridren was in default with repayments due to Fresh Express. 51 On 2 September Mr Musumeci instructed Mr Freeman to give Larridren a 14 day notice of demand. The demand was ignored. On 23 September Mr Musumeci instructed Mr Freeman that there was a default. Mr Freeman notified Mr Cheung of the default and that Fresh Express was going to take over the lease. 52 On some date in September Mr Gerace 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 taking over the shop the next morning. 53 On 24 September Mr Cheung wrote to Mr Freeman thanking him for his advice on the intentions of the mortgagee and stating: "Our client instructs the following chattels belong to our client, namely (a) steel frame timber benches located around all the walls (b) mirrors (c) check out counters (d) forklift (e) cool room and (f) wrapping machine." Mr Cheung said in evidence that his instructions came as a surprise and he used the expression "Our client instructs" as "code" for "This is what I'm told to write". 54 By the end of September Mr Freeman had notified Mr Cheung that Fresh Express had taken possession of the premises. Mr Cerreto agreed to Mr Freeman's suggestion that rather than Fresh Express take over the existing lease a new lease be granted to it in identical terms. This was due to some concerns about the registration of the existing lease and mortgage of the lease. 55 In a letter dated 30 September to Mr Freeman, Mr Cheung stated that Alramon maintained that the chattels belonged to it. On 18 November Mr Cheung wrote to Mr Cerreto advising Fresh Express was to take up a new lease for the balance for the original term. He enclosed a disclosure statement which noted that the lessee was to pay for all fittings fixtures etc required by the lessee for the business and that no fixtures were to be provided by the lessor. That evening Mr Cerreto faxed Mr Cheung a list of fixtures which Alramon claimed to be its property. 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 wall of the shop including mirrors
• Datsun Fork lift vehicle - Model Number FG 103 o Capacity - 1300kg * Engine Model D-11
• 1 Boral gas bottle. 56 On 19 November Mr Cheung forwarded the amended disclosure statement to Mr Freeman. It contained an acknowledgement to be given by Fresh Express that the fittings referred to in the previous paragraph were fixtures of the lessor. 57 In cross-examination Mr Cerreto was challenged as to why he had not raised with his solicitor or Mr Musumeci the question of fixtures until September or November. Mr Cerreto's explanation was that as between Mr Gerace and himself they both had understood which fixtures belonged to Mr Cerreto, although they had not got around to putting it in writing. Mr Cerreto said that he had been careful to put in the list only those items which were clearly the property of Alramon. The discrepancy between the list in September and that in November was, Mr Cerreto said, an oversight. 58 His Honour accepted Mr Cerreto's explanation. The correspondence in question was the first time that Mr Cerreto had to face up to the prospect of Fresh Express as a tenant. Once it was accepted that, as between Mr Gerace and Mr Cerreto, (i) there was no question of a transfer of fixtures but (ii) Mr Gerace might have acquired new items in commencing the business of Larridren, it was not surprising that Mr Cerreto would want the position as to fixtures made clear as between himself and Mr Musumeci. This was the more so because it was obvious Mr Musumeci would not be operating the shop himself but would more likely be seeking another operator. His Honour thought this a more likely explanation than that advanced at trial on behalf of Fresh Express, viz that for some inexplicable reason Mr Cerreto deliberately and falsely asserted for the first time that he had title to the items despite having transferred them to Mr Gerace beforehand. 59 In this context his Honour noted 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 three scales into the shop. Mr Cerreto did not seek to assert ownership of most, at least, of these items. 60 Mr Cerreto required terms in the proposed new lease to Fresh Express that the were different from those in the Larridren lease, including, for example, a bank guarantee of rent and acknowledgement of title to the fixtures and fittings. No agreement was reached. Mr Cerreto instructed his solicitors to threaten Fresh Express with termination of the existing lease. 61 On 1 December 1997 Blessington Judd attempted to serve upon Mr Musimici a notice terminating the lease. By this time, perhaps rather belatedly, it had become clear to Mr Freeman and Mr Cheung that they could no longer continue to act for Mr Musumeci and Mr Cerreto. On 21 January 1998 McCabes, the new solicitors for Mr Musumeci and Fresh Express, wrote to Alramon asserting that the notice of termination was invalid. As to fixtures and fittings in the disclosure statement, the letter stated that it was the position of Fresh Express that certain fixtures were the assets of Larridren "as a result of a specific agreement between Larridren and Alramon when entering the initial lease". The list included checkout benches, the hot water service, the Crown pallet jack, the large coolroom, the wrapping machine, two double shelving benches, a Datsun forklift vehicle and a gas bottle. 62 Further demands were made in March. In telephone conversations Mr Cerreto denied the fixtures and fittings 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. 63 Fresh Express continued in possession until 30 April 2000 running the business with a manager. On 1 May Fresh Express left the premises, which remained vacant until the middle of February 2001. Mr Cerreto tried unsuccessfully to lease the shop. Finally Alramon went into possession in February 2001.

Reasons of the Primary Judge 64 His Honour made observations as to the credit of the various witnesses. As already mentioned, Mr Gerace did not give oral evidence. However his Honour thought Mr Gerace's affidavits were in some respects notable less for what was said but rather more for what was not said. Mr Gerace was not a good manager of money. His Honour had the impression that Mr Gerace and Mr Musumeci were quite close friends. His Honour thought this would account for the informal attitude Mr Musumeci had adopted towards the money lent in the past and the additional money which he had agreed to advance in May 1997. 65 His Honour thought Mr Musumeci a very impressive businessman who gave his evidence confidently, but the reality was that the dispute at the time it took place was not of great importance to him. His Honour thought that, notwithstanding Mr Musumeci's evidence, it was more probable that he merely assumed that as Mr Gerace was to fit out the shop he would have title to its fixtures and fittings. His Honour did not think Mr Musumeci was deliberately untruthful, but whatever the explanation of the conflict of evidence between him and Mr Freeman, the burden of proof rested on Fresh Express 66 His Honour had no hesitation in accepting evidence from Mr Cheung. However any discrepancy between him and Mr Cerreto was not as to what was said, the evidence of Mr Cerreto and Mr Cheung being in substantial accord as to this, but rather a difference in perceptions between them. His Honour thought that at times Mr Cerreto was seeking to bolster his evidence but that, at least on major matters, he was telling the truth. 67 His Honour's findings as to disputed events and his reasons for those findings have already been referred to above. Having found against Fresh Express on the central issue of the Cerreto/Gerace transfer or agreement to transfer, it followed that the case of Fresh Express failed. His Honour went on to deal with issues of quantum in case his findings on liability might be set aside on appeal. These issues formed part of the argument before us, but in the view we take it is unnecessary to say anything further about them.

The Central Issue 68 An appeal from a single judge to a Full Court of the Federal Court under s 24 of the Federal Court of Australia Act 1976 (Cth) is an appeal by way of rehearing: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) FCR 424 at [13]-[20]. More particularly, it falls within the third of the four categories of appeals identified by Mason J in Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 619-622, viz, an appeal by way of rehearing on the evidence before the trial court supplemented by such further evidence as the appellate court admits under a statutory power to do so. 69 The High Court has recently emphasised that an appeal by way of rehearing requires the appellate court to "give the judgment which in its opinion ought to have been given in the first instance": Fox v Percy at [23], citing the earlier decision of Dearman v Dearman (1908) 7 CLR 549 at 561. Nevertheless, an appellant has to demonstrate error of fact or law: Branir at [21]-[30]. 70 What Fresh Express has to show is that the primary judge erred in failing to find that there was a transfer or agreement to transfer the fittings and fixtures in the shop from Mr Cerreto to Mr Gerace (or their respective companies). This was a question of objective fact. The primary judge was faced with conflicting accounts of conversations. His Honour had to assess the credibility of witnesses in the light of their demeanour and the surrounding circumstances and the inherit probability or otherwise of the events alleged to have taken place. 71 As is often the case in forensic contests of this kind, valid points can be made on both sides. An argument as to probability or otherwise may be good in itself, but may be simply outweighed by opposing arguments. This is particularly so when the losing party has carried the onus of proof. 72 On the appeal senior counsel for Fresh Express attacked a number of findings of the primary judge which were relied on to support the ultimate conclusion. We shall deal with these in the sequence of the grounds in the notice of appeal, apart from those which merely assert, with differences of phrasing, the general assertion that his Honour should have found Mr Cerreto transferred or agreed to transfer the fixtures and fittings to Mr Gerace (grounds 9, 16 and 17). Whether Mr Gerace told Mr Musumeci that Mr Cerreto had transferred the fixtures and fittings to him (grounds 1-3 and 14) 73 Senior counsel said that his Honour's finding that Mr Musumeci merely assumed that because Mr Gerace was to fit out the shop he would have title to the fixtures and fittings was "directly contrary to the evidence of Mr Gerace". 74 But his Honour was not obliged to accept everything in Mr Gerace's affidavit as a fact "incontrovertibly established". As already noted, even on Mr Gerace's evidence, he does not suggest that at the time of the initial conversation with Mr Cerreto the latter transferred or promised to transfer the fixtures and fittings; rather that they would be in the shop "for you". Given this, it was reasonable to find that Mr Musumeci acted on the assumption in question. Mr Gerace was borrowing $50,000 to, as he put it, "kick start the business", which would be likely to include expenditure on such matters as fitout, fixtures and fittings. 75 Moreover, underlying the whole case, as his Honour understandably emphasised, is the inherent improbability of Mr Cerreto making a free gift of assets worth $60,000 to $80,000 to a man whom he barely knew. So if it is unlikely there ever was such an agreement, it is equally unlikely Mr Gerace told Mr Musumeci that there was. 76 At this point we would observe that the Musumeci/Gerace loan transaction has some odd features. Mr Gerace already owed Mr Musumeci a large sum of money. The prospects of recovering that sum, and the further $50,000, depended on the success of a business which had within a short time already failed under Mr Toutounji's control and which now was to be run by Mr Gerace, a man who had been unable to trade successfully in the past. Mr Musumeci apparently made no investigations as to the prospects for the business. And, perhaps most surprisingly of all, he meekly capitulated to Mr Cerreto's demand for a guarantee of Mr Gerace's rent. No doubt Mr Musumeci was, as his Honour said, very much pre-occupied with running his own business. Nevertheless, one cannot help feeling that the relationship between Mr Musumeci and Mr Gerace had features not revealed in the evidence. By contrast, the Gerace/Cerreto relationship was clearly an arm's length one. The inherent improbability of the suggested transfer or agreement to transfer always remained a fundamental problem for the case of Fresh Express. Whether Mr Cerreto understood the difference between the Toutounji lease and the Larridren lease (grounds 4-6, 7(a) and (b), 11 and 13) 77 The submissions of Fresh Express really amounted to saying that Mr Cheung, who had acted for Mr Cerreto for four years and described him as a "hard business person", was in a better position than the trial judge to assess Mr Cerreto's capacity to appreciate the significance of the Larridren lease not asserting the lessor's ownership of fixtures and fittings, as the Toutounji lease had done. 78 However, Mr Cheung's assessment was based on only three transactions. His Honour had the opportunity to see Mr Cerreto cross-examined. It has not been established that his Honour misused that advantage. It was conceded that Mr Cerreto's English "could not be described as fluent". Many people who speak English as their first language find legal documents such as commercial leases not easy to understand. At best for Fresh Express, this is but one of a number of arguments, some for and others against, bearing on the probability or otherwise of the central issue. 79 The argument that Mr Cerreto gave "instructions" to Mr Cheung that he was giving, or had given, title to the fixtures and fittings to Mr Gerace is misconceived. It is not suggested that Mr Cheung made any relevant representation on behalf of Mr Cerreto. And, as already noted, Mr Cheung's understanding of his instructions (erroneous or not) was never expressly reflected in the legal documentation he drafted. As such Mr Cheung's evidence was primarily, if not solely, relevant only in relation to the credibility of Mr Cerreto. As already mentioned, his Honour found that while Mr Cheung believed that Mr Cerreto had instructed him that the fixtures and fittings would be transferred to Larriden, he and Mr Cerreto were at cross-purposes. His Honour's reasons for this conclusion are persuasive, given the surrounding circumstances. It is not a finding which is improbable, let alone "glaringly" so. Whether his Honour's conclusion is inconsistent with his rejection of Mr Cerreto's evidence that he told Mr Gerace in the first conversations that fixtures and fittings would always remain the property of the lessor and that if he (Gerace) were to construct new benches they would become Mr Cerreto's property and if Mr Gerace sold the business a buyer could negotiate separately with Mr Cerreto for those fittings (ground 7(c)) 80 It was argued that because Mr Cerreto was not believed on an aspect of the central issue his evidence on other aspects of it should not be believed. 81 A tribunal of fact can, as juries are usually told, accept some parts of a witness's evidence but reject others. This accords with common experience. People recounting past events need not necessarily be either totally reliable or totally unreliable. Particularly where people are involved in litigation, there is often a tendency, which may be quite honest and unconscious, to rationalise and reconstruct events. We cannot see any error in his Honour's fact finding in this regard. Whether his Honour erred in finding that there was nothing in Mr Gerace's evidence that suggested Mr Cerreto transferred or agreed to transfer the fixtures and fittings to Mr Gerace (grounds 8 and 12) 82 His Honour in this regard was referring to evidence of the initial conversations between Mr Gerace and Mr Cerreto, not subsequent discussions between Mr Gerace and Mr Musumeci where Mr Gerace did make assertions to that effect. Whether his Honour erred in finding that Mr Cerreto's use of the word "give" was intended to convey merely that the fixtures and fittings would be available for use (ground 10). 83 His Honour's finding as to the ambiguity of this term seems not unreasonable in the context. In a setting of negotiation for a lease, a landlord might well hold out as an attraction that fixtures and fittings (unarguably the property of the landlord) might be made available to the prospective tenant, thus saving him money. Whatever one thinks about the likelihood of that intention, it seems inherently more likely than the suggested alternative of a free gift. Whether his Honour should have treated the late claim of ownership of the fixtures and fittings by Mr Cerreto in his solicitor's letter of 24 September 1997 as tending to show he had initially transferred them to Mr Gerace (ground 15) 84 The terms of this appeal ground appear to rely on differences between the list sent on 24 September and that sent on 19 November. This aspect was not however developed. Rather Fresh Express asserted that the lateness of the claim, and the lack of belief in it by Mr Cheung, tended to show that Mr Cerreto had in fact transferred or agreed to transfer, the items to Mr Gerace. 85 Mr Cerreto gave a rational explanation for this. We agree with his Honour's reasons for accepting that explanation. Conclusion 86 In essence, we think his Honour did not err in failing to be satisfied that there was a transfer or agreement to transfer between Mr Cerreto and Mr Gerace in circumstances where there was

• No direct evidence thereof by Mr Gerace
• Denial by Mr Cerreto, found to be basically a truthful witness
• The inherent improbability of a free gift worth $60,000 to $80,000 87 Objectively considered, the genesis and commercial objective of the Gerace/Cerreto transaction (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 348, 350, 351) was the lease (not sale) of a shop in circumstances where the proposed tenant had little cash and the proposed landlord owned valuable fixtures and fittings which were on the premises. The mutually desired objective of a lease could be achieved by the landlord making the fixtures and fittings available to the tenant for the period of the lease, thereby saving the cash-strapped tenant the expense of acquiring such items and securing for the landlord the benefit of a tenancy. It is hardly surprising, in our opinion, that the primary judge was not satisfied that the landlord agreed (and without any documentation) to enter into a very different transaction, one that involved a free gift to the tenant of assets worth $60,000 to $80,000 which the tenant could immediately deal with as unencumbered owner. 88 No appellable error has been established. The appeal should be dismissed with costs. Notice of Motion 89 By a motion on notice dated 29 June 2003 Fresh Express sought liberty to pay into court the amount of the judgment sum obtained on the cross-claim for rent ($72,429.17 including interest to 13 December 2002) pending the determination of the appeal, that from the date of the payment interest not run on the judgment sum, and that the money paid in be invested as the Registrar should determine. 90 The background to the motion is that shortly after judgment was delivered on 13 December 2002 the appellant (through its solicitors) sought a stay. The respondents' solicitors declined this, but offered guarantees of repayment by Alramon and Mr Cerreto in the event of a successful appeal. The appellant, noting that Alramon's "principal property" was mortgaged for $3.7m, insisted there should be a bank guarantee. The respondents replied on 29 January advising they were arranging a bank guarantee. Disagreement then arose as to which party should have possession of the bank guarantee. On 6 February the respondents yielded on this point and said they would forward the bank guarantee to be held by the appellant's solicitors in escrow. On this basis the appellant forwarded a bank cheque for the judgment sum to the respondents on 11 February. 91 On 12 February the respondents' solicitor phoned the appellant's solicitor and said that his client had had "a change of heart". He would not provide the bank guarantee because it would cost 2 per cent. But he did not want to spend the money. He would not enforce the judgment pending appeal and would send confirmation to that effect. The appellant's solicitor said that was satisfactory, but her client was prepared to pay the judgment and should not be penalised in interest if the appeal failed. The respondents' solicitor however insisted on interest. 92 Further correspondence ensued, in the course of which the appellant on 14 February volunteered to indemnify the respondents for the cost of the bank guarantee in the event the appeal was dismissed. In the alternative, the appellant offered to pay the money into court, to be invested at the court's discretion, the successful party on the appeal to receive the money together with accrued interest. 93 As already noted, the notice of motion was dated 29 June 2003 and was not filed until 30 June. It was not feasible to have it dealt with by a Full Court prior to the hearing of the substantive appeal on 4 August (a date which had been fixed on 30 April 2003). 94 The motion should be dismissed. It is regrettable that the parties were not able to come to a workable arrangement in what must be a common situation. Nevertheless, in the absence of a stay order, the obligation to satisfy the judgment was on the appellant. Beyond the bare assertion that Alramon had a mortgage for the amount mentioned, no material was advanced to found a contention that it would be unable to disgorge the amount of the judgment in the event of a successful appeal. I certify that the preceding ninety four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, R D Nicholson & Selway .

Associate: Dated: 3 October 2003 Counsel for the Appellant: N Cotman SC and R Beasley

Counsel for the Respondents: R C McDougall QC and A Ivantsoff

Solicitors for the Respondents: Wight & Strickland