Lovecek v JV Idola Pty Ltd and ors

Court of Appeal (NSW)|2010-04-09

Background 1The Applicant lessor in proceedings 085111, Ms Patricia Lovecek ("the lessor"), purchased property located at 83 Keppel Street, Bathurst in about June 2001. This property comprised a shop area on the ground floor and a residential apartment on the upper floor. The ground floor shop area is the subject of these proceedings and is referred to within this decision as "the premises". 2After some renovations had been completed, the premises were leased for a period of time. Further renovations were undertaken during 2006 and then, on about 3 October 2006, the company JV Idola Pty Ltd ("the lessee") entered into a new retail shop lease of the premises for a period of three years and one month with a two year option to renew. A rent holiday period was agreed between the parties so as to allow the lessee company to prepare the shop for trading. 3Ms Judith Medway and Ms Valerie Persson are respectively the Second and Third Respondents to the lessor's claim in the proceedings 085111. Ms Medway and Ms Persson have at all relevant times been the directors and shareholders of the lessee company and were guarantors under the subject retail lease agreement. The lessee is also the Applicant in proceedings 085144 to which the lessor is the Respondent. 4The lessee conducted a business named "Bella Idola" which involved the design, manufacture and sale of bridal wear and associated products at the premises. 5Having considered all of the evidence admitted during the course of the hearing of these proceedings, I am satisfied on the balance of probabilities as to the chronology of events and the facts as set out below. 6During the first week of operation of the business by the lessee at the premises in November 2006, there was rainfall in Bathurst which resulted in rain water entering the premises in the area described as room 3. The rain water ran down two walls. This event was reported by Ms Persson to the lessor's agent. Within the next day, the repair contractors GI Constructions attended at the request of the agent to inspect the premises. These contractors advised that they had cleared the gutters only recently and had found only one birds nest, and that this had not been the cause of any overflow or leaking. It should be noted here that Ms Medway had by this time also noticed leaking in the upstairs flat. 7On the following day, 4 November 2006, another contractor McKinnon Plumbing attended to inspect the guttering and then undertook clearing of the gutters. The need for this work to be done stands in somewhat stark contrast to the assertions made on the preceding day by the contractor GI Constructions but, in any event, the attendance of these contractors indicates a prompt and appropriate initial response by the lessor. 8An industrial dryer was then brought in by Bathurst Carpet Cleaners at the request of the lessor to dry the carpets in the affected areas of the premises. 9During December 2006, Ms Persson ceased active participation in the conduct of the business. A request was then made that she be released from the lease. The lessor did not agree to this request. 10The property within which the premises are located sits in a row of commercial terraces which were probably erected at some time during the Victorian era. The premises share party walls with neighbouring properties and also share a contiguous roof cover and guttering. By March 2007, there was contact from the lessor and her agent with the agents and owners of the adjoining properties, with a view to clearing out any blockages in the gutters of the three properties. 11In her affidavit sworn on 25 November 2008, Ms Medway says that by December 2006 she had noticed that rooms 1, 3 and 4 in the premises had begun to smell. Although there were a great number of communications between Ms Medway and the agent over the period of time that the lessor occupied the premises, there is no reliable evidence of any complaint of smell being made to the agent at this time. 12The gutters were again inspected on or about 27 March 2007 and some dead birds were removed. There was then some communication between the agent and the lessor regarding the possibility of using bird spikes to prevent further bird debris accumulating within the guttering system. 13Payment of due rent by the lessee first fell into arrears in April 2007. 14Ms Medway says that a mouldy smell again began to occur in the rear rooms of the premises in early July 2007. The lessor's agents arranged for the gutters to again be cleaned on 22 July 2007. By late August 2007 the agent had advised the lessor that Ms Medway had complained of a damp wet smell coming from the back room and that four wedding dresses had been removed from this room. 15Ms Medway also reported a blocked toilet on 5 September 2007. The agent advised that equipment for repair of the sewerage pipe was scheduled to be supplied on 11 September. These repairs took place at some stage over the ensuing two weeks. 16In an email sent on 25 September 2007 to the agent, Ms Medway again complained about the back room being damp and smelly, that there was a black colour coming out through the paint in one section, that there was a lack of ventilation, and that there was accordingly a reduction in the room available at the premises in which to operate the business. The agent subsequently visited the premises and said that she did not think that they "smelt too bad". 17During the period between April and October 2007, the lessee remained in arrears. In response to requests for payment by the agent, Ms Medway suggested that she should pay half the rent and that the lessor should look to Ms Persson for payment of the other half. This suggestion was not followed. 18There were further storms and subsequent ingress of rain into rooms 1, 3 and 4 of the premises on 25 October and 28 October 2007. Ms Medway sent an email to the agent on 29 October 2007 advising of this problem and requesting a reduction in rent. Ms Medway complained that there were now two rooms which could not be used for storage of stock and that there was a pervasive smell at the back of the premises. The response of both the lessor and the lessor's agent to these complaints was that the plumber would again be checking the gutters and that there may be a problem emanating from the adjoining properties. 19Report of further rain ingress was made by Ms Medway on 2 November and again on 5 November 2007, and a complaint that the premises again smelt damp. On 5 November 2007 the flashing on the roof had some repair work done. This work was obviously not complete as McKinnon Plumbing again returned to the premises on 13 November 2007 to undertake roof repairs. 20On 20 November 2007, the lessee indicated to the agent, through an email from Ms Medway, that it would be vacating the premises on 30 November 2007 due to the effects of the mould and dampness at the premises, the alleged illness of Ms Medway which arose from the mould, and the subsequent lack of space in which to conduct business operations. 21Further notification of water ingress at the premises was made by Ms Medway on 29 and 30 November 2007. 22N otification of water ingress was again made by Ms Medway on 3 December 2007. On the following day the lessee's fittings were removed from the premises. 23The agent inspected the premises on 6 December 2007 and said that there was no apparent smell, nor any sign of mould. 24The air conditioner at the premises was disconnected by the lessor on or about 6 December 2007 and a new air conditioner installed. Further roof work was done by Hobson Plumbing on 12 December 2007, and the carpets were later again dried by Bathurst Carpet Cleaners. 25The lessor arranged for an engineer, Mr Garth Dean, to inspect the premises on 7 December 2007, in order to check the structural integrity of the premises. Following this inspection, Mr Dean stated that the building was structurally adequate and that the proposed removal of a section of masonry would not affect the structural integrity. He also noted that the leaking roof had caused some moisture damage to the internal wall linings and that he expected that proposed repairs to the roof would remove the source of moisture ingress and accordingly reduce moisture damage. 26On behalf of the lessee, Ms Medway arranged for WorkCover to inspect the premises on 12 December 2007. The inspector reported that that there was mould present under the carpets in the two rooms at the back of the building, evidence of rising damp in the wall of the room at the very back of the premises where no ventilation was provided, and that the back rooms had a faint musty smell. 27The lessee also arranged for another inspection to be undertaken at the premises on 12 December 2007 by a building surveyor employed by Bathurst Regional Council. The council inspector noted that there was mould growth on the walls of the rear storage area and evidence of some rainwater ingress. 28During late 2007 or early 2008, the lessee also arranged for a building expert Ed Pinder of Acacia Building Inspection Services to inspect the premises. Mr Pinder supplied a report on 9 March 2008 in which he found that there was both rising damp and falling damp, ineffective gutters and roof flashings, and no ventilation at the premises. 29The engineer Mr Dean was again requested by the lessor to attend and inspect the premises on 8 January 2008. Following this inspection, Mr Dean reported that there were "no signs of active dampness on walls at the time of the inspection". 30The lessor returned the keys to the premises to the agent on 31 January 2008. 31A new tenancy commenced at the premises on 11 July 2008.

The Lessor's Claim 32The lessor claims outstanding rent in the sum of $5,606.59, payment of the rental bond in the sum of $2,383.34, compensation for loss and damage caused by the lessee in the sum of $4,514.00, and interest. The lessor also submits that it should be paid its costs of these proceedings.

The Lessee's Claim 33The lessee also claims payment of the rental bond, a declaration that the lease was effectively determined on 30 November 2007 and an abatement of rent up to and including that date, such that no rent is payable to the lessor. 34The lessee also seeks compensation for disturbance of trade caused by the unreasonable failure of the lessee to remedy the water ingress at the premises. 35A claim was also made by the lessee for damages for personal injury claimed to have been suffered by Ms Medway and caused by the mould and dampness at the premises.

The Proceedings 36The lessee originally claimed in its filed Application that the lessor had engaged in unconscionable conduct. This part of the claim was dismissed after a hearing before Judicial Member Fox. 37A pre trial conference was subsequently conducted by me at Orange on 1 February 2010. The hearing of these proceedings then took place at Orange on 8 February and 9 February 2010, and at Bathurst on 9 April 2010. Ms Persson appeared unrepresented at the hearing. The lessee company and Ms Medway were legally represented for the first two days of the hearing, and were represented by Ms Medway on the final hearing day. Written submissions were directed to be made by 7 May 2010. 38It should be remarked here recorded that these proceedings have had an extraordinary amount of material filed, containing copious detail and traversing a number of issues. A large number of witnesses provided affidavits and gave evidence. Review of all of the evidential material has necessarily occupied an extraordinary amount of time. Having considered all of the evidence heard and admitted in these proceedings, I have satisfied myself as to those facts which are recited within this decision and which have been considered as relevant to determination of the real issues in the proceedings. 39During the first day of hearing, upon application made on behalf of the lessor and following submissions from the parties, I ruled that this Tribunal did not have jurisdiction to decide the claim for personal injuries made by the lessee. The reasons for this decision are set out below in paragraphs 41 to 48. 40There exists real doubt as to the legal capacity of the lessee company in these proceedings to seek damages on behalf of its director Ms Medway for personal injuries, but resolution of this issue is unnecessary. 41Any injury sustained by Ms Medway did not arise per se because she was a party to the lease. 42The orders sought by the lessee in its application were expressed to be based upon various alleged breaches by the lessor of occupational health and safety legislation, WorkCover safety guidelines, and of clauses 7 and 11 of the subject lease. Clause 7 required the lessor to maintain the premises in a state of "good condition and serviceable repair", and clause 11 of the lease did not add to or alter this requirement. 43In order to consider whether this Tribunal has jurisdiction to hear and determine a claim for personal injuries said to have been sustained by a party to a lease, an appropriate starting point is section 63(i) of the Retail Leases Act 1994 (" the RLA") which defines a "retail tenancy dispute" to be: "..any dispute concerning the liabilities or obligations (including an obligation to pay money) of a party or a former party to a retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease or former lease relates ..." 44The Tribunal is given power by section 71 of the RLA to determine any "retail tenancy claim", which is defined by section 70 to include: "(a) a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being ... a claim for payment of money (whether or not stated to be by way of debt, damages, restitution or refund)" 45Section 72 of the RLA empowers the Tribunal to make a number of orders in proceedings for a "retail tenancy claim" including: "(a) an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person". 46The lessee contended that the claim for personal injuries sustained by Ms Medway was indeed "a claim in connection with a liability or obligation" with which the subject dispute was concerned, and that it was therefore a "retail tenancy claim" over which the Tribunal had jurisdiction. 47The correct approach to interpretation of the phrase "in connection with" as used in section 70 is set out within the judgment of His Honour Barwick CJ in Brown v Rezitis (1970) HCA 56, at paragraph 16: " ... Whilst it can be said that the expression 'in connection with' is of wide import, it does emphasise the need for a close connection between the order made and the contract or arrangement varied or avoided. In my opinion, the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connection with the making, variation or avoidance of the contract or arrangement which has been varied or avoided." 48A similar approach was adopted by His Honour MacFarlan JA of the NSW Court of Appeal in Nassif & Ors v Caminer [2009] NSWCA 45, a case which dealt with, amongst other things, the question of whether a claim under clause 7 of the standard form of contract for sale of land in New South Wales had to be one which was "arising out of the contract". In considering this issue, His Honour had this to say: "(43) In light of these matters, I do not agree with the vendors' submission that a 'claim' within clause 7 has to be one 'arising out of the contract'. Whilst it seems to me that there must be some logical connection with the contract, there is no basis for excluding from the ambit of 'claims' one based on pre-contractual misleading or deceptive conduct relating to the property or to a proposed contract for the sale of it. The vendors gave as examples of claims that would fall outside the concept, unrelated claims based on defamation, personal injury or property damage. I agree that such claims would not be embraced by the term but that does not mean that it should be construed in the narrow way contended for by the vendors." 49A claim for personal injuries does not have the close, real or logical connection with the subject lease agreement between the parties in these proceedings as required by the authorities cited above. 50Further support for the proposition that this Tribunal does not have jurisdiction to hear a personal injuries claim is found within the decision of the Appeal Panel in Lyons Road Pty Ltd v The Owners Strata Plan 38722 (RLD) [2008] NSWADTAP 28: "(87) We attach some importance, as Rein AJ did in Pascoe v Holyoake (2006) NSWSC 64 at (20 ) , to the notion that the legislature would appear to have envisaged the Tribunal (or more specifically, its Retail Leases Division) as 'a specialist forum in which retail tenancy disputes should be heard'. If the appellant's contentions in this appeal were accepted, the range of issues that the Tribunal would be required to determine would go beyond such specialist knowledge and experience, as it possesses."

The Claim for Rent 51Section 36(1)(b) of the RLA provides that the lessee's liability for rent for any period during which the usability of the premises has been diminished due to damage is to be reduced in proportion to the reduction of usability caused by the damage. 52Consideration of the evidence given by the various lay and expert witnesses in these proceedings clearly establishes that the roof, gutter and ventilation at the premises were inadequate to prevent water ingress, dampness and mould that this situation caused a portion of the premises to be unfit for reasonable use as a bridal wear shop for the period from early July 2007 which is the time when further instances of water ingress began and a mouldy smell returned to the rear of the shop. Although Ms Medway asserts that this problem had occurred from the outset of the lease, I am satisfied that it was only when this problem recurred as and from July 2007 that part of the premises could reasonably be said to have become unusable for their intended purpose. There can be little doubt that storage of dresses, fabrics and footwear cannot safely occur in the presence of incoming dampness and mould, or that the presentation of stock and conduct of business with customers would be effected adversely by the apparent presence of damp and musty smells. 53The plan of the premises admitted into evidence establishes that the actual area directly affected by dampness or mould was approximately 25% of the total floor space of the premises. This exact figure is not an absolute indicator of the decrease in usability of the premises, because some of the affected area may have been usable for some purposes while, on the other hand, the rest of the premises may still have been affected at different times by a musty smell; this is a reasonable inference arising from the evidence given by a number of witnesses. However, application of this proportional figure is the best available method to approach determination of the extent of any rent abatement or reduction which may be appropriate. 54The lessee seeks an order for total abatement of rent for the premises from early 2007, such that no arrears of rent are payable. This claim is simply not supported by the evidence. Conversely, the lessor has not provided evidence as to exactly how the sum claimed for arrears of rent arises, except to state that it covers the period until the premises were re-let. Taking these factors into account, I determine that the fair and appropriate approach is to reduce the lessor's claim for rent by 25%, which results in the amount of $4,204.94 which I find to be payable by the lessee. Interest is payable on that sum from the date nominated by the lessor of 2 June 2008 to date, at the averaged rate of 9% per annum, which comes to the amount of $1,002.62 in total.

The Lessor's Claim for Compensation for Loss and Damage 55The lessor claims the sum of $4,514as compensation for loss and damage for which the lessee is said to be liable. I have some difficulty in reconciling this amount arithmetically with the amounts ascribed to the individual items comprised within the overall claim, but this problem does not need to be addressed because the lessor's claim for this compensation is dismissed for the reasons as set out below. 56A claim is made for the cost of repainting parts of the walls of the premises in a sum of $715. Within the relevant invoice, there is no real detail as to the nature of the areas requiring repainting. There is also no evidence that the need for repainting arose from negligence or contractual breach by the lessee or that the lessee is otherwise contractually obliged to undertake or pay for this work. Accordingly, this item is disallowed. 57There is a claim for the cost of the air conditioning unit which was installed at the premises in 2007. This is an item of capital expenditure and was agreed to be supplied by the lessor at her expense, pursuant to the terms of the lease. The lessor is not entitled to any payment in respect of this item. 58There is also a claim for the cost of re-carpeting the premises. The amount claimed is based upon what is expressed to be a "rough estimate". The premises did not have floor coverings at the commencement of the lease. The lease agreement provided that the lessee would remove the carpet if requested by the lessor to do so at the end of the term of the lease, but it did not provide that ownership of any floor coverings provided by the lessee would vest in the lessor. The claim for removal and replacement of carpet are accordingly disallowed. The claim for removal and disposal of carpet nail strips and certain patching work is also disallowed because it is not established that a proper request for removal of the carpet was made by the lessor in accordance with the terms of the lease agreement. 59Accordingly, I decline to make any order for payment by the lessee in respect of any loss or damage said to have been caused at the premises.

The Lessee's Claim for Expenses and Loss of Income 60Section 34 of the RLA provides as follows: "34 Lessee to be compensated for disturbance A retail shop lease is taken to provide that if the lessor: ... unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor's control, and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence." 61It was held by the Tribunal in Perrin v Hungay Pty Ltd [2005] NSWADT 257 that section 34 permits a lessee to obtain compensation from the lessor for loss of profits due to trading being adversely affected by rain damage, so long as the repairs required were to parts of the building over which the lessor had control. Although there is certainly evidence in relation to the subject premises that a combined effort probably had to be made not only by the lessor but also by her neighbouring owners in order to ensure that the premises were rain proof, there is no suggestion of any reluctance by the other owners to cooperate in effecting such works nor is there any evidence that the less or had no control over the cause of any dampness or mould problems. 62As was noted by the Tribunal in Duarte and ors v Mitchell and ors [2007] NSWADT 276 at paragraph 79, the lessor's obligation to prevent or stop destruction of the lessee's trading is not an absolute one, but rather is a duty to take "all reasonable steps and only within a reasonable period after being requested in writing by the lessee to do so". 63The claim for compensation for business loss made by the lessee is primarily supported by a large amount of material contained within affidavits sworn by Ms Medway and referred to in her evidence at the hearing. Having considered all of this material and the evidence given, I am not satisfied that it can be relied upon to base any claim for economic loss. There are projections of lost income contained within this evidence but such projections are of questionable methodology and are not supported by any proper business records. There were no primary documents put into evidence such as business activity statements, tax returns, income and expenditure statements or any other similar material which could support the claim made. 64A claim was also made by the lessee for compensation for damaged materials and stock, but no evidence was provided to substantiate that such material was ever the property of the lessee. This is particularly significant when it is borne in mind that Ms Medway was also conducting a business under her own name from other premises. Evidence was also admitted which indicated that Ms Medway had made claims to the Consumer Trader & Tenancy Tribunal for damage to bridal wear stock caused by water ingress at residential premises which she had been using in Bathurst at or about the same period of time with which these proceedings are concerned. 65It is trite law that "he who alleges must prove". There is simply no reliable evidence to support the lessee's claims and they are accordingly dismissed.

Costs 66Section 88 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") provides that parties are to bear their own respective costs in proceedings unless the Tribunal is satisfied that it is fair to award costs in favour of one party having regard to a number of prescribed factors. 67In particular, in determining whether it is fair to make an order for costs, the Tribunal may take into account such factors as whether or not a party has failed to comply with orders of directions of the Tribunal without reasonable excuse, or has caused an adjournment, or has been responsible for unreasonably prolonging the time taken to complete the proceedings. The Tribunal may also take into account the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law. 68Although the lessor's claims have not fully succeeded and I have found that the lessee is entitled to a reduction of rent for a period of time, the claims made by the lessee have failed entirely and a significant component of those claims lacked any real merit. Further, it is apparent from a review of the history of these proceedings that the lessee has failed to comply with previous directions, thus prolonging the time taken for these proceedings to be completed. The lessee has also filed a large amount of evidence which is variously superfluous, repetitive of other evidence, or irrelevant. 69If the lessee's response to the claims made by the lessor had been properly considered and prepared and the largely unmeritorious claims for trading loss, unconscionable conduct and personal injury not been pursued, a considerable amount of hearing time would not have been wasted. 70In all of the circumstances, and taking into account the above factors, it is fair that the lessee should pay the lessor's costs of both proceedings upon a party/party basis as may be assessed or agreed. It should be noted, however, that the order for costs is made upon the expectation that the amount of costs payable should reflect appropriate proportionality to the amounts in issue between the parties and now ordered to be paid in the lessor's application, as well as the amount of work reasonably required to meet the unmeritorious claims of the lessee. 71As indicated earlier within this decision, Ms Medway has been responsible for the conduct of the lessee's business since early 2007. Ms Medway has also been the person responsible for the continued resistance of the lessee to the lessor's claims in these proceedings for the and for the institution of the lessee's failed claims for compensation for business loss, for personal injury to Ms Medway and for unconscionable conduct by the lessor. Ms Persson, although being a director of the lessee and a guarantor under the subject lease, has not initiated or apparently supported any of these steps. Accordingly, the order for costs in favour of the lessor should properly be made against the lessee and against Ms Medway, but not against Ms Persson.

ORDERS The orders are as follows:-

JV Idola Pty Ltd, Judith Medway, and Valerie Persson are each jointly and severally liable, and are to pay the sum of $4,204.94 to Patricia Lovecek for rent arrears, together with interest in the sum of $1,002.62.
The Rental Bond Board is directed to pay the whole of the bond held in respect of the premises to Patricia Lovecek. The whole of the amount paid is to be credited against Order 1 above.
The claim made by JV Idola Pty Ltd in proceedings 085144 is dismissed.
JV Idola Pty Ltd and Judith Medway are jointly and severally liable to pay the costs of Patricia Lovecek in proceedings 085111 and 085144 upon a party/party basis as are agreed or assessed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 January 2011

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