R M Brothers Pty Ltd v SEBT Pty Ltd; SEBT Pty Ltd v R M Brothers & Morris

Lessor's Solicitors: J S Mueller & Co Counsel: Ali Cheema File Number(s): COM 16/33840 and COM 16/51399 Publication restriction: Unrestricted

reasons for decision

1. These are the reasons for decision in two related proceedings.
2. The first application, numbered COM 16/33840, is an application by R M Brothers Pty Ltd ACN 601 874 613, the lessee of retail premises, was filed on 22 July 2016 seeking orders against its lessor, SEBT Pty Ltd ACN 126 195 168 for the payment of compensation for losses and damage in the amount of $278,858.38 which the applicant claims it suffered as a consequence of the respondent lessor's alleged misrepresentations, unconscionable conduct and breach of a lease and the Retail Leases Act.
3. The second application, numbered COM 16/51399, was filed with the Tribunal on 21 November 2016 and is an application by SEBT Pty Ltd, the lessor of the retail premises seeking orders against its lessee, R M Brothers Pty Ltd for breach of a lease, unpaid rent and damages in the amount of $146,898.63 including GST.
4. On 9 January 2017 in proceedings COM 16/51399, the applicant, SEBT Pty Ltd amended its application by adding a respondent, Sylvia Morris, the guarantor under the lease and amending the amount of the claim to $149,236.13 including GST.
5. For ease of reference in these reasons for decision the following will be referred to by name or in their respective capacity's: 1. R M Brothers Pty Ltd or as the "Lessee", 2. SEBT Pty Ltd or as the "Lessor", 3. Ms Morris is the director of the lessee and is the guarantor for the performance of the lessee's obligations and duties under the lease and will be referred to as "Ms Morris" or "the Guarantor". 4. Application COM16/33840 will be referred to as the "Lessee's application" and, 5. Application COM 16/51399 will be referred to as the "Lessor's application". 6. Mrs Sebastiano Todaro is the director of the lessor and will be referred to as "Sebastiano Todaro". 7. Ms Daniela Todaro is Sebastiano Todaro's daughter and was at the relevant times an employee of Edge Property Group, the Lessors managing agent. Ms Daniela Todaro will be referred to as "Ms Todaro". 8. Ms Docker is an assistant with the Edge Property Group and is referred to as "Ms Docker".
6. On 1 November 2016, the Tribunal directed that if the Lessor filed an application both applications should be listed together.
7. Both proceedings were heard together and the evidence of one proceeding is the evidence of the other.
8. On 13 February 2017, before the commencement of the two-day hearing, the Lessor, Lessee and the Guarantor were granted leave by the Tribunal to be represented by Australian Legal Practitioners.
9. The Tribunal will make findings of fact in both applications and then firstly deal Lessee's application and then the Lessor's application.

Jurisdiction and legislation

1. S 28 of the Civil and Administrative Tribunal Act 2013 ("NCAT") provides that the NSW Civil and Administrative Tribunal ("Tribunal") has jurisdiction and functions as may be conferred or imposed on it by or under this Act or any other legislation.
2. The Tribunal is empowered by section 72 of the Retail Leases Act 1994 to make orders in proceedings for a retail tenancy claim as set out in that section, including, but not limited to, 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.
3. Section 70 of the RLA defines a retail leases claim as: retail tenancy claim means any of the following: (a) a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being: (i) a claim for payment of money (whether or not stated to be by way of debt, damages, restitution or refund), (ii) a claim for relief from payment of a specified sum of money, (iii) a claim for the doing of specified work or the provision of specified services, (iv) a claim for the surrender of possession of specified premises, (v) a claim for assignment of rights under a lease or for a declaration that a lessor is not entitled to withhold consent to an assignment of the rights of a lessee, (vi) a claim for relief against forfeiture, (vii) a claim regarding the rectification of the lease, (viii) a claim regarding the invalidity of a lease for inconsistency with this Act or the regulations, (ix) a claim for a declaration of the rights, obligations and liabilities of the parties under a lease, (x) without limiting the generality of subparagraph (i), a claim for compensation under section 10, 34, 35 or 62E, (xi) without limiting the generality of any other subparagraph, a claim with respect to the entitlement of a party or former party under a lease to receive payment of the whole or a part of a security bond, (b) an application for the appointment by the Tribunal of a specialist retail valuer under section 19 or 31, (c) an application for the appointment by the Tribunal of two specialist retail valuers under section 32A, (d) an application under section 19 (3) or 31 (3), or under those provisions as applied by section 32A, by a specialist retail valuer, (e) a claim against a specialist retail valuer under section 19A (3) or 31A (3), or under those provisions as applied by section 32A, for compensation for loss or damage suffered as a consequence of the use or communication or divulging of information.

Consideration of the Facts

1. Ms Morris is or has been a director of companies operating other retail outlets selling self-serve frozen yoghurt. She is described by her counsel as being an experienced operator of such businesses.
2. In about May 2015 Ms Morris entered into negotiations with Ms Todaro, as the lessor's agent, in regard to premises at Lot 3, Ground Floor, 283 George Street Sydney (called in these reasons for decision "the Premises") for the purposes of operating a retail outlet from the Premises to sell self- serve frozen yoghurt, toppings and associated condiments. Much of the negotiation was conducted by email and those emails are in evidence before the Tribunal. The details of those negotiations are critical to the Tribunals consideration of the application and relevant parts are set out
3. On 22 May 2015 Ms Morris offered to lease the Premises on the following terms: Rent per annum = $150,000.00 (including outgoings) plus GST Lease Term = 5 years (option 1+2+2) Lease Start Date = 1/7/15 Rent Free = 4 months Annual Increases = CPI Bank Guarantee = 2 Months
4. On 27 May 2015 Ms Todaro responded to Ms Morris's offer by email advising that the Lessor's instructions were that it would agree to rent the Premises to Ms Morris on terms as follows: Rent per annum = $150,000.00 (including outgoings) plus GST Lease Term = 5 years Lease Start Date = 1/7/15 agreed Rent Free = 4 months- not agreed. The lessor will give you 2 months' rent Free and two months at half rent (three months' rent free in total) Annual Increases = CPI- Not agreed 4% inclusive of GST Bank Guarantee = 2 Months- Not agreed 3 Months.
5. Ms Morris, the Lessee's designer, Edward, and Ms Todaro met at the Premises on 29 May 2015. After the meeting at 6 pm that evening Ms Morris sent to Ms Todaro an email advising: …Considering that most food outlets are on the other side of George Street, it is important we make a business decision of optional lease term of 1 + 2 + 2. We obviously do not intend to invest so much money only to vacate in a short while, however, we find this necessary at this stage. Secondly, we believe that the annual increase of 4% is too high. We would make a counter offer of either 3% or CPI. Thirdly, our Fitout is usually well detailed, and would probably take us a bit of time to finalise things, can we have a 3 month rent free and a month's half rent. Fourthly, a bank guarantee of 2 months is only fair, knowing that the rent is on the high side; which would generate a substantial deposit. Finally, our company has both summery and wintery products. We often introduce a quick self-serve mini breakfast during winter (coffee, waffle, pancake, muffins etc) we have machines that disperse these. Our main business though is the self-serve frozen yoghurt and fresh juice. Which (I) am sure you have seen on our Facebook page. Our intended trading hour(s) would be 10-11pm as most people want to eat desert with their friends then. Thanks again for your time today and hope to hear from you soon.

Lessor's disputed facts

1. The Lessor contends that at the meeting on 29 May 2015 Ms Todaro denies she said words to the effect of "water will not be a problem; I will do everything in my power to facilitate the installations being completed properly". In her evidence Ms Todaro says about the water issue "should not be an issue as a previous business [being hair salon] was able to get water into the premises and that they used a pump to direct it out of the premises, with permission of the owners corporation". The Lessor submits that Ms Todaro's version should be accepted as it is consistent with the subsequent email exchange and contractual documentation as follows: 1. The 1 June 2015 exchange of emails included an email from Ms Todaro advising Ms Morris that "I have also further enquired about getting water in to the premises. This is possible however you will need a pump system to bring in and out the water" to which Ms Morris replied "Our understanding was that there was water supply in the premises, if not, please kindly ensure that you arrange for a proper water supply to the premises prior to finalising the lease" 2. In the exchange of emails of 3 June 2015 Ms Todaro's: 1. said "the lessor…has advised they are not prepared to negotiate further on the points any further." The Lessor contends that this was in response to the Lessee's issue with the water supply amongst other things. 2. Told Ms Morris that "this was the way the previous business was able to extract water into the premises", contended to be a reference to the hair salon using a pump system to extract water; 3. Was responded to by Ms Morris "Alright, we can deal with the water issue…" 4. Further replied to Ms Morris: 5. "..I have discussed with the lessor today about the water and I have been advised that at a Strata Meeting held yesterday it was agreed by the owners corporation that a by-law for your lot will be drafted to allow water to be fed directly into the tenancy. Once this by-law has been approved by the Owners Corporation it will be registered and able to be enforced. 6. Plumbing work would undoubtedly be at the expense of the lessee".
2. The Lessor further submits that: 1. The Lessors disclosure statement which Ms Morris as director of the Lessee acknowledges she received, described the Lessee's fit out works as "Water connection and associated drainage works as set out in clause 31 of the Lease"; 2. The Lessee's disclosure statement, which Ms Morris signed and in which she represented that "no…promises, representations, warranties or undertakings (other than those contained in the Lease) have been made by the lessor to the lessee in respect of the premises or the business to be carried out on the premises". 3. On 13 August 2015 the Lessee signed the Lease and Ms Morris signed as guarantor in her personal capacity. Clause 31 is included in the signed lease and it provides: 1. At Clause 31(a) that at the commencing date "the Premises is not connected to the water supply and associated drainage of the building"; and 2. The Lessee was permitted at its expense to arrange "a direct water connection to the Premises with associated drainage or access to the buildings water supply with the installation of a pump device". 1. The lease commenced on 15 August 2015. 2. The Lessor contends that Ms Todaro sent text messages to Ms Morris on 20 and 24 August 2015 to "arrange for a handover". The Lessor contends that those messages provide strong corroborative evidence of Ms Todaro's evidence that she did not meet Ms Morris on 21 August 2015 and she was not provided with plans on or about that date. 3. Ms Todaro sent another text message on 15 September 2015 "just wondering how you were going and if you are ready for us to handover to you yet?" 4. Until 13 October 2015 Ms Todaro was on leave. On that day Ms Morris's email to Ms Todaro's assistant, Ms Docker included an "attached design for our store". The Lessor contends this is the first time that the Lessee had provided an emailed copy of the plans. These plans did not contain a hydraulic design. 5. On 12 October 2015 The Lessee's builder gave a quote to the Lessee for the carrying out of the fit out. The Quote excluded "[a]ny work beyond the property boundary". 6. On 22 October 2015 the Lessee's private certifier for the fit out works sent an email to Ms Docker asking for the Lessor to sign the consent for the application for a complying development certificate for the fit out works.

Breach of an implied term

1. The Lessee submits that a necessarily implied term of the Lease was that rent would not be payable until the Lessee could procure water being fed directly into and out of the premises, provided that the lessee had taken all reasonable steps for that purpose. The Lessee was defeated in its steps to take all reasonable steps by reason and circumstances beyond its control, but attributable to the Lessor. It is implicit that the Lessee should not be obliged to pay rent without obtaining any benefit from the Lease. The premises were unable to be used for their permitted use.
2. The Lessee was delayed because of: 1. The failure by the Lessor to provide to the Lessee in a timely manner the consent to the CDC and associated papers in support of the CDC; 2. The delay in the by-law authorising the works to proceed;
3. The Lessee further submits that the erroneous demand for rent prior to 14 December 2015 when the Lessee had paid its rent for that period and the demand for rent on 9 February 2016 made when the Lessor caused the delays were invalid. The termination notice based on the non- payment of rent was therefore also invalid.

Damages and Lessee's Loss

1. The Lessee submits that it suffered loss as a result of the Lessors unconscionable conduct and wrongful termination of the Lease as claimed in the Lessee's Application except that is amended as follows and seeks leave to do so: 1. The claim for three twin twist top Yogurt Machines in the amount of $30,709.57 is not pressed;
2. The Tribunal granted leave for the Lessee to amend its claim by reducing it claim from $278,858.38 by $30,709.57. The amount claimed by the Lessee is $248,148.81.

Lessor's response to Lessee's case

1. The Lessor responds to the Lessee's by denying the Lessee's claim and contends that the Lessee's application should be dismissed with costs.
2. The Lessor submits that the Lessee seeks to avoid its obligations under the Lease by relying on three arguments: 1. That an implied term of the Lease relieves the Lessee from its obligation to pay rent; 2. By an argument that an allegation of misleading and deceptive conduct in breach of s 10 and or s 62D of the RLA; and , 3. By an allegation of unconscionable conduct in breach of s62B of the RLA
3. The first argument is that the implied term alleged by the Lessee does not satisfy the conditions necessary for the implication of a term as set out in BP Refinery Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 approved by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 919820 149 CLR 337 at 347 That is it is it: 1. Must be reasonable and equitable; 2. Must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; 3. Must be so obvious "it goes without saying"; and 4. Must be capable of clear expression; 5. Must not contradict an express term of the contract, namely the obligation to pay rent.
4. The Lessor submits that the suggested implied term ("term") is incapable of satisfying those requirements.
5. The term is neither reasonable nor equitable. The Lessee had an express contractual right to get water into and out of the Premises using a pump system. Where the Lessee chose to not use the permitted pump system does not imply a term that an alternative system be used that required the approval of both the Lessor and an adjoining lot owner; 1. The term is not necessary to give business efficacy to the contract. The Lease contained a provision in clause 31 that specifically referred to the use of the pump system to allow water into and out of the Premises. 2. The term is not so obvious that "it goes without saying" The Parties contemplated the water issue and the Lessor expressly allowed the Lessee to take water into and out of the Premises using a pump system. It does not go without saying that the Lessee should not be able to avoid paying rent because it proposed a design to take water into and out of the Premises which did not use a pump system as expressly contemplated by clause 31 of the Lease. 3. The term contradicts the express term in the Lease to pay rent monthly in advance. 4. The Lessee has not satisfied the test in BP Refinery Westernport) Pty Ltd v Shire of Hastings and therefore its claim for the implication of a term should be dismissed.

Lessor's submission on Damages

1. The Lessor submits that the damages claimed by the Lessee is unable to be supported by the evidence as: 1. The claim for the designers fee of $7,700 is invoiced to George Chalhoub and it is his obligation; 2. The claim for payouts to Capital Finance of $41,351.72 and to the Thorn Group Ltd of $30,709.57 were both obligations of House of Yogurt Pty Ltd; 3. The claim for plastic spoons, cups, lids and custom costs for $5,450 and $4,732.30 were obligations of House of Yogurt Pty Ltd; 4. The claim for legal fees for $8,997.50 was invoiced to Ms Morris and was her obligation; 5. The claim for accounting fees is not supported by an invoice to prove the claim; 6. The claim for equipment purchased by House of Yogurt Pty Ltd was for the Eastgardens store; 7. The claim for loss of profits in an amount of $40,000 by "reference to the Business Plan" is no proof of the damages alleged to be suffered. There was no other evidence to support the claim.

Lessors claim

1. The Lessor submits that the Lessee has breached the Lease by failing to meet its obligation to pay rent as it fell due on 15 December 2015 and 15 January 2016. The rent due on 15 December 2015 was $13,750.00 payable in advance until 14 January 2016 and then $13,750.00 payable in advance on 15 January 2016 until 14 February 2016. As at 15 January 2016 the Lessee was in arrears of rent under the lease in the amount of $27,500.00.
2. Despite serving notice of the breach of the Lease requiring the Lessee to pay the arrears of rent on 9 February 2016, the Lessee did not pay the rent arrears as demanded or at all.
3. The Lessee being more than 14 days in arrears of rent at 1pm on 12 February 2016 the Lessor became entitled to terminate the Lease by re-entry or notice and on the afternoon of 12 February 2016 the Lessor terminated the Lease by re-entering the Premises and changed the locks. The Lessor contends that pursuant to section 129(8) of the Conveyancing Act 1919 there was no requirement to issue a notice of breach before terminating the lease for non-payment of rent.
4. The Lessor further contends that on the date of termination the Lessor was vested with the right to loss of bargain damages: see Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] 157 CLR 17 at 31 where Mason J said that repudiation for fundamental breach entitles the innocent party to rescind the contract and sue for damages and loss of bargain.
5. In Shervill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 Gibbs CJ at 626 and 627 referred to situations where there has been a breach of a fundamental or essential term of the contract in the following terms: In Suisse Atlantique Societe d'Armement Maririme S.A v NV Rotterdamsche Kolen Centrale (3) Lord Upjohn said: "A fundamental term of a contract is a stipulation which the parties have agreed either expressly or by necessary implication or which the genral law regards as a condition which goes to the root of the contract so that any breach of that term may at onceand without further reference to the facts and circumstances be regarded by the innocent party as a fundamental breach…' The test accepted in Associated Newspapers Ltd v Bancks [31], at p.337, is whether the term 'is of such importance to the promise that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.'… It is clear that a covenant to pay rent isn advance at specified times would not, without more, be a fundamental or essential term having the effect that any failure, however slight, to make payment at the specified times would entitle the lessor to terminate the Lease. However, the parties to a contract may stipulate that a term will be treated as having a fundamental character although in itself it may seem of little importance, and effect must be given to any such agreement: see Wickman Tools v Schuler A.G [32], at p.251. In other words, a right to forfeit a Lease might arise 'in the case of covenant however trifling, if the parties had agreed that a breach of that covenant should create a forfeiture': Campbell v Payne and Fitzgerald [33], at p. 539 …"

Lessee's reply to Lessors claim

1. The Lessee contends that since entering into the Lease the Lessor has acted in a manner so as to frustrate, and or, significantly inhibit, the ability of the Lessee to carry out works on the premises to bring them to a commercially viable condition in a timely manner within the meaning of s34(1) of the RLA.
2. The Lessor was on notice of the Lessee's proposed works at the time of entering in the Lessee and the Lessor represented to the Lessee that the works could be performed and completed. Relying on those representations the Lessee, organised and paid third party contractors to complete the necessary fit out on the premises and was therefore ready willing and able to have the works completed to begin trading.
3. The Lessee submits that the courts have long held the principle that a party cannot complain of breach of a contract where its actions have prevented or obstructed performance of an essential term of the contract by the party: Peter Turnbull & Co Pty Ltd v Mundus Trading Co Australasia) Pty Ltd [1954] 90 CLR 235, 246; Foran v Wright (1989) 168 CLR 385 at 395, 418.445.456; cited with approval in World Best Holdings Limited v Sarker [2010] NSWCA 24 at 59-63. In such a situation a contract remains on foot in a varied form and performance shifts from being required at a specified time, to one requiring performance within a reasonable time: Foran v Wright.
4. In the present case the Lessee had not repudiated its obligations to pay rent under the Lease. That obligation arose only when the Lessor's acts of obstruction and delay came to an end. The Lessor had induced the Lessee to embark upon exploring alternate plumbing methods with aview to resolving the impasse. The Lessor did not respond to the alternate plumbing proposals in any meaningful way.

Estoppel

1. The Lessee submits that the High Court has held that representations about future conduct that have led a party to act to its detriment on the basis of an assumption induced by another party will give rise to an estoppel so as to deny that party from relying on its strict legal rights: Grundt v Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 at 675 as cited in Foran v Wright (1989) 168 CLR 385 at 412 per Mason CJ. In this case, the representation that the right to draw water in and out of the tenancy would be enforced legally against the tenant of Lot 1 was one made before the Lease was entered into (as well as subsequently). The objective evidence shows that the Lessee placed heavy reliance on the representation when it went ahead and executed the contract).
2. Further, the Lessor through Ms Todaro continued to make representations to the Lessor (once the Lot 1 tenant has allegedly raised an objection) that it would enforce the legal right so that the tenant re commence the necessary building works. In those circumstances the Lessor cannot demand rent to be paid when it was responsible for the resulting delay obstructions and unenforceable promises.
3. The Lessee contends that a pre-contractual assurance, even one involving the qualification of a subsequently written lease, may found equitable estoppel. The party giving those assurances may be prevented from acting contrary to those assurances, whether or not they are oral or written and regardless of the form of the written agreement, provided there is evidence of reliance upon those assurances by the prospective lessee to their detriment: Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; Liangis Investments Pty Ltd v Daplyn Pty Ltd (1994) 117 FLR 28 at 34-35.
4. The Lessee further submits that the delay and representations made by the Lessor caused it to suffer detriment once it placed reasonable reliance on the representations. The Lessee's losses include the material purchased and the cost of the fit out and works undertaken which it would not have undertaken if it were not for the assurances given by the Lessee. But for the statements and conduct of the Lessor the Lessee would not have incurred the losses it has pleaded.

Findings: Lessee's Application

1. The Tribunal has fully set out the correspondence passing between the parties in these reasons for decision so that the representations complained of by the Lessee in its claim can be completely considered. Having alleged misrepresentation, deceptive and unconscionable conduct on the part of the Lessor and the Lessor's agent, the Lessee bears the onus of establishing to the civil standard of proof the conduct to satisfy the Tribunal that conduct exceeds the threshold to be successful in such a claim.
2. The Tribunal having considered all the evidence before it and the extensive submissions of both parties is not satisfied that the Lessee has established that the Lessor has engaged in misleading, deceptive or unconscionable conduct.
3. The body of decisions considering such conduct under the RLA (and under similar provisions of the former Trade Practices Act 1974 (Cwth) and the Australian Consumer Law) give clear guidance to the Tribunal on the elements and factors that must be satisfied for a party to establish a breach of s10 or s 62D of the RLA.

Misleading or deceptive conduct

1. A lessor is liable to the lessee of a retail shop lease for reasonable compensation for damage suffered by the lessee that is attributable to the lessee entering into a lease as a result of a false or misleading statement or representation, made with knowledge that it was false or misleading: s 10(1) of the RLA. The ACL provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive: s 18(1). The RLA specifies that the giving of a lessor's disclosure statement to a prospective lessee is considered to be making a representation by the lessor to the lessee as to the information in the disclosure statement: s10(2). The making of a representation by a prospective lessee in a lessee's disclosure statement given to a prospective lessor that the prospective lessee has sought independent advice, or as to statements or representations relied on by the prospective lessee in entering the lease, is considered to be the making of a representation by a lessee to the lessor: s10(3).
2. The Lessee contends that the Lessor's agents representations made before the Lease was entered into, including: 1. That in light of the email exchange between the Ms Morris and Ms Todaro after the meeting at the premises on 29 May 2015, it is apparent that water and its importance to the business was most likely discussed and that where Ms Morris's evidence conflicts with Ms Todaro's evidence, Ms Morris's evidence should be preferred. Of significant importance is that she discussed with Ms Todaro the "lack of plumbing for drinking water and drainage at the Premises" and that she informed Ms Todaro that "it is an essential condition of the [Lessee's] entry into a lease over the Premises that the water and drainage installations are put in place". 2. On 3 June 2015 Ms Morris's email asked Ms Todaro the ensure that she arrange a proper water supply to the premises before finalising the Lease. 3. On 3 June 2015 Ms Todaro made representations that the Owners Corporation held a meeting and agreed to draft a By-law to allow water to be fed directly into the tenancy and that once approved it would be registered and it would then be enforceable. 4. The next day Ms Morris completed and sent an email an Application for a Commercial Tenancy Form to Ms Todaro to commence the procedure for entering into a formal lease. Ms Morris relied on this representation from Ms Todaro and entered into the Lease in circumstances where the Lessee would not be able to commence the works necessary for water to be fed directly into and out of the premises and as a result not be able to commence trade so as to pay rent in accordance with the lease. 5. It was implicit in the representation that there would be no impediment to water being fed directly into the premises and associated drainage including that there was no impediment affecting the owners or other tenants in the building. It was this implicit representation that Ms Morris relied upon to complete the Application for Commercial Tenancy Form and proceeded to execute the Lease when there was no reasonable basis for the Lessor to make such a representation, Ms Morris not having any reasonable awareness that the promise to enforce the By-law was false and misleading. 6. The By-law was not passed until 24 November 2015 and the Lessee submits was not capable of being enforced at all. The By-law defined the "Works" approved by the By-law to include: (j) Works means…: (vii) plumbing work for new water supply to the lot and drainage work required: (viii) water supply to be installed into the Lot [3]: (ix) floor waste to sewer needs to be install[ed] and cut through the existing slab and ran[sic] to sewer/basement: (x) drainage for the sink needs to be cut through existing slab and ran[sic] to sewer/basement. 1. Notwithstanding the representation was not included in the Disclosure Statement, this does not preclude relief under s10. 2. It is Ms Morris's contention, which she says is supported by the evidence and her cross examination, that any suggestion that the Lessor was at all times referring to a pump system as being adequate was simply contradicted by the objective evidence. Ms Morris contends that at all times the correspondence reveals that what was being discussed was water being fed directly into the premises. Ultimately the By-law refers to the plumbing work penetrating the slab.

Unconscionable conduct

1. A lessor of retail shop premises must not engage in conduct that is in all the circumstances unconscionable: s62B of the RLA. In determining whether the conduct of a lessor is unconscionable the Tribunal is to have regard to the relative strengths of the bargaining positions of the parties; whether the conduct of the lessor, required the lessee to comply with conditions that were reasonably necessary for the protection of the legitimate interests of the lessor, whether the lessee was able to understand any documents relating to the lease; if there was any undue influence or pressure exerted on the lessee or unfair tactics by the lessor or a person acting on the lessors, behalf; if identical or equivalent premises could have been acquired form a person other than the lessor and for what amount; the extent to which the lessors conduct was consistent with their conduct in similar transactions between the lessor and other lessees; the requirements of any applicable industry or other code; the extent to which the lessor failed to disclose intended conduct of the lessor that might affect the interests of the lessee or risks arising from the lessors intended conduct; the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee and the extent to which the lessor and lessee acted in good faith: S 62B(3) of the RLA. The Tribunal must not in having regard to alleged unconscionable conduct to circumstances that were reasonably foreseeable at the time of the alleged contravention: s62B(7).
2. S21 of the ACL provides that a person involved in trade or commerce in the provision or supply of goods and services must not engage in conduct that is unconscionable. S 22 of the ACL provides the same matters to be had regard to as in s 18 of the RLA. Guidance given by the courts in matters involving unconscionable conduct under the previous Trade Practices Act and the ACL are relevant in considering unconscionability under the RLA.
3. Unconscionability is a concept which requires a high level of moral obloquy: per Spigelman CJ in Attorney General of New South Wales v World Best Holdings Limited & ors [2005] NSWCA 26. Courts will only find unconscionableness when the conduct complained of exceeds a high level of moral obloquy on the part of the person alleged to have acted unconscionably: Tonto Home Loans Australia Pty v Tavares; Attorney General of New South Wales v World Best Holdings Limited & ors;

Breach of an implied term of the lease

1. The Lessee relies on an implied term of the Lease that rent would not be payable until the Lessee could procure water being directly fed into and out of the premises. The obligation to pay rent arises when the premises are in a state where they can be used for their stated purpose. The Lessee contends that the delay caused by the Lessor failing to sign documents for the works to proceed caused the Lessee to be unable to complete the works to put the demised premises into a state for the business of the permitted use to be carried on. On that basis, the rent demand by the Lessor made on 9 February 20-6 for rent from 15 December 2015 was invalid and as such the termination of the lease based on failure to comply with that demand was also invalid.
2. The Lessor contends in its submission that the requirements for an implied term of a contract are well settled in BP Refinery (Westernport) Pty Ltd v Shire of Hastings approved by the High Court in Codelfa Constuction Pty Ltd v State Rail Authority of New South Wales. The implied term must be: 1. reasonable and equitable; 2. necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; 3. be so obvious that it "goes without saying"; 4. capable of clear expression; and not contradict any express term of the contract.
3. The Lessee alleged implied term does not reach the threshold of these elements. The Tribunal accepts the Lessors submissions and reasoning and is satisfied that there is no implied term that the express provision for the payment of rent should be waived until such times as the Lessee can use the premises for the permitted use.
4. The Tribunal is not satisfied that the Lessee has made out its case for the reasons in the preceding paragraphs and accordingly the Lessee's claim is dismissed.

Findings: Lessor's Application

1. The Lessee was under an express obligation to pay rent under Clause 4 of the Lease. That obligation was an essential term of the Lease by Clause 32. After the rent free period and the half rent period had expired the rent became due from 15 December 2015. Despite the rent demand of 9 February 2016 the Lessee failed to pay the rent due and as a result of the breach, the Lessor terminated the Lease by re-entering the premises on 12 February 2016.
2. By breach of a fundamental term of the lease to pay rent and the Lessor terminating the Lease the Lessor became entitled to damages arising from the Lessor's loss of bargain: Progressive Mailing House Pty Ltd v Tadali Pty Ltd.
3. The Lessee contends that the Lessor could not comply with the terms of the Lease as a result of its conduct. It relies on the principle that a party cannot complain of a breach of contract where its actions have prevented or obstructed performance of an essential term of the contract: Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd; Foran v Wright cited with approval in World Best Holdings Limited v Sarker. The Tribunal is not satisfied that the Lessee had not repudiated its obligations to pay rent under the Lease, because of the Lessee's contention that the Lessor delayed and obstructed the Lessee.
4. The Lessee further contends that an estoppel arose so that the Lessor could not rely on its strict rights. The Lessee maintains that the Lessor continued to maintain the right to draw water in and out of the tenancy before and after entering into the Lease could be enforced against the tenant of Lot 1 and that the Lessee placed a heavy reliance on this statement.
5. The tenant of Lot 1 raised its objection to the water being drained through its tenancy in December 2015. The Tribunal has found that the obligation of the parties is as set out in the Lease at Clause 31, that is that the Lessee was to use a pump system to bring water into and drain out of the premises. The Lessee contention cannot be sustained against that finding.
6. The Tribunal is satisfied that the Lessor has established that the Lessee breached a fundamental term of the Lease and as a result is liable to the Lessor for the damages arising from loss of bargain. The Tribunal cannot on the findings already made be satisfied that the Lessee contention that the Lessor is estopped from claiming damages. The Lessee's claim has failed. The Tribunal finds that there was no significant delay or obstruction on the evidence before the Tribunal. Any delay must be considered in light of the rent free period and the length of time between the commencement of the Lease and the commencement of the obligation to rent.

Damages

1. By the Lessee's breach of the Lease, the Lessor has suffered a loss. The Lessor has mitigated that loss (as it was obliged to do under Clause 16 of the Lease) by reletting the premises to another tenant. The Tribunal is satisfied that the costs incurred by the Lessor as a result of the Lessee's breach is: 1. The cost involved in reletting the premises properly includes the commission paid to the Lessors managing agent for reletting the premises. This expense would not have been necessary had the Lease to the Lessee continued to the end of its term. The Tribunal allows the claim for the commission in the amount of $11,666.66; 2. The rent commenced under the Lease on 15 December 2015. As at 14 March 2016 the Lessee was $41,250.00 in arrears. The Lessor drew down the Lessee's bank guarantee of $41,250.00 in March 2016 to pay those arrears. 3. The Lessor relet the premises in July 2016 ("New Lease"). The rent payable under the New Lease was $140,000 per year being $10,000 per year less than the rent payable under the Lease. That New Lease provided for a three month rent free period from 1 August 2016 until 5 November 2016. The Tribunal is satisfied that such a rent free period would not have been necessary had the Lease remained on foot. The Lessor is entitled to recover the lost rent for that period. The rent during the period that the premises were vacant from 15 March 2016 until the commencement of rdent payable under the New Lease being 6 months and 22 days was $84,162.50. The Lessor is entitled to be compensated for the period that rent was not paid. 4. Had the Lease continued for its full term of five years it would have ended on 14 August 2020. For the period 6 November 2016 until 14 August 2020 being 3 years and 282 days, the Lessor's rent is now $10,000 per annum less than would have been payable under the Lease. The Lessor is entitled to an amount of $37,726.03 for compensation for loss of rent for that period. 5. The amount of the loss is $133,555.19 plus GST of $13,355.52 being a total of $146,910.70.
2. The Tribunal orders that the Lessee pay to the Lessor the amount of $146,910.70 by way of damages.
3. Clause 23 of the Lease provides that the Guarantor named in Item 3 of the reference schedule guarantees to the Lessor the due and punctual performance by the Lessee of the obligations on its part to be performed under the Lease. Clause 23 (h) provides that the Guarantor is liable to the Lessor if the Lessee breaches the Lease and must pay the Lessor any money for the Lessor's loss arising from the Lessee's breach of the Lease. Sylvia Morris is named in Item 3 of the Schedule and has signed the Lease as Guarantor.

Interest

1. The Lessor claims interest on the amount of the damages. The provides at Clause 6.2(a) (iii) that the Lessee must pay to the Lessor interest at the rate of 10% when payment of the reasonable cost to the Lessor of remedying a default by the Lessee is more than 14 days overdue.
2. The Lessor has not pleaded on what amount and for what period the interest is claimed. The Tribunal makes no order as to interest.

Costs

1. Any application for costs by the Lessor is to be supported by evidence and submissions of no more than 3 pages in length and is to be filed with the Tribunal and served on the other party on or before 21 July 2017.
2. If there is no application made for costs by 21 July 2017 there will be no order as to costs.
3. Any evidence and submissions in response to an application for costs from the Lessee and Ms Morris opposing the application for costs is to be filed with the Tribunal and served on the Lessor on or before 18 August 2017.
4. The parties are to advise the Tribunal in their respective submission if they consent to the issue of costs being determined dealt with on the papers.
5. Alternatively the parties are to make submissions as to why such an order should not be made pursuant to section 50 of the Civil and Administrative Tribunal Act 2013.

Civil and Administrative Tribunal of New South Wales

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 23 August 2017