Macdav Pty Ltd v Alliswell Pty Ltd [2001] VCAT 2436 (16 October 2001)

Retail Tenancies List; Fair Trading Act 1999; Lease Terminated Upon Basis that Rent in Arrears Seven Days or More; Rental Paid and Accepted on the Morning of Eviction and Allocated by Landlord (Without Communication to Tenant) to Rent for Following Month; Quantum of Compensatory Damage for Loss of Small Business; Quantum of Exemplary Damages

Medium Neutral Citation [2001] VCAT 2436

1. I direct Counsel within seven days of this day to bring in short minutes to give effect to these reasons.

3. Adjourned to further hearing 9.30 a.m. 14 days from this day.

For the Applicant: Mr S. Marantelli of Counsel, instructed by Wisewoulds

For the Respondent: Mr M. Heaton QC and Mr J. Nunns of Counsel, instructed by Kliger Partners

1. Hawthorn is one of the older suburbs of Melbourne. Beyond the inner-ring of suburbs, it is immediately to the east of the Yarra River, opposite Richmond and Burnley. It stretches to the east to Burke Road which is the western boundary of Camberwell. Its main shopping strip is in the approximate centre of the suburb in Glenferrie Road between Burwood Road and Barkers Road. The suburban rail line through Belgrave and Lilydale runs east-west parallel to Burwood Road. To the north of the railway line and the Glenferrie railway station and on the eastern side of Glenferrie Road is the Glenferrie Market, originally a traditional market, it has now been converted to a more modern style of shopping centre.

2. By deed of agreement made 30 March 1992 the owner of the centre Alliswell Pty Ltd entered into an agreement to lease with Franklins Self Serve Pty Ltd. The purpose of the agreement was for Franklins to take up a tenancy as the "anchor" tenant in the centre. The agreement provided in the customary manner for both lessor and lessee to carry out certain works. The agreement stipulated for the landlord to procure the tenancy and continued occupation of the centre by a person other "key tenants" namely:

(b) a fruit and vegetable vendor having at least 200sq m of gross lettable area;

3. In due course the parties executed a lease for the term of 10 years from 12 November 1992 to 11 November 2002 in pursuance of the agreement for lease. The rent reserved by way of base rent, initially $210,000 rising to $220,000 plus additional rent dependent on sales and turnover.

4. Clause 26.1 of the lease provided an acknowledgment by the landlord that Franklins Self Serve Pty Ltd

"is a dry goods only discount supermarket operation and in order to maximise its capital due gross Sales it is desirable to locate certain support traders within the Centre in close proximity to the customer entry of the premises".

This provision is another manifestation of the requirement to be found in the agreement to lease that there be certain "key tenants" in operation in the centre to facilitate Franklins. Clause 25 of the lease provided for rent abatement in the event that the key tenants did not continue in occupation and operation or if "shops of tenancies totalling at least 75% of the capital Gross Lettable Area of the Centre (excluding the gross lettable area of Franklins Tenancy)" were not let and trading in the centre. Clause 25.7 suspended the right to rent abatement if Franklins itself established departments selling fresh red meat packaged and/or prepared on the premises, fresh fruit and vegetables, delicatessen style meats or bread and cakes.

5. By late 1999 things were not going well. The Franklins anchor tenancy was trading very poorly. As we know the Franklins chain itself ceased trading in the period 2000/2001 with its outlets in the various states being sold to a variety of other operators. Ahead of this process the Franklins management complained to the landlord about a number of aspects of the centre including a complaint that the hot bread shop was not operating in the manner which it should. Franklins withheld rent. After a number of meetings and discussions aimed at reaching a negotiated settlement some hundreds of thousands of dollars of outstanding rent were written off and Franklins vacated the centre with effect from the 31st of December 1999.

6. Meanwhile the landlord and its managing agent Snow Group Retail Property Services (Aust) Pty Ltd began an urgent search for a replacement anchor tenant. A number of major retailing organisations were approached without success. Then Mr Snow the Principal of the agency heard that the David Jones Group was establishing an upmarket supermarket business to be known as "Foodchain". The first outlet was to be opened in New South Wales. He approached the David Jones Group with the result that in June 2001 a "Foodchain" outlet was established in the Glenferrie Market. The transactions whereby this new outlet were established were understandably complex. They required extensive works to be conducted and financed by both landlord and tenant. According to Mr Snow the financial benefit was that David Jones was paying a base rent in the 400,000s rather than the $220,000 base rent payable by Franklins. The struggling Franklins Supermarket was replaced with a more successful "Foodchain" outlet and the combination of capital improvements and enhanced rental activity created a net capital gain for the landlord according to Mr Snow in the order of $1.5m but there were casualties. For an extended period, namely from 1 January 2000 until June 2001 the centre was trading without an anchor tenant. This had an understandably very adverse affect upon the surrounding specialty shops. A number of shops particularly at the front had to be abolished to open up the arcade entrance, in the words of Mr Snow to "make a bigger statement" to Glenferrie Road. Towards the rear, Shops 13 and 14 which contained a specialty Asian grocery outlet was required as part of the enlarged anchor tenancy. I will have more to say as to the circumstances of this tenant's departure later.

7. The butcher shop required by the arrangements with Franklins was located at Shop 15. By lease dated 29 August 1995 the landlord Alliswell Pty Ltd let the shop to Gosbin 114 Pty Ltd for a period of three years from the 21st of May 1995. The lease reserved options of renewal for two further terms of three years each and permitted the shop to be used as a butcher shop. By deed dated 27 October 1995 the lessee with the consent of the landlord assigned the lease to Mr Manolis. The business conducted at Shop 15 was "Paragon Gourmet Butchery". For reasons not explained and probably irrelevant to this proceeding, whilst the lease of Shop 15 was assigned to Mr Manolis, the business carried on there was conducted not by Mr Manolis but a company called Sportstex Nominees Pty Ltd. By a contract of sale of business dated 11 June 1999 Sportstex Nominees Pty Ltd sold the butchers business Paragon Gourmet Butchery to Macdav Pty Ltd as trustee of the Macdav Unit Trust (the applicant in the present proceeding). Concurrently a document styled "Transfer of Lease" was executed with the consent of the landlord between Macdav Pty Ltd and Mr Manolis assigning the lease from Manolis to Macdav. The evidence did not disclose the precise manner in which the equity in Macdav Pty Ltd was owned. The principals of the company and presumably the unit trust were Mr McCrae Senior and Mr McCrae Junior both of whom were qualified butchers. They worked in the business full time. Mr McCrae Senior concentrating on serving the business' substantial range of wholesale customers including a number of restaurants and a City supermarket conducted by the landlord Alliswell Pty Ltd under the name "Paramount Supermarket". To assist him in this he took out a lease in his own personal name and that of his wife (the mother of Mr McCrae Junior) of an Econovan from Australian Guarantee Corporation Limited and dated 13 June 1999. The lease was for a period of 60 months from the 13th of July 1999 until the 13th of July 2004 showing the cost price of $27,653.74 with a residual value of $5,530.75. The younger brother of the family Mr Gavin McCrae, a qualified chicken boner did most of the counter work with Mr David McCrae Junior concentrating on doing the butchery in the backroom. All three worked full-time drawing wages or salary of $500 per week. The purchase price for the goodwill and plant and equipment were $50,000. The whole of this purchase price was financed for Macdav Pty Ltd by an advance to the unit trust of the $50,000 by a friend of the McCrae family identified only as . was evidently on some sort of pension and undertook some limited work for Macdav on Saturday mornings for which he drew $120 a week in wages.

8. The lease included the following provisions which in the event assumed, at least in the minds of some, major significance. The provision "SC3" headed "Exclusive Use" is in the following terms:

"After 30 September 1995 the lessor will not rent to any other person a lease [to] use any part of the capital Building as a butcher shop."

9. The lease was renewed for a further term of three years from 21 August 1998.

10. The changes in the anchor tenancy had implications for the butcher shop. The rent for the shop was customarily collected by a Mr David Broomhall a rent collector for the managing agent. According to Mr McCrae Senior in about November 1999 Mr Broomhall told them that "big changes were underway with regard to Glenferrie Market". Franklins was to be replaced "with an exclusive high profile supermarket chain". Shortly afterwards Franklins announced their closure of the Glenferrie Market business with effect from 31 December 1999. Then Mr Snow, the Chief Executive of the Managing Agents spoke to Mr McCrae Senior. According to Mr McCrae, Mr Snow invited Macdav to relocate its butcher's business from Shop 15 to a shop in Northcote which is also under the management of Mr Snow's company. According to the landlord's case, this was not a suggestion for Macdav to leave Shop 15 but rather to open a second outlet. Whatever the true purport of the proposal, Mr McCrae was unattracted by the proposal. According to Mr McCrae Senior he had a subsequent discussion with Mr Broomhall who according to Mr McCrae Senior "advised us to have nothing to do with the Northcote shop".

11. Nevertheless the McCraes were concerned, first, that as they understood it they were being invited to relocate and secondly because they were concerned about the effect that renovations necessarily to be carried out for the new supermarket chain would have on their business. Mr John Garlepp a corporate consultant was a member of the same golf club as the McCraes. They knew him socially in this context. They approached him for guidance and assistance. Mr Garlepp arranged to meet Mr Snow on 15 December at a Toorak restaurant. Mr Garlepp said that he discussed the issues at length with Mr Snow in a telephone conversation before the meeting and that the meeting itself covered relatively little that was new or additional to what was covered in the lengthy phone conversation. Mr Snow seems to have no memory of the phone conversation. The premise from which Mr Garlepp approached matters was that the special condition quoted above was a very valuable asset in the hands of Macdav. He concluded:

(a) that it had prevented Franklins from establishing a butcher's department in their supermarket; and

(b) would prevent any new anchor tenant from establishing a butcher's department in its supermarket.

12. In Mr Garlepp's view a supermarket without a butcher's department was not a "goer". This as he saw it provided the basis for a deal in which Macdav would surrender its lease, avoiding the complications and trading losses resulting from necessary building works entailed in installing a new anchor tenant and potential loss of market share from a new anchor tenant including a butcher's department but would receive substantial compensation for the surrender of the exclusive rights which in Mr Garlepp's view the special condition gave Macdav.

13. Another element in Mr Garlepp's reasoning was that the landlord was in breach of its obligation to Macdav by permitting the anchor tenant Franklins to "walk" years before the end of its 10 year lease. The proposal put by Mr Garlepp on 15 December was embodied in an e-mail apparently passed on to Mr Snow by a Mr Rod Shenton, an employee of Mr Garlepp's consultancy. The e-mail concluded:

To purchase the remaining two and a half by three year lease, and compensation for surrendering exclusive rite (sic) to sell fresh meat in the centre,

14. According to Mr Garlepp "Snow subsequently contacted me and stated nothing could be done about our proposal until the respondent [that is the landlord] had finalised an agreement with the new prime tenant. This was estimated to take place by late February 2000 at the earliest."

15. As the new year 2000 began the landlord commenced a process of negotiation to buy out certain tenants whose tenancies were to be abolished as part of the David Jones' proposal and granting rent relief or full abatement to others having regard to the effects on trade of the empty anchor tenancy and the building works. These sort of concessions were apparently extended to all specialty shops in the centre with the exception of Macdav and the proprietors of Shops 13 and 14. Mr Garlepp followed up with further letters of 10 March 2000 and memos of 23 March, 8 and 12 May 2000. According to Mr Snow at one stage he stated that he would recommend in the interests of achieving a compromise, payment of $50,000 or $60,000 compensation to Macdav. According to Mr Snow "my impression was that it was not quite enough for Mr McCrae. Mr Garlepp just laughed at it." Mr Garlepp's formulation of the claim escalated on the basis that Macdav was suffering further losses in profitability every week after the departure of Franklins. In its last formulation the claim had reached approximately $180,000.

16. According to Mr McCrae Senior in the last week of April 2000 Mr Broomhall, the rent collector, rang Shop 15 stating that he was running late in collecting rent for April. Late in the week on the 27th or the 28th he rang saying that he was going away for the weekend. According to Mr McCrae's statement "he also said that he believed something strange was going on and that I should hand deliver the April rent to Snow Group's office the first thing Monday morning (1 May 2000). He said that I should make sure that the rent for May was paid on time." Mr McCrae Senior said that on Monday 1 May in accordance with Mr Boomhall's suggestion he drove to the Snow Group's offices in South Melbourne and left a cheque for an amount equal to the rent and outgoings for the month of April with a receptionist at the office.

17. In the afternoon Mr Snow was present at the centre and speaking to one of the other tenants. He sent one of the cleaners over, seeking to have a meeting with Mr McCrae Senior. The latter said that he could not spare the time and was due to go to a meeting at 5.45 p.m. (it transpired with Mr Garlepp).

18. Later that evening the McCraes received a "tip off" from a security guard that something was afoot. As a result they arrived at the centre at approximately 8.00 p.m. in company with Mr Garlepp. Meanwhile, Mr Allen Banton an officer of the Snow Group, two security guards, a locksmith and Mr Broomhall had met at the centre. It is common ground that on that evening they effected or purported to effect re-entry to both Shop 13/14 (the Asian grocery shop) and Shop 15, the butcher shop. Recollections differ as to the order in which the re-entries were effected, though the balance of opinion suggests that the Asian grocery was re-entered first. When the Messrs McCrae and Mr Garlepp arrived, the locksmith was in the process of removing the lock from Shop 15. Mr Banton of the Snow Group handed the McCrae's a copy of the Notice of Re-entry asserting that the re-entry was made for the non-payment of April rent. Once entry had been gained the McCraes handed Mr Banton a further rent cheque post-dated 6 May 2000. Mr Banton said "that the post-dated cheque we received was for April rent and the cheque we had already received that morning had already been applied for May's rent". Mr Banton stood in Shop 15 and adopted the role of a Magistrate reading the Riot Act (or perhaps of an auctioneer reading the contract) as he read the terms of the Notice of Re-entry. The event was photographed. A copy of the notice was posted on the shop. After further discussions the locksmith secured the doors and attached chains.

19. In the week that followed the McCraes were granted access to the shop as licensees. They butchered a recently received shipment of meat to fill orders for the Paramount Supermarket (owned by the landlord). On 8 May there was a further meeting between the parties. This was attended by the McCraes, Mr Garlepp, Mr Snow and Mr Geoff Kliger, the landlord's solicitor. The landlord's party denied that the special condition granted Macdav a right to object to the establishment of a meat department in a supermarket. According to Mr Snow "our position was that the clause prevented only a specialty butcher shop, not a supermarket". Mr Snow had earlier suggested to Mr Garlepp that he might care to obtain independent legal advice as to the meaning and operation of the clause. Mr Garlepp said that he had a "QC's opinion" "to the effect that the clause prevented a supermarket selling red meat". Mr Garlepp explained in his evidence that the QC was a personal friend of his and the opinion was given informally and not reduced to writing. He did not name the QC. According to Mr Snow, "Mr Geoff Kliger told them [that is the McCraes and Mr Garlepp] that we [the landlord] were happy for Mr McCrae to stay in the centre and to recommend to Alliswell to grant them a new lease, all of which they declined". It was common ground that the new lease would omit Clause SC3.

20. In its amended points of claim the applicant Macdav seeks a declaration that the "purported Notice of Re-entry dated 1 May 2000 is void and of no effect". It asserted that the purported re-entry "constituted a serious and fundamental breach of the respondent's obligations under the renewed lease and the respondent [that is the landlord] thereby repudiated the renewed lease." That repudiation was said to have been accepted by notice dated 23 June 2000. The claim seeks a declaration that Macdav has "duly rescinded the renewed lease". It seeks damages including general and exemplary damages and interest.

21. Central to the outcome of this proceeding is Macdav's assertion and Alliswell's denial that the purported re-entry on 1 May 2000 constituted a wrongful eviction and repudiation of the lease by the landlord.

22. The "Notice of Re-entry" referred to the terms of Clause 10.1 of the lease which provided inter alia:

The rent or any part of it is in arrears and unpaid for seven (7) days next after any of the due dates for payment (whether demanded or not and no demand shall be necessary);

Then and in any of such cases the lessee shall be deemed to have made default. The lessor may elect to treat such default as a repudiation of this lease by the lessee."

"If the lessee has made default as specified in Clause 10.1 the lessor may, without prejudice to any other claim which the lessor has or may have or could otherwise have against the lessee or any other person in respect of such default, at any time but subject to any prior demand or notice as is required by Law:

Re-enter into and take possession of the Premises or any part of them (by force if necessary) by itself or by person authorised by it and eject the lessee and all other persons from the Premises and thereupon this lease shall absolutely cease and be terminated;

By notice to the lessee terminate this lease, and from the date of giving such Notice this lease shall absolutely cease and be terminated;"

24. The course adopted by the landlord appears to be an exercise or purported exercise of the power of a termination both by re-entry and by notice bestowed by Clause 10.2(a) and (b). The basis for the re-entry is the alleged failure to pay the April rent. Clause RC2.1 required the rent to be paid by equal monthly instalments payable in advance on the first day of each month.

25. Clause 12.11 is also relevant. It is headed "Application of Payments" and is in the following terms:

"The lessee agrees that all moneys paid by it to the lessor pursuant to this lease may be applied by the lessor in or towards satisfaction of Rent being due and payable or other moneys being due and payable under this lease in such order as the lessor in its unfettered discretion determined notwithstanding any notice delivered by the Lessee to the Lessor with any such payment and a Notice by the Lessor as to the application of any such moneys shall be conclusive proof of the order of application of the moneys so paid."

26. The rent cheque delivered by Mr McCrae to Snow's office on the morning of 1 May was presented for payment and collected and credited in the agent's books against May rent and outgoings. Upon further consideration the McCraes stopped the post-dated cheque which had been handed over on the evening of 1st May and it was dishonoured as a result. Mr McCrae Senior was prepared to concede that in the circumstances there would not have been sufficient funds to meet that cheque. Mr McCrae Junior said that there was a possibility that Mr Garlepp might have advanced them funds to meet the cheque. Mr Garlepp ultimately conceded that he might have made such an advance. As it was however since Macdav had been evicted at the very outset of the month of May, the McCraes and Mr Garlepp thought it would be inappropriate for the tenant to pay rent for that month.

27. I should also refer to Clause 10.4(c) of the lease which is headed "Acceptance or Demand for Rent Not Waiver:" which is in the following terms:

"The demand by the lessor for, or subsequent acceptance by or on behalf of the lessor of, rent or any other moneys payable under this lease shall not constitute a waiver of any earlier breach by the lessee of any covenant or condition of this lease, other than the failure of the lessee to make a particular payment or payments of rent or other moneys so accepted, regardless of the lessor's knowledge of any earlier breach at the time of acceptance of such rent or other moneys."

28. Mr Heaton QC and Mr Nunns submitted at one stage as I understood them, that once a default in payment of rent had been established and the default extended for a period in excess of seven days there was a vested right of termination existing in favour of the lessor which could not be lost by subsequent payment of the rent. I am not sure whether that submission was maintained in the landlord's final address or not. The submission seems wrong as a matter of construction of the lease. The power given by Clause 10.1 to "elect to treat any such default as a repudiation of this lease by the lessee" exists only if the rent "is" in arrears and unpaid for seven days. The act of election to treat relief as repudiated, relied upon by the landlord is the re-entry. This can operate to engage the default provisions in the lease only if at the time of the re-entry the rent was in arrears for seven days.

29. To justify the re-entry the landlord must show that as at the date that it was effected the relevant default in fact existed. This the landlord does only by dint of a purported allocation of the cheque paid on the morning of 1 May to the rent for May rather than for the month for April. On the 1st of May the rent for May was due but it was not in arrears for even one day until the 2nd of May, much less was it in arrears for seven days. Mr Banton conceded that the allocation of the first cheque to May rather than April rent was a departure from his agency's usual procedure and occurred only after he had obtained legal advice. The presumption both in commerce and law is that payments are to be allocated to the earliest indebtedness. This is sometimes called "first in first out" ("FIFO") or in legal parlance the rule in Clayton's case. It is obvious that this normal practice is the one usually adopted by the managing agent with respect to this centre. Mr Heaton and Mr Nunns claimed privilege as to the legal advice which Mr Banton had evidently received form the landlord's solicitors. I am nevertheless prepared to infer that this unusual purported allocation was made with a view to avoiding the apparent embarrassment that the default justifying the re-entry planned for the evening of 1st May had disappeared as a result of the payment of the rent on 1 May, assuming that the ordinary FIFO allocation was made. Of course it would have been possible for the landlord if it desired to maintain its right of forfeiture could have refused to accept the rent paid on the 1st of May at all. Since the cheque was handed to a receptionist at the managing agent's headquarters who presumably knew nothing of the circumstances surrounding the tenancy, her mere receipt of the cheque might not have constituted acceptance. Nevertheless Mr Banton who is the agent having effective control of the management of the tenancy was made aware that the cheque had been received. He then took legal advice. The cheque could have been returned. Instead it was accepted and allocated or purportedly allocated as already described. In Lo Giudice v Biviano (No. 2) [1962] VicRp 61; [1962] VR 420, 423 Adam J. said:

"Where rent is accepted, without qualification, by a landlord, he cannot thereafter proceed on the footing that such rent is in arrears. By his acceptance of it he waives the default as a ground of forfeiture. He cannot both have his cake and eat it. On the other hand, where a ground of forfeiture has accrued, it is for the landlord to elect whether to take advantage of it or not. By his refusal of a tender of rent in arrears he certainly does not elect to waive his right of forfeiture, and I see no reason why he should not avail himself of it. Whatever the relevance of the tender to such matters as relief against forfeiture, or costs, I am unable to accept the proposition that it deprives the landlord of his right to terminate the lease for non-payment of rent."

30. The existence of these rules is relatively well known in the commercial community. I think any tenant would be shocked to think that his status as a timely payer could be effected by an arbitrary allocation of moneys accepted by his landlord pursuant to a "boiler plate" clause in the lease. If for instance there were other large amounts of money owing under the lease it may be a different matter. In my view it is to this situation that Clause 12.11 of the lease is directed. It gives the landlord a conclusive and unfettered right to allocate moneys paid to it by the tenant either as against "rent" or against "other moneys". There is nothing in the clause that gives the landlord a power of allocation of a payment as to some particular instalment of rent rather than another in violation of the ordinary principles of allocation recognised by the law and commerce.

31. Even if I were wrong in this I do not believe that the clause gives the landlord a right to go back upon an allocation of a payment to which it has already agreed. Nobody has suggested that Mr Broomhall, the rent collector was doing other than acting in accordance with his authority within the managing agency and in execution of his duty in asking for payment of the April rent. When Mr McCrae Senior hand delivered the cheque he did so in response to a request by Mr Broomhall acting for the landlord that the April rent should be payable. Having agreed to that allocation I do not believe that the landlord is entitled to go back on it and affect a re-allocation in accordance with Clause 12.11.

32. It follows that the re-entry was not justified by the lease. The fundamental obligation of a landlord, indeed in many leases the sole obligation imposed upon the landlord, is to grant the tenant quiet possession of the demised premises during the term of the lease. The re-entry was in breach of that obligation and the tenant was well entitled therefore to treat it as a repudiation of the lease and discharge itself from further liability under the lease.

33. Both parties made extensive submissions as to the doctrines of waiver and election which, in the view I take, it is unnecessary for me to consider.

34. What damages then is the applicant entitled to? The points of claim seek both compensatory and exemplary damages. The case was argued by both parties upon the premise that if the tenant showed that the re-entry was wrongful and in breach of the covenant for quiet enjoyment it was entitled to recover damages fixed by reference to the value of that which was lost as a result of the wrongful re-entry.

35. The applicant relied upon what is described as an "indicative valuation report" as at 1st May 2000 prepared by Mr Webster of MGI Meyrick Webster Corporate Pty Ltd. Mr Webster put the total loss suffered by Macdav at $320,621. This entailed allocating the sum of $97,732 as a "loss of business" allowance. This figure was reached by calculating that the future maintainable earnings of the business were in the sum of $41,412. Applying an earnings multiple at the high range of 2.7 this yielded a valuation of $111,812 and earnings multiple at the low end of the range of 2.02 would yield $83,662. The figure of $97,732 represented a mid-point or "median" between the two. He also allowed for some $178,388 in loss of profit upon the basis of the future maintainable earnings of $41,412 for the balance of the lease and a further three years lease obtained by exercise of an option. Finally, Mr Webster included the sum of $30,421 representing outstanding lease and residual value liabilities on the leased Econovan. The total figure of $320,621 had an asterisk next to it in Mr Webster's report with the note at the foot being "market value of van needs to be subtracted from the loss".

36. Chartered Accountant Mr P.B. Wilkinson gave evidence on behalf of the landlord. He said that in his opinion only a capital value should be ascribed to the business. This capital value once paid represented compensation also for the loss of future profits which might be derived from the business. He initially considered that a loss of perhaps $70,000 had been incurred.

37. Reference to more documents which became available in a late discovery process caused Mr Wilkinson in a series of re-assessments to conclude that Macdav's business was in serious decline at the time of the eviction and no value could properly be ascribed to it at all.

38. Mr Webster prepared his report on the basis of a number of partial and draft accounts prepared by Mr West, Macdav's management accountant. These accounts were, it transpired, deficient in so far as they failed to include income and expenditure for the month of July 1999. Moreover, Mr West concerned primarily with his role as a tax agent, had allowed as deductions and expenses only those outgoings which could be substantiated in accordance with the Commissioner of Taxation's requirements for substantiation. The result was that Mr West's figures showed a gross profit margin of approximately 50%.

39. The unchallenged evidence was that the industry benchmarks for butcher shops disclose a gross profit margin between the low 30s and the high 30s. Mr McCrae Junior who was the officer of the company most directly concerned with financial matters said that he had adopted pricing structures and policies derived from a company at which he had worked prior to commencing with Macdav. This structure aimed at achieving a gross profit margin of 38 percent. Late discovery produced:

(b) a set of records for the balance of the period.

These latter books had been available to Mr West but he adopted them only in so far as they stated expenses which could be substantiated in accordance with the Commissioner's ruling.

40. When Mr Wilkinson re-worked the figures they showed a gross profit margin of 41 percent approximately. Mr West said that he regarded the McCraes as very effective "cutters of meat". Nevertheless the revised figure derived from the partially unsubstantiated records and calculated by Mr Wilkinson seems closer to reality than Mr West's very high gross profit margin. Moreover, given that Mr McCrae Junior himself was aiming at a gross profit margin of 38 percent it seems far more likely that the Wilkinson figures are correct. There were a number of other differences between the calculations adopted by Mr Wilkinson and those adopted by Mr Webster as to profitability, including what wage rates to impute and so on. For reasons which will appear later it is my view unnecessary to descend to that level of detail. Had I been required to choose between the analyses of the witnesses I would have adopted Mr Wilkinson's in preference to Mr Webster's.

41. I should say at the outset that I accept the view of Mr Wilkinson that a person who receives the full capital value of a business is fully compensated subject to the payment of interest until the date of payment and that a further payment for the loss of profit would be a double compensation. As Mr Webster himself conceded the price payable for a business is derived from its maintainable earnings, the price offered by a willing purchaser is offered for the right to derive those maintainable earnings.

42. Descent further into the detail of calculations requires a philosophical decision to be made as to precisely what is being compensated for. There are occasions when it is proper to assess the profitability of a small business on a purely "investment" basis. Some years ago the Commonwealth Minister for Industry and Commerce decided that he wished to establish a sandwich shop. Clearly his duties as Minister and Member of Parliament precluded him from providing any of the labour for the business. Accordingly its profitability was dependent upon it being able to generate income sufficient to meet the cost of employees who would provide all the labour necessary for the business. In those circumstances an "investment" analysis such as the one undertaken by Messrs Webster and Wilkinson would be appropriate. In most small businesses however the purpose is not to buy an asset as a passive investment but rather to "buy a job" for the principal and perhaps other members of his family. There may be a host of reasons why the principal and his family may wish to "buy" one or more jobs. They may find themselves unfitted by personality to work as employees. One or more members of the family may be at an age where getting a job from an employer may be more difficult and so on. There are a host of economic and social reasons why people do "buy" jobs and the purchase of a small business is the most obvious way of doing that. If the business is sufficient to generate an adequate wage or salary for each of the persons to whom the job is "bought" an analysis which suggests that the business is of no value because it yields either no or minimal profit or a small loss simply misses the point. The value of the business lies in its provision of employment and wages to the family members.

43. There is also an air of unreality to my mind in speaking of figures going into the hundreds of thousands of dollars as compensation for the loss of an asset which was purchased for $50,000.

44. I should add that no party has urged me to ascribe any particular and separate value to the so called exclusive rights bestowed by SC3 of the lease beyond the figures adopted by the experts and so for the purposes of considering compensatory damages I put them to one side. Mr Marantelli submitted that the actual meaning and operation of this clause were irrelevant.

45. Mr Wilkinson said the $50,000 was the sort of price that people who were "buying themselves a job" might easily pay for a business without its representing any particular extrapolation from maintainable earning. Mr Wilkinson mentioned a number of factors which he said took Macdav's purchase of this business outside the realm of "buying a job". I found none of them convincing.

46. It is axiomatic that the value of any asset is dependent upon the price which a willing but not over anxious seller would accept from a willing buyer. There is nothing to suggest that the transaction whereby Mr Manolis sold to Macdav was not of that character and it took place less than 12 months before the eviction. It seems to me that the price then paid represents the best evidence of what Macdav lost as a result of the landlord's wrongful act. Mr Wilkinson observed that the business at least in its retail component was in serious decline at the time of the eviction. The reason for this and the pattern in takings and expenditure is obvious enough. It corresponds with a drastic drop-off in passing trade with the closure of the anchor tenant Franklins at the end of 1999. Mr McCrae Junior said that he had to take a wage cut to cope with the effect of this change. Should this lead to any reduction in the value of what was lost as at the 1st of May? Whilst Mr Garlepp mounted an increasing claim for loss of profitability due to the departure of the anchor tenant, in fact no claim along these lines is mounted in the present proceeding cf Retail Tenancies Reform Act 1998 Section 26(2)(a). On the other hand we now know that a new and apparently highly successful anchor tenant is in occupation. Since that anchor tenant has a full meat department it may be that the increase in passing trade may be offset to some degree by the additional competition from the new tenant. According to Mr Snow the David Jones Food Chain outlet does not butcher any meat on the premises and its meat department would not be an entire substitute for a traditional butcher shop.

47. Doing the best I can, I believe the capital value of what has been lost by Macdav as a result of the wrongful eviction is the sum of $45,000. This represents a slight reduction from what was originally paid for the business. It would have been in a centre with a superior anchor tenant but one which provided rather more competition than the now departed Franklins. I make no allowance for the lease of the van first because no attempt has been made to mitigate the loss (a point conceded by the applicant's expert Mr Webster) and secondly because Mr McCrae Senior continues to use it for his own purposes.

48. As Mr Wilkinson correctly observed where compensation for the loss of a business is given by way of a capital sum, to complete the compensation, interest should be awarded from the date of destruction or acquisition until the date of payment. This proceeding since the relationship of landlord and tenant does not exist as at the time of its commencement is brought under Part 9 of the Fair Trading Act 1999. Section 108(2)(b)(ii) authorises the Tribunal to award damages in the nature of interest and in awarding interest to be guided by the rates set from time to time under Section 2 of the Penalty Interest Rates Act 1983 (see Section 108(3)). I see no reason why interest should not be awarded and regard it as conformable with the opinions expressed by the respondent's witness Mr Wilkinson that there should be interest at this rate awarded from the 1st of May 2001 until the date of payment or determination.

49. The next question is whether any exemplary damages should be awarded. The same provision in the Fair Trading Act to which I have already made reference specifically authorises the Tribunal to award exemplary damages in appropriate circumstances. The tenant's case is that the landlord has breached its fundamental obligation as landlord viz. the grant of quite possession of the premises and did so for the purposes of "squeezing out" the tenant. Mr Marantelli refers to the evidence of Mr Snow as to the high importance of the David Jones tenancy to the landlord and the substantial capital gain and enhanced rental scheme which the arrival of David Jones promised. He submitted that whatever the correct view of the affect of covenant SC3 in the lease, it was obvious that the landlord in fact was concerned as to its operation and it was to remove the threat that the clause presented that the wrongful eviction was made.

50. Mr Heaton and Mr Nunns denied that the landlord had any ulterior motive to "squeeze out" the tenant. The problem with this submission is that it fails to articulate any alternative motive for what the landlord did. At the meeting on 8 May, a week after the eviction, it was proposed that the tenancy simply be reinstalled under a new lease, albeit one without SC3. Mr Snow observed that he and Mr Kliger put this as a proposal subject to the landlord's approval; nevertheless I regard it as unthinkable that an experienced and senior estate agent and an experienced commercial lawyer would put a proposal in circumstances such as these unless they had good reason to think that their principal/client would approve the proposal. That being the case the somewhat spotty record of rental payment which this tenant Macdav Pty Ltd exhibited can scarcely have been the reason for the decision to evict. Mr Snow who set the eviction process in motion said that he did so at the direction of Mr Hii of Alliswell Pty Ltd for non-payment of April rent; but the April rent was paid and the eviction still proceeded. Mr Hii was the decision-maker and could have told us why he decided that this tenant must go. There was no explanation as to why Mr Hii did not give evidence. I am fortified in accepting the interpretation of events urged by Mr Marantelli by the landlord's failure to call Mr Hii or any other decision-maker to explain why the decision was made. Mr Garlepp observed that unless covenant SC3 was a matter of significance there would be no explanation for the landlord wishing to exclude it from any new lease. Mr Heaton said it was reasonable for the landlord to avoid including what had become a bone of contention in the new lease. So much is understandable. What is lacking however is any alternative explanation for the events that occurred. I was referred to a number of authorities upon the award of exemplary damages in landlord tenant disputes. A decision of the New South Wales Court of Appeal in Pollack v Volpato [1973] 1 NSWLR 653; a decision of Judge O'Dea in the District Court of Western Australia in the matter of Capelinha v N & D Marchese Holdings Pty Ltd (1995) 13 SR (WA) 261 and XL Petroleum (NSW) Pty Ltd v Caltex Boral (Australia) Pty Ltd ; Those cases, in Mr Heaton's submission showed that whilst it is appropriate in certain circumstances to make an award of exemplary damages as between landlord and tenant (the XL Petroleum case is not a landlord and tenant case) in all circumstances the award of exemplary damages should be moderate and judicious and not extravagant or to use a modern slang term . In Volpato's case a Supreme Court jury had awarded $5,000 for trespass to property where a landlord wrongfully re-entered leased premises demolishing a partition with an axe and injuring the tenant as a result of the structural collapse caused by the axe work. In Capelinha's case the District Court of Western Australia awarded $10,000 for exemplary damages in 1995 for a wrongful conviction. This was awarded in circumstances where the eviction was effected with violence and the threat of violence. In the XL Petroleum case Brennan J (as he then was) said:

"An award of exemplary damages is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again." [1985] HCA 12; (1985) 59 ALJR 352, 362 (column 1)

"The social purpose to be served by an award of exemplary damages is, as Lord Diplock said in Broome v Cassell and Co [[1972] AC 1027]at 1130, `to teach a wrongdoer that tort does not pay'."

In the XL case Caltex had spiked the tanks of a service station which was to be used by its competitor Excel Petroleum without any colour of justification. The period of spiking was of short duration and the damage actually suffered by Excel and awarded as compensatory damages was $5,527. The jury awarded $400,000 exemplary damages which was reduced on appeal to the New South Wales Court of Appeal to $150,000. This latter award was upheld by the High Court upon the basis that a jury in such circumstances had a very wide discretion indeed in awarding exemplary damages. Brennan J said "Although the amount which the jury assessed is much greater than I would have thought appropriate, I am quite unable to hold the jury was not entitled to take the view that an award of $400,000 was necessary to provide an effective deterrent against a repetition of Caltex's conduct. As that view is not shared by a majority of the Court, I should say that, if I were to give effect to my own opinion, I would regard $150,000 as an appropriate award of exemplary damages." Gibbs CJ regarded the reduced award of $150,000 as at the upper end of the permissible range.

51. Mr Heaton and Mr Nunns observed that the physical violence and threats of violence which seem to have characterised the evictions in the authorities referred to were wholly absent in the present case. Everything was done in a civilised fashion. Mr Banton, it was said, acted only after having received legal advice.

52. I can only accept Mr Heaton's submissions on this point to a limited degree. When Mr Banton was asked what legal advice he had received, Mr Heaton and Mr Nunns claimed privilege. It follows therefore that it is a matter of speculation as to whether in doing what he did Mr Banton was acting upon legal advice which backed him to the hilt. The advice might have been for instance, "we can try reallocating the rent to next month is pretty hairy but given what is at stake it might be worth a try" or the legal advice might have been in flat contradiction to what was actually done. What I regard as more significant is that it is contrary to all accepted commercial morality to evict a tenant in the evening for the alleged non-payment of rent which has in fact been paid that morning. For reasons already given I regard the suggested allocation of rent as unconvincing. The inference I draw is that the plans had been laid for the eviction before the weekend and what should have prevented it going ahead, namely the payment of the April rent first thing on Monday morning was brushed aside as an obstacle on the basis of unconvincing and unmeritorious legalism.

53. The landlord acted wrongly and it may be inferred with the conviction that what was to be gained, namely the smoothing of the installation of David Jones Foodchain far outweighed any "down side". To use Lord Diplock's words this is a proper occasion for an award of damages to prove that tort does not pay.

54. It is for reasons that must be obvious, difficult to offer justification for the choice of one monetary sum for exemplary damages rather than another. The $5,000 awarded by the jury in Volpato's case related to a far more reprehensible set of circumstances. It was made, one may infer, a year or two before the hearing of the appeal in 1973, that is immediately prior to a wave of high inflation that lasted for almost two decades. In 1970 a comfortable suburban home could be purchased for $10,000 or even less. In the present case inflation has drastically eroded the value of what $5,000 was in the early 1970's, nevertheless the lack of the violent features in Volpato's case makes the present a far less serious one. In my view an appropriate award of exemplary damages would be fixed in the sum of $15,000. That figure is, in my view, not out of proportion to the size of the compensatory damages.

55. Given that there may be some debate as to precisely what declaratory relief ought to be given, the calculation of interest and so forth, I will direct that Counsel within seven days of today's date bring in short minutes to give effect to these reasons.

56. I have heard no argument as to costs and so I will reserve that issue.