Lostumbo Investments Pty Ltd and anor v Ottavio Galletta and ors.

A & M Thompson Pty Ltd and ors v Total Australia Ltd (1980) 2 NSWLR 1 Agius v Arrow Freightways Pty Ltd (1965) AR 77 CASES CITED: Bennett v BP Australia Ltd (1984) AR 120 Davies v General Transport Development Pty Ltd (1967) AR 37 Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford (2002) 125 IR 35 Jones v Dunkel (1959) 101 CLR 298

HEARING DATES: 05/02/07, 06/02/07, 07/02/07, 08/02/07

APPLICANTS: Mr R Colquhoun of counsel SOLICITORS: Colquhoun & Colquhoun LEGAL REPRESENTATIVES:

RESPONDENTS: Mr P Newall of counsel SOLICITORS: Nescis Lawyers

Matter No IRC 2787 of 2004 LOSTUMBO INVESTMENTS PTY LTD AND ANOR v OTTAVIO GALLETTA AND ORS Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2007] NSWIRComm 41

INTRODUCTION 1 Galletta's Bar is located at 161 Norton Street Leichhardt. During 2000, Nicola Lostumbo began to regularly attend Galletta's Bar because he liked the coffee it served. The Bar served light meals, coffee and cake. Towards the end of 2000, the owner and operator of the Bar, Ottavio Galletta, told Mr Lostumbo that the Bar was available for lease and that he should take up the opportunity because of his liking for the Bar. 2 As the two men commenced to discuss this business proposal, Mr Galletta made it known that he wanted $5,000 a week to cover, firstly, the rent of the premises (which was owned by a company of which he was the sole director) and secoondly, the leasing of the business. Mr Galletta informed Mr Lostumbo that the takings were between $28,000 and $30,000 per week. Further discussions took place between solicitors acting for the parties and it was ultimately agreed that Mr Lustumbo would lease the premises and the Bar for a total of $5,000 per week (divided into the sum of $3,000 for rent of the premises per week and $2,000 per week for leasing of the business). The lease was to operate for a period of three years and Mr Lostumbo was to take up the business on a "walk-in, walk-out" basis. He was to be given a four week trial period during which he would familiarise himself with the business and satisfy himself as to the level of takings. Mr Galletta also required, and ultimately Mr Lostumbo agreed, that there should be a deed of guarantee in the sum of $150,000 providing that, at the end of the lease, over a period of four weeks, should the takings from the business fall below $25,000 per week, then Mr Galletta could have access to the funds in guarantee on the basis of $52 for every dollar the takings fell below $25,000. The details of the guarantee arrangement were worked out by the solicitors acting for the parties. 3 In the initial four week trial period and for a number of months thereafter, the takings did average between $28,000 - $30,000 per week. However, by the end of the lease, the takings had fallen away dramatically so that, in the four week period of Mr Galletta's re-entry to the business, the takings aggregated for that month were approximately $60,000. Mr Galletta called on the bank guarantee and was paid $150,000. Mr Lostumbo, upset by the overall performance of the business and the loss of the $150,000 guarantee, commenced proceedings under s 106 of the Industrial Relations Act 1996, challenging the excessiveness of the combined rent and lease of $5,000 per week and seeking a variation of the contract to remove the requirement for the $150,000 guarantee. THE EVIDENCE 4 As submitted by counsel for the respondent, there was not a great deal of conflict as to the essential facts surrounding the arrangements leading Mr Lostumbo to enter into the leases and deeds with Mr Galletta and his companies. Mr Galletta had wanted to sell the Bar and had asked Mr Lostumbo if he was interested in taking the business on a lease basis telling Mr Lostumbo that the weekly takings were between $28,000 - $30,000. Takings had reached as high as $35,000 and Mr Galletta had wanted a $150,000 guarantee or deposit to ensure that Mr Lostumbo would not allow the takings to fall below that figure. In September 2000, Mr Galletta brought the business records to the Bar following a request by Mr Lostumbo to see evidence of the takings. Mr Lostumbo said that he was shown an account book with weekly takings entered in pencil but he described this process as being "closely controlled" by Mr Galletta who jumped from one period to another and Mr Lostumbo did not take in much except to accept what he was being told. Mr Lostumbo said he trusted Mr Galletta and accepted what he was told about the returns obtained by the business. 5 Mr Galletta said that he told Mr Lostumbo that he wanted $5,000 per week for the business and the building, plus outgoings and a reasonable increase each year. Mr Lostumbo told him that, provided he was happy with a trial period, then he was prepared to pay that amount. During these discussions there was no agreement as to how the $5,000 per week would be split between rental for the business and rental for the building: this was left to the solicitors. Mr Galletta ultimately received advice from his accountant that the sum should be split with $3,000 being for lease of the building and $2,000 for leasing the business per week, plus GST, plus an increase at the rate of 3 per cent per annum. Mr Galletta said the split was not designed to reflect the market value of either the land or the building but was simply in accordance with advice he had received. He was not concerned how the amount was divided so long as he received a total of $5,000 per week for the building and the business. 6 In relation to the guarantee of $150,000, Mr Galletta said his only concern was that, at the termination of the lease, the business was making minimum takings. The level of minimum takings was reduced from $30,000 to $25,000 after Mr Lostumbo raised the possibility of an economic downturn. There was no discussion as to other factors that would render the guarantee inapplicable, such as other businesses opening. Mr Galletta believed that the deed of guarantee was left to the lawyers to establish the mechanics of its operation and the deed was, in fact, drafted by Mr Lostumbo's solicitor and amended by Mr Galletta's solicitor. 7 Mr Lostumbo denied saying to Mr Galletta that, provided he was happy with the trial, then he was prepared to pay the rent at $5,000 per week and said that, initially, there was no discussion about an increase each year. After the lease had been prepared, there were further discussions resulting in Mr Galletta reducing the rent increase from 5 per cent per annum to 3 per cent per annum. Mr Lostumbo also denied saying to Mr Galletta during the trial period that the takings "stack up" and that there was no way he was not going on with the arrangement. Further, Mr Lostumbo said that his understanding of the trial period was that he was to observe the running of the business before signing the documents. Before settlement took place at the end of October 2000, Mr Lostumbo said he was not allowed to approach staff employed at the Bar to discuss the lease and that after signing the lease, he was not aware of the availability of the trial period. 8 Mr Galletta stated that he attended the Bar from time to time and chatted with Mr Lostumbo. At no stage during the lease did he ever complain that the takings were inadequate or that he was dissatisfied with the business. Mr Lostumbo stated that he had a few conversations with Mr Galletta saying that the takings "aren't there", to which Mr Galletta replied that some weeks it was up and in other weeks the takings were down. 9 There was some conflict between the parties as to maintenance issues during the term of the lease. By the beginning of 2002, Mr Galletta thought that the Bar was untidy and dirty turning him off going to the Bar because it was a place where food was prepared. By July 2002, he had instructed the then managing agent Mr Nick La Rosa to inspect the premises and to send an appropriate notice for the Bar to be brought "up to scratch". Mr Lostumbo denied that Mr La Rosa had raised such an issue with him and had only ever collected the rent. In addition, the Council's health inspectors had passed the premises on previous occasions and had never raised an issue about the place being dirty or untidy. When the Council had raised the issue of the stormwater drain discharging on to the footpath instead of into the gutter, Mr Lostumbo took up that matter with Mr Galletta and Mr La Rosa. 10 Mr Lostumbo noted that prior to the lease being entered, changes had already taken place in the area where the business operated and "the business was already being left behind": the Italian Forum at the Parramatta Road end of Norton Street was opened in late 1999 and the impact on other businesses such as the Bar was not obvious for some time. The Italian Forum was described as an upmarket retail/restaurant area. In approximately November 2000, a new restaurant in the same strip as Galletta's Bar was opened - it was a small cafe/coffee bar restaurant similar in style to Galletta's Bar and newly renovated. In 2003, when that new cafe closed for two weeks for renovations, Mr Lostumbo observed a $400 increase in the daily takings of the Bar. 11 When the lease expired, Mr Galletta took possession and said he invited Mr Lostumbo to attend daily during the trial period under the guarantee provisions. Mr Galletta said that Mr Lostumbo attended at the commencement of the trial period but gradually his attendances reduced to irregular visits. On advice from his lawyers, Mr Galletta kept the records of the takings and had the takings countersigned. Mr Lostumbo refused to sign the takings record. Mr Lostumbo said he was not made to feel welcome during the trial period at the end of 2003: at that time he was arguing with Mr Galletta as he had not been paid for stock left behind and there was a continuation of the tension that had built up over a number of matters, including repairs to the premises and Mr Galletta's constant denial of responsibility to fix the premises together with his general "aggressive attitude" towards Mr Lostumbo. During, the last two weeks of the lease, from mid-October 2003, Mr Galletta and his two sons had constantly been at the restaurant and had commenced building works in the back section of the restaurant two days before Mr Lostumbo left in October 2003. Mr Lostumbo produced photographs of the building works commenced by the respondents which he described as the construction of a cool room at the back of the premises that substantially interfered with his trading because he could not utilise that section of the cafe. He was not informed of the scope of the work being performed by the respondents. 12 In relation to attendance during the trial period at the end of the lease, Mr Lostumbo said he did attend the Bar on several occasions at the end of the night shift but the restaurant had already closed and he was not shown the takings records until the next day. He said that he did not sign the takings records and he did not know whether they were correct or not. He did not know who signed the takings records which were produced by Mr Galletta. Mr Lostumbo stated that he became aware that, when possession was taken by the respondents, they declined to take bookings and declined to accept credit cards as well as changing the menu for the Bar. Mr Galletta denied making any changes to the business during the four week trial period at the end of the lease and said that any changes introduced were made after the trial period. 13 The respondents filed a "Cross-Claim" claiming that the business equipment was left in such a state of disrepair that a sum of at least $84,000 had to be spent by the respondents to replace or repair the equipment. The applicant directly contested at least $64,000 worth of the items cross-claimed. Mr Galletta stated that, at the commencement of the lease an inventory of equipment had been taken by the managing agent: Mr La Rosa had taken an inventory at the conclusion of the lease and had noted the fact that the premises were unclean and in some state of disrepair. This material was relied on by the respondents in support of the Cross-Claim. Mr Lostumbo noted that no inventory had been taken while he was in possession of the premises towards the end of the lease, and that the inspection conducted by Mr La Rosa occurred five days after the respondents had taken possession of the Bar. He was not responsible for what had happened in that period. Mr Lostumbo said that, during the term of the lease he had painted the premises twice and that a lot of equipment was very old when he took up the lease. Further, Mr La Rosa attended the premises every month to collect the rent and, on no occasion, mentioned that there was a problem with the premises or the equipment. Mr Lostumbo had also replaced a lot of the crockery and cutlery himself because of the state of that equipment when he took over the lease. 14 The applicant called evidence from Francis Kelly, a certified practising valuer and certified practising accountant. Mr Kelly provided two reports relating to the value of the business described as Galletta's Bar situated in Norton Street Leichhardt. Mr Kelly was provided with the financial accounts of the business for the period prior to it being leased to the applicant and for the period subsequent to the expiration of the lease. Based on that material, he was asked a number of questions. The documents supplied included BAS statements, financial statements, detailed financial performance statements and company tax returns. 15 Mr Kelly stated that, at November 2000, a hypothetical purchaser of the business would have had available tax returns for the business for the years ending June 1998, 1999 and 2000 as well as the BAS returns showing turnover for the period 1 July 2000 to 31 October 2000. Such a purchaser would have observed gross sales falling from June 1999 to June 2000 but increasing for the brief three month period from July 2000 to October 2000. It would have also have been noted that there was a very low gross profit margin for the years to June 1998, 1999 and 2000. The tax returns revealed that, from the taxable profit less the nett rental based on $104,000 per year, there would be a loss for the year 1998 of over $88,000, a loss in 1999 of over $84,000 and a loss in 2000 of over $102,000. It would be assumed by a purchaser that this level of profit would flow upon acquisition of the business. However it also had to be noted that the profits in the business tax returns had not included an allowance for rent of the premises - for three years the vendor/owner of the business had not been charging rent. The business taxable profits therefore had to be adjusted by the inclusion of a reasonable premises rental as an expense. Mr Kelly had adopted the figure of $104,000 as a reasonable premises rent at November 2000 from a property valuer's report prepared by Mr Malcolm Garder. 16 Mr Kelly expressed the opinion that, having regard to the losses shown for the three years leading up to November 2000, the very low percentage of gross profit, sales, turnover and the fluctuating levels of sale, a hypothetical purchaser would not have been found for the business in November 2000. In his view the business value as a going concern at November 2000 was "nil". It followed that, if the business had no value as a going concern in November 2000, it also had no goodwill value. Further, the business had no going concern value in November 2000 - as a consequence, the business had no rent value for lease of the business at November 2000. 17 Mr Kelly also had regard to the book value of plant and equipment leased to the business at June 2000, valued in the books of the business at $18,484. In his opinion a business lessor of a similar business would require a return of about 25 per cent per annum on equipment for use in a restaurant. Using this figure, it indicated an annual rent of $4,261. The book value of the equipment leased was to be reduced in the second and third years of lease due to depreciation, such that in the second year of lease the rental figure should be $3,663 per annum and in the third year, a rental figure of $2,725 per annum. 18 By reference to BAS returns, the Bar achieved average weekly sales of $12,648 in 1998, $15,069 in 1999, $13,706 in 2000 and $9,736 in the period 1 July 2000 to 31 October 2000. During the period of the lease held by the applicant, the average sales per week in 2001 were $24,156; in 2002 it was $21,095 and in 2003 were $19.381. Using the cashbook, the figures from the beginning of July 2003 to the end of October 2003 showed average weekly sales of $18,189 while the Bar was in the hands of the applicant. The average sales per week when the respondent took possession to 31 December 2003 were $5,501. Mr Kelly observed that, on the respondent resuming occupation of the business, the average weekly takings of $5,500 per week until the end of December 2003 seemed "very low" compared with the previous period's weekly takings of approximately $20,000 per week. It was noted, however, that this was a very short period for consideration. 19 In relation to the deed of rental guarantee, Mr Kelly expressed the view that the clause was extremely onerous and he had not seen such a clause in his experience of valuing restaurant businesses since approximately 1970. In the present case, it seemed particularly onerous in circumstances where the business under the control of Mr Galletta, had weekly takings for the three preceding financial years varying between approximately $12,500 to $16,700 and that the trigger point for takings below which the guarantee would be activated was $25,000 per week. 20 A supplementary report prepared by Mr Kelly dealt with a number of detailed questions asked by the solicitors acting for Mr Lostumbo. In that supplementary report, Mr Kelly was able to express a view as to the returns achieved after Mr Galletta resumed possession of the business having regard to the longer period of time than the few months to the end of 2003. Having been supplied with BAS returns covering the period January 2004 to December 2004 as well as the earlier BAS returns for October 2003 to December 2003, Mr Kelly was able to calculate average takings per week for each of the quarters of the BAS statements as follows: For the quarter ending 31 March 2004 average weekly takings of $2,467; For the quarter ending 30 June 2004 average weekly takings of $4,205; For the quarter ending 30 September 2004 average weekly takings of $5,600; For the quarter ending 30 September 2004 average weekly takings of $5,196;

Taking an average for these periods resulted in an overall figure of weekly takings of $4,594 for that calendar year together with the period from October 2003 to December 2003. 21 Having regard to goodwill and the value of property, plant and equipment as appeared in the books, Mr Kelly expressed the opinion that a reasonable rental for the lease of the business in November 2000, irrespective of the level of weekly takings or premises rental, would be $28,261. Further, Mr Kelly based upon assumed weekly takings of $25,000 and using industry standards), expressed the view that the value of the business at 2 November 2000 would have been $250,000. 22 Having regard to the applicant's wages book, Mr Kelly was of the opinion that the applicant was paying higher than industry standard average wages. There did not appear to be a consistent pattern of wages as a percentage of sales during the financial years ending 1999 and 2000 whilst in the hands of the respondent and for the calendar year January 2004 to December 2004. Mr Kelly was of the view that the respondent was paying wages considerably less than the industry standard as a percentage of sales. Further, the trading loss shown by the third respondent ending in June 2004 was a result incurred with no declared sales for that year since taking over the business in October - November 2003 but making purchases of over $30,000. Mr Kelly expressed the view that the gross profit percentages achieved by the third respondent were unreliable. 23 Having regard to the BAS returns, Mr Kelly noted that, for the three months 1 July 2000 to 30 September 2000 (about one month before the applicant entered into the lease) the business was achieving sales of just over $10,000 per week, although there were expectations of takings between $28,000 and $30,000 per week. In the months immediately prior to the applicant entering into the lease, the business was achieving sales of over $11,200 per week yet the applicant achieved average weekly takings for the period to 4 July 2001 of over $27,200. Wages paid by the business prior to the lease were in the range of approximately $860.00 to $1,100 per week and for the calendar year ended December 2004 weekly wages were approximately $600. Mr Kelly expressed the view that the wages' allowance adopted by the respondents' expert, Mariano Rossetto, were inconsistent between as records of the applicant and the third respondent. Financial statements of the third respondent for the financial year to 30 June 2004 disclosed no takings from the business. BAS records for the period 1 January 2004 to 30 January 2004 disclosed takings of only $6,740. These documents led Mr Kelly to express the view that the third respondent's financial information to 30 June 2004 was "unreliable". Based on the applicant's takings and weekly wage records for the period 2 November 2000 to 30 June 2001, Mr Kelly was of the view that the business had no goodwill value at November 2000. The financial statements disclosed no takings for the period ended 30 June 2004 despite BAS statements for the period 1 October 2003 to 30 June 2004 showing total takings of $158,262. Based on his consideration of the records, Mr Kelly stated that he did not consider that the level of takings disclosed by the third respondent for the periods 1 July 1998 to 30 October 2000 and from November 2003 to 31 December 2004 were "true and correct". Mr Kelly also commented that calculations performed by Mr Rossetto by reference to the first 25 weeks of trading to 25 April 2001 did not accurately show the takings because the records were available for the entire period and showed a lesser return. 24 Mr Malcolm Garder was a qualified valuer who provided an expert valuer's opinion on the value of rent paid by the applicant for the premises known as Galletta's Bar on Norton Street Leichhardt. Mr Garder had not fully inspected the property and did not inspect it in 2000. He presumed the property would be in fair condition for commercial premises of its type. Under the heading "General remarks" Mr Garder stated that rents were rising quite steeply until early 2000 while fashion outlets and small restaurants outbid traditional foods and utility stores for available space - the rental increases now seemed to have settled back close to the inflation rate. The premises were centrally located in the northern section of Norton Street, a street popular for Italian restaurants and coffee bars. The Leichhardt strip shopping centre had developed a cosmopolitan atmosphere and many Sydney residents travelled to the area for meals and coffee. The valuation of the property was on its rental market value on the basis of the real estate only and did not include the value of the business or any goodwill that might be attached to the business. In coming to an opinion on what was a reasonable rental in 2000, Mr Garder had considered the rental of comparable properties in the area. He found the most comparable property was the adjoining restaurant, Pavarotti's Restaurant. A three year lease was entered into in September 2000 at a rental of $104,000 per annum net with an option for a further term of three years. It was Mr Garder's view that the rental for the property on which Galletta's Bar stood should be the same. In coming to this view, Mr Garder considered five other outlets and made various allowances which he referred to in his report. 25 In relation to the 2000 transfer of the lease to the applicant, Mr Garder considered the rental to be "above market" and that "the amount paid for the business to be very high". Mr Garder cautioned that he was not a business valuer. In his view, if the lease and business were transferred in 2000 at a rental of $104,000 per annum and the business was trading well, a prudent purchaser would pay something for tenant's fixtures, fittings, stock and good will: this would often be dealt with by a cash amount. However, it could be an additional amount per week for a set term. 26 In 2006, Mr Garder supplied a supplementary report to the applicants' solicitors. In the supplementary report, it was noted that the property leased had approval as a 50-seat coffee lounge able to sell coffee, cakes, biscuits and snacks only, thus excluding the serving of full meals. Mr Garder noted that other DA conditions (such as parking, fencing, etc) had not been complied with so that the property had been used contrary to the provisions of the DA for some time. Mr Garder stated that, if he had been asked to undertake a fair rental determination of a lease at November 2000, he would have asked for submissions from lessor and lessee, interviewed each party, inspected the property, undertaken enquiries and inspected comparable properties. If there were inconsistencies in the submissions, he would have reviewed the Council's files and checked that DA conditions had been met. If the lessor had not complied with Council's requirements, the result of this non-compliance would be assessed and the rental adjusted to allow for the compliance. Alternatively, the cost of obtaining a DA that would comply could be deducted. 27 As at November 2002, a comparison of the rental and town planning position of the two adjoining restaurants would show Pavarotti's Restaurant had approval for at least double the seating of the Bar and full restaurant approval. The rental of $104,000 per annum for Pavarotti's Restaurant, recognising that restaurant use, represented a higher use than coffee and cake and appeared to be the market rental for such premises and use. In Mr Garder's view, a prudent lessee would not be paying $104,000 for Galletta's Bar with seating limited to 50 and limited to serving coffee and cakes and with many other DA conditions unresolved. 28 Mr Barry Russ was a registered valuer retained by solicitors for the respondents to carry out a market valuation of the rental attributable to the premises out of which Galletta's Bar operated as at November 2000. Mr Russ described the property as being centrally situated in the northern section of Leichhardt shopping centre and comprising a broadfronted single storey commercial building used as a coffee shop/restaurant. The premises contained a patio at the front, a main restaurant area with a kitchen and servery. Mr Russ expressed the view that the availability of the open patio onto Norton Street was "quite rare" for Norton Street with the premises being the only such cafe on the Lilyfield side of Norton Street: accordingly, that feature demanded a premium on the rent. At the rear of the main restaurant was a covered patio with toilet facilities, a rear open courtyard and vehicle access. He noted that the building appeared generally to be structurally sound and in good order throughout. He had been informed that the property had been subject to a sub-lease for three years from November 2000 with a further option of a term of three years. The rent on commencement was $156,000 per year, with the second year rent to be $160,680 and the third year rent to be $165,540. 29 In determining a market rental, Mr Russ had regard to the following properties: (a) 159 Norton Street Leichhardt, where the rent commenced in mid-1997 terminating in mid-2002 with a commencing rental just under $47,000. The lessor had to contribute $10,000 toward the cost of refurbishment. The property was a two-storey building used as a cafe/restaurant with rear vehicle access. The lessee was responsible for renovation and fit-out which was undertaken in the vicinity of $200,000 with a $10,000 contribution by the lessor. The rent in November 2000 was estimated to be just under $52,000 per annuml; (b) 138 Norton Street Leichhardt was a two-storey building used as a cafe/restaurant with vehicle access at the rear. This property was close to Galletta's Bar. The commencing rent of $62,400 per annum ran from late November 1998 terminating in late November 2001. There were two options for a period of three years each. It was estimated that at November 2000 the rent was $72,111; (c) 102 Norton Street Leichhardt was a three year lease commencing in July 1999 and terminating in July 2002 with the rent commencing at $85,200 per annum. There was a further option of three years with the lessee to pay all outgoings. The premises were a single storey "character" residence used as a restaurant and situated in the fringe of the southern sector of Leichhardt shopping centre. It was estimated that the rent in November 2000 was $90,482 per annum; (d) 62 Norton Street Leichhardt was a two-storey building used as a cafe/restaurant with a rear courtyard and situated in the southern sector of Leichhardt shopping centre. The lease commenced in March 1997 terminating in March 2002 with a rent commencing at $54,600 per annum. The outgoings were to be paid 100 per cent by the lessee, excluding land tax, with the lessee responsible for water rates. It was estimated that, at November 2000 , the rent was $81,900. 30 These properties were used for the purposes of estimating the current market rental for Galletta's Bar because they were all situated in Leichhardt and all used as cafe/restaurants with courtyards at the rear. Regard was had to the fact that Galletta's Bar was renovated to a high standard to provide a well laid out cafe/restaurant with indoor and outdoor cafe area using the whole of the property for patron dining. The premises viewed from the street were "appealing, inviting and well suited for their present use". Having regard to the market evidence, the unique suitability of the building and its location, it was Mr Russ' opinion that the current market rental as at November 2000 was $124,800 per annum plus GST and outgoings. 31 Mr Russ had regard to the valuation carried out by Mr Garder for the applicant and agreed with his basic assumptions in determining the rental of the premises. He did not disagree that the next-door property, Pavarotti, was the most comparable property and stated that the "shortfall" for that property was that it did not enjoy a patio facing onto Norton Street. He offered the view that Norton Street was very popular because of a passing parade of people, particularly on weekends when people enjoyed sitting in a location where they could view and be viewed by the passing parade. Accordingly, it was his view that Mr Garder's assessment was on the "light side". The estimate provided by Mr Russ excluded furniture, fittings, plant and equipment and any goodwill attributable to the property. 32 In cross-examination, Mr Russ said that he had inspected the property in June 2005 for the purpose of giving a valuation. The property had been extensively renovated at that time to a good standard but he did not know when that had been carried out. He believed it was in a similar condition in 2000 for the date of valuation. Mr Russ had not used Pavarotti's Restaurant as a comparable property because he believed that its lease was not registered at the time and he had no way of verifying the rental. The four properties chosen were the only ones Mr Russ could verify as to rent. Those properties had been discussed with his instructing solicitors who had pointed out the premises used as restaurants that Mr Russ might consider as being relevant. Mr Russ had not personally visited all the properties but was aware of their seating capacity. He had regard to the properties because of the similarity of their use, although one of the properties was being used as a restaurant rather than a cafe. 33 Mariano Rossetto was a director of Furzer Crestani Services, Chartered Accountants. He said that he had extensive experience since 1987 in acting as an expert witness in various jurisdictions and had considerable experience in the valuation, assessment and viability of businesses as well as business losses. He had been instructed to assess whether the financial information and records of the applicant provided a proper reflection of the trading activity of the applicant while operating Galletta's Bar between October 2000 and November 2003. He was also instructed to assess whether the rental paid by the applicant during the three year period was "reasonable". 34 In relation to the applicant's financial records, Mr Rossetto was of the view that he could not rely on the accuracy of those records because the BAS for the year ended 30 June 2001 did not correspond to information in the financial statement or in the takings records. The wage records provided did not correspond to the BAS: without those two core pieces of information he had no confidence in relation to the figures supplied which placed a question mark over all of the financial statements and what had been disclosed. In the first year covering the operation of Galletta's Bar, the takings from Galletta's Bar appeared to be reflected in the BAS but there was also an amount of over $70,000 that appeared to be referrable to the previous business undertaken by Mr Lostumbo which was not recorded in the BAS statement or reconciled. Mr Lostumbo was cross-examined about this and said that he knew there was a discrepancy but that he had left all of that to his accountant and conceded that there had been difficulties in reconciliation for the first year of operation. Mr Lostumbo had no knowledge as to why there was a discrepancy but insisted that his records were accurate and recorded all of his takings. 35 Mr Rossetto had certain information available from Mr Galletta and Monotell Pty Ltd. However, it was no part of his instructions to compare those records with Mr Galletta's records nor to give an opinion as to the accuracy of the Monotell records. He had conducted an exercise using the first 25 weeks of takings from records showing the first 36 weeks of takings and extrapolated that information to get an average for the year: this exercise had been undertaken in this way because they were his instructions and he therefore did not have regard to the actual recorded takings for the year which were available to him. 36 In a schedule prepared by Mr Rossetto, the financial statements and the BAS statements were the same for the financial years 2002 and 2003, but there was a difference of $166,700-odd between the financial statement and the BAS for the financial year ended 2001. There were also differences between the financial statements and the gross taking records in the financial year ending 2001 showing a difference of nearly $67,000. There were also minor differences of just over $100 in the financial years ending 2002 and 2003. Mr Rossetto's view was either the gross income as per the financial statements was incorrect or the gross income in the BAS was incorrect or there was a combination of errors in both documents. It was further observed that the applicant had claimed that the takings records were accurate: but reference to BAS and the financial statements for the applicant did not disclose income of at least $66,857 for the year ended 30 June 2001. This discrepancy was considered to be such a large amount that it raised questions as to the reliability of the financial records for the other financial years. An analysis of wages paid to employees also raised questions as to the accuracy of the takings records for the financial years ending 2002 and 2003. 37 Numerous deficiencies were found in relation to the wages records. By reference to particular deficiencies, it was concluded that differences between the payroll advice and gross wages as shown in the wages book were accountable to the fact that employees were being paid cash and only a certain amount being disclosed as received on their group certificates for income tax purposes. Thus, there was undeclared income being paid to the employees. It was deduced that, if that was occurring, it was most likely that there were also gross takings not disclosed by the applicant and it was this undisclosed income, being cash takings, that was used to pay the cash wages to employees. It was also noted that some of the group certificates disclosed quite small gross wages, while the wages book disclosed much higher gross wages (for example $650 shown on a group certificate where the wages books showed a payment of $14,268). 38 In relation to the reasonableness of the rental payment, Mr Rossetto was asked to assume that the business of Galletta's Bar when first taken over by the applicant was deriving weekly takings ranging between $28,000 and $30,000 per week. It was to be assumed that the weekly takings were inclusive of GST. By reference to the actual gross takings records of the applicant for the first 25 weeks of trading, that is, effectively the first six months, the returns disclosed average gross takings of $28,552. Reference to the alleged actual takings records demonstrated that, in fact, the business was deriving income at the rate of $28,000 to $30,000 per week (at least). Although there was doubt about the accuracy of the applicant's records and that the gross weekly takings were probably higher than disclosed, calculations were based upon recorded actual costs of sales, some assumptions and adjustments made (for example, to the wages records where some records were missing). Using those figures, it was then calculated that the nett profit for the business to 30 June 2001 was, in fact, just under $73,000, after allowance for the actual rental payments made to the respondent. It was then stated that the operation of Galletta's Bar, based on the stated assumptions, would generate sufficient profit to pay for the total rental payments made to the respondent and would result in a profit to the applicant. The remuneration to the applicant would be the profit of just under $73,000 plus the wages of just over $27,000, giving a gross total remuneration of just under $100,000 during eight months of operation in the first year. Mr Rossetto concluded that the rental payments were reasonable because there was still a resulting profit to the applicant of some $100,000 for eight months of operation. Also considered was the fact that the applicant had not paid any money for the purchase of the business or its setup and that the rental payment for operating the business could be viewed as the percentage return on the investment in setting up the business by the respondent in respect of both its goodwill and physical assets. In cross-examination, no material was put directly to Mr Rossetto challenging the accuracy of the assumptions upon which he had acted in forming his opinion, or challenging his approach to the deficiency of the records, the likely cash in hand payments made to staff, or the method of approaching the eight month profit through to the end of the 2001 financial year. 39 There was no issue between the parties that changes in the area had affected the profitability and takings of cafe bars such as Galletta's Bar.

Mr Tom Williams was the owner of Cafe Barzu located at 121 Norton Street Leichhardt and had owned the cafe since 1999. His evidence was that his cafe had performed best in 1998 and 1999 but since that time the revenue of the business began to decline. The Italian Forum opened in Leichhardt in August 1999 but took some time to build up business. Nevertheless, the initial effect on his business was a decline in revenue of about five per cent. In the following year, the Forum's business continued to grow, affecting the revenues of other businesses in the area. In the year prior to the 1999 Olympics, many new restaurants were built in the city area across all suburbs in Sydney. During the two weeks of the Olympics, Cafe Barzu suffered a 50 per cent decline in business but city fast food retailers and liquor outlets recorded boom sales. It was Mr Williams' belief that the Olympic Games had a significant impact on changing eating habits. At the same time as the Olympic Games, the New South Wales Government introduced new no-smoking legislation that caused an additional negative change in people's dining out habits. The effect of new restaurants across Sydney began to be felt at Cafe Barzu, not only in reduced takings but also in the drying up of available kitchen and floor staff. Further, in July 2001, Leichhardt Council introduced parking measures to Norton Street with a "fierce, predatory fining policy for meter overstay and illegal parking". Mr Williams said that this had the effect of driving away traditional customers from Norton Street: many of his regular customers were eating elsewhere and informed him that this was due to being fined for parking offences in Norton Street. In light of his six years' experience in running the cafe, Mr Williams believes that it might have been possible to overcome the impact of the Olympic Games and the no-smoking legislation but the development of the Forum and the introduction of parking meters and a stringent parking fine policy could not be overcome. 40 For the respondents, Theo Kotselas was Mr Galletta's accountant and had been since November 2003. He was very familiar with the Leichhardt area and had been a frequent patron of Galletta's Bar since it opened. In the second half of 2000, he had some discussions with Mr Galletta about purchasing the business - Mr Galletta told him he wanted $1m for the business. Mr Kotselas at one stage asked if Mr Galletta would remain a silent partner with a half-interest, to which Mr Galletta replied that he wanted to guarantee minimum profits and required $3,000 per week rent on the building and $2,000 per week minimum for the business. A few days later, Mr Kotselas agreed to those terms and wanted to attend the business over the next three to four weeks to see how the business was going and, if "things stack up" to discuss the details. Mr Kotselas said he started attending the business for about three to four weeks, was given complete freedom to check the cash register, the tape of the cash register, the customers and the purchase dockets etc. He ascertained that the business was improving on a weekly basis and was averaging $30,000 per week. 41 Mr Kotselas said that he had considerable experience in performing accountancy tasks for various people in the restaurant and coffee shop business and in determining the fairness or otherwise of what Mr Galletta was asking. Generally speaking, 10 per cent of the takings equated to the building rent and that is why he felt that $3,000 per week was "on the mark". He also considered that, generally, a business like Galletta's Bar would work on a net profit of 25 per cent of turnover and therefore he felt a profit of $7,000 to $7,500 per week was realistic. Because proposed partners in the business were unable to raise the necessary funds, he regrettably had to withdraw from the deal. His interest in operating a coffee shop remained and, in May 2002, with his wife and son, he set up a coffee shop at Potts Point. 42 Mr Kotselas stated that by August 2000, both the Italian Forum and Norton Plaza had opened. The Forum was slow in obtaining a full occupancy rate: it took a few years for that to be achieved. Also, at the Parramatta Road end of Norton Street there was a large shopping centre with a variety of shops and Coles Supermarket was the main tenant. It took some 18 months to two years from the opening of that shopping centre for it to achieve full occupancy. Mr Kotselas observed that, from approximately mid-2001, there was a shift in business activity from the western end of Norton Street (where Galletta's Bar was situated) to the eastern end closest to Parramatta Road. In his view, this has been brought about not only by the increased activity at the Parramatta Road end of Norton Street, such as the operations of the Forum and Norton Plaza, the cinema and substantial parking areas, but most importantly those places enjoyed substantial parking areas available to the general public, while there were no similar parking areas in the vicinity of Galletta's Bar. The whole of Norton Street had been "negatively impacted upon by the introduction of parking meters in 2001". The introduction of the parking meters induced patrons to frequent the Parramatta Road end where there were a number of off-street parking facilities. Further, the number of food outlets in the Forum and Norton Plaza had increased dramatically, creating fierce competition with food outlets at the western end of Norton Street. 43 In cross-examination, Mr Kotselas said that, although the shift in business activities to the Parramatta Road end of Norton Street was expected to bring changes, it was unknown what would be the extent of those changes. The area was still changing and there were still negative impacts, especially parking. For the last few years, his firm had prepared BAS returns for Monotell Pty Ltd and he believed the figures that had been supplied to him were accurate. When he was considering purchasing this business, he did not look at any of the other financial records and was satisfied with the cash register records as indicating the takings of the business. He was a frequent customer, knew about the level of business and had been involved for over 25 years in looking after a number of clients in this type of business. 44 From documents produced, the applicant presented schedules firstly indicating that, during the lease, the amount paid as rent for the premises totalled $482,180.40 while rent for the business totalled $321,453.84 - giving a combined total of $803,634.24 for the period of the lease. BAS documents for Monotell Pty Ltd t/as Galletta's Bar showed that, between 1 July 2000, to 30 September 2000 total sales amounted to $130,922 while, for the period 1 October 2000 to 31 October 2000, showed total sales of $44,904. The total for this period was $175,826, averaging $9,768.11 per week for this 18 week period. Sales for the period 1 October 2003 to 31 December 2003 totalled $61,988.67 averaging $6,198.87 for the 10 weeks including the last four weeks of Mr Lostumbo's tenancy. For the period 1 January 2004, to 31 March 2004 sales totalled $32,070, averaging $2,466.92 per week. For the period 1 April 2004 to 30 June 2004, total sales amounted to $54,670 averaging $4,205.38 per week. Combining these last three entries, the earnings for the period 1 October 2003 to 30 June 2004 showed that a $158,262 was taken, averaging $4,396.17 for the 36 week trading period. The figures for the period 1 July 2004 to 30 September 2004 showed $72,766 in sales, averaging $5,597.38 per week while, for the period 1 October 2004 to 31 December 2004, showed gross takings of $67,554, averaging $5,196.46 for that 13 week period of trading. DELIBERATION 45 The applicants' case was that the deed with Monotell Pty Ltd, the sub-lease between Galletta Construction Co Pty Ltd and Lostumbo Investments Pty Ltd and the deed of lease between Monotell Pty Ltd and Lostumbo Investments Pty Ltd for lease of the premises known as Galletta's Bar were inter-related, with one dependant upon the other. The applicant company and the respondent company were one or two person entities, with Mr Lostumbo being the principal of his company and Mr Galletta being the principal for his company. For the first year, the combined rent for the premises and lease of the business was $5,000 per week with a division of that amount being driven by tax advice rather than a valuation of the two components to the total amount of $5,000. The amount for "reasonable" rent was that found by Mr Garder at $104,000 per annum as being appropriate for the lease of the premises but, for reasons set out in Mr Kelly's first report, nothing should be paid for the lease of the business because of the loss position exposed by the records of takings and lack of profitability. At the very most, a modest amount was to be paid for the equipment and would amount to no more than $4,000 or $5,000 in the first year and would be severely depreciated thereafter. There was nothing payable properly on account of goodwill when the business was making a loss. 46 At the heart of the claim of unfairness were the representations made that the business was taking $28,000 to $30,000 per week. This business had been operating since 1993 and from the records available, it was apparent that for only a few months just prior to Mr Lostumbo entering the lease, had this level of takings been achieved. The representation was deceptive because, on an annual basis, the average monthly takings fell far short of $28,000. Achieving an average of $28,000 per week would result in total takings of nearly $1.5m per annum. There were no figures available from the respondent that came anywhere near that level of average income. Mr Galletta's BAS statements for the periods immediately prior to the making of the representations showed that takings were averaging $9,010 per week; significantly below the level represented. It was suggested that, if in August 2000 average weekly takings had amounted to $28,000 there was nevertheless, misrepresentation by silence, because in the preceding month or so the takings would have had to have been negligible. The agreement was therefore unfair at its inception and in its operation and practice turned out to be unfair, particularly in view of the matters that altered the trade for coffee shops in the surrounding area of Norton Street. There was no dispute about this adverse effect; it was supported by the respondents' witnesses as well as those of the applicants. 47 In relation to the valuation of the business, it was submitted that Mr Rossetto's opinion was basically flawed by the instructions he received in relation to the calculations of the gross takings. According to his instructions, he took the first 25 weeks of the lease and, despite the fact that the recorded takings were available for the remainder of the financial year, he then took those figures as an average for the business allowing him to reach a net profit from the business as being nearly $73,000, while Mr Kelly's report accurately calculated it being $11,500. As opposed to Mr Rossetto's theoretical exercise, Mr Kelly looked at the applicants' level of takings to June 2001 and then concluded that no reasonable return was available to the applicants to pay for the lease of the business. Mr Kelly was able to use figures of the business takings up to the time the applicants took over Galletta's Bar with figures from 1 July to 31 October from the respondents' BAS statements: Mr Galletta in his evidence accepted that those statements correctly reflected the takings and the figures upon which GST was to be paid. 48 It was then submitted that, having regard to the average takings, the guarantee of $150,000 was unfair at the time it was made and became even more unfair in view of the circumstances that worked out in practice. In effect, the guarantee operated so that, if the takings fell below $22,500 a week on average during the four week calculation period at the end of the lease, then the applicants would pay the respondents $150,000. This was a business where the takings were known to fluctuate and no one could "look with a crystal ball into the future", especially when the representations referred to takings that were not for the period for the calculation of any amount due to the respondents under the guarantee. What was a material factor in determining whether the contract was fair or reasonable was net profit not gross profit: in effect, Mr Lostumbo was "buying himself a job". 49 In relation to the Cross-Claim, it was submitted that there were significant problems with the matters claimed relating to any damage or missing items. The managing agent Mr La Rosa, on a proper reading of his evidence, did not support the claim. He was under the impression that a number of items were included in the lease when they were not. He attended the premises five days after the end of the lease when there were people performing work at the premises: he was unable to give evidence as to when any damage occurred or when items ceased to be at the premises and was unable to give evidence as to who caused any damage. Mr La Rosa agreed that normally a claim was made in relation to a bond. However, there was no bond here and there was no notice of alleged damage served by way of claim as managing agent or the applicants, contrary to the usual practice. The Cross-Claim was simply not made out. 50 For the respondents, it was submitted that the applicants bore the onus of demonstrating unfairness in the contract which was not addressed by showing that the "optimal arrangement" had not been entered into by the parties. On many occasions, the Court and its predecessors had warned against the use of this part of the jurisdiction to become a refuge for those who were merely disgruntled with a bargain entered into on even terms. The Court would not normally interfere with bargains freely made by persons who were under no restraint or inequality. Persons who entered a business had to bear their own responsibility for assessing the business opportunities and their own suitability for the venture. 51 Any unfairness in this contract was said to have been "visited on the respondents". They had leased out a property in good condition with a business that, at the time of lease and for six months thereafter was averaging $28,500 per week - three years later they got the business back with takings of $15,250 per week, with the premises in a dirty and damaged condition and dirty and damaged to the extent of $104,000. For this result, the respondents had been paid a total sum of $5,000 per week for rent and were able to claim the benefit of a guarantee in the sum of $150,000. This $150,000 represented only 13 weeks of the loss the respondents suffered for the difference in takings between the leasing of the business and getting it back again. It was not to be considered a large sum in the context of a business taking $3.5m over three years. If the guarantee was addressed to the 13 weeks' loss, then that sum did not defray the cost of repainting and damage to the premises in circumstances where there was no bond to deal with that eventuality. Here, the respondents had been the losers in relation to this contract: the contract could not be regarded as unfair against the applicants. This was to be compared with Mr Lostumbo's position - being able to walk into a business with a name, a clientele, infrastructure, stock and the ability to take any profit from the first day. He paid nothing but the weekly rent and at the end of the first eight months of operating the Bar he had taken for himself as an employee and company director the sum of $100,000. The business had taken $3.5m during the course of the lease and according to the applicants' own expert, returned a gross profit of $600,000. 52 In this case, it was submitted there was no unequal bargaining position: both were experienced small businessmen of equivalent standing and experience. They knew each other, they knew the particulars of the Bar, they presented as being equally shrewd and articulate and able to negotiate for themselves. They each had competent solicitors and accountants. Solicitors acted for them and negotiated the terms of the lease. It was clear from the evidence that Mr Lostumbo's solicitor was active in his interests throughout the lease discussions. Mr Lostumbo accepted that his solicitor had explained the deeds and he made no complaint that he did not understand any aspect of those documents. At no time during the three years, was there ever a complaint about the contract, the rent, the takings or the guarantee. It was submitted that there was no complaint because nobody saw any of these arrangements as being unfair. When Mr Lostumbo had seen some unfairness, he had his solicitors write about it and many of those matters were addressed. Nowhere had these matters been raised during the course of his occupancy of Galletta's Bar. 53 An essential part of the applicants' case of unfairness revolved around the takings he received. It was submitted that the evidence showed that the takings figures kept by the applicants were not accurate or reliable. Mr Lostumbo admitted paying employees cash in hand and issuing group certificates that were not accurate - in some cases by as much as $25,000 for an employee in a year. He could not be believed when he said that all the takings were recorded: the group certificates were inaccurate, his BAS statements were wrong and his financial records could not be reconciled. These were all highlighted in Mr Rossetto's report. Mr Kelly, the applicants' expert admitted in evidence that, where cash in hand payments were made, that was usually done from undeclared takings. Mr Rossetto said the same thing which was logically the case. There was no logic or benefit for an employer in paying wages out of monies that have been declared and on which tax is paid - if the wages were declared, a tax deduction could be claimed on them. The whole purpose of the practice was necessarily to under-declare the takings. In this respect, the evidence of two accountants brought by either party could be accepted. 54 It followed that Mr Lostumbo's figures could create no basis for establishing unfairness. Mr Lostumbo could not be accepted as a recorder of truth and accuracy: he had done a good deal better out of Galletta's Bar than was stated in the records he kept. He had significant, undisclosed, cash takings. The difference between the wages book and the financial statements in the last year of the lease alone was $74,000, according to Mr Rossetto. In addition, Mr Lostumbo kept any tax he did not remit to the Australian Tax Office on the wages paid. All of these matters were relevant when it was said that the rent and the guarantee figures were excessive. That attack was made by using Mr Lostumbo's assertion about his takings, which were not to be accepted as being accurate. The takings were higher than the books disclosed. The Court simply could not proceed to any conclusion based on Mr Lostumbo's figures. 55 On the other hand, Mr Galletta's figures were not under scrutiny. The representations made - that the business was taking $28,000 to $30,000 per week - were true and remained true for the six months after Mr Lostumbo moved into the business. At the end of the lease, when Mr Galletta said the takings were $60,000 over a four week period, that was to be compared to the previous four weeks under Mr Lostumbo, when the takings were $65,000. There were no other figures from Mr Galletta that mattered in this case. It was also of importance that the applicants had Mr Rossetto's report since 2005 but had not brought their own accountant to give evidence in support of their case. A Jones v Dunkel (1959) 101 CLR 298 inference could properly be drawn that the applicants' accountant's evidence would not have assisted his case. 56 In relation to the rent, it was submitted that nobody was asked to assess the fairness of the total rent of the property and business at $5,000 per week. In any event, there was no evidence suggesting that the rent was unfair or not comparable to other combined rents for a business and premises - that comparison was not undertaken. 57 The difficulty with the applicants' evidence was that Mr Garder assessed the rent of the premises, Mr Kelly assessed the rent of the business, and both proceeded on the basis that the rent was referrable to the actual worth of each element. The $5,000 per week for the lease of the business and rent of the premises was, however, arbitrarily divided on accountants' advice and the parties did not attempt to attribute an actual amount for the rental of the premises and another amount as reflecting the worth of the lease of the business. The arbitrariness of the figure in each case was accepted as affecting the views of the experts. In addition, the level of compliance with the DA was ultimately irrelevant because it did not affect the operation of Mr Lostumbo's business during the period of the lease. Mr Garder said that a 3 per cent annual rent increase was less than inflation at the time, was reasonable and therefore the rent increases could not be cause for complaint. 58 It was only in his oral evidence that Mr Lostumbo said that he made a complaint about the amount of rent to Mr La Rosa. On the other hand, Mr Kotselas, a person experienced in the operation of cafe/restaurants was prepared to pay a rent of $5,000 per week plus $500,000 to operate the business. His was the only evidence that addressed the combined rent of $5,000. Mr Kelly's view as to the value of the business rental proceeded on the applicants' records which were wholly unreliable. Mr Kelly did not go behind the figures provided to him and therefore his conclusions as to the value of the business were necessarily affected. 59 In relation to the guarantee, the amount of $150,000 was discussed by the parties and by their legal representatives. There was never a complaint about the size of the guarantee but some discussion which led to the figure of $25,000 per week being chosen as the average for the four week trial period at the end of the lease. At the end of the lease, instead of taking $28,500 per week as it had been when Mr Lostumbo took over and for the six months of its initial operation under his charge, the takings had fallen to just over $16,000 per week. The takings were nowhere near $25,000 and there was no room for Mr Galletta to ameliorate the operation of the guarantee when the disparity was so large. The significant point was that Mr Galletta had leased a business which was able to take over $28,000 for the first six months of its operation, and at the end of the lease was returned a business that was earning approximately $16,000 per week with no appreciable difference in the outgoings. The business was described as being "rundown". The $150,000 represented only 13 weeks of the drop in takings and acted only as restitution to Mr Galletta for the rundown state of the business for that short period. It did not cover the loss and damage of the premises detailed by Mr La Rosa and was not, on a proper approach, a large sum. 60 The applicants' suggestion that the takings in the trial period at the conclusion of the lease were affected by work undertaken by Mr Galletta but this was not supported by the evidence. Mr Galletta denied it: Mr La Rosa observed cleaning taking place, but no renovations, when he visited five days after the lease concluded. In any event, in the four weeks prior to the lease expiring Mr Lostumbo's records show that he took $65,000. In the four weeks after the lease terminated Mr Galletta took $60,000. Those figures suggested that the business was in a rundown state and that there was nothing unusual or unusually low about the returns achieved by Mr Galletta in the trial period. 61 It was argued for the respondents that there was no pleaded unfairness going to assertions as to the takings made by the respondents. No such allegation could be made because those representations were accurate and continued to be accurate for the first six months of the operation of the business in the hands of Mr Lostumbo. Mr Kotselas had satisfied himself of the returns when he looked at the cash register takings at about the same time as Mr Lostumbo was looking at the business. Mr Lostumbo had the assistance of legal representatives and an accountant. He also had the benefit of the four week trial period to satisfy himself that the business was viable. Mr Lostumbo did not walk out during this four week period and in the first 25 weeks of the lease, the takings averaged $28,500. 62 The fact that the takings decreased after six months could not be laid at Mr Galletta's door nor did that fact make the contract unfair. There may be any number of reasons for the takings being reduced including the failure to keep the premises tidy (as observed by Mr Galletta in 2002 and also as observed by Mr La Rosa in November 2003) or, perhaps, by external competition from the Italian Forum or changes in the nature of the industry. Those changes were a fact of business life and Mr Lostumbo knew the industry and knew it was seasonal. He also knew that the Italian Forum was open before entering into the lease. The takings could have been affected by the Council installing parking meters in Norton Street: all witnesses seemed to agree that was a matter that affected business. It was unfair to require Mr Galletta to be accountable for that eventuality. 63 It was also submitted that Mr Lostumbo knew that businesses in the hospitality industry could change and, even before he took up his lease, he had seen restaurants opening and closing in the area and that "nobody guaranteed the takings of Galletta's Bar for three years". He knew before he entered the lease that the takings were affected in winter and were likely to be affected by competition and he acknowledged that none of this could be Mr Galletta's fault. The requirement for a guarantee if takings fell below $25,000 per week was not an indication to Mr Lostumbo that he was guaranteed that the takings would be sustained - on the contrary, it alerted him to the fact that there was a possibility of fluctuation and that Mr Galletta wanted to be protected against that fluctuation and saw a need to be protected in that way. The possibility of fluctuation in the business was discussed by the parties so that, when the takings were averaging $30,000 in the first four weeks of the lease, a figure of $25,000 was agreed as the average takings per week for the operation of the guarantee. It was common ground between the applicants and the respondents that that adjustment was made to allow for fluctuations in the economy over time. That adjustment of $5,000 in $30,000 was not a small or token adjustment. 64 In relation to the Cross-Claim, the respondents alleged that they suffered loss and damage as a result of their premises being returned in a poor state. This was supported by Mr La Rosa's evidence. It was unfair if the lease operated so that a lessor could return to the property in a substantially damaged condition without redress. There was no bond and the contract was unfair in not providing for the respondent to be recompensed for substantial damage to the premises. The applicants contested some $64,000 of the Cross-Claim leaving at least $20,000 of the Cross-Claim uncontested. It was suggested that it was open to the Court to award the respondents that sum without having to enter into a determination of a contested amount even if the applicants' Summons was dismissed. Equally, it was open to the Court, if it found any kind of unfairness in the contract, to hold that it was offset by the unfairness afforded under the contract to the respondents. 65 The Amended Summons for Relief, besides seeking an order declaring unfair the contract or arrangement entered into in late 2000 between the applicants and the respondents, sought an order varying in whole or in part the contracts or agreements and, in particular, sought an order declaring the deed of lease, the deed of guarantee, the sub-lease of the premises or any combination of those documents as being unfair, harsh or unconscionable and against the public interest, and a further order declaring the "collateral arrangement" providing a $150,000 guarantee to Monotell Pty Ltd was unfair, harsh and unconscionable and against the public interest. An order was sought that the respondents pay $600,000 to the applicants and that the respondents be jointly and severally liable for any order that money be paid to the applicants. 66 The Amended Summons for Relief also made it clear that the rent payable should be reduced to $104,000 per annum for the lease of the business, said to be a reduction from $130,000 as required by the terms of the lease, although that figure does not appear to be correct. The Amended Summons for Relief also alleged that, at the time of the lease, the Bar was running at a significant loss and had been so for some years. The goodwill of the business was said to be worth nothing and the business was unsaleable to any reasonable buyer: the only value in the business was the saleable value of its fixtures and fittings. The respondents misled the applicants into believing that the business of the Bar was profitable and the applicants relied upon the representations of Mr Galletta that the business was profitable and a good business to lease. The unfairness was claimed to be: the inappropriateness of the $150,000 guarantee, in view of the fact that the takings of the business at all relevant times were totally unrelated to the profitability of the business; that the business could (for reasons totally unassociated with the applicant) be taking less money than was forecast it would take some three years earlier; the occurrence of events that adversely affected takings; the fact that the business was worth nothing when it was leased; and, that it was only approved and registered for 70 seats. It was alleged that the payment of rent of over $300,000 for the lease of the business was excessive and should not have been paid and that there should be reimbursement to the applicants for losses made and profits not made. 67 When the case was opened by counsel for the applicants, it was made clear that there were only two issues, namely, the excessive rent with a general claim that only approximately $2,500 per week should be paid rather than the $5,000 actually paid, and that the guarantee should be set aside and the equivalent amount be returned to the applicants. There was no contest that the three documents were inter-related and together provided for Mr Lostumbo and others to work in the cafe/hospitality industry and so fell within the scope of s 106 of the Act. 68 Before turning to the merit of the claim as pleaded in the Amended Summons, it is appropriate to make some remarks at this stage about one particular submission put for the respondents. The respondents' expert evidence called into question the takings recorded by Mr Lostumbo during the three year period of the lease of the business and also raised the prospect that there were undisclosed takings and cash in hand payments to employees. These possibilities were said to flow from irreconcilable differences between financial statements and BAS returns that were said to render it an impossible task of verifying the takings as recorded by the applicants. The thrust of that evidence was not contested by any expert evidence called by the applicants nor was the applicants' accountant called, however, in evidence in-chief Mr Lostumbo frankly stated that he had made a number of cash in hand payments to employees and steadfastly asserted that he did not take any cash monies for himself, that the records of takings were accurate because he had to know how the business was performing. In addition, he was not the only one recording the takings from the till. 69 The result of cash in hand payments to employees was the likely underpayment of income tax to the Australian Tax Office, although Mr Lustombo was not prepared to accept that occurrence, simply saying that he relied upon his accountant. Importantly, Mr Lostumbo said that this practice was adopted because it was the way in which he was told to run the business although in giving that evidence he did not identify who gave that advice although, the most obvious source, if that statement was true, was Mr Galletta. Surprisingly, Mr Lostumbo was not cross-examined on this matter nor did Mr Galletta deny in his oral evidence that he had been the source of that instruction. 70 To the extent that the respondents raise issues of credit, particularly in relation to Mr Lostumbo, it is to be noted that similar observations could be made about Mr Galletta and the respondents' operation.

It seems odd that between 1993 and mid-2000, Galletta's Bar took average weekly earnings well below $28,000 - but that the takings increased when Mr Galletta started to contemplate the sale of the business. The best ever returns recorded occurred in the few months before Mr Lostumbo took over the lease.

The average figures taken by Mr Lostumbo were, for a sustained period, superior to the takings in 1998, 1999 and most of 2000 in the hands of Mr Galletta. In addition, the financial records kept by Mr Galletta werefound by Mr Kelly to be "unreliable", not true or correct, and, "inconsistent": the respondents' gross profit figures were unreliable as were the recorded takings between 1998 and 2000 and the wages were inconsistent. Mr Kelly also raised concerns at the very low figures recorded on the respondents' return to the Bar at the end of the lease and following. In cross-examination, Mr Galletta conceded that he had significantly understated the cost of renovations in an application to Council, knowing that understatement to have an effect on the fees charged by Council. Ultimately, the evidence raises questions in relation to the business methods of both Mr Galletta and Mr Lostumbo such that these types of credit issues are not significant in determining the issues arising between the parties to this litigation. 71 Given this background, the issue of credit raised by the respondents did not seem to go to a central or even significant evidentiary conflict, because the respondents' counsel accepted in his opening address that there was little conflict in the evidence concerning the claim for reasonable rent and the setting aside of the guarantee. The respondents had made the representations alleged: those representations were accurate at the time they were made; and, in the recent trading of the business for the first six months of the lease, comparable takings were maintained. The rent price had been asked for and accepted, as had the guarantee.

The point raised by the respondents seems therefore to come down to a submission that, as in equity, Mr Lostumbo did not come to these proceedings with clean hands and should therefore be denied the benefit of any discretion capable of being exercised in his favour. 72 I am unable to accept that submission made for the respondents. While it is undoubtedly true that Mr Lostumbo made cash payments and it is also possible that taxation was not accounted for in relation to such payments, Mr Lostumbo had at no relevant time asserted to the contrary. The case pressed on his behalf did not continue the claim for profits and losses arising from the business and, ultimately, the only relevance of the takings (in part) was to demonstrate the unreasonableness of the rent and the guarantee required by the respondents. The material in evidence does not permit the Court to make the serious finding that Mr Lostumbo understated the returns of the business. The respondents' case also struck something of a dilemma in relation to the takings: on the one hand, it was alleged that Mr Lostumbo had allowed the business to run down to the point where takings of $28,000 to $30,000 per week had fallen away to takings of just over $16,000 per week, causing a great loss to the respondents as confirmed by the respondents' takings in the trial period and, as shown in the evidence, for 2004. If the applicants had been taking significant cash sums out of the business, even if the business was trading at a lower level than in 2000, that would be expected to be found in the trial period and reflected in the takings after the trial period when the Bar was returned to Mr Galletta. The evidence does not show a disparity that permits a finding of that nature but does show a continuing, if not alarming, downturn in takings in late 2003 and during 2004. It might be expected that, when Mr Lostumbo was nearing the end of the lease, he would be doing his utmost to ensure the takings were as high as possible because of the financial consequences he faced under the provisions of the guarantee arrangement. Artificially low figures recorded for takings leading up to the hand back to Mr Galletta would have left it open for Mr Galletta to claim that the business had been run down, thus triggering the possibility of a payment being made under the guarantee arrangements. The case therefore falls for determination upon the respective merits of the matter. 73 Having regard to the evidence from a number of witnesses called on both sides of the record, I am satisfied that a combination of factors led to a downturn in business in the Norton Street precinct and, in particular, for businesses such as cafe/bars like Galletta's Bar which continued during the period of Mr Lostumbo's lease and for a considerable period thereafter. I am not satisfied on the evidence that Mr Lostumbo, by a deliberate act, or through unsuitability or incompetence, allowed the business to deteriorate alarmingly. Mr Galletta's gratuitous observation that, by 2002, he thought the place unclean was not supported by the evidence of Mr La Rosa who frequently attended the cafe, including monthly attendances to collect the rent during which times he had a coffee: additionally, there was no answer to Mr Lostumbo's evidence that the Bar had been reviewed and passed by Council inspectors. I have no doubt that, if Mr Galletta had thought that the premises had become so unclean that he had no confidence in its hygiene, especially where the preparation and sale of food was involved, he would have acted promptly on that view through his solicitors, bearing in mind his long term interest in the business either as a going concern in which he would be employed or as a sale prospect. 74 The applicants' claim in relation to the unreasonableness of the rent faces evidentiary difficulties quite apart from the often repeated defence by the respondents that the $5,000 per week was negotiated without duress or any other undue pressure or relevant misrepresentation. The respondents' submissions appeared to accept that, at worst, it was a bad bargain, having regard to the changes in the surrounding business community for which Mr Galletta and the respondents bore no responsibility. The combined rent of the lease of the premises and lease of the business was valued at $5,000 and I accept that figure was set by Mr Galletta without attempting to attribute any particular value to the land or the business. The combined rent was therefore slightly over $260,000 per annum in the first year with modest increase for the second and third years of the lease. 75 Mr Garder's valuation of a reasonable rent was made by comparing similar cafe/bars in the Norton Street vicinity. He concluded that a reasonable rent for the premises was $104,000 as opposed to the figure of $156,000 required under the sub-lease. The $156,000, of course, did not represent an estimate of the true value of the premises and, if the $5,000 total rent had been divided as $2,000 per week for the premises and $3,000 per week for the business, then there would be no difference and no case of disproportionality, let alone unfairness. Mr Rossetto's opinion that the business rent was reasonable simply followed his understanding that Mr Lostumbo made $100,000 profit in the first 8 months although Mr Kelly challenged that level of profitability of the business. Mr Russ's valuation of $124,800 was approximately $31,000 less than the amount required under the sub-lease, (although the properties he considered were much lower in rent) but Mr Russ then appeared to defer to the opinion of Mr Garder as to the most comparable property. He thought there were features of Galletta's Bar that required a premium to be placed on the rent of the comparable property. Mr Russ did not indicate how that premium was ascertained nor did he explain why the other properties he considered were worth so much less than Galletta's Bar. In all the circumstances, I am satisfied that a rent in the region of $104,000 in 2000 was a reasonable rent for the premises. 76 The applicants' case therefore relies substantially on the opinion of Mr Kelly that the business was worth nothing because it was making a loss and that, at most, a few thousand dollars might be paid each year for the fittings, including all the equipment required to operate a cafe/bar. Mr Rossetto's opinion was based on takings averaging between $28,000 to $30,000 per week and, on a number of assumptions that he records, he concluded that the combined rent was reasonable. The fundamental problem with that view is that it operates on the maintenance of returns at the levels represented by Mr Galletta prior to Mr Lostumbo entering the arrangement. The evidence was replete with references to the uncertainty of this type of undertaking and the fact that takings could not be guaranteed, especially over an extensive period such as the three year term of these arrangements. 77 These starkly different views expressed by experts were not subjected to the regime of joint consultation and discussion that has become a regular part of civil actions in the general courts and leaves the Court in some difficulty in deciding where a reasonable rent for the business might lie in the competing contentions. There is substance in the view that it is highly unlikely that the operator of a cafe/bar would allow the business to be run on a walk-in basis and as a going concern with no payment for the business - simply a payment in recognition of the rental of the premises. There does not seem to be much doubt that, if the business continued to make returns between $28,000 and $30,000 per week, the combined rental of $5,000 per week was a bearable impost. It is of some limited relevance that an experienced accountant such as Mr Kotselas was prepared to meet the $5,000 per week figure nominated by Mr Galletta to run the business; that view is far from determinative of the issues and accepted the level of returns represented by Mr Galletta and presumably, accepted their indefinite continuance. 78 A prudent person might have had his accountant inspect the records and the takings of the business since its commencement in 1993. That inspection would have shown, as Mr Galletta confirmed in cross-examination, that the best returns obtained over that period occurred in the few months before the applicants took up the lease in October 2000: therefore, there had to be at least a question mark over the capacity to maintain that level of takings. Mr Lostumbo had solicitors and accountants advising him and, if proper enquiry had been made, he might have sought some provision letting him out of the arrangement if the takings were not maintained at the nominated level. These prudent steps were not taken: these facts raise the issue of whether the contract was just a bad deal made without duress or relevant misrepresentation. 79 Although the availability of and recourse to professional advice does not automatically result in an applicant failing in a case brought under these provisions of the Industrial Relations Act 1996, they are relevant considerations. In A & M Thompson Pty Ltd and ors v Total Australia Ltd (1980) 2 NSWLR 1, the Full Bench rejected a defence that the applicants under s 88F had gone into the arrangement with their "eyes open", noting that the absence of fraud, deceit and cheating was not, by itself, an answer to a claim for unfairness. The section went well beyond such cases and in a proper case in which fraud was not present and in which the complaining party fully understood the bargain, an order, nevertheless, may be made based on unfairness (at 14). 80 As long ago as Agius v Arrow Freightways Pty Ltd (1965) AR 77 the Commission stated that, when determining whether a transaction was relevantly unfair, it will exercise "commonsense and a sense of justice" (at 89). In the famous and often quoted judgment of Sheldon J in Davies v General Transport Development Pty Ltd (1967) AR 371, his Honour referred to the operation of the section as being concerned more with morals than law. The finding that a contract was unfair, harsh or unconscionable required no more than the commonsense approach characteristic of the ordinary juryman (at 374). Over many years of the application of the unfair contracts provision, these words or words to the same effect have been repeatedly endorsed despite the scrutiny to which the provision has been subjected. Indeed, Macken J stated in Bennett v BP Australia Ltd (1984) AR 120: The corner-stone of the applicants' case is the claim that the parties were not in any equal bargaining position. Inequality of bargaining power is frequently a reason for an unfair or harsh contract to be struck down under s 88F but standing alone is not sufficient. In one sense parties to a contract are never in an equal bargaining position; there must always be some differences between them and some advantages and disadvantages attaching to one side or the other (at 123). 81 These longstanding statements of principle are apposite in the present case although it is to be readily recognised that all the relevant factors need to be considered. In Incitec Ltd v Barry (1992) 45 IR 148 at 154 the Full Court stated that the nature and degree of the unfairness under the section related to ordinary standards of fairness by directing attention to the particular circumstances of the individual contract or arrangement and whether or not the contract was unfair, was a matter to be decided upon examination of the facts of each particular case. The fact of a freely made bargain would not, by itself, prevent the Court from finding unfairness: this view of the operation of s 106 and its predecessors has been recently reaffirmed by a Full Bench of the Court in All-Fect Distributors Ltd & ors v Steward [2007] NSWIRComm 24. 82 Having regard to all of the evidence and the difficulties referred to in relation to valuation, I am unable to accept the proposition that the combined rental of $5,000 per week was unfair for this business and that only half that sum should have been payable. While the rent for the premises seems high judged by comparable properties, the evidence relating to the business takings clouds a determination as to its reasonableness. Both Mr Galletta and Mr Lostumbo produced records that the experts considered to be unreliable. Mr Rossetto formed the view that the rent was reasonable based on the net profits of the first eight months of the applicants' tenure, but that figure is seriously called into question by Mr Kelly.

The combined rent of $5,000 might be high but it encompassed taking over a going concern on a walk-in walk-out basis - everything was provided to allow the business to be conducted from day one. In view of the absence of other obligations such as rent for the equipment and depreciation of the value of that equipment over three years, the applicants have not been able to make out a case of unfairness in relation to this part of the inter-related arrangements. 83 Different considerations apply to the guarantee. The guarantee was variously portrayed by the respondents as being protection against the business being run down, protection of the income stream and a guarantee in the absence of a rental bond or as a hedge against depreciation of the equipment over the period of the lease. The terms of the deed, however, are clear. The Recitals record that the deed outlines the manner in which "the warranty as to takings is to be calculated" upon the expiry of the lease. In paragraph 1d of the deed it is agreed as follows: If at the end the lessor's trial period referred to in (c) above the business has not taken an average of $25,000 per week (being the gross takings from sales conducted from the business premises) then the lessor is entitled to appropriate unto itself up to $150,000 from the Guarantee a sum being $52 for each dollar that the gross takings fall below $25,000. This amount to be appropriated is in addition to any other amounts which may be due to the lessor for breach of any other covenants in the lease or the land lease provided however that the amount which may be appropriated by the lessor pursuant to this clause or in relation to non-payment of rent and outgoings or earlier termination of the land lease shall not exceed cumulatively $150,000. 84 The respondents' argument is that this was the only protection chosen by the respondents and that it came as a result of arm's length dealing between parties of similar background and in the absence of duress or misrepresentation. As has been indicated earlier, that submission has some force and is to be considered, but is not always a satisfactory answer to cases brought under this provision. Of particular importance was that, in reference to the first part of the case dealing with the downturn in takings, the respondents opened their case and cross-examined on the basis that nobody could guarantee earnings in this industry, partly because of its seasonal nature and constant competition and certainly not for a period of three years as involved in these arrangements. On that approach, Mr Galletta was not acting unfairly when he referred to takings of $28,000 to $30,000 per week as actual takings shortly before the applicants entered into this arrangement. However, there was nothing, either in the discussions or in the leases or deeds, that guaranteed such takings for the period of the lease. 85 Two matters are important in assessing this argument: firstly, Mr Galletta at no stage, prior to the entering of the agreement in October 2000, informed the applicants that the $28,000 to $30,000 takings were the highest takings experienced in the operation of the cafe/bar since 1993; and, secondly, the submission ignores the fact that the presence of the guarantee indicates a reasonable expectation that those few weeks of returns, when earnings of that order were made, would substantially continue during the three year life of the arrangement regardless of seasonal changes (such as unusually cold, wet or windy weather in October/November), unexpected changes in trading arising from competition or unexpected restrictions on access to the precinct. If Mr Galletta had no expectation that this level of return would continue, the guarantee was no more than a windfall gain operating in favour of the respondents. Under these arrangements, Mr Galletta had secured for himself a significant rent for both the business and the premises, yet required a guarantee that the business would not be returning less than $25,000 per week on its return three years later, regardless of the vicissitudes of business life. This requirement goes beyond the bare analysis that Mr Lostumbo simply made a bad deal: the arrangement had the potential to unfairly enrich Mr Galletta at the end of the term of the lease, even though Mr Lostumbo may have done all in his power to make the cafe/bar profitable and even if he returned the business to Mr Galletta at the maximum earning capacity available in the then prevailing economic and social climate. Indeed, as has already been discussed, Mr Galletta re-entered possession of the business with takings that were low and, despite his efforts at renovation (said to be considerable), he appeared to have continued to receive takings at a significantly reduced level to the $25,000 per week referred to in the guarantee and, as the business continued, apparently much less than the $16,000 average per week taken in the trial period allowed for the calculation of returns under the deed of guarantee. The unfairness of that arrangement is palpable and is only emphasised by the respondents' own case that, in the nature of this industry, nobody could guarantee returns for any period, let alone a period of three years: yet what Mr Galletta required to lease this business was precisely that - a guarantee of future high earnings in a somewhat volatile business venture. 86 The guarantee cannot be treated as simply an arms length deal reached between equals. As Macken J stated in Bennett, there are always some differences and some advantages and disadvantages attaching to one side or the other. Mr Galletta had long experience in running this Cafe and was well aware of the highs and lows of business activity and takings. Mr Lostumbo was a businessman but was involved in supplying cutlery and china to restaurants - his experience was not as direct as that of Mr Galletta. Mr Lostumbo clearly relied upon Mr Galletta's representations as to takings and trusted him. He was entitled to be treated fairly when dealing with the guarantee - especially when the takings showed a history of much lower returns and in circumstances where, during discussions about the deal, Mr Galletta did not disclose his view that no one could guarantee Mr Lostumbo's takings yet he wanted Mr Lostumbo to guarantee takings three years into the future without any provision for reviewing the fairness or appropriateness of such a guarantee. Mr Kelly's unchallenged evidence was that, in his 30 years of experience, he had never seen such an onerous guarantee for this type of business. 87 The requirement for a guarantee and the size of it was a requirement imposed by Mr Galletta - it was an essential element of the deal. Further, Mr Galletta incurred no relevant "loss" from leasing the business: the reduction in takings was due to a number of factors beyond the control of either Mr Galletta or Mr Lostumbo. On the record of takings produced in evidence it is likely that had Mr Galletta continued in the business he would have experienced the same downturn in takings. The level of takings for the trial period at the end of the lease did not amount, however, to a "loss" caused by Mr Lostumbo but merely reflected the current trading potential of the business. This part of the overall arrangement exploited Mr Lostumbo and took advantage of his relative inexperience in running a cafe: he should be restored to the financial position he enjoyed prior to entering the deed of guarantee and ultimately paying the $150,000 to Mr Galletta. 88 Mr Galletta had the option of asking for a bond in relation to the state of the premises or making any other arrangement that might have legitimately protected him from expenditure required because of wear and tear to the equipment over the three year period of the lease, but he chose not to do so. It was unfair that he demanded and enforced a guarantee that amounted to no more than a windfall for a business that was no longer capable of making the returns specified in the deed of guarantee, namely, $25,000 per week: the deed of guarantee was unfair at its inception - at the very least it became unfair in the course of the term of the agreement. The applicants are entitled to a declaration that the arrangement was unfair, harsh and unconscionable and that the deed of guarantee be voided ab initio. The considerations which informed the judgment of the Full Bench in Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford (2002) 125 IR 35 do not require a different approach to the relief appropriate to this case. 89 The remaining issue is the respondents' Cross-Claim which was finally pressed in the sum of over $84,000. There is little by way of affidavit evidence referable to this aspect of the claim and virtually none in the cross-examination of the witnesses. Mr Galletta asserted that a number of identified pieces of equipment needed to be replaced or repaired and provided invoices: Mr Lostumbo directly contested all but $20,000 odd of those identified items. He appeared to have some difficulty in recognising or dealing with those remaining matters. 90 All the evidence in relation to the Cross-Claim is unsatisfactory. I do not accept that the business was run down when it was returned to Mr Galletta, nor that it was in a poor or dirty state. The evidence does not support a finding that there were items of equipment or aspects of the premises left in a dilapidated state of repair. The respondents' Cross-Claim did not deal with the issue of depreciation available to it during the term of the lease and much of the claim, therefore, appeared to proceed on a claim and counter-claim basis with very little probative evidence of substance to support them. 91 Mr Lostumbo also gave evidence that he had, in fact, replaced crockery and cutlery and had added, in admittedly a minor way, to some of the equipment. According to the correspondence between the parties, maintenance remained in the hands of the respondents as lessor, although some matters were apparently contested as being the responsibility of Mr Lostumbo. The rent, while not being unfair, was significant enough to also contemplate at least some level of usage that might require attention when the respondents resumed possession. In a practical sense, it is undoubtedly true that the equipment used day-in day-out in a commercial enterprise of this nature was likely to be of reduced value at the end of lease period. Recognition of that fact does not result in a significant figure being payable as a matter of fairness under the arrangements. Mr Galletta must have been aware of this situation but chose to do nothing about it, having secured a high rental. Having regard to all the evidence, the respondents have failed to make out the Cross-Claim and the Cross-Claim is dismissed. 92 The parties, within 14 days, are to forward to the Court Short Minutes of Order that reflect the Court's determination of these matters and deal with questions of costs and interest. If the parties require to be heard further on these matters, a convenient date will be set to receive those submissions.

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