Lincoln & Ors v Lutwyche Shopping Centre Pty Ltd [2018] QCAT 406

[1] This case involves a newsagency at the Lutwyche City shopping centre. Linctown Pty Ltd as trustee for the A & G Lincoln Family Trust ('Linctown') ran the newsagency for almost two and a half years. This was up until February 2017, when the lease was terminated early prior to a refurbishment of the centre.

[2] Mr Andrew Lincoln and Mrs Gaye Lincoln are the shareholders in, and the directors of, Linctown. They also provided guarantees for Linctown's obligations under the lease agreement.

[3] The applicants - Linctown and Mr and Mrs Lincoln - seek compensation from the lessor, Lutwyche Shopping Centre Pty Ltd ('Lutwyche Shopping'), under the Retail Shop Leases Act 1994 (Qld) ('Retail Shop Leases Act').

[4] Lutwyche Shopping is affiliated with the Abacus Property Group, and so some of the actions on behalf of Lutwyche Shopping were taken by Abacus staff. However, for the sake of simplicity we will refer to the lessor and affiliated entities simply as Lutwyche Shopping

[5] The applicants make two types of compensation claims.

[6] The first is for alleged breaches of contract. For example, the applicants argue that Linctown lost profit because the lessor failed to promptly fix broken-down travelators and a leaky roof. The amount of compensation claimed in respect of various alleged breaches comes to a little over $47,500.

[7] The second is for loss of the business. The applicants argue that Linctown was forced to close its business because the lessor engaged in a course of unconscionable conduct. The amount claimed is in the range, in round figures, $271,000 to $301,000.

[8] Mr Lincoln gave oral evidence at the hearing. The applicants also called a number of other witnesses: Mr Tommy Le (Linctown's accountant), Mr John Stephens (a business valuer), Mr Donald Gilbert (a retail lease valuer), Mr Peter Bayard (a family friend with considerable retailing experience), Mr Kyle Swain (a leasing consultant) and Mr Dean D'Allesandro (who lives near the shopping centre). Lutwyche Shopping called two witnesses: Mr David Smith (the manager of the shopping centre) and

Mr Gerard McSpadden (National Asset Manager - Retail). Statements or affidavits from all of those witnesses, together with numerous attachments, were also in evidence.

[9] At the outset of the hearing, we dealt with a dismissal application by Lutwyche Shopping, which had been filed by way of an application for miscellaneous matters on 16 July 2018. As argued by Mr Lane, however, the application was reduced in scope. We treated it as an application for a ruling that the applicants could not be compensated under section 43(1)(f) of the Retail Shop Leases Act - which provides for compensation when a lessor causes a lessee to vacate a shop before the end of a lease because of the refurbishment of a centre - in circumstances such as the present where the lease was terminated by the lessee before the refurbishment began. We ruled that compensation was not available under section 43(1)(f) in such circumstances. We gave oral reasons, which we will not repeat here other than to note that we followed the reasoning of the Supreme Court of Queensland in Laldy Pty Ltd v Archer & Ors[1] which we regarded as relating to an analogous situation.

[10] During the hearing we also ruled on applications by Lutwyche Shopping for an adjournment and to exclude proposed opinion evidence from some of the witnesses for the applicants. We refused to adjourn, and we ruled that the opinion evidence was admissible. Again, we gave oral reasons for those rulings and we will not repeat them here.

[11] The following matters are not in dispute unless indicated otherwise.

[12] The lease was signed by Linctown and the previous owner of the shopping centre, Federation Manager Ltd. On 29 October 2015, Lutwyche Shopping (then called Lutwyche City Shopping Centre Pty Ltd) became the new owner. Lutwyche Shopping took over the lessor's rights and obligations under the existing lease.

[13] Linctown's newsagency occupied site SP024. The lease was to run from 22 September 2014 to 21 September 2021.

[14] However, there was provision in clause 24 of the lease for early termination at the election of the lessee if the lessor sought to relocate the shop in the event of refurbishment. Requirements relating to relocation were also implied into the contract under sections 46C to 46G of the Retail Shop Leases Act. The required process was that if the lessor wished to relocate a tenant, the lessor was required to give three months' notice with certain details of the proposed refurbishment and details of the 'reasonably comparable alternative retail shop to be made available to the lessee'.[2] The rent for the alternative shop:[3]

... is taken to be the same as the rent for the existing leased shop, adjusted to take into account the difference in the commercial values of the shops when the lessee's business is relocated.

[15] The lessor is required to pay the lessee's reasonable costs of relocation, such as for dismantling and reinstalling fixtures.[4]

[16] However, within one month of receiving a relocation notice, the lessee can give a notice terminating the lease.[5]

[17] Linctown was continually behind in its rent for 13 months or so from when Lutwyche Shopping became the owner. There were several discussions about this between

Mr and/or Mrs Lincoln and Lutwyche Shopping during that time, and we will refer to some aspects of those discussions later in these reasons.

[18] On 4 and 15 November 2016 the applicants filed notices of dispute in QCAT seeking compensation from Lutwyche Shopping for the same matters as those canvassed in the dispute that we are dealing with, other than those which arose after 4 or 15 November 2016. However, the applicants withdrew those notices of dispute on 15 February 2017 in order to concentrate on a notice of dispute they had filed against the previous owner of the shopping centre. That notice also related to similar complaints.

[19] The arrears of rent owed by Linctown to Lutwyche Shopping as at 19 December 2016, $100,376.72, were cleared on that day by Linctown. Linctown also paid some rent in advance on that occasion. Mr Lincoln's evidence was to the effect that he understands that the arrears included an amount - calculated by Lutwyche Shopping at $40,980.23 - which had earlier been foregone by Lutwyche Shopping under a rent abatement arrangement that had applied to the first six months of the 2016 calendar year. Lutwyche Shopping says that the amount of $40,980.23 remains foregone. Having regard to the rent records produced by Lutwyche Shopping, we accept that its position is correct. However, we have no reason to doubt that Mr Lincoln believed that the abated amount had been added back in.

[20] On 23 December 2016 Lutwyche Shopping sent a relocation notice to Linctown. In summary, the notice said that Lutwyche Shopping intended to refurbish the centre, and for that purpose required Linctown to vacate site SP024. Lutwyche Shopping nominated site T3.26 as the new location for the newsagency. The notice required relocation by 1 April 2017.

[21] Correspondence followed between the parties. Linctown expressed dissatisfaction on numerous grounds with the proposed site, T3.26, and criticised aspects of Lutwyche Shopping's conduct. Then, on 23 January 2017, Linctown sent a notice terminating the lease. This was pursuant to its right to terminate in response to the relocation notice. The parties then agreed that 22 February 2017 would be the date on which the lease would end. Linctown vacated site SP024 on 22 February 2017.

[22] Meanwhile, on 24 January 2017, Lutwyche Shopping sent a letter to Linctown offering a lease for a smaller site, T3.06. Linctown did not take up that offer.

[23] Refurbishment work at the centre began in July 2017. Total refurbishment costs are projected to be $40m to $50m. Clearly, then, a major refurbishment is under way. Refurbishment includes shifting the food court to the part of the shopping centre which SP024 and some other spaces occupied, and extending the centre slightly along the Chalk Street side. There are plans to introduce a Woolworths supermarket, in addition to the Coles and Aldi supermarkets which have been in the centre for some years. Lutwyche Shopping intends to keep the shopping centre operating during the refurbishment. The refurbishment is now partially completed, and is ongoing.

[24] On 8 August 2017 Linctown filed in QCAT the notice of dispute which began the current proceeding.

[25] The above is merely a broad history. Other details will be referred to below as required.

[26] There are several aspects to the claims for compensation made by the applicants. We will discuss them one by one.

[27] A prominent complaint by the applicants relates to the pair of travelators, near Aldi, connecting the shopping level with the carpark below. This pair of travelators was present while Linctown was a tenant, and will remain in the refurbished centre. There was also a set of escalators, lifts, and a ramp closer to the SP024 site, near Coles. In the course of the refurbishment, the escalators and ramp have been removed and a second pair of travelators has been installed at the Coles end.

[28] The applicants say that the original travelators frequently broke down. Mr Lincoln has provided a list of dates of breakdowns, and photographs of the travelators barricaded off for repairs on various occasions. Mr Lincoln also refers to the travelators being inoperative for a period of some 22 weeks. The applicants argue that the recurring breakdowns deterred shoppers from using the centre because access was difficult or unpredictable.

[29] Some of the other witnesses also mention that travelators were broken down. For example, Mr Bayard says that on three of the four occasions when he visited the shopping centre, the travelators were not functioning.

[30] Lutwyche Shopping says, and we accept, that the long breakdown mostly spanned the end of the previous owner's tenure, and resulted from flooding in the carpark. Lutwyche Shopping says that it bought the centre with the intention of refurbishing the centre as a whole over time, but also of restoring the travelators to use promptly. It says that it had the travelators back in operation within a month of taking over the centre. Lutwyche Shopping says that in 2017, at some point after Linctown had vacated, it spent a total of some $114,000 on new chains for that pair of travelators.

[31] Lutwyche Shopping does not dispute that the travelators broke down on occasions after the initial repair. It says, however, that it had the travelators repaired in a timely way under its contracts with Kone, initially, and later, Otis. In support of its contentions, Lutwyche Shopping has provided copies of documents such as service contracts and visitor/contractor sign-in books. Mr Bullow points out that there is a gap in the sign-in books between 12 December 2015 and 30 November 2016, which is most of the period in question. Mr Smith, the centre manager, attributes that gap to a book being inadvertently missed in copying the records for his statement. We consider that this is the likely true explanation, rather than an effort to suppress unfavourable evidence.

[32] A lessor will be liable to pay to a lessee:[6]

... reasonable compensation for loss or damage suffered by the lessee because the lessor ... does not have rectified as soon as is practicable ... any breakdown of plant or equipment under the lessor's care or maintenance.

[33] Compensation will likewise be payable if the lessor does not have rectified as soon as is practicable any defect in the centre or building (except, in some circumstances, pre-existing defects).[7]

[34] Mr Bullow submits that a lessor cannot avoid liability under section 43(1)(d) by outsourcing responsibility to contractors. We accept that point, but in assessing whether rectification has occurred 'as soon as is practicable' it is relevant to take into account that lessors will almost inevitably be reliant on specialist contractors to fix complex equipment such as travelators, escalators and lifts.

[35] It is apparent that the shopping centre was in an ageing state when purchased by Lutwyche Shopping. Doubtless the travelators, and probably other infrastructure items, were not in new or prime condition.

[36] Mr Bullow drew our attention to some interstate and overseas cases about the extent of a lessor's obligation to repair: in summary they indicate that a lessor's obligation extends beyond merely fixing breakdowns to taking steps to avoid future malfunctions. Further, repair may necessarily involve renewal. Where routine repairs have previously been neglected, the lessor must put the building in the condition it would have been in had maintenance been kept up. We consider that those requirements apply in Queensland, and have been given effect by Parliament in requiring a lessor to rectify not merely a breakdown but also, more onerously, a defect.

[37] Mr Bullow submits that Lutwyche Shopping 'should not have put things off simply so that some could be done as part of the redevelopment'.[8] We accept that Lutwyche Shopping was not at liberty to neglect its ongoing obligations to rectify, pending the refurbishment. However, we are persuaded by Lutwyche Shopping's evidence that it arranged for breakdowns to be rectified in a timely manner.

[38] Of course a point may be reached with an item of infrastructure where breakdowns become so frequent that the item must be regarded as having outlived its useful lifespan. In that situation, there would be a defect rather than a mere breakdown, and replacement or thorough overhaul would be required to rectify the defect. We do not consider that such a point had quite been reached with the travelators at the relevant time, and so section 43(1)(d)(ii) was not triggered. We are satisfied that Lutwyche Shopping met its obligations under section 43(1)(d)(i) to repair breakdowns of the travelators as soon as was practicable.

[39] The applicants also complain of escalator breakdowns. Mr Lincoln has provided photographs of the escalators barricaded off for repairs at certain times. One photograph, from September 2016, captured a sign advising that the motor had burnt out due to old age and that repairs would take between five and seven days. Later photographs suggest the repairs took longer than that.

[40] Lutwyche Shopping says that it arranged for any breakdowns to be repaired by its contractors in a timely way. We accept this. As with the travelators, we are not satisfied that there were any breaches of Lutwyche Shopping's obligations under section 43(1)(d) in respect of the escalators.

[41] The applicants say there were repeated water leaks into the centre from above. Mr Lincoln has provided photographs of buckets put out on the floor of the shopping level on a number of occasions to collect water leaking from the ceiling.

[42] Lutwyche Shopping says that it arranged for its contractor, Cartella, to investigate and fix leaks as they became evident. Lutwyche Shopping says that no ongoing defect in the roof was found. Again, Lutwyche Shopping has provided records relating to its contract with Cartella. There are also entries in the sign-in books by Cartella staff.

[43] We accept that Lutwyche Shopping took action to rectify leaks in a timely manner.

[44] We are satisfied that rectification, for the purposes of section 43(1)(d)(ii), occurred as soon as was practicable. Similarly, the obligation under section 43(1)(e) to maintain the centre was met, in our view, so far as leaks from the roof or ceiling are concerned.

[45] Mr Lincoln says that in June 2016 there was a leak of sewerage into the newsagency, and that stock, a computer, and fixtures had to be replaced as a result.

[46] A sewerage leak into a shop could constitute a breach of a number of obligations under section 43 of the Retail Shop Leases Act, such as the lessor's obligation not to cause significant disruption to a lessee's trading.[9]

[47] Mr Smith, the centre manager, says that such a leak was not reported to management. We found Lutwyche Shopping's witnesses, Mr Smith and Mr McSpadden, to be straightforward, responsive and apparently truthful. We do not have the same level of confidence in Mr Lincoln's testimony. His credibility is undermined by a significant internal inconsistency in his version of events. Mr Lincoln said in cross-examination that Linctown could at all times have paid the rent but chose not to do so because of its dissatisfaction with Lutwyche Shopping's performance. This was despite the lessee's obligation in clause 20.13 of the lease to pay money owing under the lease regardless of any dispute with the lessor. The evidence of ability to pay is inconsistent with representations of inability to pay made by Mr Lincoln to Lutwyche Shopping during the tenancy. For example in an email dated 14 January 2016 from 'Andrew and Gaye', but clearly written by Mr Lincoln, Mr Lincoln described the applicants' financial situation as 'dire', spoke of 'extreme stress', and sought a rent reduction. There were other similar emails from 'Andrew and Gaye', where it is unclear which spouse was the author. However, given the consistency in theme, we have no doubt that Mr Lincoln would have been well aware of the nature of any representations made by Mrs Lincoln to Lutwyche Shopping.

[48] Mr Lincoln has, therefore, not given a consistent account of the applicants' ability to pay the rent, and so we do not regard him as a very reliable witness.

[49] We accept Mr Smith's evidence that Lutwyche Shopping received no report of a sewerage leak. There are no photographs or similar evidence confirming that there was such a leak into the newsagency. We are not persuaded that there was such a leak.

[50] The applicants say that Lutwyche Shopping failed to keep the centre clean and properly maintained. Mr Lincoln's statement discusses overflowing bins, bad smells from basins, unfilled soap dispensers, faulty taps, broken tiles, inadequate air-conditioning etc. He has provided photographs of rubbish on the floor of a toilet, dirty sinks, rubbish bags piled up near skips, and so on. Some other witnesses called by the applicants also comment adversely on smells, dirtiness etc.

[51] Compensation is payable to a lessee if the lessor neglects to clean, maintain or repaint the centre.[10]

[52] Lutwyche Shopping relies on its contractual arrangements with contractors such as cleaning, air-conditioning, maintenance, and rubbish removal companies. Lutwyche Shopping says that these arrangements provided for regular cleaning and rubbish removal, and for maintenance and repairs as required. Lutwyche Shopping has produced evidence of the service contracts and related records such as minutes of meetings, reports, payment lists, and records of action taken in response to services that Lutwyche Shopping considered had been performed unsatisfactorily.

[53] A lessor cannot be expected to guarantee complete cleanliness, tidiness and so on at all times. What is expected is that a lessor will have appropriate arrangements for regular cleaning, maintenance, rubbish removal and so on, in order to ensure a reasonable standard of hygiene and tidiness. We are satisfied that Lutwyche Shopping had appropriate arrangements in place to ensure that such standards were met. We find that Lutwyche Shopping did not neglect its relevant obligations.

[54] Mr Lincoln says that the lower level of the carpark was prone to flooding. He provided photographs of flooding.

[55] Mr Smith says that the Brisbane City Council has a long-standing registered easement which allows the free flow of rainwater through the lower level carpark, and that Lutwyche Shopping has spent over $43,000 on installing pumps to assist in the management of flows. Records provided by Lutwyche Shopping indicate that this expenditure was in early 2017.

[56] We are satisfied that Lutwyche Shopping took appropriate steps within a reasonable time to reduce the impact of flooding.

Did Lutwyche Shopping substantially restrict the flow of potential customers past the newsagency?

[57] A lessor is liable to pay to a lessee reasonable compensation for loss or damage suffered by the lessee because the lessor takes action that 'substantially restricts, or alters ... the flow of potential customers past the shop.'[11]

[58] The applicants say a combination of circumstances reduced the appeal of the centre, and consequently the flow of potential customers into the centre and past the newsagency. The applicants point to the factors discussed above such as the travelator and escalator breakdowns, the leaks from the roof, and so on. Mr Lincoln says that Lutwyche Shopping failed to keep out beggars and customers who engaged in fights. The applicants also point to vacant retail spaces within the centre, the presence of short-term or pop-up tenants, handwritten signs, and, in effect, a cheapened feeling increasingly pervading the centre. The applicants point out, for example, that a space next to their newsagency was mostly vacant. Mr Lincoln says that transaction counts in the newsagency declined over time: for example in general sales in the 14 months to 31 December 2016 there were 135,025 transactions compared with 157,151 for the 14 months to 31 December 2015.

[59] Mr Bayard also describes a downmarket-looking centre as at early 2017. He also says that Linctown's newsagency, at SP024, was 'poorly located'.[12] A local resident,

Mr Dean D'Alessandro, said in June 2017 that there was a 'very obvious decline in the patronage [of the shopping centre] over the last couple of years'.[13]

[60] Mr Kyle Swain, a retailing consultant who was engaged by the applicants in January 2017, describes the centre as 'run down and tired', with a tenancy mix that was very weak.[14] He says that Linctown's retail business 'was under significant financial distress as a direct result of rental costs far exceeding the foot traffic attracted to that centre'.[15] However, it seems that this conclusion was based on impression, discussions with Mr Lincoln, and so on, rather than on any data about foot traffic.

[61] Support for the applicants' argument can be found in Lutwyche Shopping's PowerPoint presentation to tenants on 23 November 2016 about the planned refurbishment. The current 'weaknesses' of the centre were said to include 'tired building facilities - toilets / parent rooms', 'old vertical transport', 'lack of good fresh food (butcher / fruit and veg)', and 'tired looking centre turning away customers'.

[62] Lutwyche Shopping acknowledges that there were vacancies in the centre when it purchased it, and throughout the relevant period, and that the planned refurbishment precluded the filling of some sites on a long-term basis. It concedes that it had a number of short-term tenants.

[63] Mr Smith acknowledged in cross-examination that Lutwyche Shopping collected foot count data at entry points but had not produced such data in evidence in this proceeding. He denied a suggestion from Mr Bullow that the data was not produced because it would not have supported Lutwyche Shopping's case.

[64] The only figures on foot counts within the centre were, incidentally, in an email from Mr Smith to the Lincolns on 26 October 2016. Mr Smith, in response to an email from the Lincolns about slow sales in the newsagency, remarked that 'customer traffic' in the centre in September 2016 was '+1.67' compared with September 2015. We note that this is only a snapshot, and source data was not provided.

[65] The reduced number of transactions which Mr Lincoln says the business had may reflect a reduced flow of potential customers past the shop. However, of course, various other factors can influence the volume of sales: for example pricing, presentation, marketing, the experience of customers, and changing consumer preferences. The documents show that the applicants lamented several times in correspondence to Lutwyche Shopping that their sales were suffering because many of their product lines were being 'cannibalised' by discount traders in the centre.

[66] We accept that the centre was 'tired' and somewhat makeshift-looking in places during the period in question. The fact that the travelators had been broken down for months under the previous owners is itself noteworthy. Further, the fact that Lutwyche Shopping bought the centre with the intention of refurbishing says something about the condition of the centre. We accept that the generally 'tired' nature of the centre and the lack of certain types of shops would have reduced the appeal of the centre and probably had some negative effect on the number of shoppers.

[67] On the other hand, the extent of such an effect will depend on a range of factors: whether local shoppers are able or willing to travel further afield, whether the local area has densified, whether non-local shoppers previously travelled to the centre but have stopped doing so, and so on. There is scant evidence before us about such matters.

[68] Mr Lincoln says that Lutwyche Shopping failed to keep out beggars and customers who fought. However, such problems are difficult, and we have no reason to suppose that Lutwyche Shopping managed them inappropriately.

[69] While we accept that the condition of the centre probably had some negative impact on the flow of potential customers into the centre and past the newsagency, we are not satisfied that the applicants have established a basis for compensation under section 43(1)(b)(ii). The scale of any negative impact is not known. Nor is it apparent that the situation deteriorated after Lutwyche Shopping took over the centre. The fixing of the travelators was an improvement. There may have been some deterioration in respect of other factors but it is not apparent that any deterioration was significant. The applicants have not proven on the balance of probabilities that actions by Lutwyche Shopping substantially restricted the flow of customers.

Did Lutwyche Shopping breach its obligation to allow quiet enjoyment?

[70] Under a quiet enjoyment clause in the lease, Lutwyche Shopping was required to permit Linctown to 'peaceably possess and enjoy the Premises'.[16]

[71] Mr Bullow submits that Lutwyche Shopping breached this obligation when the sewerage leak into the newsagency happened. Mr Bullow submits that this occurred in the context of Lutwyche Shopping leaving the centre in a run-down state, rather than proactively ensuring that faults did not occur.

[72] As discussed above, however, we are not satisfied that there was a sewerage leak. Accordingly, we find that Lutwyche Shopping did not breach the quiet enjoyment clause in the lease.

[73] While the concepts of interference with quiet enjoyment and derogation from grant are often seen as interchangeable or overlapping, Mr Bullow notes that the former often refers to matters within the leased space while the latter often refers to failures by the lessor in areas outside the leased space. A derogation will occur where the lessor makes the leased space unfit or materially less fit for the purpose for which it was leased.[17]

[74] Mr Bullow argues, and we accept, that there was an implied term of the lease that Lutwyche Shopping would not derogate from the grant. Mr Bullow submits that a combination of factors amounted to derogation by Lutwyche Shopping: not rectifying as soon as was practicable breakdowns of plant and equipment in the centre, neglecting to clean and maintain the centre, leaving shops vacant or only granting casual or pop-up tenancies, causing an alteration in the flow of potential customers past the newsagency, and failure to comply with a number of specified matters in the lease. Those specified matters relate to the maintenance and repair of items such as air-conditioning equipment, travelators, escalators, toilets, washrooms, as well as the centre generally. Further, they include painting, cleaning, garbage removal, allowing customers to use the car parks, and the clause about quiet enjoyment. Mr Bullow also lists clause 9.8 of the lease, which relates to the obligation of Linctown to pay its share of the operating expenses for the centre to Lutwyche Shopping.

[75] Mr Lane submits, in effect, that matters external to the leased space cannot constitute a derogation. However, we consider that external matters can be relevant.[18]

[76] We have already discussed the factors relied on by the applicants, other than the effect of vacancies and short-term tenancies (including pop-up shops). We have no direct evidence about whether the level of vacancies and short-term tenancies exceeded industry averages, but it is reasonable to infer that they did because of the planned refurbishment. It would, for example, have been difficult or impossible to find long-term tenants for spaces that were going to be eliminated. It is also reasonable to assume that higher levels of vacancies and short-term tenancies would have some negative impact on the appeal of the centre and, therefore, customer flows.

[77] It is important to bear in mind, though, that the lease signed by Linctown contemplated that the centre might be refurbished, redeveloped or extended. The lease made provision for relocation of the shop in such an event.[19] In all likelihood, any refurbishment would result in an increase in vacancies and short-term tenancies during the lead-up phase. This would, or at least should, have been understood by the parties entering into the lease. In our view, such foreseeable effects of refurbishment will not constitute a derogation.

[78] We are not satisfied that the factors relied on by the applicants, whether considered individually or cumulatively, rendered the leased space unfit or materially less fit for use as a newsagency. Accordingly, we find that there was no derogation from the grant.

Did Lutwyche Shopping engage in unconscionable conduct?

[79] Mr Bullow contends that a course of unconscionable conduct by Lutwyche Shopping caused Linctown to lose its business. Mr John Stephens valued the business, assuming the continuation of the lease, at between $271,976 and $301,263. Mr Bullow submits that the applicants are entitled to compensation equivalent to the value of the business.

[80] Before discussing the conduct relied on as amounting to unconscionable conduct, it is useful to add information about some events that transpired during the tenancy.

[81] Lutwyche Shopping says that the Lincolns indicated on various occasions that the business was in serious financial difficulty and sought rent reductions. For example, the financial difficulties were emphasised at a meeting on 24 November 2015 with

Mr McSpadden and Mr Smith attended by Mr Lincoln and Mrs Lincoln's mother, Shirley Milligan. Lutwyche Shopping says it encouraged the Lincolns to meet with the marketing manager, which they did. The Lincolns, Lutwyche Shopping says, also advised that they would welcome an opportunity to 'downsize'. Lutwyche Shopping says that in February 2016 the parties negotiated an arrangement under which Linctown would provide a signed deed of surrender of the lease and a Queensland Titles Registry Form 8 Surrender of Freehold Lease, Lutwyche Shopping would allow a 50% rent abatement up to 30 June 2016, Linctown would pay rent regularly, and arrears were to be cleared by 30 June 2016. The surrender documents were signed by the applicants in March 2016. However, rent was not paid regularly and arrears were not cleared by the end of June 2016, so Lutwyche Shopping stopped the abatement.

[82] This version of events is corroborated in many important respects by records such as emails, and we accept it.

[83] The deed of surrender contemplated that Linctown would be offered a lease for some other space within the centre. We note that the deed included a clause containing 'conditions precedent' before the deed would take effect.[20] These included the parties entering into a lease for alternate premises, and Linctown paying all sums due to Lutwyche Shopping under the existing lease up to the surrender date.

[84] We also note that the deed of surrender was never signed by Lutwyche Shopping. It did not take effect.

[85] Mr Bullow submits that the evidence establishes that there were actually two agreements surrounding the deed of surrender:

• (a) firstly, the parties agreed that if the applicants signed the deed, they would be 'given a lease for another shop in the shopping centre';[21] and

• (b) secondly, Lutwyche Shopping would allow a 50% rent abatement if the applicants signed the Form 8 and paid outstanding rent by 30 June 2016.

[86] In relation to the first of those agreements, Mr Bullow submits that there is nothing in the deed of surrender 'about the payment of outstanding rent';[22] and so the offer of an alternative shop should have been made regardless of whether rent was in arrears.

Mr Bullow says that no offer of another lease was made by Lutwyche Shopping until 23 December 2016.

[87] However, we note that the deed of surrender in clause 4.1(c) said that a condition precedent to the operation of the deed was 'the Tenant paying all sums due to the Landlord ... under the Lease up to the Surrender Date (including any arrears)'. In our view, this required payment of any amounts due under the lease. This did not occur. There was no point in Lutwyche Shopping offering another lease while Linctown continued to fail to meet its existing rent obligations. Accordingly, we do not accept that Lutwyche Shopping was obliged to offer another lease to Linctown in return for the signing of the deed of surrender while rent remained outstanding.

[88] Lutwyche Shopping says that between March and November 2016 the parties discussed options for Linctown to move to smaller premises with lower rent, but no agreement was reached. We accept this.

[89] Lutwyche Shopping says that further pleas by the applicants for rent abatement were made in July and October 2016. The emails provided confirm this. These pleas were unsuccessful. Lutwyche Shopping says, however, that at times during 2016 it took other steps to assist the applicants such as encouraging the applicants to liaise with the centre's marketing manager, and providing opportunities for Linctown to display merchandise in mall areas at no cost. We accept this evidence.

[90] Lutwyche Shopping says, and we accept, that it lodged a development application for the refurbishment on 27 October 2016, and planned to start refurbishment works at some time between April and July 2017.

[91] Lutwyche Shopping says that Mr Smith and Mr McSpadden met with the Lincolns on 3 November 2016 and suggested that Linctown pay the arrears, surrender the lease, move to a smaller tenancy for six months under a licence (as distinct from a lease), and, in return, Lutwyche Shopping would provide a partial fit-out known as a 'warm shell'. The Lincolns rejected that suggestion. This evidence is undisputed, and we accept it.

[92] The following matters are also undisputed. In November 2016, the applicants lodged in QCAT the previous notices of dispute with Lutwyche Shopping that we mentioned earlier. On 7 November 2016 Mr Lincoln informed Lutwyche Shopping that Linctown would pay outstanding arrears by 20 January 2017. On 15 November 2016 Lutwyche Shopping gave Linctown a notice to remedy a breach of covenant, in relation to the arrears. This was the only such notice issued.

[93] On 23 November 2016 Lutwyche Shopping held an information session for tenants about the refurbishment plans. The Lincolns did not attend. Mr Lincoln says that this was on legal advice.

[94] On 23 December 2016 Lutwyche Shopping issued the relocation notice to the applicants. Lutwyche Shopping concedes that no relocation notices had been issued to other tenants up to that point, and no others were issued at the same time. It is undisputed that the refurbishment involved moving the food court to a space that had been occupied by the newsagency and some other shops. Lutwyche Shopping says that it did not need to issue a relocation notice for a space next to the newsagency because it was vacant, and that negotiations with another tenant resulted in an agreed termination of that lease rather than relocation. We see no reason to doubt this explanation by Lutwyche Shopping.

[95] The relocation notice offered Linctown space T3.26 as 'reasonably comparable alternate premises' at an annual rent similar to what Linctown had been liable to pay for space SP024.

[96] In correspondence in the following weeks, the applicants complained of a lack of information from Lutwyche Shopping to help it assess the relocation offer: for example about where other tenants would be located post-refurbishment, the direction of the new travelators, and information about any development approval. The applicants requested documents including rent calculations and a schedule of works. The applicants expressed concerns about the location of T3.26 near banks, away from Coles and other retailers, and near an external door which, it was said, was a less secure position for the collection of Lotto and other cash. The applicants maintained that T3.26 was not in a high traffic flow area as required for a newsagency, and suggested that other spaces should have been offered.

[97] Mr Lincoln says that Lutwyche Shopping told the applicants that the new travelators would surface at the western end, near site T3.26, but then said that they would surface at the eastern end.

[98] The documents indicate that Lutwyche Shopping provided some details about the expected post-refurbishment layout in response to the applicants' requests, but not documents such as the rent calculations. Lutwyche Shopping maintained in correspondence that T3.26 was a suitable site, and would be enhanced by the refurbishment.

[99] On 23 January 2017 the applicants notified Lutwyche Shopping that Linctown was terminating its lease. At the same time it contended that Lutwyche Shopping had failed to supply sufficient detail about various matters, that T3.26 was not a reasonably comparable alternative retail shop, and that the stated rent for T3.26 had 'not been properly or at all adjusted to take into account the difference in the commercial values of the shops ...'.

[100] On 24 January 2017 Lutwyche Shopping wrote to the applicants offering Linctown a lease of space T3.06 for five years. The proposed rent was lower than for T3.26, but the area (approximately 84 square metres) was less than half that of T3.26 (192 square metres) or the site occupied by the newsagency, SP024 (197 square metres). The offer would include a contribution by Lutwyche Shopping of $69,300 towards fitout.

[101] On 27 January 2017 Lutwyche Shopping provided more some additional information and documents to the applicants, and offered the applicants the opportunity to withdraw the termination notice or to request changes to the 'alternative offer'.

[102] In due course the applicants decided to stick with the course of terminating the lease and vacating the shop on 22 February 2017.

[103] Mr Swain says he had discussions on the applicants' behalf with Ms Kathy Bonnitcha, representing Lutwyche Shopping, in February and March 2017, about leasing opportunities. According to Mr Swain, Ms Bonnitcha indicated that Lutwyche Shopping believed that Mr Lincoln had created 'untold negativity within the centre' and it was concerned about having Linctown as a tenant.[23] We accept this evidence.

[104] Mr Bullow submits that Lutwyche Shopping engaged in unconscionable conduct by:

• (a) requiring Linctown to comply with conditions that were not reasonably necessary for the protection of Lutwyche Shopping's interests;

• (b) treating Linctown differently from other tenants; and

• (c) failing to act in good faith.

[105] The matters relied on may be summarised as follows:

• (a) as a result of the February / March 2016 arrangement, Lutwyche Shopping should have promptly offered the applicants a lease for an alternative shop regardless of whether Linctown was up to date with rent;

• (b) Mr Lincoln's evidence was that Linctown 'did not pay the rent because it was not offered the alternative shop',[24] and that he inspected another shop across the road but did not relocate there believing that Lutwyche Shopping would offer a shop within the centre;

• (c) on 3 November 2016 Lutwyche Shopping offered not a lease for another space, but merely a licence for six months;

• (d) the relocation notice was sent on Christmas eve, and Lutwyche Shopping knew or ought to have known that it would be difficult for the applicants to obtain advice and consider the proposed alternative space in the month following Christmas eve;

• (e) no other tenants were given a relocation notice at that time, and none had been given one earlier;

• (f) Lutwyche Shopping could have given the relocation notice earlier or later;

• (g) a later notice would not have held up work because refurbishment did not start until July 2017;

• (h) Lutwyche Shopping did not offer to withdraw the relocation notice;

• (i) '.... while the Relocation Notice might have been valid, the Applicant was entitled to sufficient information about the proposed renovation so it could make an informed decision and the Respondent was unable or unwilling to provide it';[25]

• (j) Lutwyche Shopping wanted Linctown to surrender its lease, in which case it would not have to pay relocation costs which, according to Mr McSpadden, would have been more than $150,000;

• (k) the rent proposed for space T3.26 was not the existing rent 'adjusted to take into account the difference in the commercial values of the shops';[26]

• (l) space T3.06 was vacant at all times and could have been offered earlier;

• (m) while space T3.06 is now used for a newsagency business, Mr Lincoln and other witnesses suspect that it now has a wider frontage than in January 2017;

• (n) the frontage of T3.06 when offered in January 2017 was too narrow for a newsagency business;

• (o) Lutwyche Shopping told the applicants that the relocation was necessary for the new food court but Lutwyche Shopping witnesses confirmed at the hearing that part of the 'food court' space is now occupied by EB Games and a massage business;

• (p) Lutwyche Shopping intentionally, and without proper regard to the impact on the flow of potential customers, failed to meet its lease obligations to maintain, repair and rectify the centre as it knew it was going to renovate and extend; and

[106] Our earlier reasons will indicate why we do not accept some of these propositions. The argument that Lutwyche Shopping should have promptly offered Linctown another lease once it provided the March 2016 surrender documents is based on a mistaken argument that the surrender deed was silent about rental arrears. In our view, as the rent remained in arrears, there was no obligation on Lutwyche Shopping to offer a new lease on account of the February / March 2016 arrangements. In view of the ongoing rental arrears, it was entirely understandable that other leases were not offered and that in November 2016 Lutwyche Shopping suggested the idea of a licence on essentially a trial basis, rather than a longer lease. We have also accepted Lutwyche Shopping's explanation of why relocation notices were not given to other tenants around Christmas time in 2016. We have found that Lutwyche Shopping did not fail to meet its obligations to maintain, repair and rectify the centre. We have also noted that vacancies and short-term tenancies were unremarkable in the context of a lease that contemplated the possibility of the centre being refurbished.

[107] In our view, it would have been peculiar if Lutwyche Shopping had given Linctown the relocation notice earlier than 23 December 2016. Until a few days before that, Linctown was behind in its rent to the tune of $100,000. It would have made little sense for Lutwyche Shopping to relocate a tenant unwilling or unable to meet its rent obligations. Even though Mr Lincoln had indicated on 7 November 2016 that Linctown would pay the outstanding rent, it was entirely reasonable for Lutwyche Shopping to wait and see if the arrears would actually be paid. Had the arrears not been paid, presumably Lutwyche Shopping would have moved to terminate the lease rather than give a relocation notice.

[108] Lutwyche Shopping's evidence was that when the relocation notice was given, Lutwyche Shopping was unsure exactly when refurbishment works would start: it could have been any time between April and July 2017, depending on how various plans and events unfolded. This evidence is credible and we accept it. On balance, we consider that the timing of the relocation notice followed the flow of events rather than being chosen by Lutwyche Shopping to cause inconvenience.

[109] The relocation provisions in the lease and in the Retail Shop Leases Act required Lutwyche Shopping to give certain information to Linctown, such as details of the 'reasonably comparable alternative retail shop to be made available to the lessee'.[28] We are satisfied that these requirements were met. While there was no express requirement for Lutwyche Shopping to provide the additional information that the applicants sought, we consider that Lutwyche Shopping was cooperative in providing information as it became available.

[110] The applicants treated the relocation notice as valid insofar as they relied on it as a trigger to terminate the lease. Arguably, they should then be estopped from disputing that any of the elements required for a valid notice - such as that the alternative space offered was reasonably comparable - were present. However, as this point was not fully argued in submissions from both sides, we will not proceed on the basis that the applicants are estopped.

[111] The base rent stipulated by Lutwyche Shopping in the relocation notice for space T3.26 was $120,345 per annum. As previously discussed, a requirement under the Retail Shop Leases Act is that the rent for the alternative premises is to be the same as the rent for the existing shop, adjusted to take into account the difference in the commercial values of the shops. In support of the proposition that the rent for space T3.26 was not so adjusted, Mr Bullow relies on the evidence of Mr Donald Gilbert, an experienced retail lease valuer. Mr Gilbert says that the T3.26 location would have 'destroyed the business' as the centre was in a state of general decline as at January 2017.[29] Mr Gilbert says that a newsagency is heavily dependent on impulse purchases by people passing by; the T3.26 site was less exposed to 'passing traffic'[30] than SP024; and Mr Gilbert predicted a 40% decrease in trade, making the business unprofitable. Mr Gilbert says, in relation to the T3.26 site: 'I suggest that the current market rent could be zero, because one would not proceed with such a lease'.[31]

[112] In his statement, Mr Gilbert notes there were no travelators shown on the floor plan provided with the relocation notice. However, we note that the proposed new travelators were shown in a plan attached to a letter from Lutwyche Shopping to the applicants dated 18 January 2017. That plan showed that T3.26 is situated near the western end of the proposed travelators which surface, at the eastern end, near the proposed new food court and, beyond that, Coles.

[113] We do not accept Mr Gilbert's opinion that the T3.26 space was not viable for a newsagency. There are two reasons for this. Firstly, Mr Gilbert took into account the trading performance of Linctown's business in assessing the viability of the proposed new location. As we have mentioned earlier, the trading performance of the business may have been affected by factors other than the flow of potential customers into the centre. Secondly, it appears that Mr Gilbert's opinion was highly influenced by his impression of the shopping centre in its unrefurbished state. In our view, he did not adequately take into account the potential of the centre and the T3.26 site post-refurbishment.

[114] We are not persuaded on the evidence presented that the proposed rent was other than 'adjusted' as required under section 46F(2)(b) of the Retail Shop Leases Act.

[115] We consider that site T3.26 was reasonably comparable with site SP024, having regard to both its size and its location.

[116] Mr Gilbert also expressed the opinion that site T3.06, as offered to Linctown in late January 2017, was not a suitable site for a newsagency because the frontage was too narrow. Mr Gilbert added that even if the frontage had been wider, 'as it now is, that part of the mall was then dull and looked and felt obsolete'.[32] Again, in our view, that opinion relies too heavily on Mr Gilbert's impression of the centre in its unrefurbished state. We note that a newsagency currently operates from the T3.06 site, and in cross-examination Mr Gilbert conceded that as at November 2017 this part of the mall presented far better than he had envisaged in early 2017.

[117] Lutwyche Shopping says that the frontage and other dimensions of space T3.06 have not changed, and could not have changed because the neighbouring shops have not altered.

[118] Mr Gilbert and Mr Lincoln do not claim to have measured the frontage of T3.06 as at January 2017. Mr Bullow urges us to accept their impressions of a narrower frontage, which he says are consistent with differences between certain drawings.

[119] However, the drawings are not terribly clear. While there is a difference in where grid lines are placed on the drawings for the purpose of providing plan coordinates, we are not persuaded that there is a relevant change apparent in the layout of the space.

[120] We see no reason to doubt the evidence from Lutwyche Shopping that the frontage of the T3.06 site has not changed since January 2017. We accept that evidence.

[121] The T3.06 site is near the eastern end of the new travelators. Being close to where the travelators surface, and relatively close to the new food court, it would be a better location on Mr Gilbert's criteria. We do not accept Mr Bullow's argument that the site was unsuitable when offered to Linctown in January 2017.

[122] Nor do we accept the argument that Lutwyche Shopping should have offered a lease of the T3.06 site to Linctown earlier. It was not a site that could have been offered in the relocation notice because, given the size difference, it was not a reasonably comparable site to the SP024 site. Lutwyche Shopping offered the T3.06 site to Linctown very soon after Linctown declined the T3.26 site. Lutwyche Shopping also says, and we accept, that it had earlier suggested the T3.06 site to the applicants in the context of the licence discussions.

[123] The spaces near the new food court that are now occupied by EB Games and a massage shop may have been suitable for a newsagency. However, it appears that the plans were that these sites would be occupied by food outlets.

[124] In deciding whether a party has engaged in unconscionable conduct, we can have regard to factors such as the relative strengths of bargaining positions of the parties, whether a party was required to comply with conditions that were not reasonably necessary for the protection of the other party's interests, whether undue pressure was placed on a party, whether unfair tactics were used, whether a party's conduct was consistent with their conduct toward other parties in similar transactions, and whether a party acted in good faith.[33]

[125] Mr Bullow and Mr Lane have drawn our attention to many cases where the concept of unconscionable conduct has been considered, mostly under the Retail Shop Leases Act or under Commonwealth legislation. Various expressions have been used in the cases to characterise unconscionable conduct, ranging from unfairness or unreasonableness through to moral obloquy. It is unnecessary for us to attempt a definition of unconscionability because it is common ground that it involves, at least, unfairness or unreasonableness.

[126] Overall, we do not consider that Lutwyche Shopping acted unfairly or unreasonably in its dealings with the applicants. In our view, Lutwyche Shopping complied with its obligations under the lease. It dealt very patiently with a tenant who had for a long time been recalcitrant about meeting its rent obligations. It tried to assist the applicants in various ways to bolster what the applicants claimed was a struggling enterprise. We accept, as related by Mr Swain, that in February and March 2017 Lutwyche Shopping's representative indicated reservations about the prospect of again having Linctown as a tenant. This was understandable given the history of Linctown's rent defaults and its preparedness to litigate. Lutwyche Shopping may well have had similar reservations earlier. However, we are satisfied that while the lease was still current Lutwyche Shopping nonetheless genuinely worked through a series of reasonable options with the applicants which might have enabled Linctown to stay in the centre in other sites. We are not persuaded that Lutwyche Shopping tried to drive Linctown into surrendering its lease.

[127] Nor are we persuaded that Lutwyche Shopping failed to act in good faith. To the extent that Lutwyche Shopping treated Linctown differently from other tenants, we do not regard this as having been done unfairly. We are not satisfied that Lutwyche Shopping required Linctown to comply with conditions not reasonably necessary for the protection of the interests of Lutwyche Shopping.

[128] We find that Lutwyche Shopping did not engage in unconscionable conduct.

Did Lutwyche Shopping breach an implied condition of good faith?

[129] Mr Bullow argues that a term should be implied into the lease contract requiring the parties to act in good faith, and that Lutwyche Shopping breached that term through the conduct described under the previous heading. Mr Bullow submits that the obligation to act in good faith includes acting honestly and doing what is necessary to enable the other party to have the benefit of the contract. Mr Bullow submits that this obligation should be considered separately to the question of unconscionable conduct because moral blameworthiness is not a required element.

[130] It is not necessary for us to decide whether such a term was implied. If it was, for reasons given in relation to the issue of unconscionable conduct, were are satisfied that Lutwyche Shopping did not breach it.

[131] Mr Lane's written submissions seek an order that the applicants pay Lutwyche Shopping's costs on the Supreme Court scale in the event that the claims for compensation are unsuccessful.

[132] The starting point in QCAT is that each party bears its own costs.[34] However, we can order a party to pay costs if we consider the interests of justice require it, for example in having regard to the relative strengths of the claims made by the parties.[35]

[133] We have decided the substantive points, as opposed to certain procedural points, in favour of Lutwyche Shopping. Accordingly, we believe it had stronger claims than the applicants. No doubt it would have cost Lutwyche Shopping a significant amount to defend the matter.

[134] However, we do not regard the applicants' pursuit of its claims as hopeless or vexatious. The applicants pursued genuinely-held grievances. The applicants had evidence and reasonable arguments in support of their claims, even though the arguments were not successful. In other words, there was a real dispute, and the applicants pursued its case in a reasonable fashion.

[135] We are not are not persuaded that the interests of justice require a costs order.

[136] As we are not satisfied that Lutwyche Shopping breached its obligations, we will dismiss the applicants' claims for compensation. We will also dismiss Lutwyche Shopping's application for costs. Finally, we will make some other procedural orders such as amending the name of the respondent to reflect its change of name.

[1] [2016] QSC 257.

[2] Retail Shop Leases Act, s 46D(2)(a)(ii).

[3] Ibid s 46F(2)(b).

[4] Ibid s 46G.

[5] Ibid s 46E(1).

[6] Ibid s 43(1)(d)(i).

[7] Ibid s 43(1)(d)(ii).

[8] Outline of Final Submissions, paragraph 68.

[9] Retail Shop Leases Act s 43(1)(c).

[10] Ibid s 43(1)(e).

[11] Ibid s 43(1)(b)(ii).

[12] Mr Bayard's statement of 16 July 2018, [45].

[13] Mr D'Alessandro's letter dated 19 June 2017.

[14] Mr Swain's statement dated 6 February 2018, [21].

[17] Mr Bullow's Derogation from Grant submissions [3], citing Browne v Fowler [1911] 1 Ch 219.

[18] Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 (McPherson JA.)

[21] Outline of Final Submissions, [47].

[23] Mr Swain's statement dated 6 February 2018 [16], [23].

[24] Outline of Final Submissions [47(h)].

[25] Outline of Final Submissions, [47(ac)].

[28] Retail Shop Leases Act, s 46D.

[29] Statement dated 4 February 2018, page 3.

[33] Retail Shop Leases Act, s 46B.

[34] Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 100.

[35] Ibid s 102.