Harbourside Catering Pty Ltd v TMG Developments Pty Ltd [2007] NSWSC 1375 | Case summary

Harbourside Catering Pty Ltd v TMG Developments Pty Ltd [2007] NSWSC 1375 | Case summary | Zoe

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9 Harbourside, through its shareholding and directorship, embodies a partnership between Mr Alex Antonopoulos and Mr Angelo Nikopoulos. Harbourside has operated "The Cove" restaurant since it first acquired the lease in 1993. Mr Antonopoulos and Mr Nikopoulos have been active in the day-to-day management of the restaurant since 1993, with the assistance of a head chef, managers and other staff. Both Mr Antonopoulos and Mr Nikopoulos had extensive experience in operating a restaurant business before taking up the lease of The Cove in 1993. 10 The Cove restaurant is in a prominent position on the Manly Wharf and has excellent harbour views. The restaurant seats in excess of 400 diners. It is a substantial business. Its turnover for the year ending 30 June 2004 was $1,273,000. 11 As at February 2005 the lease of the restaurant had about eighteen months still to run. However, the lease provided for two further options to renew, each for a term of three years. Accordingly, if both options were exercised, the maximum term of the lease available was seven and half years. 12 In early 2005 Messrs Antonopoulos and Nikopoulos sought purchasers for the restaurant business. Eventually, they agreed with Mr Comparot-Belin to sell the business to him for $750,000. 13 On 15 February 2005, an agreement for sale of the business was executed by Harbourside and Manly Cove. Manly Cove had been incorporated by Mr Comparot-Belin on the date of execution of the agreement as a corporate vehicle for the acquisition and operation of the restaurant business. The shareholding and directorship of Manly Cove embodied a partnership between Mr Comparot-Belin and Mr Carl Frauenstein, an investor who was to be a "silent partner" in the restaurant business. 14 It was a term of the sale agreement that the lease of the premises would be assigned to Manly Cove. Completion of the sale was conditional upon Harbourside obtaining the consent of TMG to the assignment by 10 May 2005. 15 On 25 February 2005, Harbourside's solicitors wrote to TMG's solicitors requesting consent to the assignment of the lease to Manly Cove. In view of the provisions of s 39 RLA and Clause 21.3 of the lease, the letter attached the following information concerning the proposed assignee: ASIC searches of Manly Cove and its corporate shareholders, a statement of the assets and liabilities of Mr Comparot-Belin and Mr Frauenstein, their curricula vitae, and Manly Cove's proposed business plan for the restaurant business. 16 Mr Comparot-Belin's curriculum vitae showed that he had been born and educated in France and had a Bachelor of Economics degree and a Masters degree in business and finance. He had come to Sydney as a permanent resident in 1993 as marketing manager for the French Tourist Bureau. From 1996 to June 2000, he was involved, as co-founder and major shareholder, in a joint venture to establish and operate a chain of budget motels in Australia. From July 2000 to May 2002 he was the general manager for the Formule 1 motel chain, a division of a large international hotel chain. In that capacity, Mr Comparot-Belin was principally responsible for corporate and business strategies and marketing. From February 2003 to February 2005, he was a shareholder and director of a number of joint venture companies engaged in projects such as the refurbishing and "re-launching" of a hotel in Newcastle and the acquisition and redevelopment of commercial buildings in Hobart, Chatswood and Sydney central business district. The curriculum vitae did not show that Mr Comparot-Belin had any experience in managing or operating a restaurant business. 17 Mr Frauenstein's curriculum vitae showed that he had been born in South Africa and had degrees in mechanical and aeronautical engineering. From 1992 to 2000, he was engaged in management consulting or project consulting. From 2000 to February 2005 he was a "business investor" with "the San Marco Group". The investments included investments in a bar café in Bondi Junction, an Italian restaurant in Bondi Junction, and a restaurant, bar and nightclub which was to open in May 2005. He was "landlord of numerous investment properties", including commercial properties in which restaurants were tenants. The curriculum vitae did not show that Mr Frauenstein had any experience in managing and operating a restaurant business. 18 The business plan did not show that any chef or restaurant staff had been engaged by Manly Cove. 19 On 7 March 2005, Mr Comparot-Belin went to a meeting with TMG's managing director, Mr Robert Magid, and its property manager, Mr Marcelo Ramirez. The purpose of the meeting, which had been initiated by Mr Comparot-Belin, was to discuss Mr Comparot-Belin's proposed acquisition of the restaurant business, his qualifications and experience in managing a restaurant business, and his plans for the future of the business. 20 Mr Comparot-Belin has made two affidavits, filed on behalf of Harbourside, as to what was said at the meeting of 7 March. However, the meeting was recorded by TMG, with the consent of Mr Comparot-Belin, and the tape recording has been played in Court. A transcript of the recording is also in evidence. All but a few minutes at the end of the meeting were recorded and the final few unrecorded minutes are uncontroversial. 21 The Court is in the rather unusual position of being able to hear for itself a critical conversation rather than the parties' later, imperfect, recollections of it. 22 Mr Comparot-Belin prepared his affidavits before he had the opportunity of hearing the taped record of the meeting. His account of what was said, as set out in his affidavits, gave the impression that Mr Magid and Mr Ramirez had been somewhat hostile towards him at the meeting and that they had already made up their minds that TMG would refuse consent to the assignment of the lease. Mr Comparot-Belin, in reporting to Mr Antonopoulos and Mr Nikopoulos what had happened at the meeting, said that he had been treated in a belittling fashion. 23 When one listens to the tape recording of the meeting, however, a different impression emerges. To be fair to Mr Comparot-Belin, when he himself heard the tape played in Court, he agreed that the tape was more accurate than his recollection of the meeting. As I will explain shortly, he also came to accept that Mr Magid and Mr Ramirez had not been as dismissive or as firm in their deprecation of his experience and abilities as he had come to believe. 24 The meeting commenced with an explanation by Mr Comparot-Belin of his business achievements. Coming to his proposed acquisition of the restaurant business, he said that Mr Frauenstein would be "a sleeping financial partner". He said that it would be left to him and "his team" to do whatever he wanted with the restaurant business. 25 When Mr Magid asked for some more detail of Mr Comparot-Belin's background, Mr Comparot-Belin said that his family was "in the hotel/restaurant industry in France". He said that his grandfather had been a "grand chef" in the 1950s, 1960s and 1970s in Burgundy "so … I grew up in restaurants, I grew up in kitchens, I always had a foot in the hotel and restaurant industry". He then gave some detail about his business activities in the tourism industry, essentially repeating what had been set out in his curriculum vitae. 26 Mr Magid then said that he wanted Mr Comparot-Belin "to know everything" so that he could make a rational decision about acquiring the restaurant business. He ascertained that Mr Comparot-Belin knew how long the lease had still to run if all options were exercised, what the current rent was, what the turn-over of the business was, and that there was a rent review imminent. He asked what Mr Comparot-Belin was prepare to spend on refurbishment of the restaurant. He gave his views about the prospects of obtaining a "drink and dine" licence, and explained the difficulties that would be encountered with Manly Council if one was sought. Mr Magid's general attitude and tone, as emerging from the tape recording, are polite but pragmatic. He said that his main concern was not to have an unhappy tenant. 27 Mr Magid went on to tell Mr Comparot-Belin that there was a bitter ongoing dispute between TMG and Harbourside. There were District Court proceedings on foot concerning past rent reviews. Mr Magid was highly critical of the solicitor who had been acting for Harbourside in the District Court proceedings and who had been acting for other tenants of TMG in other proceedings. He spent some time elaborating on what he said was "ambulance chasing" and "dodgy conduct" by Harbourside's solicitor. It is quite obvious from what Mr Magid and from how he said it that he regarded Harbourside's solicitor and Harbourside itself as having caused him unnecessary trouble and expense. 28 Mr Magid then said: " Bob [Mr Magid]: Yeah, yeah. So the last thing I want you is to be unhappy and then point at us and say, you got us into this trouble and start suing us.

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Rodolphe: I recognise the upside. Even on the present basis, with the current restaurants I might not make anymore, like big money, but I know that I can recoup, I'm confident that I can recoup my investments within the time that I've got left. Worst case scenario, I can't get to demonstrate to you that we are first class operators when we take on the properties. … I've worked in the restaurants industry, maybe I can't demonstrate in Australia my experience but with my background in Burgundy, my mother is still in the hotel industry and restaurants industry, she even had Prince Charles and Camilla as clients, so she's got a good background and good commissions on the place, not that I can drag her to manage a restaurants in Australia …" 33 Mr Magid said in cross examination that when he read the material submitted by Harbourside in support of the assignment application, principally the curricula vitae of Messrs Comparot-Belin and Frauenstein, he formed the view that the financial resources of Messrs Comparot-Belin and Frauenstein were superior to those of Harbourside, but that their relevant retailing skills were "non-existent". Mr Magid said that by the time he had the meeting with Mr Comparot-Belin he had already a "strong inclination" to refuse the application for assignment on the ground that Mr Comparot-Belin's relevant "retailing skills" were inferior to those of Harbourside. However, he said, his mind was still open to persuasion if Mr Comparot-Belin could produce something substantially additional to the material previously submitted by Harbourside. Mr Comparot-Belin agreed in cross examination that Mr Magid had indeed "left the door open" for him to come back with further information. 34 Mr Magid says that he was not persuaded by what Mr Comparot-Belin said at the meeting of 7 March that the relevant skills of Manly Cove were at least equal to those of Harbourside. On 11 March 2005 TMG wrote to Harbourside's solicitors advising that a meeting with Mr Comparot-Belin had been held on 7 March and that "from the documentation provided and … our meeting, we advise that in accordance with Clause [sic] 39 of the Retail Leases Act 1994 … assignment of lease is not granted [sic]". 35 Mr Lever SC, who appears with Ms Chrysanthou for Harbourside, cross examined Mr Magid vigorously and at length in an endeavour to show that Mr Magid's reason for refusing consent to the assignment by TMG's letter of 11 March 2005 was not a reasonable belief that the "retailing skills" of Manly Cove were inferior to those of Harbourside but, rather, was vindictiveness towards Harbourside and its solicitor and a desire to have a tenant of its own choosing, a "first class operator". It is significant that in this meeting no suggestion was made by anyone that consent to assignment of the lease might be conditional upon Harbourside agreeing to settle the District Court proceedings on terms favourable to TMG. Accordingly, Harbourside does not ascribe that purpose to TMG in refusing consent on 11 March 2005. What are "retailing skills" for the purpose of s 39(1)(b) RLA

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36 Mr Lever submits that TMG's refusal of consent was not justified under s 39(1)(b) RLA and must have been actuated by an ulterior purpose because Mr Comparot-Belin's "retailing skills" were at least equal to, if not much better than, those of Harbourside. 37 Mr Lever concedes - as did Mr Comparot-Belin both to Mr Magid in the 7 March meeting and in his evidence - that Mr Comparot-Belin had no experience in actually operating and managing a restaurant business. However, Mr Lever says that s 39(1)(b) RLA does not limit "retailing skills" to any particular industry or calling. "Retailing skills", he says, means skill in retailing, not experience in any particular industry or area of activity so that it does not matter what are the particular services or products which a prospective assignee has skill in retailing. 38 By way of example, Mr Lever says, "… an entrepreneur such as Dick Smith acquires extensive retailing skills managing a successful chain of electronic retail shops. It would be irrational if lessors could disregard those retailing skills in determining whether to consent to an assignment of a restaurant business to one of his companies on the ground that he had inferior retailing skills." 39 Mr Lever submits that Mr Comparot-Belin had retailing skills which were "vastly superior" to those of Harbourside and Messrs Antonopoulos and Nikopoulos because Mr Comparot-Belin: - had grown up in France; - had lived and worked in and around high quality restaurants; - held a Master's degree in business and finance; - had an impressive history in business, property management, refurbishment of the Newcastle hotel, and in the hotel industry generally. 40 I am unable to accept Mr Lever's submission that the "retailing skills" of an assignee for the purposes of s 39(1)(b) RLA means skill in retailing regardless of the area of retailing activity in which the assignee has acquired those skills. The section is intended as a protection for both lessors and lessees. Lessees are not prevented from realising the goodwill of a business by selling that business and assigning the lease by the lessor's capricious withholding of consent to the assignment. Likewise, lessors are not compelled to accept as a tenant by assignment those who are not likely to trade at least as well as the outgoing lessee. For that reason, the section requires a comparison between the retailing skills of the existing lessee and those of the prospective lessee. Like must be compared with like if any basis for assessment is to be sensibly available, both to the lessor and to those who may have to review the lessor's decision under the Retail Leases Act. 41 The fact that a proposed assignee has skills in operating a business which is completely different in character from the business of the assignor provides no readily apparent and sensible means of comparison between the retailing skills of the assignor and those of the assignee and, therefore, no sensible means of assessing whether the assignee, as new tenant, will be at least as satisfactory as the former tenant. 42 A comparison of retailing skills for the purposes of s 39(1)(b) RLA does not require that the businesses of the assignor and the assignee be identical. However, they must be similar enough to permit ready comparison of the retailing skills involved. Whether the similarity is close enough in degree to permit ready comparison for the purposes of the section is a question of fact and impression in each particular case. 43 I do not accept that the retailing skills of Mr Comparot-Belin and of Manly Cove were at least equal to those of Harbourside and Messrs Antonopoulos and Nikopoulos as at 11 March 2005. It was not necessary for Mr Comparot-Belin and Manly Cove to demonstrate skills in operating a seafood restaurant such as The Cove. But they had to demonstrate skills in operating some kind of restaurant and it would have to be a restaurant of similar style and size. Skills in operating a suburban milk bar or a small fast food outlet would not have been comparable to the skills necessary to operate a restaurant such as The Cove. 44 I have no doubt that Mr Comparot-Belin, having grown up in a French household in which food, wine and restaurants were so important, is now an excellent judge of food, wine and restaurants. However, an appreciation of the standards of excellence of goods and services does not necessarily demonstrate an ability to reproduce those goods and services to that standard of excellence in a successful business. I do not accept that Mr Comparot-Belin's experiences, which he does not particularise, in the restaurant kitchens of his grandfather have given him skills in operating a restaurant. As Mr Magid pointed out in his evidence, Mr Comparot-Belin is a young man in his thirties and would have been an infant during his grandfather's days of culinary renown. I do not accept that Mr Comparot-Belin's general experience in business have given him relevant retailing skills in operating a restaurant. 45 As at 7 and 11 March 2005, Manly Cove had not engaged, or secured commitment from, any chef, restaurant manager or other restaurant staff for the operation of the restaurant business. Mr Comparot-Belin could give no particulars of the "team" who might be responsible for the continuing operational success of a business which, under Harbourside's management, had been running successfully for almost thirteen years. 46 I conclude that as at 11 March 2005, Harbourside had failed to demonstrate that Manly Cove had retailing skills which were not inferior to its own. Improper motive, good faith and unconscionable conduct

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47 Mr R.G. McHugh SC, who appears with Ms Richardson of Counsel for TMG, submits that if it is found as a fact that the retailing skills of Manly Cove were inferior to those of Harbourside, the refusal of consent by TMG was justified under s 39(1)(b) RLA and that is an end of Harbourside's claim in respect of consent to the assignment to Manly Cove. 48 Mr Lever responds that refusal of consent, even though it could be justified under s 39(1)(b), must nevertheless be "in good faith": if such consent is refused other than in good faith, the lessor has engaged in unconscionable conduct in contravention of s 62B(1) RLA, affording a right of damages under s 72AA RLA. 49 I put to one side for the moment the question whether the Supreme Court, rather than the Administrative Decisions Tribunal, has jurisdiction to entertain a claim under s 72AA RLA. 50 Section 62B(3)(k) relevantly provides that in determining whether a lessor has, in connection with a retail shop lease, engaged in unconscionable conduct, the Tribunal may have regard to the extent to which the lessor has "acted in good faith". 51 I have found that Manly Cove's retailing skills as at 11 March 2005 were inferior to those of Harbourside. However, TMG could have decided not to exercise its right to refuse consent under s 39(1)(b): it could have decided to take the chance that Mr Comparot-Belin's experiences and skills as a businessman and his background in food and wine would enable him at least to equal the success of Harbourside in operating the restaurant. Mr Lever submits that TMG's decision to exercise its right to refuse consent was actuated, in fact, by malice towards Harbourside and its solicitor and by a desire to secure a "first class operator" - a tenant of its own choosing. 52 A power conferred by contract or statute, exercise of which may cause detriment to another, must be exercised in furtherance of the purpose for which the power was conferred, and not arbitrarily or capriciously. That principle has long been one upon which Courts of Equity have interfered with the exercise of contractual rights under the rubric "unconscionable conduct": see e.g. Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529, at 549 per Stephen J; Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575, at 587 per Barwick CJ; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, at 368 per Sheller JA. The same principle, applied in the same way, has recently been re-labelled "the duty to act in good faith", which is implied by law in contracts: see e.g. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, at 263-264 per Priestley JA; Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, at 37; Alcatel (supra) at 369. 53 The concept of "unconscionable conduct", including the duty to act in good faith, has been taken into consumer protection law and finds expression in legislation such as s 51AA(1) and s 51AC(1) and (3)(k) Trade Practices Act 1974 (Cth). However, unconscionable conduct for the purposes of this legislation is not limited to conduct which would move Equity to intervene: see Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365; (2000) 104 FCR 253. Unconscionable conduct, including the duty of good faith, in exercising a power conferred under a lease clearly has the same content in s 62B(1) in the Retail Leases Act as it does in the Trade Practices Act. 54 The exercise by a lessor of a right conferred by a lease or by the Retail Leases Act with the intention of causing harm to the lessee will be unconscionable both in equity and for the purposes of s 62B(1) RLA. That is so because the right will have been exercised for a purpose for which it was not conferred. However, it does not follow that hostility between the parties will, of itself, render unconscionable an exercise of the right. It is not the law that those exercising their legal rights against others must do so only with goodwill and disinterest. A legal right may be exercised validly if the end sought is that for which the right has been conferred, even if the person exercising the right feels a personal satisfaction that the other party will suffer as a consequence: see NRMA Ltd v Scandrett [2002] NSWSC 1123; (2002) 43 ACSR 401, at [52]-[55], and the cases cited. The purpose for which a right has been exercised is a question of fact. Where the exercise of the right produces a result which is commensurate with the purpose for which the right is conferred, it is difficult to infer that the right was nevertheless exercised capriciously, arbitrarily, or with an intention of causing loss to the other party. 55 Accordingly, if I were to find that TMG had decided to exercise its entitlement under s 39(1)(b) RLA to refuse consent to the assignment to Manly Cove, not because Manly Cove had retailing skills inferior to those of Harbourside, but rather because TMG, in the person of Messrs Magid and Ramirez, wished to spite Harbourside and to obtain a new tenant of its own choosing, I would find that TMG had acted capriciously and arbitrarily and had not exercised its power for a purpose intended by the Act. I would find that TMG had acted in bad faith and had contravened s 62B(1) RLA. I would then consider what, if any, remedy was available to Harbourside and whether that remedy could be sought in this Court. 56 Despite Mr Lever's vigorous cross examination of Mr Magid, I am not satisfied that Mr Magid refused TMG's consent to the assignment to Manly Cove to spite Harbourside, or its solicitor, or because he wanted to procure a tenant of his own choosing. Mr Magid gave his evidence carefully and, generally, in a measured way. He was frank and emphatic as to his dislike of Harbourside's solicitor; he was candid in saying that Messrs Antonopoulos and Nikopoulos had cost him a great deal of money and time. However, he said that he still liked them as people and had an amicable relationship with them, despite the litigation in the District Court. I did not disbelieve him. 57 Mr Magid struck me as a highly experienced and pragmatic businessman who was disposed to make commercial decisions for rational reasons. In the meeting of 7 March, he demonstrated an accurate knowledge of TMG's right to refuse consent under s 39 RLA and of its corresponding obligation to grant consent. He must have appreciated that he would be courting litigation if he were to refuse consent to the assignment for spurious reasons. 58 Mr Magid was clearly concerned at the 7 March meeting that TMG have "a happy tenant" in The Cove restaurant, namely, one who was trading successfully enough to pay the rent without difficulty. Mr Magid's conclusion that Mr Comparot-Belin and Manly Cove lacked the requisite skills in operating a restaurant was not irrational: indeed, no other conclusion was reasonably open. On the other hand, it would have been commercially irrational to refuse consent to an incoming tenant who may prove to be "a happy tenant" for the sake of retaining, out of spite, a tenant who was causing a great deal of trouble and difficulty. To do so would have been a classic instance of 'cutting off your nose to spite your face'. Mr Magid does not strike me as the kind of businessman who makes commercial decisions in that way. 59 I do not accept that Mr Magid refused consent to the assignment to Manly Cove because he wanted to have as a tenant of his own choosing a "first class operator", meaning a tenant with retailing skills superior to those of Harbourside. He acknowledged to Mr Comparot-Belin in the 7 March meeting that TMG could not refuse consent to an assignee who was not inferior in skills to Harbourside. His reference to a "first class operator" was the expression of an understandable wish, not a statement of an intended course of action on TMG's part. 60 As at 7 March 2005, no one other than Manly Cove had appeared to be interested in purchasing Harbourside's restaurant business. It would make no commercial sense to continue indefinitely with Harbourside as "an unhappy tenant" in the hope that, at some time in the future, a "first class operator" would turn up. 61 I am not satisfied that the refusal of TMG to the assignment to Manly Cove on 11 March 2005 was actuated by any motive or purpose extraneous to a proper consideration of s 39(1)(b) RLA. I hold that the refusal of consent was valid. The "second refusal"

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62 By letter dated 21 March 2005 to TMG, Harbourside's solicitors invited TMG to reconsider its refusal of consent to the assignment. In support of that invitation, the letter referred to the financial resources of Manly Cove's directors and placed emphasis on the "retailing skills" of Messrs Comparot-Belin and Frauenstein. 63 In respect of Mr Comparot-Belin, the letter gave no more information about his background and experience than Mr Comparot-Belin himself had given to Mr Magid in the meeting of 7 March. However, the letter contained the statement that Mr Comparot-Belin had established successful restaurants in three hotel chains "and for a number of years has been responsible for the ongoing management of those restaurants". Mr Comparot-Belin said in cross examination that the statement was not true. 64 The letter also stated that Mr Frauenstein had "operated a number of restaurants". Again, Mr Comparot-Belin said that that statement was not true. 65 The letter stated that Manly Cove "will be hiring a highly qualified chef who has over fifteen years experience working in international hotels and fine dining restaurants such as [four well known Sydney restaurants were named] together with appropriately qualified staff to conduct operations at the restaurant". The identity of the "highly qualified chef" was not revealed. The letter concluded by advising that unless consent to the assignment was given within three days proceedings would be commenced in the ADT to compel the giving of consent. 66 On 30 March, Harbourside's solicitors wrote confirming advice from TMG's solicitors that Mr Magid was interstate and unable to give instructions, and that Mr Ramirez was not authorised to make a decision in Mr Magid's absence. Nevertheless, Harbourside's solicitors advised that they took TMG's position to be a refusal to consider the request for consent and that they would be commencing proceedings in the ADT. 67 On 22 April, after Harbourside had commenced proceedings in the ADT, TMG's solicitors advised the registrar of the ADT of the grounds upon which TMG had refused consent. Harbourside alleges that this letter constituted a second refusal of consent for the purposes of s 39(1) RLA, and that this refusal was not justified because:

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even if Manly Cove did not have equal retailing skills, nevertheless the exercise of TMG's entitlement to refuse consent was unconscionable conduct and in bad faith, since it was actuated by malice and by a desire to extract from Harbourside, as a condition of the consent, a favourable settlement of the District Court proceedings and from Harbourside or Manly Cove a payment which was "key money", as defined by the RLA. 68 The motives ascribed to TMG are said to be revealed by discussions between the parties which occurred between 5 April and 21 April. It is therefore necessary to go into these discussions in a little detail. 69 The possibility of a compromise of the District Court litigation between Harbourside and TMG had been discussed between their solicitors on 23 March. TMG's solicitor had proposed that the parties agree that the proceedings be discontinued, each party to pay its own costs and TMG would consent to the assignment of the lease to Manly Cove. This proposal had not been made on TMG's instructions. 70 On 30 March, TMG's solicitors sought instructions from Mr Ramirez as to whether to pursue the settlement proposal which he had put. Those instructions were not given. On the same day, TMG's solicitors wrote to Harbourside's solicitors advising that TMG's refusal of consent to the assignment was unchanged. 71 On 4 April, Harbourside applied for formal mediation of the dispute under the RLA. Mediation was arranged for 8 April. 72 On 5 April, Harbourside's solicitors wrote to TMG's solicitors advising that Harbourside intended to amend its District Court proceedings to claim damages for TMG's wrongful refusal of consent to the assignment to Manly Cove. 73 It is clear from Mr Comparot-Belin's affidavit evidence and from his evidence in the witness box that he came away from his meeting with Mr Magid on 7 March believing that Mr Magid did not, in fact, have a problem with the restaurant experience of Mr Frauenstein and himself but, rather, would not consent to the assignment because of animosity towards Harbourside. He could have got this impression because of what Mr Magid had said about Harbourside's solicitor and the litigation in which that solicitor had involved TMG. However, I think it is more likely that it was Mr Comparot-Belin's wounded "amour propre" which led him to believe that there must have been some extraneous reason for Mr Magid to consider him incapable of running a successful restaurant. He found that extraneous reason in Mr Magid's remarks about Harbourside's solicitor and the litigation between Harbourside and TMG. 74 Mr Comparot-Belin's impression that the real obstacle to TMG's consent to the assignment was the District Court litigation with Harbourside led him to believe that if he were to act as peacemaker between Harbourside and TMG, brokering a settlement of the District Court proceedings, he would not only remove the obstacle to consent but would also appear in a good light with TMG and would have a good chance of obtaining a new lease at the expiry of the remaining term after exercise of the two options. 75 On 5 April Mr Magid met Mr Comparot-Belin at Mr Comparot-Belin's request. No tape recording of this meeting was made. Mr Comparot-Belin initiated discussion about the District Court proceedings and asked what the litigation was really about. Mr Magid said that Harbourside owed TMG arrears of rent and $220,000 in legal costs. Mr Comparot-Belin suggested that an ideal outcome would be to resolve that dispute before Manly Cove took up an assignment of the lease. Mr Comparot-Belin was clearly urging that not only the assignment of the lease should be approved, but that a new lease should be granted to Manly Cove at the expiry of the present lease. 76 Mr Magid described in cross examination the position in which he felt TMG had been placed: "A. We had a situation where we had 2 negatives, 2 very strongly unpleasant alternatives. One unpleasant alternative was to assign a lease and enter into an extended lease with a party with no proven record in restauranting in an area which has a very high mortality rate. Restaurants come and go, and halfway through leases, a landlord often does find he does not have a tenant to deal with. Rodolphe and Carl were business men of some ability but they had no proven record in restauranting. They had, Rodolphe in particular had lots of ideas, some were practical, some were hare-brained. And the question was: Is it worth in order to get rid of the problems that we had with the previous landlord, to allow a totally a lessee, to allow a totally inexperienced but energetic young man, inexperienced, run the restaurant and have an extended lease. We had to weigh up commercially which of the 2 negative situations was worse. Now, at his instigation, he suggested that everyone can win. I, Rodolphe, will win because I will have a long term lease on this wonderful property. You will win because you will get a headache off yourself. The other party will win because they will receive a very handsome amount of money. That was the proposition that was represented to us. And the scales were fairly balanced and so we thought, well, let's consider giving him a go." 77 In his affidavit evidence, Mr Comparot-Belin attributes to Mr Magid the statement: "The boys [i.e. Messrs Antonopoulos and Nikopoulos] owe me approx $220,000 in legal costs and arrears of rent. Who would pay for it? There is no way that if you don't that we would let them walk away until we have been fully paid". I am not able to rely with confidence on the accuracy of Mr Comparot-Belin's recollection. Mr Comparot-Belin agrees that these discussions with Mr Magid, whether on 5 April or 11 April, concerned a "global settlement" of all issues between Harbourside and TMG. It is very possible, if not probable, that Mr Comparot-Belin has taken certain parts of the discussion out of context, and that all Mr Magid was saying was that he would not agree to a global settlement on terms that Harbourside walked away from the District Court litigation without paying anything. 78 At the conclusion of the meeting, Mr Comparot-Belin asked whether Mr Magid agreed that he could approach Messrs Antonopoulos and Nikopoulos to see what he could negotiate for the benefit of all parties. Mr Magid agreed but said that he was not hopeful of any resolution. 79 The mediation in the ADT on 8 April was not successful. 80 On 11 April, Mr Magid and Mr Ramirez met Mr Comparot-Belin and Mr Frauenstein at their request. Mr Frauenstein's actual recollection of the meeting is much vaguer than the account of it given in his affidavit. I prefer to rely on his oral evidence. It is clear that at this meeting Mr Magid reiterated his view that Manly Cove did not have any skills in operating a restaurant business. Mr Comparot-Belin discussed proposed plans for the restaurant and possible menus. However, Mr Comparot-Belin was not able to tell Mr Magid that Manly Cove had engaged, or had even secured commitment from, any chef, manager or other restaurant staff. 81 Mr Frauenstein said that he gained the impression at the meeting that unless the litigation between Harbourside and TMG was resolved, Manly Cove would not get TMG's consent to the assignment of the lease. He frankly conceded that his recollection of the meeting was not good. I do not doubt that Mr Frauenstein was doing his best to recount accurately what he could recall of this meeting. However, because of his poor recollection, I am not able to rely on his evidence with any degree of confidence. 82 In particular, I cannot rely upon the accuracy of the statement attributed to Mr Magid in Mr Frauenstein's affidavit: "… I am not going to do the current tenants the favour of assigning the tenancy to you until we have those issues sorted out". From the commercial perspective of TMG, such a statement does not make sense, for the reasons which I have given earlier in relation to Mr Magid's motives in refusing consent on 11 March. 83 On 11 April, Mr Comparot-Belin and Mr Frauenstein met Mr Antonopoulos and Mr Nikopoulos in an endeavour to find terms upon which the District Court proceedings could be settled. Mr Comparot-Belin suggested that Harbourside drop the case against TMG. Mr Antonopoulos said that TMG was trying to extract "key money" as a condition of consenting to assignment of the lease. Mr Comparot-Belin had not heard of that term. 84 On 12 April, Mr Comparot-Belin again met Messrs Antonopoulos and Nikopoulos in an endeavour to persuade them to agree to compromise the District Court proceedings. He even offered to pay Harbourside an extra $260,000 if they would drop the case. Mr Nikopoulos says that he understood at the time that Mr Comparot-Belin, in attempting to negotiate a settlement of the District Court proceedings, was acting on his own initiative and was doing so in his own interest to gain favour with Mr Magid in the hope of obtaining consent to the assignment and a new lease upon expiry of the current lease. 85 On 13, or perhaps 14, April - the evidence is unclear but the date does not matter - Mr Magid and Mr Ramirez met Mr Comparot-Belin and Mr Frauenstein at their request. Mr Comparot-Belin informed Mr Magid that Harbourside would drop the District Court case for a payment of $260,000. Mr Magid rejected that proposal and said that TMG would, as part of a global solution, accept $130,000 from Harbourside to settle the case. He said that if TMG were to consent to an assignment to Manly Cove, he would still have to be satisfied that Mr Comparot-Belin would be bringing in a team of people with experience to operate the restaurant. 86 Mr Comparot-Belin said that he would not pay Harbourside any more for the restaurant business unless he was assured of a new lease at the expiry of the current lease. 87 It is not necessary to recount in further detail the comings and goings of Mr Comparot-Belin between Harbourside and TMG. No settlement of the District Court proceedings was achieved. 88 On 15 April 2005, Harbourside commenced formal proceedings in the ADT against TMG seeking a declaration that TMG was not entitled to withhold consent to the assignment. 89 On 22 April, TMG's solicitors wrote to the Registrar of the ADT giving notice of TMG's grounds for refusing consent to the assignment. As I have noted, Harbourside contends that this letter constitutes a refusal of a second request for consent to assignment of the lease. 90 On 10 May 2005, the time limit in the sale agreement between Harbourside and Manly Cove for obtaining consent to the assignment of the lease expired. On 13 May, Manly Cove gave notice rescinding the sale agreement. Whether "second refusal" was invalid

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91 The 21 March letter from Harbourside's solicitors to TMG was an attempt to supply information as to Manly Cove's position as at 11 March warranting a reconsideration by TMG of its decision on that date to refuse consent. I do not regard that letter as constituting a second and fresh request for consent for the purposes of s 39 RLA. The letter included no new factual information about Manly Cove's retailing skills. It was simply a letter making further submissions as to why the refusal on 11 March had been wrongful and threatening legal proceedings if TMG did not change its mind. Even Harbourside's solicitors regarded the letter in that way. Harbourside's application to the ADT for a determination of the dispute under the RLA, filed on 15 April 2005, alleged only one refusal of consent, that of 11 March 2005. 92 Accordingly, no new factual information having been provided by Harbourside, I do not accept that at any time after 11 March 2005 TMG was under an obligation to consider afresh an application for consent for the assignment of the lease to Manly Cove. However, Harbourside asserts that even if that is so, TMG's conduct after 21 March was unconscionable, within the meaning of s 62B(1) RLA, so that the Court can award damages under s 62B(8). I find it difficult to see what damages could flow to Harbourside if TMG's decision to refuse consent on 11 March was valid but later TMG unconscionably refused to change its mind. TMG's unconscionable refusal to change its mind does not render its earlier valid decision retrospectively invalid. If the earlier decision is valid and if no new information had been provided, then no assignment would ever have been granted to Manly Cove and it cannot have suffered loss by the alleged subsequent unconscionable conduct of TMG. 93 It may be that Harbourside's solicitors originally took the same view. When Harbourside lodged its application for determination in the ADT on 15 April it sought relief only in respect of its claim under s 39(1)(b) RLA; the application form provided expressly for separate notification that "an unconscionable conduct claim" was being made, but no such claim was notified in the application even though it cannot be in doubt that Harbourside's solicitor (the same solicitor for whom Mr Magid had expressed dislike) was aware of all of the discussions between Mr Comparot-Belin and his clients concerning the attempts of Mr Comparot-Belin to bring about a compromise of the District Court proceedings 94 Nevertheless, in case I am wrong in this conclusion, I will give my findings as to the facts which underlie Harbourside's claim arising from the "second refusal". 95 I am not satisfied that TMG's decision to adhere to its 11 March refusal of consent was made in bad faith and constituted unconscionable conduct. Nor am I satisfied that, in the discussions between Mr Comparot-Belin and Mr Magid following the 11 March refusal of consent, TMG sought to extract, as a condition of consent, the payment of additional money or the settlement of the District Court proceedings on favourable terms. 96 There is no question that it was Mr Comparot-Belin who took upon himself a role of peacemaker between Harbourside and TMG. He did this, not out of altruism but because he thought a successful resolution of the dispute between Harbourside and TMG would have a substantial commercial benefit for himself. It was Mr Comparot-Belin who proposed the terms of settlement of the District Court proceedings, not TMG. It was Mr Comparot-Belin who urged both disputants to accept those terms. 97 I accept Mr Magid's evidence that he was certainly prepared to consider again consenting to the assignment to Manly Cove if other commercial considerations made it worth taking the risk of an inexperienced operator in the restaurant business. To take that risk was his prerogative, not his obligation. If he declined to exercise his prerogative to take a risk, he was not acting unconscionably. Still less was he acting unconscionably in listening to the proposals for compromise that Mr Comparot-Belin was urging upon him. 98 I am satisfied that the commercial considerations which motivated Mr Magid to refuse consent to the assignment on 11 March continued to govern his attitude to the proposal for a "global settlement" put forward by Mr Comparot-Belin from 5 April onwards: the settlement proposals were not favourable enough to warrant TMG taking the risk of having Manly Cove as tenant of The Cove. 99 For these reasons, if Harbourside's solicitors' letter of 21 March had constituted a fresh request for consent to the assignment, I would have held that TMG was entitled to refuse consent on the ground that Manly Cove's relevant retailing skills were inferior to those of Harbourside. I would have held that TMG's decision to rely upon that ground to refuse consent had not been made in bad faith and did not amount otherwise to unconscionable conduct. Refusal of consent to Amancha assignment

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100 On or about 30 March 2006, Mr Antonopoulos and Mr Nikopoulos agreed with Mr Martinuzzo, Mr Christie and Mr Theodorou to the sale of The Cove business for $450,000. The agreement was oral and the terms had not yet been worked out in any detail. The identity of the purchaser was not confirmed. The agreement may be regarded as one in principle and not immediately binding in law. 101 On 13 April 2006, Harbourside's solicitors wrote to TMG advising that Harbourside had reached agreement for the sale of the restaurant business to Mr and Mrs Martinuzzo, Mr and Mrs Christie, Mr and Mrs Theodorou and Mr Carlos Bacalhau. The solicitors requested TMG's consent to the assignment of the restaurant lease. The letter enclosed statements of assets and liabilities of Mr and Mrs Martinuzzo, Mr and Mrs Christie and Mr and Mrs Theodorou, but did not include any statement of assets and liabilities of Mr Bacalhau. 102 The letter enclosed a curriculum vitae for "each of the Purchasers who will be actively involved in the management and operation of the restaurant". The disclosed assets and liabilities of Mr and Mrs Martinuzzo, Mr and Mrs Christie and Mr and Mrs Theodorou were substantial. There is no issue that their financial position, in combination, was at least equal to that of Harbourside. 103 The curricula vitae enclosed with the letter were very brief and general. This was a substantial business transaction and the assignment of the lease was a serious matter. It would have been reasonable to expect a great deal more particularity to have been given about the actual experience of Messrs Martinuzzo, Christie and Theodorou in operating a restaurant business. 104 Mr Martinuzzo's curriculum vitae showed, relevantly, that in 1998 he had "ventured into the seafood industry". The venture seemed to involve a seafood shop owned by Mr Theodorou in Gladesville, in which Mr Martinuzzo was employed as a manager. In 2001, Mr Martinuzzo purchased the business from Mr Theodorou. The shop was sold in early 2006. The curriculum vitae stated that "during various stages" of Mr Martinuzzo's career he worked in several restaurants and his duties included managing floor staff, bar management and "general maître d'" duties. The curriculum vitae did not show that Mr Martinuzzo had any experience in being responsible for the overall management and financial success of a restaurant. However, it stated that Mr Martinuzzo would be responsible for the "front of house" operations of the new restaurant business. 105 Mr Christie's curriculum vitae showed that he was born in London and arrived in Australia in 2001. His early background was said to be "in the Fashion Industry". He later: "… changed directions to pursue his family's interest in restaurants. Taking his experience from his family's extensive background in the hospitality industry (restaurants in London since 1948) he managed the 120 seater Bateman's Restaurant, in the heart of London's West End. In 1996, upon the retirement of the restaurant's owner, [Mr Christie] remained in the restaurant business on a consultancy level … until his arrival [in Australia in 2001]. Since then he has been involved with several restaurants on a consultancy basis." 106 Mr Theodorou's curriculum vitae showed that his first business, from 1986 to 1990, was a "retail seafood outlet" in North Ryde and another in Gladesville. It would appear that these "outlets" were seafood shops. Since 2001, when Mr Theodorou sold this business, he had been engaged in property development. Mr Theodorou is married to the sister of the Managing Director of a large seafood wholesale business. Mr Theodorou did not have experience in operating or being financially responsible for the success of a restaurant business. 107 A curriculum vitae was included for Mr Bacalhau. He had been the head chef of The Cove restaurant since its commencement. No further details of his experience were given - clearly, those details were not regarded as necessary. The curriculum vitae stated that Mr Bacalhau would remain as head chef in the new restaurant business "and in the near future will be a shareholder of the business". 108 On 20 April, Mr Ramirez wrote to Harbourside's solicitors requesting a meeting between the prospective purchasers and Mr Magid and himself. The letter continued: " 1. Curriculum Vitae From the information provided on the prospective purchasers it remains unclear as to what level of actual retailing experience they may have with regard to operating a restaurant.

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In view of the scant and imprecise information provided with Harbourside's letter of 13 April, this request for information was entirely justified. 109 On 26 April, Harbourside's solicitor e-mailed to Mr Ramirez answers to Mr Ramirez's request for information. An attached letter from Mr Martinuzzo showed that Mr Martinuzzo had, indeed, owned a seafood shop at Gladesville, and Mr Theodorou had owned two seafood shops, one at North Ryde and one at Gladesville. The information showed that since Mr Christie's arrival in Australia, he had "consulted for Mr Vida of Romano's Restaurant, Castlecrag … to offer ideas for a new theme, including menus, décor and some marketing". Mr Christie had also been asked to give advice for a new restaurant at Bondi Junction. His advice consisted of "offering assistance in the total concept of the fit out and theme, and general running". 110 The letter enclosed an ASIC search of Amancha which showed that Messrs Martinuzzo, Christie and Theodorou were directors and shareholders, but not Mr Bacalhau. 111 On 27 April, Messrs Martinuzzo, Christie and Theodorou met Mr Magid, Mr Ramirez and TMG's solicitor. By this time there were some six and a half years left in the term of the lease if both options were exercised. Messrs Martinuzzo, Christie and Theodorou were contemplating spending a substantial amount on refurbishment of the restaurant, and were keen to know whether a new lease would be granted when the current lease expired. They were informed by Mr Magid that TMG would not be granting a new lease because it had its own plans for the site. There was, of course nothing to prevent TMG from taking that attitude, and it was perfectly proper for TMG to make its position known to Amancha. 112 There is no question but that Mr Magid drew attention at this meeting to the fact that Messrs Martinuzzo, Christie and Theodorou had no experience in being responsible for the financial success of a restaurant comparable to The Cove. However, Mr Magid frankly conceded in cross examination that Messrs Martinuzzo, Christie and Theodorou had, between them, experience in the retailing of food and that Mr Christie's experience in managing a restaurant was a relevant retail skill. He frankly said that the "retailing skills" possessed by Messrs Martinuzzo, Christie and Theodorou were much better than those of Manly Cove. He said that a highly important consideration was the suggestion that the head chef of The Cove, Mr Bacalhau, would become a shareholder of Amancha, thus having a stake in its financial success. If Mr Bacalhau's participation in ownership of the restaurant business had been secured, he said, he may well have given consent to the assignment. However, it was not clear that Mr Bacalhau was going to take a part in the management team and he felt that he needed further information. 113 I accept Mr Magid's evidence. The reasons given by him for his attitude to the assignment are commercially rational and are supported by the information - or, rather, the lack of information - which had been provided to TMG by the time of this meeting. There was no suggestion at this meeting that litigation between Harbourside and TMG, or animosity between Mr Magid and Messrs Antonopoulos and Nikopoulos, had anything to do with Mr Magid's attitude to the proposed assignment to Amancha. 114 There is no doubt that when Mr Martinuzzo learned that TMG was unlikely to grant a new lease upon expiry of the current lease, his enthusiasm for the purchase of the business from Harbourside was somewhat dampened. However, he said, and I accept, that if Harbourside had been prepared to accept a reduction in the purchase price for the business, he was prepared to proceed with the purchase and take the risk that a new lease would not be granted. Consequently, Messrs Martinuzzo, Christie and Theodorou went back to Messrs Antonopoulos and Nikopoulos and tried to negotiate the sale price for the business down. 115 On 3 May, Harbourside's solicitors sent an e-mail to Mr Ramirez requesting details of any further information required for consent to the assignment. Mr Ramirez responded on the same day requiring information concerning the assets and liabilities of Amancha and its directors and guarantors, and contact details of certain persons who could provide references as to the work experience and skills of Messrs Martinuzzo, Christie and Theodorou. In my opinion, this request for information was not unreasonable. 116 On 9 May, Harbourside's solicitors provided TMG with some, but not all, of the information requested. One of the persons whom TMG wished to contact as a reference for Mr Christie's experience was said to be overseas for six weeks and uncontactable. 117 On 10 May, Harbourside's solicitors faxed to TMG title searches for properties owned by the proposed guarantors of Amancha. 118 On 19 May, Harbourside's solicitors requested Mr Ramirez by e-mail to advise when TMG would respond to the request for consent to the proposed assignment. 119 On Tuesday, 23 May, Harbourside's solicitors wrote to TMG's solicitors advising that the proposed assignees "… include the current head chef of the Cove restaurant, Mr Carlos Bacalhau". However, it is significant that no statement of assets and liabilities of Mr Bacalhau had yet been provided, none of the title searches of guarantors' property had included any property owned by Mr Bacalhau, and no advice had been given that Mr Bacalhau was now a director and shareholder of Amancha. In short, the participation of Mr Bacalhau in the venture in any way was left in very general terms. 120 The letter concluded by saying that if no response was received by 5pm on Thursday, 25 May, "we will take steps to expedite proceedings on this issue". 121 On 25 May, TMG's solicitors responded in the following terms: "I am surprised at the tone of your letter and yesterday's email. Nor do I understand the reference to 'proceedings' or the 'current court proceedings' . How can any of the current disputes between our respective clients be relevant to your client's request?

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127 TMG does not contend that the financial resources of Amancha, given that Messrs Martinuzzo, Christie and Theodorou would be guarantors, were inferior to those of Harbourside. It says that it was entitled to refuse consent because Amancha's relevant retailing skills were inferior to those of Harbourside. 128 Harbourside repeats its submission that "retailing skills" for the purpose of this case are not confined to operating a restaurant business and that Amancha, in the persons of Messrs Martinuzzo, Christie and Theodorou, had skills in the food industry which were at least equal to those of Harbourside. 129 For the reasons I have earlier given, I am of the view that Harbourside was required to demonstrate that Amancha had skills in operating a restaurant business which were at least equal to those of Harbourside. That involved demonstrating that those concerned in the management of Amancha had had experience in being responsible for the operation and financial success of a restaurant business comparable to that of Harbourside. If the directors of Amancha were to be Messrs Martinuzzo, Christie and Theodorou, but not Mr Bacalhau in addition, I would conclude that the relevant skills of Amancha were not equal to those of Harbourside. Only Mr Christie claimed experience in running a restaurant business, but the details of his experience in London and his "consultancies" in Sydney were so scant and incapable of verification that TMG was entitled to discount them unless substantial verification was provided. Verification of the "consultancies" was sought but was said not to be available at the time that Harbourside insisted that TMG make a decision to grant or refuse consent to the assignment. 130 TMG was entitled to be concerned that Harbourside had originally indicated that Mr Bacalhau was to be one of the participants in ownership of Amancha, but that his directorship and shareholding of Amancha were never confirmed. It is significant that Mr Bacalhau did not attend any meeting with TMG. 131 I conclude that on the information provided to TMG by Harbourside and Amancha as at 25 May, TMG was justified in refusing consent to the assignment pursuant to s 39(1)(b) RLA on the ground that the retailing skills of Amancha were inferior to those of Harbourside. Unconscionable conduct

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132 Mr Lever SC submits that TMG's conduct in requiring more information about Amancha's financial resources and retailing skills, particularly in its solicitors' letter of 25 May, was unreasonable and is evidence of a determination on TMG's part to refuse consent to any assignment by Harbourside unless Harbourside paid money to TMG and discontinued the District Court proceedings. Consequently, Mr Lever says, TMG did not act in good faith in refusing the consent, even if it was entitled to do so in law, and it is guilty of unconscionable conduct in contravention of s 62B(1) RLA. 133 There is no suggestion in the evidence that in the course of discussions between the parties for the assignment to Amancha, TMG even hinted that consent to the assignment would be given if Harbourside settled the District Court proceedings on terms acceptable to it. I do not accept that TMG's attitude to the assignment to Amancha was influenced by some intention on its part to refuse the request for consent as a lever to procure an advantage for itself in the District Court proceedings. 134 There is no suggestion in the evidence that TMG even hinted that it would give consent to the assignment to Amancha if a sum of money - "key money" - were provided as an inducement. 135 As I have observed, I am satisfied that TMG had a legitimate concern as to the retailing skills of Amancha in view of the paucity of verifiable information concerning Mr Christie's skills in respect of operating a restaurant and because of the unexplained absence of further confirmation that Mr Bacalhau would be a director and shareholder of Amancha. Some of the requests for information in TMG's solicitors' letter of 25 May were over-detailed - as I have said, probably in response to pressure from Harbourside's solicitor for an immediate decision - but I cannot ascribe to these requests a motive other than lawyerly defensiveness. The information sought by way of confirmation of retailing skills, however, was entirely proper and reasonable. 136 I am not satisfied that TMG's refusal of consent, or its request for further information on 25 May, were actuated by any improper or ulterior purpose. Harbourside's claim founded upon unconscionable conduct does not succeed. Damages

Harbourside Catering Pty Ltd v TMG Developments Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (69 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)

Cited By (2)