BETWEEN : SPARTA NOMINEES PTY LTD (ACN 008 861 345)

Landlord and tenant - Forfeiture of lease for breach of tenant's covenants - Relief against forfeiture sought - Turns on own facts

Property Law Act 1969 (WA), s 81, s 83A - s 83D

Arnold v Mann [1957] HCA 64; (1957) 99 CLR 462

Barrow v Isaacs [1891] 1 QB 417

Civil Service Co-operative Society v McGrigor's Trustee [1923] 2 Ch 347

Ex Parte Whelan [1986] 1 Qd R 500

Fox v Jolly [1916] 1 AC 1

Gair v Smith [1964] VicRp 107; [1964] VR 814

Govenors of Rugby School v Tannahill [1935] 1 KB 695

Pennell v City of London Brewery Co [1900] 1 Ch 496

Public Trustee v Westbrook and Another [1965] 2 All ER 398

Re Wilson (1955) 72 WN(NSW) 454

Shepard v Lomas [1963] 2 All ER 9902

Upjohn v McFarlane [1922] 2 Ch 256

1 By a lease made on 12 March 1992 the plaintiff, which owns the Marmion Village Shopping Centre, leased a shop to a Mr and Mrs Wilson. Mr Wilson was called by the plaintiff as a witness at the trial. By cl 6.18 the lessees agreed to use the shop solely as a supermarket, which business was to be carried on under the business name "Supa Valu Marmion". The lease was for a term of 10 years from and including 20 February 1991. The term would therefore expire on 19 February 2001 but by cl 12.03 an option to renew the lease was given to the lessee upon notice given six to three months prior to the termination date. The lease could be renewed for a further term of 10 years to expire on 19 February 2011 subject to the usual proviso:

"that all rent then owing shall have been paid and there shall not then be any subexisting breach of the covenants, conditions and stipulations herein contained (provided that breaches which have been waived shall not be deemed to be unremedied breaches for the purpose of this sub-clause)...."

2 The rent was, by cl 2.02 and the Second Schedule to the lease, a fixed sum payable calendar monthly in advance on the 1st of each month. By cl 2.03, the rent was to be reviewed annually on the anniversary of the commencement date each year during the term of the lease and any extension granted by the exercise of the option to renew.

3 The supermarket business was, as its name suggests, run under a franchise granted by FAL Limited. On 10 January 1995, subject to the agreement of FAL to transfer the franchise to the purchaser and subject to the consent of the plaintiff, Mr and Mrs Wilson sold the business to the defendant. The contract of sale records that the purchase price was the sum of $575,000 allocated as to $375,000 to plant and equipment and $200,00 as to stock in trade. No allowance was made for goodwill.

4 By an undated deed stamped on 16 February 1995 Mr and Mrs Wilson, with the consent of the plaintiff, assigned to the first defendant the lease of the premises for the balance of the term. The assignment took effect on 24 January 1995. Mr and Mrs Anderson, the second and third defendants, executed the deed of assignment as guarantors for the first defendant. It will be convenient hereafter to refer to the first defendant simply as "the defendant" and to refer to Mr and Mrs Anderson by name.

5 As I have mentioned, the term of the lease expired on 19 February 2001. The notice by which the option to renew was to be exercised would therefore be required to be given between 19 August 2000 and 19 November 2000. By notice dated 13 October 2000, the defendant sought to renew the term for the further period of 10 years from and including 20 February 2001.

6 The plaintiff responded by a letter of its solicitors dated 26 October 2000. The plaintiff contended that it had terminated the lease and had instituted this action for possession of the leased premises. On that ground it regarded the notice of the exercise of the option as being of no force and effect. If that view of the legal position was not correct the plaintiff asserted that the defendant was precluded from exercising the option because as at the date of receipt of the notice it was in breach of terms of the lease, said to be continuing breaches of cl 5.02 and cl 9.02, the subject of notices of default dated 12 May 2000 and 18 June 2000, copies of which were enclosed. The date of the second notice is wrong. The actual date was 8 June 2000.

7 Because of the allegedly unremedied breaches of the clauses of the lease specified (and again the reference to cl 5.02 is wrong; the clause referred to in the notices being cl 5.06) the plaintiff contended that if it had not lawfully terminated the lease the defendant was nonetheless precluded from exercising the option to renew the lease, relying on the Property Law Act 1969 (WA) s 83C and cl 12.03 of the lease. The reference to cl 12.03 is a reference to the proviso which prevents the exercise of the option to renew at a time when the lessee is in breach of covenants of the lease applicable to it. I shall return to this contention in the context of the relevant provisions of the Property Law Act in due course. It will be necessary to discuss the particulars of the notices of default relied upon by the plaintiff in its solicitors' letter of 26 October 2000 and relied upon by the plaintiff as the ground of its action for possession, instituted by a writ issued on 13 July 2000 after the plaintiff had given the defendant notice to quit the premises on about 5 July 2000.

8 Clause 11.01 of the lease provides inter alia that if the lessee shall be in breach of a covenant of the lease after the expiration of 14 days written notice to remedy the breach, then the lessor has the option to re-enter upon and resume possession of the supermarket, so terminating the lease. The operation of that clause must be considered in light of the terms of the Property Law Act s 81 which by s 81(10) has effect notwithstanding the wording of the default provisions of the lease. So far as material, s 81 provides:

"(1) A right of re-entry or forfeiture under any provision or stipulation in a lease for a breach of any covenant or condition in the lease is not enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice -

(a) specifying the particular breach complained of;

(b) where the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in any case, requiring the lessee to make compensation in money for the breach,

and the lessee fails, within a reasonable time after the service of the notice on him, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

(2) Where a lessor is proceeding, by action or otherwise, to enforce or has enforced without the aid of the Court such a right of re-entry or forfeiture, the lessee may, in the lessor's action (if any) or in any action brought by himself apply to the Court for relief, and the Court -

(a) may grant or refuse relief, as the Court having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances thinks fit; and

(b) in case of relief may grant it on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case, thinks fit."

9 The stipulations in cl 11.01 of the lease are not suggested to be in any way in conflict with s 81. In particular, the provision of a period of 14 days in which the lessee was allowed to remedy any breach is not suggested to be an unreasonably short period.

10 The plaintiff in this case, as I have indicated, does not proceed upon the ground that the defendant has, having regard to the nature of alleged breaches, repudiated the lease. It seeks to forfeit the lease by relying on cl 11.01 and the two notices of default dated 12 May 2000 and 8 June 2000 followed by the notice to quit dated 5 July 2000 and the admitted refusal of the defendant to vacate the premises in which it still remains in occupation. In the action for possession commenced by the writ issued on 13 July 2000 the relief claimed is therefore a declaration that the plaintiff has validly terminated the lease and an order that the defendant deliver up possession of the premises to the plaintiff.

11 In addition to seeking to enforce its asserted right of re-entry by action in the Court the plaintiff claims damages against the defendant and against Mr and Mrs Anderson that they indemnify the plaintiff for the loss and damage allegedly suffered by it as a result of the defendant's breaches of covenant and failure to vacate the premises. However, those claims were not debated at trial and I can detect in the evidence nothing which would enable an assessment of damages or cause the guarantee given by Mr and Mrs Anderson to be activated in such a way as to require them to indemnify the plaintiff for loss.

12 It is convenient at this point to note that the defence denies the validity of the notices of default in a number of respects which draw such strength as they may have from reliance upon s 81(1) of the Act. Further, the defendant offers a factual defence denying the allegations of breach particularised in the notices of default. Indeed, the defence goes further than was necessary, in my opinion, if this defence was to be put, because it does not merely deny the allegations of the plaintiff but asserts positively, in effect, that the defendant complied with the covenants of the lease raised in the specific allegations of breach made originally in the notices of default and included verbatim in the plaintiff's statement of claim.

13 There is an assertion in the defence that by issuing the notice of default dated 8 June 2000, the plaintiff abandoned or waived reliance upon or elected not to rely upon the earlier notice of default dated 12 May 2000. Finally by way of defence it is asserted that the invalidity of the notices of default caused the notice to quit which substantially relied upon them, itself to be invalid and ineffective.

14 There is a counterclaim which essentially relies upon s 81(2) of the Act and seeks from the Court the exercise of its discretion to grant relief from forfeiture if it should be held that the plaintiff has made out grounds for such an order. In broad terms the counterclaim asserts that the business was purchased by the use of borrowed monies secured against their residence in Trigg and a property owned by them in Dunsborough. The defendant asserts that it has increased the value of the business and that it has "always paid rent and outgoings in accordance with the lease and in a timely manner."

15 I digress to observe that on very many occasions monthly instalments of rent have been paid after the due date and therefore in breach of cl 3 of the lease. There is a schedule giving dates when payments were made contained in the plaintiff's further and better particulars of its defence to the counterclaim which the defendant admits accurately sets out the dates on which rent and variable outgoings were paid. It is a lengthy document covering the period from July 1995 to September 2000. It shows that very often the monthly instalment was in whole or in part paid late. Very often it is only a matter of a day or a few days but in some cases the delay is a matter of weeks and on occasions over a month.

16 The plaintiff said that the defendant made late or non-payment of rent and variable outgoings, the subject of notices of default dated 19 July 1999 in respect of the payment due for July 1999, dated 6 September 2000 in respect of the payments due for August and September 2000, 4 October 2000 in respect of payments due for September and October 2000, 3 November 2000 in respect of payments due for October and November 2000, 4 December 2000 in respect of payments due for that month, 4 January 2001 in respect of payments due for that month and 2 March and 16 March 2001 in respect of payments allegedly due on 1 March 2001. It will be noted that those default notices are not those upon which reliance is placed in this action and in any event, they extend well beyond the admitted schedule, the concluding entry for which is concerned with the payments due on 1 September 2000.

17 The defendant's counterclaim goes on to assert that the supermarket business is profitable and has significant goodwill. If in breach of the lease the defendant asserts that "the breaches were unintentional" and, relying upon s 81(2), seeks relief against forfeiture of the lease and against the effect of any breach in relation to the purported exercise of the option to renew.

"14.1 The comparative lack of gravity of the breaches;

14.2 The disparity between the value of the lease as compared with the damage caused by any breaches;

14.3 The loss of income to the Defendants if the lease is forfeited;

14.4 The loss of the significant value of the goodwill of the supermarket business if the lease is forfeited;

14.5 The loss which would arise from an inability to sell the stock at normal retail rates if the lease is forfeited;

14.6 The sale of stock and plant and equipment, without the sale of goodwill, will not be sufficient to discharge the borrowings in respect of the supermarket business owing to National Australia Bank."

19 In answer to that pleading, by its defence to the counterclaim the plaintiff asserts that the defendant "has persistently failed to carry on its business in accordance with the terms of the lease", and it says that as a consequence of the defendant's failure to comply with the lease the plaintiff has suffered and continues to suffer detriment in that:

"(i) there has been a diminution in the number of customers frequenting the shopping centre since the First Defendant purchased and started operating the supermarket business;

(ii) Current tenants of the shopping centre have lodged complaints with the Plaintiff and the Plaintiff's agents about the operation of the supermarket by the First Defendant to the effect that the operation of the supermarket by the First Defendant has had a detrimental effect on their businesses;

(iii) A number of current tenants of the shopping centre have informed the plaintiff that they have suffered a decrease in their turnover owing to reduced business, which they attribute to the poor operation of the supermarket by the first defendant;

(iv) A number of the current tenants of the shopping centre have informed the plaintiff that if the first defendant is a lessee in the shopping centre when their leases come up for renewal then they will seriously consider not renewing their leases.

(v) If the supermarket business continues to be conducted in the same manner as over the past 6 years, there is a real risk to the plaintiff that further lessees in the shopping centre will vacate their premises and/or will require discounted rental and further incentives to remain at the shopping centre.

(vi) As a consequence of the matters in (i) to (v) above the continued occupation by the first defendant of the premises in the shopping centre has, is and will in the future reduce the value of the shopping centre."

20 I may, of course, need to canvass the evidence led in support of those contentions if it becomes necessary to deal with the question of relief from forfeiture but, in the meantime, it is convenient to note that specifically in respect of the pleaded allegations in pars (ii), (iii), (iv) quoted above, the defendant has made relevant admissions in the following terms:

"1. The Newsagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have lodged complaints with the Plaintiff and the Plaintiff's agents about the operation of the supermarket by the First Defendant to the effect that the operation of the supermarket by the First Defendant has had a detrimental effect on their businesses.

2. The Newsagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have informed the Plaintiff that they have suffered a decrease in their turnover owing to the reduced business, which they attribute to the poor operation of the supermarket by the First Defendant.

3. The Newagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have informed the Plaintiff that if the First Defendant is a lessee in the shopping centre when their leases come up for renewal they will seriously consider not renewing their leases."

There was other evidence touching upon these matters but I consider that the admissions themselves are capable of establishing the primary facts pleaded in the paragraphs in question. Par (i) is, of course, a different matter and pars (v) and (vi) really invite conclusions on my part relevant to the exercise of the discretion as to relief from forfeiture.

21 Further as to that, the plaintiff pleads that the defendant will not suffer loss by the loss of goodwill in the supermarket or the inability to sell the supermarket if the lease is forfeited because it is pleaded that the supermarket is not profitable, and there is currently no goodwill in it, as there was no goodwill in it when the defendant purchased it.

22 So far as the plaintiff presently relies upon it, the breaches the subject of the first notice of default dated 12 May 2000 are as follows:

(a) the delicatessen department is not clean;

(b) the bulk foods department is not clean;

(c) the dairy department is not clean;

(d) the freezer department is not clean; and

(e) the meat department is not clean;

(2) contrary to clause 5.06 of the Lease it has allowed unused display bins and boxes to accumulate in the meat department at the Leased Premises;

(3) contrary to clause 9.02(b) of the Lease it has failed to keep the display windows in the Leased Premises dressed with high quality displays;

(4) contrary to clause 9.02(c) of the Lease it has failed to cause the Leased Premises to be adequately stocked at all times during which the Leased Premises is open for business.

(5) contrary to clause 9.02(c) of the Lease it has failed to cause the Leased Premises adequately staffed at all times during which the Leased Premises is open for business;

(6) contrary to clause 9.02 of the Lease it has failed to carry on and conduct upon the Leased Premises its business with due diligence in a proper, efficient and business like manner and in particular:

The appearance of the Leased Premises

(a) the Leased Premises and in particular, the delicatessen department, the bulk foods department, the dairy department, the freezer department and the meat department are not clean;

(b) the Leased Premises are poorly maintained;

The products

(c) there is an insufficient stock of products maintained during the hours of business at the Leased Premises;

(d) there is a lack of range of products on display for sale during the hours of operation of the business at the Leased Premises;

(e) some of the products displaying a use by date are displayed for sale at the Leased Premises on or after the date shown as the use by date;

(f) rotten fruit and vegetables are left on display for sale at the Leased Premises;

(g) there is insufficient quality control of the products displayed for sale at the premises;

(h) there is a poor layout of products within the Leased Premises resulting in poor presentation of the products for sale;

The staff

(i) the staff members at the Leased Premises are not well presented;

(j) the staffing levels in the fresh produce, dairy and freezer departments are inadequate;

(k) a manager is not readily available to customers at the Leased Premises during hours of operation."

I include the last allegation because it is concerned with the manner in which the business was carried on as at 12 May 2000 although counsel for the plaintiff informed me that the plaintiff did not directly pursue an allegation of breach in that the supermarket was inadequately staffed in the sense that there were too few staff members present to assist in the running of the business at any given time. The plaintiff does not therefore prove the breach alleged in par (5) above.

23 So far as it is now relied upon by the plaintiff, the second default notice dated 8 June 2000 particularised the alleged breaches in the following manner:

"(1) Contrary to clause 5.06 of the Lease the Lessee has failed to keep the Leased Premises in a thorough state of cleanliness:

DETAILS

(a) On 15 February 2000 and 17 February 2000 at the Leased Premises:

(i) each of the delicatessen, bulk foods, dairy and freezer departments was dirty;

(i) The canopy above the meat display area was dirty;

(ii) The meat department was dirty;

(iii) The delicatessen department was dirty;

(iv) The dairy department was dirty;

(i) Approximately 75% of the shelving in the grocery department was dirty;

(ii) There was mould growing in some areas of the shelving in the milk fridges;

(iii) The shelves in the fruit juice section had a considerable amount of congealed juice on them;

(iv) The cold meat cabinet in the delicatessen department was dirty;

(v) The two bread roll bins displayed in the delicatessen department was extremely dirty inside and out;

(2) Contrary to clause 9.02(b) of the Lease the Lessee has failed to keep the display windows in the Leased Premises dressed with high quality displays in that for at least the last 2 years the front windows and frames have been dirty and the only dressing has been a number of A4 FAL posters advertising specials which are sticky taped to the glass;

(3) Contrary to clause 9.02(c) of the Lease the Lessee has failed to cause the Leased Premises to be adequately stocked at all times during which the Leased Premises is open for business:

DETAILS

(a) On 15 February 2000 at the Leased Premises there were 43 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(b) On 17 February 2000 at the Leased Premises there were 39 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(c) On 30 April 2000 at the Leased Premises there were 46 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(d) On 11 May 2000 at the Leased Premises there were a number of product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(e) On 27 May 2000 at the Leased Premises:

(i) In the grocery department there was a total of 322 product lines that were advertised on the shelves but with no corresponding products on those shelves;

(ii) In the dairy department there was a total of 25 product lines that were advertised on the shelves but with no corresponding products available on those shelves;

(iii) In the frozen foods department there were 2 product lines that were advertised on the shelves but with no corresponding products available on those shelves;

(iv) Only 3 of meats in the delicatessen department were sliced and ready for purchase;

(v) There was no bacon on display in the delicatessen department;

(vi) There was no fresh salads (eg. coleslaw) available for purchase in the delicatessen department;

(vii) In the general merchandise area there were 45 product lines advertised on the shelves but with no corresponding products available on those shelves.

(4) ....

(5) Contrary to clause 5.01 of the Lease the Lessee has failed to keep the Leased Premises including the floor coverings, other glass, fixtures, fittings, equipment, appurtenances and furnishings in good and substantial tenantable repair, order and condition:

DETAILS

As at the date hereof:

(a) Many of the floor tiles in the meat department and particularly in front of the meat cabinet are missing or are lifting;

(b) Many of the floor tiles in front of the dairy cabinet are missing or are lifting;

(c) The grocery fixtures and checkout area have chipped wood or paint and are generally in poor condition;

(d) Much of the shelving is in poor condition with paint and wood chipped;

(e) The seals between the glass panels on the cold meat cabinet in the delicatessen department are defective and need replacing;

(f) A small room at the rear of the store has missing brickwork which needs to be plugged to prevent vermin from entering the Leased Premises from the outside;

(6) Contrary to clause 9.02 of the Lease the Lessee has failed to carry on and conduct upon the Leased Premises its business with due diligence in a proper, efficient and business like manner and in particular:

The appearance of the Leased Premises

(a) The Leased Premises and in particular, the delicatessen department, the bulk foods department, the dairy department, the freezer department and the meat department have regularly not been cleaned to the requisite standards and regularly manifest a dirty appearance:

DETAILS

The Lessor repeats the details under paragraph B(1) above;

(b) The Leased Premises, fixtures and fittings have been poorly maintained:

DETAILS

The Lessor repeats the details under paragraph B(5) above.

The products

(c) The Lessee has failed to maintain a sufficient stock of products during the hours of business at the Leased Premises:

DETAILS

The Lessor repeats the details under paragraph B(3) above;

(d) Some of the products displaying a use by date have been displayed for sale at the Leased Premises on or after the date shown as the use by date

DETAILS

(i) On 15 February 2000 at the Leased Premises there were at least three different products that were available for sale and their expiry dates had already passed;

(ii) On 17 February 2000 at the Leased Premises there were at least:

(I) 3 different products available for sale and their expiry dates had already passed; and

(II) 3 different products available for sale with an expiry date of 17 February 2000;

(iii) On 19 February 2000 at the Leased Premises there were at least 2 different products available for sale with an expiry date of 19 February 2000;

(iv) On 23 February 2000 there were at least 2 different products available for sale and their expiry dates had already passed;

(v) On 27 February 2000 there were at least 6 different products available for sale and their expiry dates had already passed;

(vi) On 29 February 2000 there were at least 5 different products available for sale and their expiry dates had already passed;

(vii) On 1 March 2000 there were at least 2 different products available for sale and their expiry date had already passed.

(viii) On 11 March 2000 there were at least 2 different products available for sale and their expiry date had already passed.

(ix) On 30 April 2000 at the Leased Premises there were some dairy products available for sale and their expiry date had already passed;

(I) there were at least 5 different products in the pre-packed cold meat section which were available for sale and their expiry date had already passed;

(II) The majority of stock on show in the meat department had a use by date of 27 May 2000;

(e) Rotten fruit and vegetables have been left on display for sale at the Leased Premises

DETAILS

(i) On 15 and 17 February 2000 at the Leased Premises there was rotten fruit and old vegetables left on display;

(ii) On 30 April 2000 at the Leased Premises rotten tomatoes were available for sale;

(I) Some of the eggplants available for sale were rotten;

(II) Some of the kiwi fruit were very soft and bruised;

(IV) Some of the onions were old and discoloured and mould growing on them;

(I) Some sweet potatoes, fresh ginger, oranges and strawberries had mould growing on them;

(II) Both loose and pre-packed onions were rotting;

(III) The majority of root vegetables was black and dried out;

(VI) Silverbeet ends were black and leaves were limp;

(f) There has been insufficient quality control of the products displayed for sale at the premises:

DETAILS

The Lessor repeats the details at paragraphs B(6)(d) and B(6)(e) above and adds that at the Leased Premises:

(i) On 15 and 17 February 2000 there was no recording of the cabinet temperatures in the meat department;

(ii) On 30 April 2000 the olives displayed in black trays in the delicatessen department were stale in appearance;

(I) The majority of the loose white potatoes for purchase were green;

The staff

(g) The staff members at the Leased Premises have not been well presented;

DETAILS

24 It has been seen that in its action for possession, the plaintiff relies upon both default notices. I see no reason why it may not do so. Clause 11.01 of the lease confers the right of re-entry in a case where non-performance of a covenant by the lessee remains unremedied for 14 days after "written notice to the Lessee to remedy the same". The plaintiff could have chosen to assert its right of re-entry based solely upon the notice of 12 May 2000 which I interpret to refer to breaches of clauses of the lease upon that date. The plaintiff chose not to take that course but issued the second default notice of 8 June 2000 covering specific dates: 15, 16, 17, 19, 23, 27 and 29 February 2000, 1 and 11 March 2000, 30 April 2000, 11 May 2000 (the day before the issue of the default notice of 12 May) and 27 May 2000, either as dates upon which particular breaches were alleged to have occurred or in support of allegations of a general breach. I understand the allegation to be that the defendant was in breach in the manner alleged as at 8 June 2000. For myself, I see no reason why that default notice may not also be relied upon upon the basis that the breaches alleged, or any of them, were not remedied within the 14-day period allowed both by cl 11.01 and, I think, the Act, s 81, to support the notice to quit which was issued on 5 July and the subsequent action for possession when the defendant declined to quit the premises but, on the contrary, purported to exercise the option to renew.

25 In my opinion, nothing in s 81(1) would preclude reliance in that way upon a number of default notices, each one satisfying the provisions of the section, if one takes the view, as I would, that to allow 14 days to remedy the breach would be to allow a reasonable time and would satisfy that aspect of s 81(1).

The Validity of the Default Notices: The Need for Particulars

26 When turning to the question of whether the plaintiff has established all or any of the breaches alleged in the default notices and the related questions of interpretation of the covenants of the lease relied upon, it is convenient to look at the arguments raised by the defendant in support of its contention that the default notices are invalid.

27 The first contention is that they do not sufficiently specify the alleged breaches. By s 81(1)(a), the notice must specify "the particular breach complained of". The leading case is the decision of the High Court in Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152. The relevant section of the Conveyancing Act 1904 (Vic) was worded in the same way as s 81(1)(a). It was held that the requirement was to sufficiently particularise the breach so that the tenant might reasonably understand, not merely what covenant it is alleged has been breached, but what is required to be done to remedy the alleged breach. A notice which simply refers to a breach of the covenant, and does no more by way of particulars, falls short of what is required.

28 To understand the point better, it is necessary to have regard to the terms of the lessee's covenants relied upon. Clause 5.06 of the lease states:

(a) At the Lessee's own cost and expense keep the Leased Premises in a thorough state of cleanliness and not allow any rubbish trade waste cartons boxes containers produce or accumulation of useless property within the Leased Premises or deposit the same in the vicinity thereof and not leave rubbish bins or other waste materials and garbage including wet refuse (if any) to be removed from the Leased Premises regularly and ensure that all wet refuse is stored in fly and rodent proof receptacles within the Leased Premises.

(b) Except to the extent of standard pest control carried out by the Lessor's contractors at the Lessee's own cost and expense keep the Leased Premises free and clear of all vermin including (but not limited to) rodents cockroaches and termites."

29 As to cl 5.06(a), it is to be noted that it is the leased premises comprising the supermarket which are to be kept "in a thorough state of cleanliness". Cleanliness is clearly a matter of degree but, in my opinion, what is a sufficient state of cleanliness to be described as "thorough" in the case of leased premises which are a supermarket, must depend upon questions of hygiene in the handling of foodstuffs and matters of that kind, although as can be seen from the separate requirement of the clause that rubbish, trade waste, cartons and the like should not be allowed to accumulate within the premises, the clause also imports considerations of tidiness and presentation.

30 That interpretation, to my mind, reveals that particulars (i) and (ii) of the notice of 12 May 2000 insufficiently particularised the breaches complained of. To say no more than that particular departments are "not clean" and that unused display bins and boxes have accumulated in the meat department, says nothing more than that it is a breach of cl 5.06(a) of which complaint is made. There is nothing to indicate what particular aspect of the cleanliness of the departments identified was found wanting.

31 However, before leaving consideration of cl 5.06(a), I should say I respectfully agree with the approach to its interpretation adopted in argument by learned counsel for the plaintiff. The clause refers to the defendant's duty to keep the premises in a thorough state of cleanliness. Things are not to be allowed to accumulate. Wet refuse is to be stored in a particular way. In cl 5.06(b), again there is a duty to keep the premises free and clear of vermin. In my opinion, particular instances of uncleanliness may, but will not necessarily, provide evidence that the premises are not kept in a state of cleanliness. The clause would seem to me to require a conclusion that uncleanliness was of a more than transient kind, but was a state generally to be found.

32 It is necessary, I think, to make good an allegation of breach of this covenant, that something more than isolated or transient situations should be established. The repetition of particular occasions of lack of cleanliness may be sufficient to enable the inference to be drawn that there has been a failure to keep the premises in a thorough state of cleanliness. To interpret the clause so that any individual falling away from the appropriate standard of cleanliness would constitute a breach of the covenant would, in my opinion, be contrary to the purpose of the clause in the context of the commercial lease of a supermarket. No purpose would be served by exposing the lessee to forfeiture of the lease when, on any individual occasion of inspection of the premises, there is seen to be a falling short of what the lessor would regard, and what may objectively be seen to be, an acceptable state of cleanliness. In addition, it seems to me, that the construction which I would give to the clause is supported by the fact that it is the leased premises as a whole which are to be kept in the thorough state of cleanliness to which the clause refers.

33 There is one aspect of the submissions of counsel with which I disagree. It seems to me that, contrary to counsel's submission, in proceedings such as these the onus remains upon the plaintiff lessor to establish the breach of the covenant. I have said that, in my view, it may do so by accumulating a sufficient number of instances of uncleanliness to enable the inference to be drawn that the state of the premises generally fell short, over a period, of the cleanliness required so as to establish that they were kept in that state. In my opinion, no legal or evidentiary onus shifts to the lessee to establish that "individual instances of uncleanliness" proved by the plaintiff were "isolated instances rather than evidence of a state of uncleanliness". On the contrary, in my opinion, it is for the plaintiff to prove the state of cleanliness of the premises as at the date of the alleged breach.

"Clause 9.02 - Conduct of Business:

Carry on and conduct upon the Leased Premises the business specified in Item 6 of the Second Schedule with due diligence in a proper efficient and business like manner strictly in accordance with all statutory requirements and in particular (without limiting the generality of the foregoing) shall:

(a) ...

(b) keep the display windows (if any) in the Leased Premises properly clean and tidy and dressed with high quality displays and properly electrically lighted at all times during the normal trading hours whilst the Leased Premises are open for trading whichever shall be the later or during such long hours as may be prescribed by the Lessor;

(c) cause the Leased Premises to be adequately stocked and staffed at all times during which the Leased Premises shall be open for business;"

35 Again, so far as the first default notice is concerned, to understand the submission that the breaches alleged are insufficiently specified, the test in Gerraty v McGavin is to be applied and it is necessary to arrive at a conclusion as to the proper construction of the relevant portions of cl 9.02 of the lease in its context. The general point is, of course, that the business specified, that of a supermarket, is to be conducted with due diligence in a proper, efficient and businesslike manner. So far as the paragraphs of the clause relied upon are concerned and, in particular, so far as cl 9.02(c) is concerned, the adequacy of the stocking and staffing of the premises must be related to the nature of the business being conducted. Beyond that, I find it difficult to attribute a sensible meaning to the concept of adequately stocking the premises, but it is the premises overall which are to be adequately stocked as a supermarket and so again it is the general state of the stock levels to which regard is to be had.

36 Further, the breach will occur if the lessee shows a lack of due diligence, efficient and businesslike operation. It is the lessee who must "cause" the leased premises to be adequately stocked. In my opinion, he will not fail to cause the premises to be adequately stocked if the proper conclusion is that although the premises are inadequately stocked from time to time, it is not the fault of the lessee but of its suppliers, because in that case it seems to me that the inadequate stocking is not demonstrative of any failure to conduct the business with due diligence, but to circumstances beyond the lessee's control.

37 A more difficult question would arise if the proper conclusion was that although the persons, in this case, Mr and Mrs Anderson, representing the management and will of the corporate lessee, had in place instructions and procedures requiring their departmental managers to keep stock at adequate levels by placing timely orders with FAL Ltd and other suppliers, those employees on occasions, perhaps even with a degree of regularity, by reason of their own fault, failed to keep their particular departments adequately stocked. That, in my opinion, might demonstrate a failure on the part of the lessee, in the person of those constituting its management, to cause adequate stocking by monitoring what employees were doing or failing to do and remedying the situation.

38 It is to be noted that, particularly in respect of the stocking of the leased premises as a supermarket, the state of the premises, and it is the premises overall to which regard is to be had, is dependent not only upon the actions of the management and staff of the defendant's business but also of others. It is upon the fault or lack of due diligence on the part of those who represent the guiding will of the defendant, or those for whose conduct they are responsible, that attention is to be focused in the context of an alleged breach of cl 9.02.

39 Again, it is the requirement of the clause that the business be carried on and conducted in a particular way. It follows, in my opinion, that a degree of persistence or habituation will have to be established by the plaintiff, if the allegation of breach is to be made out, rather than one or more instances where the appropriate standard of behaviour was not achieved, which instances might be regarded as isolated rather than indicative of a general lack of due diligence in the carrying on of the business.

40 There are some particular matters concerning the construction of this provision in respect of the stocking of the premises to which, having regard to the evidence in this case, reference should be made. I have said that it is the premises which must be adequately stocked and staffed during the times when they are open for business. That undoubtedly refers to stocking and staffing in a way which is calculated to relate to the manner in which the business is carried on and conducted, but inadequacy in relation to such matters, in my opinion, would not be established by evidence to show that on particular occasions, the staff member responsible for a particular department of the store was not available on the floor where shoppers might have access to him or her if that staff member was, nonetheless, on duty and performing some other function, such as obtaining stock from a stock room, which was concerned with the proper operation of the business. I think the plaintiff recognises the correctness of that view and it is that sort of consideration which is behind its abandonment of reliance upon those aspects of the default notices which allege inadequate staffing.

41 Further, the alleged inadequacy must again be related to the nature of the business. A Supa Valu supermarket is a supermarket business of a moderate size. There are businesses within the FAL Ltd franchise system which are both larger and smaller. If one is considering a supermarket business conducted by the large chains, then such a business will often be very much larger than Supa Valu Marmion. Nonetheless, the supermarket stocks a very wide variety of products. It features every type of merchandise which one would expect to encounter in a supermarket. There is a wide range of grocery products and frozen foods. There is a fruit and vegetable department, a reasonably substantial diary department, a delicatessen which includes in its product the provision of takeaway lunches; cigarettes are sold. There is a bulk food section, a butcher's shop and, in this store, a general merchandise section the stocking of which, on the evidence, appeared at relevant times to be substantially the responsibility of FAL. To aid the retail process, an automatic teller machine is provided as well as what are known as EFTPOS facilities at the five checkouts, some or all of which may be operated at any given time depending upon the volume of business.

42 The range of products is divided, particularly in the grocery section, into "lines". This term refers to particular packages of a product. For example, each different quantity of a particular type of coffee is an individual line, whereas the range of produce refers to different types or brands of coffee. A line of stock may be unavailable but a similar line in another brand might be available. As I understand the evidence, it is all a question of maintaining, so far as the effort of the management and staff may reasonably do so, the availability of a reasonably wide range of products and providing consumer choice of different lines within those products. As can be imagined, the supermarket stocks thousands of different lines of different products. It is against that background that the fact, when established, that a certain number of lines of individual stock items were out of stock or unavailable is to be judged to determine whether in the light of the evidence as a whole the inference that the business is not being carried on with due diligence and in a proper, efficient and businesslike manner because the premises have not been caused to be adequately stocked may be drawn.

43 As to the default notice dated 12 May 2000, the allegation in par (3) of breach of cl 9.02(b) may be shortly disposed of on a different basis. In my opinion, on the evidence, this store does not have "display windows" within the meaning of the clause. As I understand the evidence, one enters the store in the area in front of the checkout stations through doors adjacent to which there is an area of glassed wall upon which at relevant times were often displayed copies of advertisements put out by FAL of products which were on "special" in the sense that they were advertised for sale at a reduced price. It may be that other notices were affixed to this glassed area.

44 But this was not an area of glass which was, or was intended, to enable the display to the passer-by of produce for sale within the store. Clause 9.02(b) had no application to the leased premises because there were no display windows to be kept "properly clean and tidy and dressed with high quality displays". The breach alleged of cl 9.02(b) in the first default notice is not made out.

The Particularisation of the First Default Notice

45 As to the reliance in that notice upon cl 9.02(c) and inadequate stocking (the reliance upon inadequate staffing having been abandoned), it seems to me that merely to allege that the defendant has failed to cause the leased premises to be adequately stocked at all times during which the premises are open for business, does not comply with the requirement to specify the particular breach complained of. In my opinion, the plaintiff may not rely on pars (4) and (5) of this default notice.

46 Further, as to par (6) of this notice and the general reliance upon cl 9.02, there is insufficient particularity in the allegations of breach. For example, it tells the lessee nothing to allege that the premises and particular departments are not clean, that they are poorly maintained, that there is insufficient stock, a lack of range of products, breach, in some cases not specified, of "use by date" requirements, that rotten fruit and vegetables are left on display, that there is insufficient quality control of produce, that there is a poor layout of produce, that staff members are not well presented, staffing levels are inadequate and that a manager is not readily available.

47 Bearing in mind that the purpose of requiring sufficient specification of the particular breach is to enable the lessee to know what particular matters must be attended to to remedy the breach, in my opinion, these allegations fall short of the required degree of particularity. In the final analysis therefore, in each of its allegations, for the reasons given in this and previous portions of this judgment, in my opinion, the default notice dated 12 May 2000 may not be relied upon. Perhaps its inadequacy explains the service of the default notice dated 8 June 2000.

The Particularisation of the Second Default Notice

48 Again, however, the defendant contends that that notice, in particular aspects, is substantially invalid because of lack of sufficient particularity. For the reasons which I have discussed above, it seems to me that there is merit in this contention so far as it concerns par 1(a), (b)(ii), (iii), (iv), but otherwise par (1) would, in my view, comply with s 81(1)(a).

49 I have already commented on par (2) that, in my opinion, no further attention need be given to this allegation because the windows in question are not display windows within the meaning of cl 9.02(b) of the lease. I can see no problem with par (3) which raises allegations of a breach of cl 9.02(c) although I think, as I have already noted, it should not be overlooked that that allegation of inadequate stocking of the premises is, under cl 9.02, to be regarded as the ground upon which it is said by the plaintiff that the clause was breached in that the defendant failed to carry on and conduct the business of the supermarket with due diligence in a proper, efficient and businesslike manner. It does not, in my opinion, have a life of its own as an allegation of breach of one of the lessee's covenants.

50 It is noteworthy that par (6) which makes the allegation of breach of cl 9.02 of the lease draws in as a particular the allegation previously made in respect of inadequate stocking. It seems to me that this is the proper place for that allegation and legally no added significance is to be found in the allegation made in par (3). The defendant complains of a lack of particularity in portions of par (6). Oddly, there is no complaint about par (6)(a) and (b) although these paragraphs appear to me potentially to suffer from the same vice as that identified in the equivalent paragraphs of the first notice. However, it seems to me that the purpose of the allegation in these paragraphs is actually to particularise one aspect of the allegation that the lessee has failed to carry on and conduct the business of the supermarket with due diligence in that the leased premises generally are not maintained at an appropriate standard of cleanliness, "regularly manifested a dirty appearance" and the premises, fixtures and fittings have been poorly maintained.

51 In the final analysis, it seems to me that although it is fairly arguable that these allegations lack the required degree of particularization, I would not be prepared to hold that in these respects the allegation of breach of cl 9.02 of the lease may not be maintained because of a failure to comply with s 81(1)(a). It follows from what I have already said that I have no difficulty in that regard with par (6)(c) and although a complaint of this character is made about the particularisation in subparagraph (d), I can see no merit in the contention in that regard; nor do I see any such difficulty in respect of the complaint of this character about subparagraph (e)(i).

52 It is therefore the case that although I would uphold this ground of defence in respect of the formal invalidity of the first default notice, I would substantially reject that conclusion in respect of the second default notice.

53 Before leaving the formal consideration of the second notice, I should comment upon the allegation in par (5) of the breach of cl 5.01 of the lease which is the standard clause imposing a covenant by the lessee to keep the premises in good and tenantable repair and condition. I do not think I need to set this clause out in full. It is to be read with cl 5.02 obliging the lessee to make good any "breakage, defect or damage" to the leased premises where that is caused by "want of care, misuse or abuse" on the part of the lessee, its employees, agents, contractors and the like. Of course, the obligation under cl 5.01 is wider as it requires of the lessee positive action to keep the premises in good and substantial repair. The obligation to keep the premises and its various parts in "good and substantial repair" imposes a higher standard than a covenant simply to keep in "good tenantable repair": Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349.

54 In this case, the obligation is of a rolled up kind, to keep "in good and substantial and tenantable repair, order and condition". There is no limitation in the clause which takes the standard of repair at the commencement of the lease, or in this case the assignment of the lease, as being the benchmark for the appropriate standard of repair, and so it would be the case that if the premises were in a state of disrepair upon the commencement of the term, the defendant would be required to put them into such a state of repair as would satisfy the covenant, although there would be no obligation to remedy any inherent defect in the premises: Clowes v Bentley Pty Ltd [1970] WAR 24.

55 Further, in considering what must be done to comply with a covenant to repair, regard must be had to the age of the premises, their general state, the fact in this case that they were commercially leased as a supermarket, the nature of the alleged defect and the cost of necessary remedial work and like factors: Eyre v McCracken [2000] EWCA Civ 501; (2000) 80 P & CR 220. There is no exemption from the obligation in this case of "fair wear and tear" and therefore damage or defects of this kind would also fall within the lessee's obligation: Clowes at 27 - 8. I will need to return to this alleged breach but for the moment, having found it convenient to address what appear to me to be relevant aspects of the construction of cl 5.01, it is necessary only to note that there is no objection to the validity of the allegation of breach based upon the contention that s 81(1)(a) has not been complied with.

56 For the plaintiff, in relation to the line of defence concerned with insufficient particulars in the notices, a further argument is put that it is a difficult defence to maintain because in par 7 of the defence with respect to the first default notice, and in par 10 of the defence with respect to the second default notice, it is affirmatively contended, contrary to the allegations of breach, that the various departments identified were clean and the premises were adequately stocked and adequately staffed at all times. Other more particular answers were made to the allegations contained in the notices. The point made is that such affirmative pleading does not sit well with an argument of lack of sufficient particularity but, to my mind, there is no tension of that kind within the pleading by way of defence. I do not see the difficulty in making the defence concerned with the validity of the notice, but at the same time, on the basis that that defence may not succeed, making an effective denial of breach on the basis that whatever may be the particular complaint, the defendant would lead affirmative evidence of compliance with the clause in question.

57 Then the defendant contends in respect of s 81(1)(b) that each notice of default is invalid because it does not specify what was required to be done to remedy the alleged breaches. In my opinion, the section does not require such a specification and nor, of course, does cl 11.01 of the lease, which simply requires notice to the lessee to remedy the breach of the lessee's covenant alleged. Each notice did contain that requirement. With respect to all of the alleged breaches that is all that was required.

58 Then the defence in respect of both notices alleges that they were invalid because the breaches alleged at par (2), (3), (4) and (5) of the first notice and (1), (2), (3), (4) and (6) of the second notice were not alleged to be current at the date of issue of the notice of default and were therefore not capable of remedy. Clause 11.01 is relied upon in support of this argument.

59 It is to be noted that s 81(1)(b) recognises, as must in fact be the case, that a breach of covenant relied upon to ground a right of re-entry or forfeiture may not be capable of remedy and yet still be a breach upon which reliance can be placed. Only if the breach is capable of remedy does the Act require that the notice shall require the lessee in default to remedy the breach. The purpose is clear. The section is designed to prevent the exercise of a right of re-entry or forfeiture under a lease in respect of a breach of covenant by a lessee which is capable of remedy and is remedied within a reasonable time.

60 In my opinion, however, cl 11.01 of the lease is in different terms and provides a more restricted right of re-entry for breach of covenant. I have not quoted the terms of cl 11.01 but so far as it is necessary to do so, it provides, firstly, for the case where there is a default in the payment of rent and then continues that:

"... in the case of breach or non-observance of any of the other covenants conditions or stipulations on the Lessee's part herein before or hereinafter contained or implied and such breach or non-performance continue after the expiration of fourteen (14) days written notice to the Lessee to remedy the same ... THEN and in any such case the Lessor may at its option re-enter upon occupy and resume possession of the Leased Premises or any part thereof in the name of the whole and thereupon the Term shall cease and determine."

In my view, it is clear that the power conferred only applies in respect of breach or non-performance of a covenant which is current at the time of giving the notice and continues after the expiration of the 14-day period allowed to the lessee to remedy the breach.

61 In other words, s 81 of the Act envisages a provision in the lease which provides a more ample power than that in fact provided in this lease. As I have mentioned, by s 81(10), if that is the case, then the power will be restricted by the terms of the Act which cannot be contracted out of. But that is the reverse case to this. In my opinion, the point made by way of defence is right. The breach alleged must be alleged to exist as at the date of the notice and must be established to continue for 14 days thereafter. However, it is also my opinion that the breaches relied upon in the first notice of default (subject, of course, to any other source of invalidity) in pars (2), (3), (4) and (5) are to be interpreted as relying upon current breaches. I would interpret pars (1), (2), (3) and (6), the breach originally alleged in par (4) not now being relied upon, of the second default notice in the same way.

62 Put shortly, having taken the view that the notice of default dated 12 May 2000 may not be relied upon to ground the action for forfeiture I confine my observations as to validity to the notice of default dated 8 June 2000. So far as it is presently relied upon by the plaintiff, it alleges firstly that as at 8 June 2000 the defendant was in breach of cl 5.06(a) of the lease in that it was not keeping the leased premises in a thorough state of cleanliness. It sufficiently particularised that allegation by reference to the situation as it was found to be on 27 May 2000, but the plaintiff would not be precluded from making good the allegation, and that the breach continued until at least 22 June 2000, by relying upon other evidence directed to establishing that over a period of time the supermarket was not kept in a thorough state of cleanliness. Indeed, having regard to my interpretation of cl 5.06 of the lease, the plaintiff would be bound, if it is to succeed, to lay an evidentiary basis for the drawing of the inference of failure to keep over a period.

63 I note that no similar complaint about the second notice of default is made in respect of the allegation of breach of cl 5.01 in par (5), an allegation made in terms that the lessee has failed to keep the leased premises in good and substantial tenantable repair, order and condition. It is, of course, beyond argument that that is intended to convey and should be read as conveying the fact that, as the particulars to par (5) expressly put it, at the date of the notice, the premises were not, and therefore had not been kept, in good and substantial tenantable repair.

64 Finally, as to pars (3) and (6) of the second notice and the allegation that there has been a breach of cl 9.02, at least in respect of matters which may be particularised as falling within subclause (c), again I would take the view that the breach alleged is that as at the date of the notice on a consistent basis from time to time over a period, the business of a supermarket was not conducted by the defendant with due diligence in a proper, efficient and businesslike manner in that the leased premises were not adequately stocked and by reason of the other matters particularised in par (6). Again, the particular instances seem to me to be properly included as evidentiary examples of the matter of the allegation and therefore as indications to the lessee of the manner in which the ongoing breach could be remedied within the reasonable time, the period of 14 days after service of the notice, which was allowed.

65 Finally, in discussing defences of this character concerned with the form and requirements of the notices of default, I should mention the defence that neither notice of default, at least in the respects now pursued, required the defendant to "make compensation in money for the breach", as required by the Act, s 81(1)(c). In my opinion, the defence is without merit. I cannot think that s 81(1) should be read as compelling the lessor to make a claim for compensation in respect of a breach. It may take the view that it does not wish to impose a money claim or, as in this case, that the breaches complained are not compensable except by their remedy so that they do not recur in the future. I think it is perfectly open to a lessor to issue a notice of default which does not require the lessee to pay a sum of money in compensation for the breach, but if the lessor proposes to claim compensation, pursuing an appropriate cause of action in that regard in respect of an alleged breach of the lessee's covenant, then I think the lessor may do so by the notice, specifying the breach complained of and, where possible, seeking to have it remedied. In that way, the payment of reasonable compensation, not necessarily the amount claimed, will become a condition for the avoidance of the exercise of the right of re-entry or forfeiture.

66 In summary then, the first group of issues which I must address seem to me to be these. As at 8 June 2000, the date of service of the second notice of default, and for 14 days thereafter:

(1) Was the defendant in breach of cl 5.01 of the lease and the duty to keep the premises and every part of them, both exterior and interior, in good and substantial and tenantable repair having regard to the nature of the premises, their age, their general condition, their commercial purpose and the like?

(2) Was the defendant in breach of cl 5.06 of the lease and the duty to keep the premises in a thorough state of cleanliness having regard to the nature of the premises, hygiene (including the obligation to keep the premises free and clear of vermin) and tidiness, rather than that there was from time to time transient or occasional instances of particular aspects of uncleanliness?

(3) Was the defendant in breach of cl 9.02 of the lease imposing the duty to carry on and conduct the business of a supermarket with due diligence, particularly having regard to the obligation to keep the premises adequately stocked, as a result of neglect or inadequacy on the part of the defendant or for which it is properly to be held responsible? Again, it is to be remembered that it is the failure to carry on the business in a particular way which is at issue, implying a degree of persistence or repetition rather than what may be regarded as individual instances of a failure to stock particular lines of produce.

67 I would turn now to the facts concerning these matters. I should commence by commenting that the evidence of witnesses on both sides was, with some exceptions, led in what has become an unremarkable process by taking into evidence the statement of a witness, deleting those parts in respect of which objection was taken and agreement resulted, or upon which I was required to rule, and using the statement as the witness's evidence-in-chief. I allowed the statements to be supplemented by oral evidence-in-chief to the extent required. The presence of a witness who gave viva voce evidence in the witness box was therefore substantially concerned with cross-examination.

68 Even so, the case occupied some eleven sitting days to try. There were fourteen witnesses for the plaintiff and so there was a considerable volume of material in their primary and, very often, responsive witness statements. Similarly for the defendant, there were thirteen witnesses and an equally voluminous amount of material was generated by their witness statements. In addition, the taking of the evidence generated some 1100 pages of transcript. Further, the parties respectively, but the plaintiff in particular, relied upon some 700 documentary exhibits, numbers of which were of quite considerable length. In those circumstances, in an effort to keep this judgment to the minimum length required to explain my reasoning and findings of fact, I will not refer in any detail to the evidence led and will not deal with its specific terms unless absolutely necessary for the resolution of an issue which requires decision.

69 The reliance upon documentary material was both a strength and a weakness in respect of the hearing and the decision of the case. In the first place, I should say at once that the parties' legal advisers, and particularly counsel, are to be commended for their capacity to smooth the process of trial by agreement, their disinclination to rely upon technical matters in respect of the evidence led and their general co-operation with the Court in the endeavour to try the matter expeditiously and deal with the issues efficiently. I am satisfied that neither party was placed at any disadvantage in the presentation of its case by those endeavours which enabled the parties to present their own case while thoroughly testing that of the opposing party.

70 Even so, the trial of the action took about double the number of days originally allocated to it, hence the adjournment in July 2001 and the incapacity to resume the trial until some four months later in November. The plaintiff's case was completed in July and I heard the substantial portion of the defendant's first witness, Mr Anderson. The incapacity to resume the trial earlier than was the case meant, of course, that my decision has been delayed by the need to reread with some care the statements, transcript and exhibits relied upon and discussed in July to refresh my memory of their content.

71 One witness in particular of some importance to the plaintiff's case, a Mr Markey, was out of the jurisdiction when he would otherwise have been called. His evidence was admitted in documentary form by agreement. There were also reports which he had made contemporaneously with the events with which he was concerned. The evidence would, in any event, have been admissible under the Evidence Act 1906 (WA), s 79C, but its admission by agreement enabled the case to proceed and enabled the plaintiff to have that evidence available to it. Nonetheless, I have at the back of my mind that the evidence must carry less weight because the defendant was unable to test it by cross-examination and I should be careful to ensure that the lack of a challenge in that way is not converted in my mind to giving the evidence the status of incontrovertible rather than uncontroverted evidence.

72 The plaintiff relied also upon records and various reports generated by the Health Department of the City of Joondalup and its predecessor which was the relevant local government. Again, the material was, in my opinion, clearly admissible under s 79C of the Evidence Act and that overcame any capacity to object to its obviously hearsay content when the material referred to the inspections conducted by local government inspectors, and the hearsay upon hearsay involved in the reference in reports to complaints received from often unidentified shoppers. Again, in my opinion, these reports carried little weight, although counsel for the plaintiff sought to bolster them by putting particular reports to Mr Anderson and eliciting from him the observation that he did not take issue with their accuracy. It was clear to me that by that concession, he meant that he had no information available to him now to enable him to disprove assertions made in relation to particular matters connected with the cleanliness of the premises some years ago. I do not take the concession as a matter which may bolster the weight to be attached to the reports and generally speaking I would not be prepared to draw conclusions adverse to the defendant on the basis of this material.

Some Comments upon the Credibility of Witnesses

73 So far as matters of credibility are concerned, there was, thankfully, very little challenge to the genuineness and honesty of particular witnesses. The defendant was obviously unhappy with the attitude and evidence of Mr Sparta, a director of the plaintiff and its first witness, but, in truth, Mr Sparta had little relevant evidence to give in the way of direct evidence concerned with the matters currently at issue.

74 On the other hand, the plaintiff mounted a strong challenge to the credibility of Mr Anderson and, in my opinion, it did so with some success. I formed an unfavourable impression of him as a witness. I consider that on occasions Mr Anderson evinced a tendency to make a broad statement which was obviously favourable to the defendant and, when confronted with contradictory material, he resiled without being prepared to admit error or explain the original statement. His animosity towards Sparta was very evident as, indeed, was the fact that Mr Sparta reciprocated. Mr Anderson made some rather wild accusations on occasion, unsupported by any evidence, but I do not regard that as a matter of any great persuasive force in relation to his credibility. He was cross-examined for a very long period of time and, after the adjournment to which I have referred the cross-examination was renewed with renewed vigour, sometimes canvassing areas dealt with in July, not repetitiously but because preparation in the interim appeared to have generated new points which were required to be put. It was evident to me that Mr Anderson became rather frustrated that he continued to be pressed.

75 A classic example of this situation was in relation to an inspection done by Mr Powell on 27 May 2000 when his evidence was that throughout the store he counted some 400 product lines advertised as being on the shelves, which lines were unavailable. It is certainly a considerable number. The defendant queried Mr Powell's capacity to accurately count, without recording, so many lines of product out of stock. Mr Powell was cross-examined about it. He maintained that he could count accurately.

76 Mr Anderson, giving evidence in November, suggested an explanation which had not been put to Mr Powell. He said that he thought a particular issue of a trade magazine "The Communicator" put out by FAL must have been the source of the number of lines out of stock which had been incorporated in the report. He could not support the allegation and, in my view, it was clearly nonsense, although in giving evidence later, Mrs Anderson loyally said that she thought that might have been the explanation. She did not purport to offer any personal investigation as the source of that view.

77 More serious was Mr Anderson's statement that in the current financial year the turnover of the supermarket had increased by 30 per cent in the quarter just past as compared with the figures for the previous year. A comparison of exhibits A508 and A509 shows that the true figure as at 30 September in each of the years 2000 and 2001 was in the order of 13-14 per cent. In addition, Mr Anderson thought that the total indebtedness of the business currently was in the order of some $718,000 less a number of recent payments but, ultimately, the parties agreed that the defendant's current financial situation was an overall state of indebtedness of between $750,000 and $780,000.

78 Further, it is clear that Mr Anderson was of the view that when purchased, the supermarket business had goodwill to the value of about $200,000 and yet no allowance was made for this in the contract of sale but the entire purchase price was, as has been seen, allocated to plant and equipment and stock in trade. Assuming the allowance for stock in trade to be accurate, this means that the goodwill was, effectively, hidden in the sum allocated to plant and equipment, thereby increasing the deductions which might be claimed in subsequent trading years in respect of taxation by the allowances to be made for the depreciation of plant and equipment. Both Mr Anderson and his accountant, Mr Del Carlo, were aware that this was the effect and purpose of structuring the purchase price in this way. Mr Del Carlo said he thought the business had no goodwill because it was not then trading profitably. Mr Anderson simply said that he thought this conduct was proper because he acted upon advice.

79 Again, Mr Anderson, at that time, operated a building company known as Keith Anderson Constructions Pty Ltd. In the 1995 and 1996 financial years, payments were made to that company of over $105,000 in each year. The assertion appears to have been that the payments were legitimate because, as Mr Del Carlo put it, the construction company provided services to the defendant in the form of Mr Anderson, thus enabling the defendant's expenditure in this regard, to the extent mentioned, to be paid to the credit of the construction company which had tax losses to offset against the income. Again, the financial and taxation purpose is self-evident. The practice stopped when the tax losses were absorbed. Again, Mr Anderson said he thought that this was justified although it was evident that the payments stopped when the tax losses could no longer be offset. Mr Del Carlo said that, coincidentally, the defendant company at that time had no further use for services provided by the construction company, Mr Anderson's continuing services being provided directly as an officer of the defendant.

80 Then there was the occasion when Mr Anderson caused the defendant to render to the plaintiff an invoice in the sum of $3,650 for expenses incurred in the laying of tiles which I think were, under cl 5.01 of the lease, the lessee's responsibility in any event. However that may be, Mr Anderson was quite unable to justify the substantial bulk of this claim. There were no particular accounts or primary source documents to support the invoice and Mr Anderson's evidence about it was quite unpersuasive.

81 Some of these matters reveal cause for concern about Mr Anderson's credibility in what I would describe as his tendency to make favourable statements of fact, at least without sufficient care as to their accuracy, but those and other matters cause me to conclude that Mr Anderson is a person inclined to behave with dubious propriety if he perceives that it is to his advantage. Both aspects of his character reflect adversely upon his credibility and although I was not prepared to abandon him entirely as a reliable witness, I have approached his evidence with great care and by and large have sought independent confirmation of it before relying upon it.

82 So far as Mrs Anderson is concerned, the plaintiff places reliance particularly upon her evidence, also given by Mr Anderson, about some pot plants. These were a product introduced by the defendant and were apparently originally placed outside the supermarket on the pavement at the front. According to Mr and Mrs Anderson, the customers appreciated them. They were purchased and they were quite profitable but the Andersons had not sought permission to so occupy this part of the common area of the shopping centre. By mid-1997, the managing agent had written to them saying that the stand of pot plants must be removed. That was quickly followed up by a default notice alleging that the pot plants were obstructing the pavement and that they were a nuisance or annoyance to other tenants.

83 The pot plants were still a subject of discussion with the agents and were still the subject of default notices almost a year later in May 1998 and yet the evidence of Mr and Mrs Anderson was that they removed the plants when they were asked to do so. Thereafter, Mrs Anderson said they were only taken outside to be watered and then they were taken inside, but I think that is not the true position. I think the Andersons reacted in the way that Mrs Anderson mentioned in evidence. The stands of pot plants were popular with customers; they sold well. The Andersons took the view that they were doing no harm and that there was no reason for them to be removed and yet the plaintiff through its agent continued to press the point and, finally, the Andersons capitulated and the pot plants were removed and not displayed or sold again. It is a rather sad little episode. It no doubt reflects adversely upon Mrs Anderson's credit as it does upon that of Mr Anderson, but more clearly, to my mind, it demonstrates the depth of the breakdown in the relationship between landlord and tenant which certainly by this stage had occurred.

84 The genesis of that breakdown may, I think, have in part at least resided in the mishandling on both sides of the proposed repair to flooring in the supermarket in the vicinity of the butcher's department. This again is said to be a matter relevant to the credit of Mr and Mrs Anderson as, indeed, it is.

85 It appears that in two different areas of the store, changes have been made to remove walls which had previously been there so as to increase the floor area of the supermarket. I do not know when that was done but it does not matter. Although internal walls, they do not appear to have been constructed upon a concrete slab but upon lower foundations. Upon the removal of the wall, the brick work was taken to a level below the concrete floor on either side and concrete fill was laid to provide a common surface. On that surface tiles were laid to provide an even floor for customers, but the nature of the construction resulted in the sub-floor moving and the cement work breaking down.

86 This has created a constant problem of the lifting of tiles and the disruption of the floor surface. From time to time the defendant has replaced tiles but this is essentially a cosmetic solution. The real solution appears to lie in the repair of the floor surface beneath the tiles and that, I think, would not be work which would be the lessee's obligation under cl 5.01 of the lease. Indeed, so much appears to have been ultimately accepted by the plaintiff and eventually by February 1997, the plaintiff was putting in train the carrying out of works to effect more permanent repairs.

87 Mr Sparta senior, Mr Sam Sparta, appears to have been in charge of this effort. Workmen were arranged and the work was supposed to have been done overnight to avoid any disruption to the defendant's trading activities. It appears the work was not completed and Mrs Anderson had to arrange to use trolleys as an informal barricade to keep customers from walking into areas where the floor was being worked upon, to avoid a consequent risk of injury.

88 After the store closed on the following evening, while Mrs Anderson and an employee, described as the shop boy, were working back, Mr Sparta arrived with workmen and sought to recommence the work. Mr and Mrs Anderson had arranged a family social function. Neither could remain at the store to oversee the operations. Mr Sparta was prepared to do so, but that was not satisfactory to Mrs Anderson, nor to Mr Anderson who was telephoned by his wife. They refused Mr Sparta permission to do the work. Cross words were spoken on both sides and over the next few days, the plaintiff, acting by its managing agent, communicated to the defendant the decision that the plaintiff would do no further work to repair the floor, noting that the refusal to permit the work to be carried out on the night in question had caused the plaintiff, at its own expense, to have to dispose of the ready mixed concrete that it had purchased for the job.

89 I received no clear explanation from Mr and Mrs Anderson about their reasons for causing the breakdown in the carrying out of the work. Mrs Anderson said that it was necessary for one or other of them to stay over the period of some hours which would probably be required for the work to be completed. When asked why it was not possible to leave Mr Sparta in charge, she said he had not offered to supervise closely the workers concerned and she feared that they might steal stock from the store. I suspect that they were cross that the work had not been carried out when previously arranged, cross that they had been inconvenienced during trading hours and cross at the high handed attitude of Mr Sparta who turned up unannounced with workers and a batch of ready mixed concrete just before Mrs Anderson finished work and went home for the evening.

90 The Spartas, for their part, appear to have taken the view that they were putting themselves out to do the work and they were cross when permission was withheld and they were occasioned expense by the loss of the concrete. It rather seems to me that all involved behaved in a rather petulant and childish fashion and it was certainly from this time on that relations soured between Mr Sparta on the one hand and Mr and Mrs Anderson on the other, although they had rather been deteriorating prior to this time.

91 Mr Sparta says that from early in the defendant's tenancy, he noticed a deterioration in the trading activities of the shopping centre generally and in the number of customers. He adds that he was constantly receiving complaints from individual tenants and I have mentioned the pleaded contentions and the agreed facts in relation to them, in the context of the defendant's counterclaim for relief from forfeiture.

92 But an indication of the way in which matters developed from early 1997 is, in my opinion, that by April of that year Mr Sparta had drafted a letter to the plaintiff dated 29 April 1997 to be signed by various tenants complaining that since the defendant took over the lease of the supermarket, customers had been complaining about it, the number of customers patronising the shopping centre was decreasing and these other tenants had suffered "significant falls to our revenues, in some cases up to 50 per cent over the last 12 months." A number of tenants' signatures were obtained and, in addition, signatures were obtained from the proprietor of the adjoining Caltex Service Station and the medical centre on the opposite side of the shopping centre itself.

93 Ultimately, as Mr Sparta frankly conceded and his agent effectively confirmed, the decision taken by those concerned in the management of the plaintiff was that the defendant was a troublesome tenant, often in breach of different covenants in the lease, and they wished to have the tenancy terminated. They took the view, correctly I think, that the supermarket was the anchor tenant of the shopping centre and upon its capacity to draw customers to the centre, the viability of businesses of smaller, more dependent tenancies depended. As has been seen by the nature of the default notices, the plaintiff puts difficulties adversely affecting the profitability of such businesses at the door of the defendant.

94 On the other hand, Mr and Mrs Anderson contend that any downturn in business is not the fault of their management of the supermarket but more related to the limited catchment in the Marmion area where, apart from the much larger shopping centre at Karrinyup, there are a number of other shopping centres comparable to Marmion Village, or somewhat larger, which they assert, being nearby, draw customers from the Marmion Village Shopping Centre. Those discussed by the witnesses include Carine Glades, a centre nearby on Marmion Avenue, the Duncraig Shopping Centre a little further to the north, and two shopping centres a little further to the south at North Beach Plaza and Lynn Street, Trigg.

95 All this evidence was, to my mind, highly subjective. There was little in the way of hard evidence of primary fact. I was unable to draw any conclusion about the causes of movements of which the evidence spoke in the trading histories of those involved in the Marmion Village Shopping Centre. Undoubtedly, a number of the businesses were not as profitable as their owners had hoped they would be, but the causes seem to me to be highly speculative and I mention this evidence now merely because it seems convenient to do so in the context of a brief discussion of the history of the relationship between lessor and lessee. So far as it was suggested that other tenants who gave evidence could make a contribution to the allegations of breach of lease by the defendant, I must say that I found the evidence to lack utility in this regard.

96 I include in the observation as to the lack of utility the evidence of Mr Thomas, a real estate agent employed by Colliers Jardine, who has had a long association with this shopping centre, as the managing agent from 1991 to 1994 and then from June 1997. Mr Thomas gave general evidence and also referred to occasional visits to the supermarket. It was evident that he did not have a good relationship with the Andersons, both of whom he described as "consistently surly". Mr Thomas' visits to the store generally followed the receipt of complaints on various occasions since June 1997.

97 During a short period at the end of 1997 and early 1998 when the previous tenant, Mr Wilson, returned, employed to assist in the management of the supermarket, Mr Thomas said that he noticed a drop in the number of complaints but he said the number rose again when Mr and Mrs Anderson took over the management. Initially when he raised the complaints with them, he said their response was "very antagonistic". It seems that in light of that response Mr Thomas soon ceased to raise such matters with either Mr or Mrs Anderson.

98 There is no doubt that Mr Thomas encountered difficulties in dealing with other tenants, particularly in respect of the payment of rent and at times when rent reviews arose. His evidence was that since 1997, rent increases for such tenancies have been either waived by the plaintiff or substantially reduced from that which would ordinarily apply under the terms of their leases, and there have been difficulties in obtaining agreement from tenants to incur additional expenditure to fit out tenancies where the presentation of the stores was suffering by reason of age. Specific cases were referred to, but Mr Thomas' evidence about them was substantially of a hearsay character and, as I have said, little concrete evidence emerged.

99 His superior, the director of retail management at Colliers Jardine, a Ms Langson, was also called by the plaintiff. It seems that very shortly after Colliers Jardine took over the management of this property for the plaintiff, she arranged a meeting attended by Mr Sparta with a Mr Dekok of FAL. It appears that the purpose of the meeting was to see whether the plaintiff might enlist the aid of FAL in dealing with the defendant for breaches of the franchise agreement. I think that was designed to assist the plaintiff in its efforts to terminate the lease, although Mr Sparta denied that that was the case.

100 At the meeting, it was decided that the agents would check the lease to see what legal action might be instituted and it was decided that as soon as there was any late payment of rent, a default notice would be issued. Solicitors would be consulted to see if other breaches might ground default notices. The agents were to contact the Health Department to "get them to do an inspection of the premises so as to put as much pressure as we can on the lessee." They were to investigate the defendant's financial position and provide to the other tenants the opportunity to put their complaints in writing. It was undoubtedly the case that a campaign was got underway.

101 It is distasteful evidence but it does not cause me to react adversely to the plaintiff's case upon that ground. Its motivation was, I think, a genuine concern that the inadequacies of the defendant's operations were damaging the plaintiff financially. By the year 2000, Ms Langson said, she was of the view that, although FAL pronounced themselves satisfied with the functioning of the supermarket in the context of the franchise agreement, its operation continued to present inadequacies damaging the profitability of the shopping centre. I am not able to derive any assistance from that evidence but, rather, I am concerned to see to what extent the plaintiff was able to offer evidence of primary fact to support the conclusion of breach upon which its case depends.

102 I have mentioned that a number of other tenants were called. They include Mr Passmore senior and Mrs Passmore, the proprietors of the newsagency adjacent to the supermarket. Their son, Mark, was called. He operates the Australia Post office located within the newsagency. The newsagency has suffered a decline in turnover of about 20 per cent since the 1996/97 financial year. It was clear that Mr Passmore attributes that to the operation of the supermarket, but it was very evident that he was unable to offer any clear evidence to establish that fact.

103 Similarly, Mrs Passmore was in no better position. She used to shop regularly at Marmion Supa Valu but now does not do so. She says that her decision has been taken because upon some occasions, products which she particularly wanted were out of stock; pikelets that she wanted for her son's morning tea, the only brand of icecream that her husband and she eat. She purchased some bad chicken on one occasion.

104 It seems clear to me that she has developed an antipathy towards the Andersons. She thought that the store was "messy and untidy". The shelves were "often dirty". The quality of fruit and vegetables has deteriorated and her relationship with the Andersons has deteriorated to the extent that, she says, Mrs Anderson has banned her from the supermarket after an incident when she called Mrs Passmore at home because "my husband had laughed at her when she had glared at us earlier that day at the shopping centre". Mrs Passmore was banned and although she attempted to revisit the store, Mrs Anderson has insisted, she says, that she should not shop there, threatening to call the police if Mrs Passmore would not leave, saying "get out, fatso".

105 Mrs Anderson, of course, denies any such exchange. I do not know what to make of it. It seems quite extraordinary that people should behave in such a childish fashion, but, in the end, if it did occur, the way in which the matter is put to me in evidence makes it clear that Mrs Passmore entirely lacks objectivity and I would not feel comfortable to rely upon her evidence in any degree.

106 Mr Passmore junior confirmed the animosity which has developed between his family and the Andersons. He also referred to out-of-stock items which he could not buy and products which were bad when purchased. He says he ceased to shop at the supermarket in about June 2000 when the Andersons threatened him with legal action because he was gathering the names and addresses of customers who had complained to him about the supermarket when they came into the newsagency. Again, his evidence about the inadequacies of the supermarket lacked objectivity or any precision of detail. I did not find it helpful.

107 Other tenants who gave evidence included the proprietor of Quality Drycleaning, a quite large tenancy in terms of area, adjacent to the supermarket and the newsagency. This was Mrs Beardmore. I thought her to be a witness who presented a balanced outlook. Her drycleaning business does much of its work from these premises, although the shop is a retail outlet. She has other such outlets in the northern suburbs. The turnover at this particular outlet has been in decline for some time and that is not a situation she encounters at other outlets.

108 She attributes this to the fact that the supermarket does not draw customers. Its appearance is generally old and tired and it needs refurbishment. There is a lack of hygiene and produce is sold out of date. Mrs Beardmore did not detail specific instances and so I am left merely with her general impression and her conclusion that it is inadequacies in the running of the supermarket which is leading to a reduction in the profitability of her shop. Whether she is right about the cause remains for my conclusion, but there is no doubt about the genuineness of this witness and I think her evidence was reliable. It was objectively given and provides useful background material. Her concern is such that she has sought favourable treatment on rent reviews, including in March 2000, and she says that if she is to commit to a renewal of her lease, she would much prefer that her present lease for a term of years be replaced by a periodic tenancy.

109 Ms Shaw, the co-proprietor of a travel agency at the shopping centre, gave evidence. Again I found her to be an acceptable witness. She has lived in the Marmion area for many years and gave evidence of a general deterioration in the standard of the supermarket over the last five or six years. For a time she ceased to shop there because of concern about the freshness of produce and the incapacity always to be able to purchase all that she wished.

110 Nonetheless, she and her partner took a three-year lease of the travel agency some two years ago. She then recommenced doing her shopping at Supa Valu, Marmion. She said she was surprised at the extent of the further deterioration which had occurred since she had previously shopped there. Again, the evidence lacked precision, but I accept it as background evidence, generally describing accurately Ms Shaw's subjective impressions of the supermarket.

111 The plaintiff called the previous proprietor of the supermarket, Mr Wilson. He and his wife owned the business from 1986 until 1994. I have mentioned at the outset of these reasons the history of the lease since 1992 and the circumstances of the sale of the business to the defendant at the beginning of 1995. Mr Wilson was again employed in the business to assist with its management generally and particularly to assist with the grocery department, from August 1997 until his resignation in January 1998. Mr and Mrs Anderson said they were moved to take that course, not only to have the expert assistance, but also because they thought that Mr Wilson might improve their capacity to deal with the plaintiff.

112 In the end I concluded that it would be unsafe to place much reliance upon the evidence of this witness. He said that he was employed by Mr Anderson who told Mr Wilson that because of his inexperience, the supermarket had become run down. He asked Wilson to help "get it back on track." However, Mr Wilson said that from about December 1997, he had increasing difficulty with Mr Anderson "because of his mood swings and his irrational behaviour and attitude." He was happy then, he said, when the opportunity to manage another supermarket came in January 1998, to tender his resignation and take the new position.

113 Needless to say, Mr Anderson denies the statement attributed to him when Wilson was employed, and having regard to my impression of Mr Anderson's character, I would think it to be most unlikely that he would make any such confession to Mr Wilson, who seemed to me to take pleasure from the contrast between what he perceived to be his capacities as a supermarket manager and those of the Andersons. He said he was told "by literally dozens of people" who were customers of the supermarket and had been during his time, how pleased they were that he was back. He added that nearly all of the other tenants of the shopping centre expressed the same view. No doubt such statements were made to him, but I would draw no conclusion that they reflected anything other than polite friendliness.

114 I do not accept that Mr and Mrs Anderson relinquished the management of the supermarket to Wilson as he says and I have reservations about his evidence, unsupported by any detail, that stock levels were down considerably, there were many out-of-code items on the shelves, the general cleanliness of the store had deteriorated, the staff were not properly trained and there was a rodent infestation. I note, however, that Wilson's evidence was that he discussed these matters with Anderson and implemented changes to address these problems, including the eradication of the rodents. He says he improved many operational functions of the supermarket and when he left after having been there five months "there was a substantial improvement in the way the supermarket was being run." Its turnover had substantially increased.

115 I note that these substantial improvements, if they occurred, contrary to the other evidence before me, took place well before the issue of the default notices upon which the plaintiff relies. If this was accurate evidence resulting in the marked improvement in turnover of which Wilson spoke, I could not imagine that Mr Anderson would carelessly let the operation of the supermarket drift back into a state of much reduced profitability, having regard to my assessment of his character, and I certainly do not think that Mrs Anderson, who struck me as being very genuine in her efforts in respect of the management of the supermarket, would have failed to keep staff members up to the mark which Wilson in such a short time had shown that it was possible to achieve.

116 The plaintiff called two former employees of the supermarket. They were young women. A Ms Grafton had worked at the store from about August 1997 until 24 December 2000. Her period of employment therefore included at its start the period of Mr Wilson's employment. She was 14 when she started and this was a casual job while she was at school. Her evidence-in-chief was quite detailed. It was concerned particularly with her employment on Sundays when she rose to the position of store supervisor. It seems to me that she must have been a valued and trusted employee to be allowed to occupy such a position so young, but her demeanour while giving evidence was overtly hostile towards the Andersons. The reason for that attitude did not emerge.

117 This witness's evidence-in-chief described no change in the operation of the store during her period of involvement with it. Certainly she gave no evidence of any contribution to its management by Mr Wilson. She said Mr Anderson was rarely there and Mrs Anderson gave little guidance. If her evidence-in-chief was accepted at face value, it conveyed a very bad impression about the running of the supermarket. She said there were no cleaning routines. When the meat fridges were cleaned on Sundays, there was always dried blood, flies and bugs which had to be scraped off in the presence of customers. If the meat fridges were not cleaned on Sunday, they would stay in an unclean state all week until someone got a chance to clean them on the following Sunday.

118 There was frequent trouble with the freezers which defrosted and then did not turn on again. There was always evidence of rats having eaten the bread. Gnawed loaves or bakery products were removed but some were obviously missed and customers would return loaves which presented evidence that they had been gnawed by rats. She was given no guidance by Mr Anderson as to ordering stock. On every Sunday customers returned produce which was bad, eg, meat which smelled bad or looked green, fruit and vegetables which were rotten. Sometimes when she culled through the green grocery section and removed unsaleable stock, Mr Anderson would go through what she had done and tell her that much of it was still fit for sale. The wearing of uniforms was not enforced.

119 However, when cross-examined, Ms Grafton presented a rather different picture. She agreed it was her responsibility on Sunday to do, as she was instructed, the work of cleaning the fruit and vegetable displays and the meat cabinet, cleaning shelves before replacing stock, attending to ticketing, cleaning the checkouts, the bulk food displays and any spillages in the dairy department. She knew that if the freezer broke down, she should contact Mr Anderson or Mr Snape, the dairy manager. Mr Snape would come to the store and fix the refrigerator. He would instruct the removal of stock from it, the transfer of that stock to the freezer room at the rear of the store and its replacement in the refrigerator in the store when it was repaired. She said there had been a problem with rats over one period in the second half of 2000. She always wore a uniform and name badge as Mrs Anderson had instructed she should. Having regard to the whole of her evidence, I was not prepared to accept at face value the evidence-in-chief contained in her written statement.

120 The other such employee who was called was a Ms Ritchie. She also was a casual employee during her time at school, from June 1998 until October 2000. When she came to give evidence, she was a trainee teacher attending Edith Cowan University. She had principally worked Tuesday and Saturday afternoons, often in the delicatessen but also operating checkouts and stocking shelves. She spoke of complaints about meat being off or of poor quality, of noticing dairy stock out of date, of problems with goods becoming unfrozen when the fridges shut down, and about a problem with rats in the store during the period of her employment. Over that period, which, having regard to a break in her employment, was about two years, she spoke of three occasions when customers returned loaves of bread with holes gnawed in them. She said there was no cleaning routine in the store, but it seemed clear that she accepted that the cleaning was to be done when shelves were stocked or whenever it was quiet. Occasionally, she said, "some guy came in to polish the floor." She said there were continual problems having enough stock of advertised special items and a lack of variety. Although uniforms were issued, the wearing of uniforms was not strictly enforced.

121 I felt this witness gave her evidence in a more acceptable fashion than did Ms Grafton. I would accept that it was generally descriptive of problems encountered by the witness from time to time but, again, the nature of this evidence makes it impossible to have regard to it as other than general background concerned with the period of her employment which, of course, does include the time of the notice of default and the period following the issue of the notice. Viewed as such, I think this evidence gives me a very incomplete picture of the operation of the store at any given time and it is, of course, as is the case with the evidence of Mr Wilson and Ms Grafton and other evidence which I have reviewed above, not specifically relied upon by the plaintiff in support of the allegations of breach of the lease.

122 I turn then to specific and detailed evidence upon which the plaintiff does place reliance. It should be considered against the background of the size of the supermarket, as to which the best evidence was that given by Mr Tate, the manager of retail services with FAL, who was called by the defendant. I shall return to his evidence later, but he described this as an average sort of Supa Valu supermarket which would carry about 10,000 lines of stock. Mr Powell, the inspector who gave evidence for the plaintiff, thought that at the time of his inspections the store may have carried up to 8,000 lines of stock. The one detailed stocktake performed by the defendant would show that at any given time within those lines there would be a total of up to 100,000 different items for sale. The range of stock on offer is, of course, a different matter and not directly relevant to an evaluation of the various reports. I have previously referred to the difference between the range of stock, lines of stock and individual items of stock and I need not explain again the terminology used.

123 Mr Tate said that at any given time one would expect that about five per cent of the total products supplied to its franchisees by FAL would be out of stock. In the case of a store of this size, that would therefore translate to a total of 400-500 lines storewide. Various factors would affect the number of lines one might expect to find out of stock. They would include the frequency of ordering, and in the case of this store, orders were placed three times a week with FAL. Another factor contributing to products being out of stock would be the accuracy of the predictions of demand made when the orders were placed. This is a question of the experience of those placing the orders, in this case those in charge of the various departments who would place the orders directly as required, utilising the relevant computer programme operated by the supermarket. Further, a contribution might be made by FAL if it was incapable of supplying the order placed by the store. That occurred from time to time across the whole range of products and it was something which might occur with other suppliers with whom the supermarket dealt, because it was not restricted to taking goods solely from FAL.

124 It is when one tries to take that general evidence, which would lead to a conclusion that one might at any time, without attributing fault to the management and staff of the supermarket, expect between 400 and 500 lines out of stock, and attempts to break it down into the various departments that major difficulties arise. The most detailed evidence about this was given by Mr Powell. He said that in the general grocery section one might expect 100 lines out of stock at any given time. Mrs Anderson thought that might be right. Mr Powell said that the out-of-stock lines in the dairy section might acceptably be about 25. Mr Snape, the very experienced manager of that section, thought that was generally acceptable although clearly he thought that there might be variations upon that number reflecting particular crises of supply which it was beyond his power as dairy manager to rectify or prevent. The number of unavailable lines could increase to 60 or more. The general merchandise section was stocked and, effectively, operated by FAL. Their merchandiser, Mrs Gallagher, gave evidence. She thought the figure of about 20 lines out of stock might be right.

125 As I understand it, the frozen foods cabinets are maintained as part of the dairy section. One could not imagine that the fruit and vegetable department would contribute a great number of out-of-stock lines at any given time, or that the butcher's department, delicatessen and bulk foods sections would make a very substantial contribution.

126 There appears to be no trade standard against which to measure the problem of lines out of stock, but for this store, having regard to its type and size, and accepting generally the evidence given by Mr Tate, I would struggle, I think, to reconcile Mr Powell's evidence about the number of lines out of stock which might at any given time be acceptable from a commercial retailing point of view with that given by Mr Tate. Being as generous as I might, I would struggle to get a total acceptable storewide out-of-stock component much above half that which Mr Tate accepted might be encountered without attributing fault to the management and staff of the supermarket.

127 The point is, I think, that the evidence would not permit me to draw firm conclusions in this regard, or to take the matter much further than the general proposition that where a supermarket advertises, either externally or by tickets on the shelves, the availability of a particular line of stock, it is undesirable that it should not be available for purchase. I accept that customers often have very particular preferences (the evidence of Mrs Passmore is a classic example) and customers may be angered by the unavailability of a product which they particularly enjoy and have their hearts set on purchasing. An undue number of "holes" in the display on the shelves is therefore to be avoided even if equally acceptable alternative lines are available. However, where there are lines out of stock, it seems to me that I am unable to conclude simply from the number, without knowing more about the reasons for the lines out of stock, that fault is to be attributed to the defendant, particularly in the context of an alleged breach of cl 9.02 of the lease.

128 Mr Markey reported on the store after visits on 15 February, 17 February and 30 April 2000. He did not give evidence. He was the person whose reports were admitted by consent. He reported adversely on lack of visible management, damaged floor tiles, chipped wood and paint, staff not in uniform, poor presentation of the meat department, second grade fruit and vegetables with rotten fruit and old vegetables left on display. He reported that the delicatessen department was a "disaster" with cleanliness and standards of hygiene "very poor". The bulk foods department was dirty. The dairy department had many products out of code still on display. There was no evidence of regular cleaning. The grocery department had around 40 lines of stock unavailable. The general merchandising appeared to him to be unprofessional and dirty. The meat department displayed product which was out of date and unappetising. The subjective nature of the appraisal is clear enough but, speaking generally, I would accept these as accurate observations for the days in question.

129 The plaintiff called a Mr Horton, a licensed inquiry agent, investigator and forensic consultant. Mr Horton is a retired chief superintendent of police and a former officer-in-charge of the forensic branch of the police force. He has particular expertise in photography. He was engaged by the plaintiff to visit the supermarket, make his observations and record them by video camera. He did this in a clandestine manner. His evidence establishes that he visited the store on 11 May 2000, 13 May, 11 June, 24 June, 25 June, 27 June, 1 October and 23 December 2000. He produced a video in respect of about half of those visits which, it can be seen, straddled the period in the early part of June 2000 relevant to the alleged breaches.

130 The video tendered in evidence as exhibit A498 records events of 11 May 2000 and displays fruit purchased then, in a portion of the video made on 12 May 2000. In addition, there is a video of the store taken on 25 June 2000, 27 June 2000 and 1 October 2000. The latter video records on 2 October 2000 videoed evidence of two items of packed meat purchased on the previous day, the "use by" date of which was 26 September 2000.

131 I have viewed the video. It is, I think, instructive although it is difficult to see the detail of the state of cleanliness of the supermarket. Speaking generally, it is perfectly clear that on each day the camera records parts of the shelves where advertised product is entirely out of stock or the amount of stock of particular lines is thin. It is, of course, not possible from this evidence to draw any firm conclusions about the ordering and stocking practices of the defendant.

132 The video shows, so far as one can see, that the state of cleanliness of the premises appears generally acceptable. No particular problems are readily visible on the video. There is a lack of tidiness in some areas of the display of stock, and the fruit and vegetable section shows stock which is unappetizing in appearance. The video shows that the fruit purchased on 11 May 2000, when examined in detail on 12 May, was of very poor quality, bruised, marked, soft and, I would have thought, of an unacceptable standard. There are loose floor tiles and missing floor tiles visible in the area of the delicatessen. One can see that decorative canvas awnings over the delicatessen and butcher's sections look grubby. No particular problem appears visible with respect to the cleanliness of refrigerators in the dairy section but in some cases there is evident lack of stock. Mr Horton said seals on freezer cabinets were ineffective and required repair. That is not evident from the video.

133 In broad terms, Mr Horton's evidence may be summarised as being that on the occasions of his visits, he was concerned about the general cleanliness of the supermarket, its appearance, the freshness of fruit and vegetables and what appeared to him to be lack of maintenance. By way of contrast, on his last visit, towards the end of December 2000, Mr Horton recorded a much more favourable view of the store and he said that considerable improvement had been made to it in the areas which had attracted his concern on previous occasions. I accept his evidence.

134 The plaintiff relied very heavily on the evidence of Mr Powell, to whom I have previously referred. I accept his evidence by and large, although not in its entirety. For example, like the defendant, I have a little difficulty in accepting as entirely accurate his statement that on his various inspections in the grocery department, there were hundreds of product lines advertised on the shelves with no corresponding product available. He did not ever make a complete record of which lines they were and in the balance of the store there were very few lines out of stock. Nonetheless, I am prepared to accept that on particular days there were relatively large numbers of lines out of stock.

135 Mr Powell operates his own business as an inspector and adviser in the business of retailing by supermarket. He has some 23 years' retailing experience, both in the UK and in Australia. He has worked in various capacities and particularly in managerial capacities in supermarkets of varying sizes, although principally in larger stores. His wide experience made him a valuable witness, and of all the witnesses called by the plaintiff, he made the greatest effort to record his observations with precision and in detail. I will not review this evidence in the detail in which it was presented. I will content myself with a summary of its general effect.

136 It will have been noticed that the specific particulars of the default notice of 8 June 2000 in respect of 15 February, 17 February and 30 April are drawn from the reports of Mr Markey. As to 11 May, the observations of Mr Horton are relied upon.

137 Mr Powell's first inspection was carried out on the morning of 27 May over a period of just over an hour. Mr Powell thought that the store looked extremely dirty outside. Inside he had to search for a shopping basket. In the grocery department, he recorded 322 lines not available to purchase. In addition, he was critical of the presentation of stock and he considered that about 75 per cent of the shelving required thorough cleaning, as he thought did the dairy department, noting that the lack of cleanliness was so great that some areas of the milk shelving had mould growing on them. He noted some out-of-code prepacked cold meats. Generally, he considered that the fruit and vegetable department was very badly presented, rotten potatoes, some with mould growing on them, other rotten vegetables, overripe splitting tomatoes, no bananas, browning cauliflowers, overripe and rotten pears, yellow brussel sprouts, etcetera.

138 He considered there was a lack of cleanliness in the delicatessen. The seals of the cold meat cabinet required replacement. He expressed the same view about the fresh salad cabinet and he was critical of the way in which bread rolls were presented. He criticised the running of the butcher's shop. He was unimpressed by the general merchandise section. The checkouts he thought needed cleaning and tidying and the only section given a tick of approval was the bulk food department.

139 Following the issue of the notice of default, Mr Powell next visited the store on 10 June 2000, at about the same time of the morning and for about the same period. His observations were little different from the earlier visit. Indeed, he thought that there were more lines out of stock in the grocery department, a total of 346, with 83 lines out of stock in the dairy department. Again, the fresh produce department was in an appalling state according to the observations of Mr Powell. Nothing appeared to have been done in the delicatessen department with respect to the cold meats and salads cabinets and, speaking generally, it appeared that little had changed.

140 The next visit was on Saturday, 24 June 2000, again at about the same time of the morning and for the same period of slightly over an hour. By this time, of course, the 14-day period allowed for amendment of the breaches specified in the notice of default had expired but nothing seemed to have been done. Again there was a very substantial number of lines not available to purchase in the grocery department and, again, Mr Powell thought that about 75 per cent of the shelving required thorough cleaning. He said 46 lines of stock were not available to purchase in the dairy department and again he noted mould growing in the milk shelving of the refrigeration cabinets. Little improvement appeared to have occurred in the fruit and vegetable section. The points of complaint about the delicatessen department were the same and Mr Powell had the same criticisms of the butcher's shop.

141 If anything, the situation was worse on the following day, a Sunday. For example, the total of 424 lines out of stock in the grocery department had grown to 462, and in the dairy department the total of 46 lines out of stock had grown to 58. Mr Powell's report records his view that the store looked worse than on the previous day.

142 Two days later, on Tuesday, 27 June 2000, Mr Powell visited again. It was his fifth visit. The store was in the worst condition, he thought, of any of his visits, displaying no improvement in respect of matters of cleanliness, out of stock lines, the quality of fresh foods and its general appearance. Indeed, in the grocery department, the total of lines out of stock had, according to Mr Powell's count, grown to 512.

143 Mr Powell continued to make his visits. His next attendance was on 17 September. Little appeared to have changed. That remained the case when he visited on 7 October 2000. That was the first visit upon which, in the grocery department, he noted 392 lines not available to purchase and recorded a list of 100 of them. On 12 November the store had not improved. It was the same on 3 December and on 30 December 2000, although it will be recalled that on 23 December 2000, Mr Horton thought there was a substantial improvement.

144 Although I think on no occasion upon which Mr Powell visited in 2000 did he think the store would have passed muster according to his standards, I detect in his reports of 15 February, 27 March, 5 May and 20 June 2001 a reference to some changes for the better. His evidence stopped at that point.

145 That improvement occurred in 2001 Mr Powell accepted, and to that effect also is the report in evidence which was provided by an organisation called "Shopper Anonymous" as a result of a visit to the store on the afternoon of 15 March 2001. Again, this was a document admitted into evidence without its author being called to speak to it. However, this is a glowing report. It presents the store as being efficiently operated, well stocked, staffed with friendly and effective people, clean and well presented. The contrast between this report and those of Mr Powell on 15 February and 27 March 2001 is profound.

146 It suggests to me that the tone of reports by competent reviewers might vary because of a difference in their approach. It is no doubt the case that by this time Mr Powell, despite his protestations to the contrary, had a thoroughly jaundiced view, made worse by the fact that he was looking for fault and imperfections. On the other hand, the Shopper Anonymous reviewer, whoever he or she may have been, may have been too ready to overlook imperfections, although it has to be said that the report is very comprehensive and covers such matters as cleanliness, staff availability, the competence of staff, the range of products, products out of stock and presentation.

147 However, on that part of the evidence for the plaintiff which I accept, it seems to me that I must conclude that the presentation, running , cleanliness and stocking of the defendant's supermarket was below standard in the early part of the year 2000 and up to and including the period in June of that year when the default notice was issued and during which amendments and improvements might have been expected to have been made. On the plaintiff's evidence, I would conclude that by the end of 2000 and through the early part of 2001, the situation was much improved.

148 I turn next to the particular body of evidence which is comprised of local government reports by the Health Department of the City of Joondalup and its predecessor, the City of Wanneroo. They date from February 1995 to the middle of 2001. As I have said, they record complaints, but no person who was a complainant was called to give evidence. They relate to visits by inspectors, but no inspector was called to give evidence. There was no objection to the admission of these reports in evidence and, as I have mentioned, the reports would, in my opinion, have been admissible under s 79C of the Evidence Act.

149 I have made the general observation that I would not be prepared to draw conclusions adverse to the defendant based on those reports having regard to their hearsay character, but it must be said that they at least assist me to conclude that the evidence of those who appeared as witnesses for the plaintiff may be taken to be generally reliable having regard to the sort of complaints being dealt with by the relevant local government.

150 Some of the reports respond to customer complaints concerned with cleanliness and the quality of fresh produce purchased at the supermarket. In that case there is a report of a visit to the supermarket by a health inspector and of the recommendations made. On occasions the produce was subjected to analysis to determine whether or not the food was of the quality which the Australian Food Standards Code required. Other reports appear to result from routine inspections of the store by health officers. In some cases, complaints were in respect of matters not relevant to these proceedings, eg, a piece of glass in a muffin.

151 I should not give a false impression about this material. There were actually very few complaints investigated by local government over the years. The majority of the documents were records of routine inspections. As I say, they were concerned with matters relating to health and hygiene. If they are assumed to be the result of a storewide inspection of a comprehensive kind, then it is to be borne in mind that they are not generally critical of the store as a whole but naturally concentrate on the cleanliness of parts of the store concerned with the storage, display for sale and handling of fresh produce, or refrigerated produce, and the reports often comment on, and suggest improvements to, food handling procedures. They are not directed to recording areas of the operation of the store which were, in the opinion of the inspectors, satisfactory. Indeed, thus far, as I have discussed the evidence, the only report which is designed to give a complete snapshot of the store on any given occasion was the report by Shopper Anonymous.

152 Further, it should not be assumed that in every case where there was a falling short, in the opinion of the inspectors, of appropriate standards, that fault should be attributed to the management and staff of the supermarket, eg, on 6 January 1998 a range of dairy goods were seized and destroyed because they were unfit for human consumption as a result of a breakdown in a refrigerator. Finally, in this regard there is no evidence before me to suggest that in every case where food purchased or displayed for sale was found to be unfit for human consumption, where there had not been equipment breakdown, the cause was human error, or the failure to follow appropriate handling and storage procedures.

153 As to events more contemporaneous with the default notice issued on 8 June 2000, there is a letter from an environmental health officer of the City of Joondalup dated 12 May 2000 but which I think was probably written on 12 June 2000. It concerns a complaint received on 26 May 2000 and an inspection carried out by the health officer on 30 May 2000. The complaint was in relation to items purchased which were past the useby date. They appear to have been packaged cold meats, a packet of chocolate custard and eggs. I assume that they were purchased by the customer on 26 May, but I am puzzled about it because the tax invoice for that date and one for an item purchased on 25 May, shows no other items purchased. If that is a correct interpretation of the documents, it would appear that the customer has searched out and deliberately purchased only those items found to be past the use-by date so as to ground the complaint to the City of Joondalup. The complainant's identity is not revealed.

154 The letter from the City to Mr and Mrs Anderson says that the inspection carried out by the health officer "revealed only a few items were past the use-by-date and they were removed from the shelves immediately". The report shows that, presumably in the dairy area, on 30 May 2000, there were only eight items in two lines, one of pepperoni and one of sliced sandwich ham, which were out of code.

155 The inspection carried out on this day appears to have been of a more general character because there is one further adverse comment, a general note that the "back area shop (exterior) needs to be enclosed to prevent entry of rodents". It is noticeable that there was no evidence of vermin actually having entered the store. There is no reference to any such problem in previous reports of inspections which appear to have been made on 27 March 2000 and 14 April 2000. They simply relate to matters of internal cleanliness and food handling. Unusually, the report directed to Mrs Anderson on 14 April 2000 concludes, "Good to see working on items from last report, keep it up." - one of those rare notes of encouragement or approval to which I have previously referred.

156 A subsequent complaint relevant to this area appears to have been made on 12 June 2000 by a Mr Valenti who, it seems, told the health inspector that his wife had bought muffins last week and had noticed "some had bits missing as if nibbled". He said that he had been to the shop and the staff had made comments about rat problems out the back. I have reviewed evidence about this given by Ms Grafton and Ms Ritchie, which I did not find to be persuasive. Mr Valenti had not kept the muffins. On the following day, the matter was drawn to the attention of a person described in the reports as the proprietor of the store, who apparently said he or she was aware of the problem and was taking measures to prevent the entry of vermin by laying baits "to control those possibly entering."

157 On the following day, the health inspector told Mr Sparta about it and advised him to ensure that vacant shops were not harbouring vermin and informed him that, generally, he would need to take measures to control vermin in the shopping centre. That was followed up on 30 June with a letter to Mr and Mrs Anderson expressing concern that the hole in the wall at the rear of the store had not been sealed, noting that while the relevant food hygiene regulations placed the onus upon the proprietor of the premises, the inspector had been told that the Andersons' attitude was that under the lease the owner of the property was responsible to make structural changes to the building.

158 However, I accept Mr Anderson's evidence that after this matter was raised and he had discussions with the local government, he organised a remedy. He explained that the hole was there when the defendant came into possession of the store. Although the room in question was then a storeroom, it appears that it may have been put to a different use in the past and the hole was to allow ventilation for some plant. When the defendant came into possession, there was a piece of metal placed flush against the wall to cover the opening, but according to Mr Anderson this was not satisfactory to the City of Joondalup and with their approval, he fitted a galvanised iron covering externally.

159 Mr and Mrs Anderson said that there has been an occasional problem, particularly with mice which sometimes get in with deliveries of fruit and vegetables and other produce. Generally speaking, they have always taken measures for pest control and for some time now they have used a commercial organisation of pest controllers who visit regularly "to check for any potential problems." Mrs Anderson said that at about the time of the investigation by the City of Joondalup and the default notice in June 2000, there was a problem with rodents in the store and the shopping centre generally. She attributed that to the demolition of the nearby Castle Hotel, but there is no evidence about this one way or the other. In short, there is, in my view, insufficient evidence of any failure to keep the shop free and clear of vermin, in the context of cl 5.06 of the lease.

160 The plaintiff relies upon a number of documents discovered by the defendant or produced by FAL on subpoena. They are documents concerned with inspections of the supermarket by FAL officers. It would be difficult to know quite what to make of them without the assistance of some expert evidence. That was, to a degree, provided by a Mr Tate, a senior officer with FAL called by the defendant, to whose evidence I shall turn shortly. The documents are obviously, in many cases, incomplete. They span a period from 7 August 1995 to 16 May 2001. Sometimes when they appear to record an inspection visit on a particular date, there is only a reference to one department upon a report form which on other occasions forms part of an overall store appraisal.

161 In a number of cases helpful suggestions are made, very often with respect to cleaning programmes. I use that as an example because often where that occurs, it is not possible to discern with clarity why the comment was made, whether it reflected the fact there was no cleaning programme of any description, or merely that on the particular occasion of the inspector's visit, a particular department was seen to need some cleaning and therefore the recommendation that the programme be implemented in respect of that department was made. The difference in the significance of the two scenarios for my purposes will be self-evident.

162 Documents which appear to record a more complete storewide appraisal commence with those concerning 7 August 1995. They are obviously thorough and detailed. Particular points or items in respect of particular departments and areas of the store are rated from 0 to 5. A score of 0 means that the question is not applicable to the particular store but, nonetheless, that score would obviously depress the overall rating. Then the ratings run from totally unsatisfactory to unsatisfactory to satisfactory to good and, finally, an excellent evaluation will result in a score of 5 in respect of particular departments or aspects of the store. These are then totalled and a formula is applied to give a percentage value which reflects a certain weighting. For example, the evaluation of trolleys and baskets is given a value of a maximum of 5 per cent of the total evaluation for the store. On this occasion, at a time relatively early in the defendant's tenancy, it scored 74.45 per cent. That seemed to me to be a high rating and Mr Tate's evidence confirmed that that would be so. He said that the maximum a Supa Valu store could score (presumably having regard to the depressing effect of inapplicable items where no score could be recorded) was 86 per cent.

163 After a while, this form of evaluation seems to disappear and there are a number of documents on file which are described as "assist lists", containing action plans and specifying completion dates. Again, it is difficult to make much use of these documents without the assistance of evidence by their authors but, for example, a relatively complete set of documents appears to be those related to 23 October 1996. They end with the general observation made by the inspector, a Mr Stevenson:

"The above comments are assist lists to bring you up to standard. In order to remain in the Supa Valu group the above recommendations are to be adhered to, to maintain a reasonable marketing image as a group. Prior to approval of changeover of the new signage, a follow up visit will take place within the next 2 weeks."

That does not appear to have taken place but the next document records a visit to the store by a different inspector on 20 December 1996 which records as its conclusion:

"Vast improvement on last visit. Fix the above and keep culling some of the slow moving lines so that all produce meets specification."

164 The next, apparently complete storewide appraisal, again conducted by Mr Stevenson, but it would seem with assistance from others, is in respect of a visit to the store on 26 February 1998. This is a much less satisfactory report. The particular comments and appraisals would appear to reflect a general worsening of standards, of cleanliness, stocking and management. The overall score is shown as just over 63 per cent. The supporting documents are a mixture of weighted appraisal forms with comments, using a score of 1 which is poor, 2 which is satisfactory and 3 which is good, and documents of the assist list/action plan variety. I need not review this material in detail. It is sufficient, I think, to say that it records the full variety of concerns of the types relied upon in the later default notice period and store managers reading these documents should have concluded that considerable improvement in the standards of cleanliness, stock management and the processes of the store generally needed to be made. There appeared to have been reviews of particular departments on 12 and 16 March 1998, the results being in some cases unsatisfactory, and in others indicating that improvements had been made.

165 Then the documents move forward over a year and on 21 April 1999, Mr Stevenson records his view that a failure to support sales promotions with five products in the grocery section, a failure to show that some biscuits were on special and the failure to have one special line in stock, needed to be rectified immediately. Any further such occurrence, Mr Stevenson said, would be considered a breach of the franchise agreement as a failure to fully support all externally advertised and in-store promotions of the Supa Valu group by displaying and having adequate stock for sale to the public at the premises in respect of all products which may be included in any advertising scheme or campaign. As I say, I did not hear from Mr Stevenson and I really have no way of concluding whether such a bold statement may have been justified. Mr Tate described Mr Stevenson as a highly experienced inspector of FAL with particular responsibility for the Supa Valu group, but he also regarded the comments mentioned above, when they were put to him, as "unusual".

166 Mr Stevenson also made a storewide appraisal on 21 April 1999 which I would have thought would offer cause for concern, particularly in relation to cleanliness as well as stock management procedures, and particularly concerning the fruit and vegetable section, the delicatessen, the grocery and dairy departments. The store scored just under 68 per cent. The form indicates that a rating of 75 per cent was average; 85 per cent would be good and 90 per cent or more would be excellent.

167 Unfortunately, there is nothing of this degree of completeness contemporaneously with the crucial period in June 2000 to which the default notice relates. On 11 July 2000, an officer from FAL apparently inspected the fresh produce or fruit and vegetable department and said that he was "very concerned with the poor quality on show". He gave examples which I would have thought would amply support his concern. The meat department appears, from the records, to have been inspected on or about 17 July and again there are a number of points of concern, although the form is couched in terms which make it difficult to evaluate the extent to which particular aspects of cleaning and food handling and preparation fell short of what would be regarded as an acceptable standard.

168 The next complete report is about two years after that of 21 April 1999. It is dated 16 May 2001 and, again, the documentation was prepared by Mr Stevenson. It is an appraisal done in the standard format. Considerable detail of instruction and guidance is offered. In some cases it is evident that there is still a falling short of standards which might be regarded as good, although in many areas of the operation of the store, the comments are such as to indicate that a satisfactory performance is being achieved. Ultimately, in summary, the target is said to be 85 per cent which it will be recalled from the previous occasion was said to record a good standard overall. A direct comparison is made with the last appraisal and although in some departments and areas of the store, the comments are such as to suggest that improvements have occurred over the two-year period, the overall percentage score was relatively unchanged at just over 67 per cent, whereas on the previous occasion it was just under 68.

169 What then is to be made of this evidence? As I have noted, it would, I think, have been much more valuable to have had direct evidence from Mr Stevenson in particular. Secondly, it does not directly support the allegations made in the default notice but it is evidence which bears on the performance of the store over a period of time and rather suggests, contrary to the conclusion which I would be inclined to draw from other inspection evidence, that the performance standards of the store have not improved between about mid-1999 and mid-2001.

170 I turn against that background to the evidence of Mr Tate who was called by the defendant. He is the manager of retail services at FAL. Of all the witnesses in the case, he seems to me to be the most experienced in the retail grocery industry, having started at the bottom, so to speak, as a shop assistant and stock hand with Woolworths in 1966. His experience, however, is of a steady upward progression to more and more senior positions involving particular responsibilities in diverse areas of the retail trade. I was comfortable with the manner in which he gave his evidence. He seemed to me to be entirely without bias against the interests of the plaintiff or the defendant. He has continued to study and gain experience and qualifications throughout his career. In 1999, he became a diplomate in retail studies at Monash University.

171 As manager of retail services, he is involved with the operations of both the Action stores which, as I understand it, are run by FAL, and of independent grocery stores which are operated by their owners under franchise agreements with FAL. His section is responsible for maintaining high standards in those franchise groups; principally Dewson stores, Foodland stores, Supa Valu stores and Four Square stores. The particular franchise grouping into which a store falls is dependent upon criteria, the main one of which is the size of the store, both in area and with respect to the range of stock carried by the store and the types of retail trade which it offers, eg, a Dewson's store must have an on-site butcher shop; Supa Value stores need not.

172 The franchise agreement enables FAL to exert a considerable influence over the mode of operation of stores. FAL will be the principal supplier of produce but franchised supermarkets will almost certainly take produce from other suppliers. FAL conducts the major advertising effort for its stores, including particular promotional campaigns. It advises and instructs in relation to standards of cleanliness, store presentation, layout, marketing techniques and stock control, including, as in the case of the defendant, electronic ordering and reordering of stock. It exerts a direct influence on the control of the quality of stock offered and may advise upon and control the financial arrangements of particular stores and their management standards.

173 Under the franchise agreement, the franchisee has direct obligations. Those of particular relevance in this case include the maintenance of an adequate range of stock and the availability of items of stock within the lines that go to make up that range, the maintenance of appropriate standards of cleanliness and hygiene, and the maintenance of appropriate standards of quality and presentation in respect of the produce offered for sale. As part of that process of control and advice, the franchisee is obliged to ensure that its staff are appropriately trained, often by FAL itself, and provide a high quality of customer service. Not directly relevant to this case, but to be noted in any event, is the fact that the ultimate weapon available to FAL is to terminate the franchise agreement, a measure taken with respect to about four stores by FAL over the last two years. Short of that, FAL will use threats to terminate the franchise agreement as a "wake-up call". In this case, such action has been taken principally with respect to the store's payment record in respect of the goods supplied by FAL. Mr Tate said that in his experience the management of the defendant has responded positively to any suggestion made to them.

174 So far as the defendant store in particular was concerned, Mr Tate said that the steadily falling customer counts since the 1991/92 financial year may reflect increasing competition in the area rather than deficiencies in the management of the store and its operation. I am really unable to say whether that may be so on the evidence, although Mr Tate did agree that the competition from nearby supermarkets, and the relatively small target population of shoppers available to the store, might be having an impact.

175 In addition, I am inclined to accept Mr Tate's evidence that, in effect, shopping patterns have changed over recent years. There is now not the tendency to do one weekly shopping visit to a local supermarket. Rather, a substantial weekly shopping visit will be supplemented by a number of visits to the supermarket during the week for extra items and the like. A major shopping visit is more likely to be made to the major shopping centre, in this case it would be to Karrinyup, and FAL's franchised stores are more likely to be used for convenience shopping than large weekly shopping. There will be other factors at work of course. Whilst Mr Tate agreed that the supermarket would be the main drawcard to any shopping centre, it was important, he said, to have an appropriate mix of other stores in the shopping centre. Any vacancies would have an adverse impact although these smaller franchised supermarkets offer the convenience of all week extended trading hours. Mr Tate illustrated the point by saying that at a Dewson's store, the average amount spent per customer per visit was approximately $24. In the smaller Supa Valu store, the average amount spent per customer per visit was approximately $14.

176 The point of all this, in my opinion, is that I may not draw any conclusion adverse to the defendant in relation to the matters of default relied upon by the plaintiff merely from reduced profitability and reducing customer counts in the supermarket over the years. There is no capacity to convert a conclusion that the turnover is falling into a conclusion that customers are being increasingly turned away by failures of management and those involved in the running of the store generally to meet appropriate standards of cleanliness, stock quality and control, and trading expertise. Other causes are likely to be at work which are beyond the influence of the supermarket to control. It follows that falling revenues and reduced profitability in other tenants of the shopping centre may be thought to be, but cannot be established to be, the consequence of failures in the management of the supermarket by Mr and Mrs Anderson.

177 Mr Tate was familiar with the reports in relation to this store, although he had not himself been involved in any detailed appraisal of the store on any occasion. He had visited the store on a number of occasions, but he described his visits as superficial in the sense that they were adequate to give him an overall impression or an overview of the store and its operation, rather than being in depth inspections of the type conducted by Mr Stevenson.

178 Nonetheless, Mr Tate said, and having regard to his experience and my favourable impression of him as a witness, I accept, that the tenor of the reports in respect of this store was similar to reports in relation to the average Supa Valu store. He commenced to receive complaints about the store from about mid 1998. They were complaints generated by the plaintiff. He began to visit the store from about that time and from then until about 15 June 2001, the last of his visits, he visited the store on probably a dozen occasions. The purpose of those visits was to gather an impression of the store for himself and although Mr Tate described his inspections as "superficial", I note that he specifically looked at cleanliness, the freshness of vegetable produce, stock levels and the like. It has to be said that Mr Tate expressed the opinion that whilst operated by the defendant, the store was in a better condition than when operated by the previous proprietor. He expressed the view that the store has "consistently improved in all aspects of its operation since complaints were made three years ago."

179 Mr Tate, in effect, made the point that the nature of the business of a supermarket is such that it will always be possible to find fault with almost every aspect of its operations. I think I understand what he means. There will never be an occasion when the standard of cleanliness of particular areas of a supermarket could not be improved. There will never be an occasion when there are not, for one reason or another, a number of lines of stock where items are out of stock. It will never be the case that all items of stock displayed for sale are within the use-by dates applicable. In short, improvements will always be able to be made. In an ideal world, reportable imperfections should not occur, but in reality will always be present in varying degrees from time to time. The difficulty in those circumstances for a plaintiff endeavouring to establish a case such as that mounted by this plaintiff are self-evident.

180 The defendant called Mrs Anderson to give evidence as the manager of the supermarket since the defendant purchased the business, took the lease and commenced its operations. Nonetheless, she conceded, naturally enough, that by and large she was not in a position to contest the accuracy of the observations of Messrs Markey, Horton and Powell (although, as I have said, so far as the latter was concerned, she had distinct reservations about the accuracy of his count of lines out of stock and she would not accept that refrigeration cabinets could be so long unclean that mould commenced to grow on the shelves). Nor was she in a position to contest the accuracy of inspections by FAL inspectors and health inspectors.

181 That is not surprising, of course, because Markey, Horton and Powell did their inspections secretively. That was not the position with the FAL inspectors and I do not know what the situation was generally speaking with the health inspectors, although in many cases their reports make clear that a particular point of their visit had been discussed with the proprietor of the store, presumably either Mr Anderson or Mrs Anderson, and, as she pointed out in her evidence, the store had never been prosecuted for any breach of health regulations or failure to meet Australian standards of cleanliness and food handling.

182 So far as the FAL inspectors were concerned, it seems clear to me that the focus of the store manager present, whether Mr Anderson or Mrs Anderson, and the departmental managers, would have been on affording full co-operation to the FAL inspectors. There would have been little point in noting points of disagreement with the evaluation of the inspectors, even if staff of the store were privy to the creation of the reports as they were made. It seemed clear to me, particularly from the evidence of Mr Anderson, that if, for example, a report indicated a lack of cleanliness in a particular area of a particular department, his reaction was that there were systems in operation which could readily be employed to put right a particular failure to meet the standard on all occasions.

183 The evidence of Mrs Anderson was, however, of considerable utility to me and, by and large, I accept what she had to say about the way in which the store is and has been run, because she was able to describe the general procedures and her evidence in that regard was supported by staff members who were called by the defendant to give evidence.

184 In the final result therefore, the plaintiff relies, by and large, on a series of "snapshots" depicting the operation of the business on specific occasions. The defendant is unable to contest the accuracy of that evidence generally speaking. It relies on evidence of procedures in general operation and a description of the general management of the store. So far as the plaintiff offered evidence to provide a contrary view of the general operation of the store, it was a partial account at best, depending on the drawing of an inference from the inspection evidence and upon evidence from adjoining shop owners and the two witnesses who were ex-employees. I have commented upon my impressions of the utility of that evidence.

185 Mrs Anderson has worked in the retail trade for over 28 years. She has been working at the Marmion Village Shopping Centre for over 14 years. She was, prior to her involvement with the supermarket, a leaseholder operating a boutique, and prior to that she was employed in that shop. I think it is fair to say that although she had general retail experience when she and Mr Anderson formed the defendant and purchased the supermarket business from the Wilsons, she was not experienced in running a shop of that size and she was, in particular, not experienced in the operation of a supermarket.

186 She said in evidence that for quite some period she worked very long hours indeed. The store was soon open for 12 hours a day, seven days a week. I accept that initially, and from time to time since then, there have been difficulties in obtaining staff of suitable quality. Mrs Anderson says she is now satisfied with the present staff, from some of whom I heard evidence. A number of them, however, were not employed by the defendant at the time of the default notices in mid 2000. Although Mrs Anderson said that staff turnover was low, I think that is a relative concept because the longest serving staff member now has only been at the store for five years. She was not a witness.

187 There are five full-time staff members. They are the departmental managers for the grocery, dairy, fruit and vegetable department, meat department and delicatessen. The dairy manager, Mr Snape, opens the store in the morning. The grocery manager who was also the duty manager on weekends, Ms Hunt, closes the store in the evening. There are about 40 people who are employed at the store from time to time but, apart from the full-time managers to whom I have referred, they are all casual, part-time employees. Many are students. There would be no more than eight or ten staff members on duty at any given time. Because this is a small shop in legal terms, operating extended trading hours, Mrs Anderson said no more than ten staff members were permitted by law to be on duty at any given time.

188 Her duties are numerous, doing the daily banking, book work, preparing reports, recording goods and services tax, staff supervision, meeting with the managers, dealing with sales representatives, telephone inquiries, monitoring stock ordering procedures and stock rotation, attending to the needs of customers and deliveries to them, monitoring and assisting with the checkouts, and monitoring the operations of the departmental managers who have particular responsibilities for the operation of their individual departments. The witness said she constantly monitored the cleanliness of the store, the rotation of the stock and keeping stock orders up to the mark.

189 I have no doubt that she works very hard in that regard and it is not unreasonable that she has endeavoured to somewhat reduce her working hours over the years, but I suspect that her duties are so many and varied that she would be required to spend a reasonable amount of time in her office and away from the floor of the store. Her capacity to be closely involved with the operation of the store at all times would, in my opinion, be limited. I do not doubt that appropriate systems for cleaning, stock ordering and stock rotation have long been in place but I think that close attention to their implementation must be the responsibility of the departmental managers. Mrs Anderson could not, I think, be so closely involved with the operation of all the departments as to prevent any failure to comply with the appropriate standards from time to time.

190 Although Mrs Anderson said that she gave close attention to these matters because it was in her interest to do so as the supermarket is her livelihood, I think that she has not the capacity to control the aspects of the running of the store relevant to the default notice absolutely by herself and much of the responsibility must fall on the shoulders of other staff and, in particular, the departmental managers. If from time to time they are too busy or not appropriately motivated and skilled to operate their section of the store efficiently and well, then I do not doubt that there would from time to time be a falling short of appropriate standards which the customers would notice and, in particular, inspectors looking closely to see that appropriate standards were complied with would not miss.

191 Mrs Anderson said that when served with the default notice, which I take to be the detailed notice dated 8 June 2000, she walked around the store and checked all the matters set out in the default notice which were capable of being checked to see if there was any problem. She found none. No department appeared to her to be lacking in cleanliness and the store was adequately stocked. She said that the system of ordering stock had been improved. The computer system had been upgraded and would at that time have recorded over 100,000 individual items of stock in at least 8,000 product lines. As to the rotation of stock on to the shelves, she said that there appeared to her to be no problem. In May 2000, they changed the system from one of stacking the stock on shelves at night after the store closed to a "day fill" system, which I understand to mean that staff on duty are to constantly monitor the level of stock on the shelves, add to it when it gets low, after cleaning the shelves, and to rotate old stock forward to the front of the shelf.

192 I have no doubt that this evidence was genuinely given. In my view, it reflects the fact upon which I have previously commented, that the situation with respect to cleanliness and stock levels might change quite rapidly in a store of this type depending upon all sorts of factors, how busy the staff have been, how conscientious they are, whether an order for a particular line of stock has been filled, whether the demand has been heavier than anticipated, whether there has been time to clean, and any number of matters of that kind. Mrs Anderson does not say when she conducted the inspection after receiving the default notice, but her evidence does not dissuade me from the view which I have already expressed, that the inspection reports upon which the plaintiff relies are substantially accurate accounts of the state of the store at the times of the inspection.

193 However, it is important that I endeavour to summarise generally the evidence given by Mrs Anderson as to the general mode of operation of the store. It is clear she depends to a considerable extent upon departmental managers, most of whom commence at 6 am and conclude their day at 3 pm. While they are there, it is their responsibility to keep their departments adequately stocked. When they leave, a storeperson will be on duty to top up stock, particularly in the fruit and vegetable and dairy departments.

194 It seems clear that stock is ordered regularly. I have mentioned the procedure of using the computer for access to FAL. The frequency of ordering varies from three times a week to daily in some cases, and in the case of more specialty lines, orders are placed as required. The ordering is, of course, as I have mentioned, not only done from FAL but also from other suppliers. I think it is of some significance that fruit and vegetables are ordered three times a week but meat is supplied daily, as are some dairy products. Of course, the process of ordering may be thrown out if supplies are unavailable and that seems to be a not infrequent occurrence.

195 I am satisfied that appropriate procedures are in place with respect to stock rotation and steps have been taken to see that staff comply with the procedures whereby grocery items will be brought forward in the display and new stock added behind the old. Fresh fruit and vegetables will similarly be rotated by bringing to the top of the display the older produce and restocking from the bottom up. If staff members performing these tasks do so diligently, then produce which is out of code or otherwise unfit for sale should be identified. It is then to be removed and not sold. The responsibility for such matters, including the ordering process on weekends, is that of the two duty managers who do, however, have other duties to perform.

196 As to cleanliness, Mrs Anderson said that prior to about May 2000, and therefore at about the time when the inspections upon which the default notices were based were being made, the store relied upon night fillers to clean and stack the shelves and rotate the stock after the store closed for the night. Under those circumstances, it seems stock levels might drop significantly during the day and shelf cleanliness might suffer. The change was made to day filling by which is meant the process previously described.

197 The staff member having particular responsibility for a department, if necessary with the assistance of an idle checkout operator or another staff member, is to keep a close eye on stock levels and cleanliness. This is a primary responsibility. Where the need is seen, existing stock is removed from the shelf, the shelf is cleaned, new stock is added towards the rear, the old stock placed more to the front and out-of-code stock or items damaged or otherwise unfit for purchase are removed entirely. Mrs Anderson said that that system has the benefit that the work is done more productively, cleaning improves and supervision by the department or duty manager should ensure that the standard of performance of the work is appropriately maintained.

198 Mrs Anderson said that with experience and improvements in their procedures such as the day-filling system, more frequent ordering of stock, the use of the computer system, the scanning of stock at the checkouts and the like, the defendant's staff have been able to improve their operation of this store. I have no reason to decline to accept that evidence, given as it was in general terms. Mrs Anderson said that FAL have offered assistance to make capital improvements to the shop such as the acquisition of new fridges and freezers, but while they have been embroiled in this dispute with the plaintiff, the Andersons, on behalf of the defendant, have been reluctant to make any more capital expenditure. In the light of the established level of profitability of the store and the accepted high level of the defendant's indebtedness currently, it is also obviously the case that careful evaluation of any expenditure of substance which was proposed, against anticipated improvements in the profitability of the store which such expenditure might be supposed to create, would need to be made.

199 Apart from shelf cleaning in the circumstances described above, I am satisfied that staff are instructed to be alert for any spillage or particular problems of cleanliness which might occur and they are to remedy any such problem immediately. Finally, the floors of the store are cleaned by a contractor six days a week on Monday through to Saturday inclusive and the floor is supposed to be entirely swept by the storeperson on Sundays. In my opinion, if I accept that such procedures as are described in Mrs Anderson's evidence have at least now and for a time been instituted and applied, then it could not be suggested and, indeed, is not suggested by the plaintiff, that those procedures are defective or insufficient. For the plaintiff, it is put that there are sufficient particular examples of a falling short of acceptable standards of operation of the store for me to conclude on balance that not only is the default notice of June 2000 made out, but little improvement has been effected thereafter, at least to the point of June 2001 when the evidence in the form of FAL assessments and Mr Powell's inspection reports concludes.

200 Before expressing my final conclusions, I should comment on a number of the other witnesses called by the defendant. Mrs Gallagher is a merchandiser employed by FAL. She is responsible for general merchandise lines and the system is that where a store with which she is particularly involved has such a department, she keeps it stocked, places the orders, arranges the display and cleans the department. She has been going to Supa Valu Marmion since about 1997, although she was off sick for about two months in February and March 2000 just before the default notices were issued and she supposed that during this period someone else would take over from her.

201 I thought Mrs Gallagher was a balanced and satisfactory witness. She gave no indication that she was particularly friendly with or likely to be loyal to the Andersons. I accept her evidence. She spoke of her impression of the store as being clean, not untidy, staffed with friendly, polite people. She thought that the checkout operators and other staff were smartly turned out in their red and black uniforms. In her department, about 1,000 lines are carried. She did not accept the accuracy of the count of lines out of stock made by Mr Powell on a number of his inspections. She thought the figures he gave were unacceptably high and said she had never encountered such a level of unavailable stock. She conceded that a number of particular items recorded by Mr Powell as being out of stock, when he commenced that process might well have been unavailable on the dates mentioned.

202 Mrs Hunt was a valuable witness. I thought her evidence was generally reliable. She was the grocery and duty manager. She had actually been employed by the defendant since December 1999 but her managerial responsibilities date back to between June and December 2000, and so I accept that she did not have particular responsibility for the grocery department when many of the inspections, and, in particular, those upon which the default notice was based, were made by the plaintiff's witnesses.

203 Even so, she could not accept that there could be 300 to 500 lines unavailable on any given day, if for no other reason than the frequency with which orders were placed. I accept that evidence and, as I have already indicated, I am not prepared to place reliance on the purportedly precise counts performed by Mr Powell. Nonetheless, Mrs Hunt's evidence permits of a conclusion that at times the number of lines out of stock may have been, as a general proposition, unacceptably high. Mrs Hunt thought that 80 or so unavailable lines would be acceptable from a marketing or retail business point of view.

204 Mrs Hunt described her duties. They are many. I would expect her to be very busy, although she has other more junior staff to assist with such things as cleaning, stocking shelves and rotating stock. She will not sell stock which is out of date and she has a practise of promoting the sale of stock which is coming close to its use-by date by putting it on special. This is a desirable procedure because if stock runs out of code and has to be removed from sale, it may be returned to the representative or the supplier from whom it was obtained, but the defendant's store will only be credited with a percentage of the cost of acquisition when such stock is returned.

205 Mrs Hunt described in some detail the ordering system for grocery lines obtainable from FAL. She is responsible for that and uses a scanner to collect data as to lines of stock which are getting low in supply on the shelves. She can transfer this data to the store computer and transmit it directly to FAL, thereby placing the order for the number of units of stock required, according to her judgment as to how quickly the line of stock will move and having regard to the frequency of supply by FAL. The difficulty arises where FAL do not meet the order. The line of stock in question may then not be again placed on the shelves until it is reordered and finally supplied.

206 The procedure is similar with respect to the rotation of stock. I have mentioned the responsibility of those filling shelves to ensure that stock is properly rotated. Mrs Hunt said that when items get close to being out of code, the representative of the supplier will mark it down or she will do so. It will be placed on special for that reason. Stock which is not sold before it reaches its use-by date is to be removed from the shelves. Mrs Hunt conceded that it is quite easy to miss some items and I can well imagine that that would be so, but the procedure is that the stock should be removed from the shelves, written up in what Mrs Hunt described as the credit book, whereby the store claims credit for the items returned for that reason, and then discarded.

207 Mrs Hunt described the cleaning procedures, which seem to my untutored ear to be perfectly adequate. She also described the cleaning of the checkouts, a process which is repeated three to four times a day. So far as the shelves were concerned, she conceded that it is difficult to keep them spotlessly clean at all times. Items of stock for sale may leak or otherwise make marks on the shelves which may not be noticed immediately. There was no defensiveness in the manner in which Mrs Hunt gave her evidence and, as I have said, in general terms I accept her to be a reliable witness.

208 Mr Snape gave evidence. He is the dairy manager and he also has been employed by the defendant since the end of July 1999. Prior to that he had worked for 28 years at a supermarket in Melbourne, rising to the position of assistant store manager and store manager before coming to Western Australia and commencing his employment with Supa Valu Marmion. I thought he was a very honest witness and he is obviously a valued employee of the defendant. I have mentioned Mrs Anderson's evidence that it is Mr Snape who comes early, starts at 6 am and opens the store. I do not doubt that as dairy manager, Mr Snape is a conscientious and hardworking employee. Reports made by Mr Powell were put to him. He could not accept the reference to mould on the shelves of refrigeration and freezer cabinets, nor could he accept, unless there was a particular problem in respect of unavailability of stock from FAL, that unavailable lines could reach the numbers mentioned by Mr Powell in some of his reports. For example, in respect of one report which mentioned 114 lines unavailable, he said that would be 20 per cent of the capacity of the refrigerators. He described that as incredible. He said it could not be so.

209 I need not describe his evidence in detail. Again, it seems to me to be clear that the procedures for cleaning, rotation of stock, ordering of stock and monitoring out-of-code items are appropriate and calculated to keep the dairy department running efficiently. However, it is also clear that Mr Snape has many duties and is a busy man. He conceded that he may miss items which go out of code. Stock levels may be affected by difficulties of supply, the failure of suppliers to meet his orders. The dairy department seems to be prone to spillage, damage of containers and the like. It would be impossible for every portion of the department to be maintained at an appropriate standard of cleanliness at all times.

210 Mr Snape denied that his responsibilities were too onerous and that he could not cope with the workload. Generally speaking I think I should accept that that is correct, but from time to time I think the presentation of his department in relation to cleanliness, lines out of stock and produce past its use-by date might be less than acceptable, as a result of human error or as a result of circumstances beyond his control such as refrigerator malfunction, the failure of suppliers to meet orders and the like. This department seems to me to be more subject to external difficulties affecting presentation than is the grocery department, and on the evidence, it seems to me that Mr Snape may have failed from time to time to deal effectively with such externally created problems. That is the extent of the critical findings that I would make about this department and I do not think it is established that there is any systemic problem in its operation.

211 Mr McKenna is a very experienced butcher, operating for 40 years, including three businesses of his own and as the butcher at a number of supermarkets throughout the metropolitan area. He commenced work at Supa Value Marmion in May 2001.

212 When he started there, he thought the butcher's department needed attention from the point of view of its cleanliness and the quality and variety of meats available. He set about making the necessary improvements. His description of his procedures persuaded me that this department under his stewardship would run very well and I would accept that he would maintain the department in an appropriate standard of cleanliness of the floor, cool room, refrigeration cabinets and the meat preparation area. No doubt, however, it took him a little time to get this department running in accordance with his high standards.

213 However, it should also be said that there were relatively few complaints about the meat department detailed in the plaintiff's evidence. Most of the complaints appear to be about the state of the yellow and white canvas awning which is old, needs replacement and no doubt has some ingrained dirt in it which would defy most ordinary cleaning processes. Mrs Anderson said she would like to get rid of it and replace it with another canopy to improve the presentation of the meat department and the delicatessen but, again, this is a capital expenditure which the defendant hesitates to make during the currency of this present dispute. Mr McKenna was not cross-examined.

214 The delicatessen manager is Ms Leopold, a young woman who again impressed me favourably as a witness. She has a somewhat longer history with Supa Value Marmion than does Mr McKenna. She started at the beginning of October 2000 but before that she was the owner and manager of a coffee shop in the adjoining medical centre complex, so she might be supposed to have had, even at that time, some general knowledge of the plaintiff's Marmion Village Shopping Centre. I thought Ms Leopold was a conscientious and thoughtful delicatessen manager. She described her duties. They are many but an important element of her operation of the delicatessen seemed to me to be the capacity to stamp its presentation with a particular style developed in consultation with Mrs Anderson.

215 Not only are there hot chickens, bulk salads to be prepared, fresh salad packs to be made up, sandwiches and rolls to be prepared for lunches, soup, lasagne and quiche to be made for lunches, ordinary delicatessen products to be sold including a variety of cold meats, cheeses, olives and the like, but refrigerated cabinets, the floor of the delicatessen, the entirety of the adjoining kitchen and food preparation area, refrigeration cabinets and other surfaces must be cleaned. I accept Ms Leopold's evidence that she attends to all these tasks, giving them priority according to the more pressing need, and that her cleaning routines are applied not only daily but from time to time as the day proceeds.

216 She keeps a notebook where she records the date she has opened a particular product such as a vacuum-packed meat product, and she records the expiry date so that she can keep track of when such a product is due to be discarded. She said it was easy to keep an eye on the use-by date of a product. Although she sells much in pre-prepared packs, her customers particularly like to purchase sliced or shaved meats prepared at the time of purchase. I mention that because, for Mr Powell, it was a particular point of criticism of this department that there were not a greater number of pre-prepared cold meats for sale. Ms Leopold said that she is able to keep up with the ordering process because although she regularly orders stock on Mondays, Wednesdays and Fridays, she can obtain deliveries of most items she sells on a daily basis if required.

217 As I have said, I am persuaded from Ms Leopold's evidence that she would be, at least since the end of 2000, a conscientious and effective delicatessen manager, but although from time to time she can obtain some assistance with this department, it strikes me that because generally speaking she runs the department alone, there may well be occasions when some produce is not displayed or replenished as quickly as it should be, a mess is not cleaned up as quickly as it should be and she may not be available promptly to deal with customers. I am satisfied that criticisms of this type do not reveal systemic problems in the running of this department.

218 Particular criticisms made in Mr Powell's reports were put to the witness. She denied that she maintained an inappropriate standard of cleanliness, but she agreed that on occasions, particularly around the luncheon period, her display cabinets might be untidy. She might run out of cooked chickens in the middle of the day. She was prepared to accept criticisms of this type but she declined to accept Mr Powell's comment that over a period, the presentation of the department appeared to be going backwards. Her evidence persuades me that Mr Powell's impression that this was so should not be accepted. Finally, there was the criticism that the seals on a refrigeration cabinet in the delicatessen needed repairs or replacement. Ms Leopold said she raised this with Mrs Anderson and it was done, but it has to be said that it appears to have taken some time.

219 Other evidence was given by sales representatives who visited the store. One was a Mr Bell who was employed by a manufacturer of biscuits. There were a number of stores to which he made weekly visits. One of them, for about six months from mid 2000, was the defendant's supermarket. His particular task was to replenish the stocks of biscuits, stack the shelves and supply any particular promotional stock in consultation with the store manager. In that regard he dealt particularly with Mr Anderson, with Mr Snape if Mr Anderson was not available, and in the last month of his visits, with Mrs Hunt. He found them all co-operative and helpful. He made the comment, however, that advertised lines, as in the case of other lines, might not be ordered in sufficient quantity and might then sell out, no matter how much care is taken to order an appropriate quantity. Mr Bell said that one of his tasks was to keep an eye on the cleanliness and presentation of the whole store because it was the whole store which was viewed as the selling area for the product of his employer. He found no cause for concern with the cleanliness of the store or its presentation during the period of his visits.

220 Mr Martin is a sales representative for a company marketing a particular aerated beverage. His mode of operation was very similar to that of Mr Bell. He had been visiting Supa Value Marmion weekly for a period which appears to have been between the middle of 1999 and July 2001. His company requires a store which it supplies to take a core range of products and optional additional lines. Supa Value Marmion took most of them and always in sufficient quantity to keep unavailable stock to a minimum. Again, he would deal with Mr or Mrs Anderson or Mr Snape. He always found them co-operative and helpful, as he did the staff generally. He expressed the view that the store was always presented "in a clean and professional way."

221 I have left until last the statement of a Mr Hooper which was admitted pursuant to the Evidence Act because the defendant was unable to call this witness. Again, because he was not able to give evidence viva voce, the weight of this testimony is reduced, in particular because of the plaintiff's incapacity to put to him relevant reports made by Mr Powell affecting his particular department, the fruit and vegetables department.

222 Mr Hooper is the manager of that department and he has been employed by the defendant in that capacity since October 2000, after the default notice but, of course, while the various inspections were continuing. Mr Hooper's statement says that he has 14 years experience working in fruit and vegetables in retail. His duties as manager of that department are much the same as other departmental managers, but it is clear that Mr Hooper recognises a particular responsibility to cull any produce which is not fit for sale and for that purpose to regularly inspect the display. In the case of this department, of course, the crucial consideration is the extent to which the produce deteriorates before it is sold. Because he is dealing in fresh fruit and vegetables, there is an added difficulty that what he can stock is subject to availability from FAL, from whom he receives deliveries on Mondays, Wednesdays and Fridays. He orders the quantity which he anticipates he may sell so that he keeps it continually on the move. This enables better control of quality and freshness of produce. It is clear from Mr Hooper's statement that he pays particular attention to presentation and the rotation of produce.

223 Typically, cleaning is done as part of the process of stock rotation and replacement. Refrigeration cabinets receive an additional "deep clean" every three months. The floor is the responsibility of the contract cleaner and so, as manager of the department, Mr Hooper can concentrate on presentation, freshness and dealing with customers. His statement concedes that it is impossible to prevent absolutely the display for sale of items which are not up to standard, but Mr Hooper in his statement says that he feels that the compliments he receives from customers and the 30 per cent increase he has achieved in the previous year's takings are testament to his success in his position. As I have said, it is difficult to make a satisfactory evaluation of this evidence in the absence of the witness but I note that it is at least consistent with that of other departmental managers called by the defendant. It is also of some comfort, in relation to this witness's evidence, that Mr Powell himself appears to note improvement in the fruit and vegetable department from about the time of Mr Hooper's employment.

224 As to the plaintiff's claim, I turn then to the issues to be resolved as I have identified them. It is convenient to deal first with the allegation in par (5) of the default notice of the breach of the covenant of repair, cl 5.01 of the lease, as at 8 June 2000 and the period of 14 days thereafter allowed as a reasonable time for the rectification of any default.

225 Turning to the particulars given in the default notice, it is the case, I think, that there were missing and lifting tiles in the vicinity of the meat department and delicatessen. I have discussed the cause. It relates to a matter which was the responsibility of the plaintiff in my view, the nature of the floor below where the tiles were laid and its tendency to shift. Nonetheless, if the only remedy was the strictly temporary and cosmetic remedy of laying and replacing tiles when required from time to time, then, in my opinion, that was the obligation imposed on the lessee.

226 As to the condition of the shelving involving chipped wood and defects in the paint, I am not persuaded by the evidence, including the capacity to view the shelves as depicted in Mr Horton's video, that the damage in this area was of a degree or severity as to constitute a particular of a breach of cl 5.01. In the grocery department, items of stock are constantly being removed and replaced. Damage to the shelves is inevitable. It would seem to me that it would need to be of some real substance before regard would be had to it in the context of cl 5.01 and I am not persuaded that that was the case at the relevant time.

227 I have found the seals in the cold meat cabinet of the delicatessen were defective and needed replacing. That was recognised. I have mentioned that, in my view, it appears to have taken some time to effect the necessary repair. That particular is made out. I would also conclude that the hole in the wall of the room at the rear of the store, which was a store room, was at the relevant time uncovered. It is evident that it remained so at least until some time after the end of June 2000. Again, the particular is made out. In the final analysis, I am prepared to find the alleged breach of cl 5.01 of the lease in respect of the condition of the floor tiles, the refrigeration cabinet in the delicatessen and the missing brickwork at the rear of the store.

228 The obligation assumed by the lessee under cl 5.01 is, as I have said, expressed in onerous terms. It applies to all parts of the leased premises and the breach is established if any failure to keep in good and substantial and tenantable repair is proved. That has been done, but the nature of the breach is of a relatively minor kind, in my opinion, established only because the obligation imposed by cl 5.01 applies to every part of the leased premises in respect of any defect of a relatively enduring kind.

229 The second issue which I have identified in the claim for forfeiture of the lease is the question whether the defendant was as at 8 June 2000 and for 14 days thereafter, in breach of cl 5.06 of the lease and the duty to keep the premises in a thorough state of cleanliness having regard to my interpretation of the meaning and effect of the covenant contained in that clause. This allegation is the subject of par (1) of the default notice and is taken in to the broader allegation of a breach of cl 9.02 of the lease in par (6) of the default notice.

230 I have already said that in my view a breach of cl 5.06(b) has not been established. I have discussed the evidence in that regard and I need not traverse that ground again. As to cl 5.06(a), I have expressed the conclusion that by its reference to a "thorough state of cleanliness", the clause will not be breached by transient, occasional or temporary states of uncleanliness, but only by something of a more enduring nature. However, I have also said that one must have regard to the fact that this is a supermarket, that food is being handled. Questions of hygiene loom large as does the consideration of what may be reasonably possible for the staff and management of the supermarket in the performance of their duties.

231 Turning then to the particulars in par (1) of the second default notice which I have concluded were valid in that they provided a sufficient degree of particularisation, I would be inclined to find that the canopy above the meat department has a rather grubby appearance and did so at the time. As a matter of presentation, that was undesirable, but in that particular alone, I would not be prepared to find a breach of cl 5.06. The other relevant and properly particularised allegation concerns Mr Powell's inspection of 27 May 2000. As I have said, generally speaking, I would accept his observations as being accurate and reliable although I would doubt that about 75 per cent of the shelving in the grocery department was dirty and I find it difficult to accept, as did Mr Snape, that there was mould growing in some areas of the shelving in the milk refrigerators. However that may be, I think the evidence given by Mr Powell, particularly concerning his inspections of 10 June 2000 and 24 June 2000, adequately carries the evidence forward to the date of the default notice, 8 June 2000, and for 14 days thereafter.

232 I find that at the relevant time, the state of cleanliness of the store and, in particular, those areas of it concerned with the handling and sale of fresh produce, food stuffs and dairy produce, did fall short of the appropriate standard of cleanliness to a degree sufficient to support the conclusion that cl 5.06 was breached. The lease is therefore liable to forfeiture upon that ground as well as upon the ground of the breach of cl 5.01, although again, as I have already indicated, it seems to me that on the totality of the evidence, I could not find that the store has been and continues to be a dirty store in breach of cl 5.06. I would conclude that although that was the case in the respects mentioned as at the time of the default notice, the change of cleaning procedures thereafter gradually improved the situation and there is not now and has not been for an appreciable period anything remarkable about this store from the point of view of its state of cleanliness. More precise findings in that regard, it seems to me on the evidence as a whole, are foreclosed to me.

233 The third issue upon which the plaintiff's action for possession turns is the alleged breach of cl 9.02, the duty to carry on and conduct the business of the supermarket with due diligence, in particular having regard to the duty to cause the store to be adequately stocked, but not overlooking the allegations that cl 9.02 was breached having regard to the duty to keep the premises in a thorough state of cleanliness, in good and substantial tenantable repair and the other allegations of the display for sale of out-of-code stock, rotten fruit and vegetables and generally because of insufficient control of the quality of the stock for sale, reminding myself that this clause is concerned with a failure to carry on business in a diligent manner, implying a degree of persistence or repetition at the times relevant to the default notice.

234 On balance, having regard to all the evidence, it seems to me that it probably was the case that in June 2000 the business of the supermarket was not being conducted with due diligence within the meaning of cl 9.02 of the lease. I have already commented upon the cleanliness of certain portions of the leased premises in the context of the claim of breach of cl 5.06. In addition, I have found the claim of breach of cl 5.01 to have been made out in some respects. To the degree to which I have found those complaints to be justified, it seems to me that at the time in question, in some respects the maintenance of the premises was not up to standard and the cleanliness and presentation of certain of the departments was less than satisfactory.

235 The evidence supports the conclusion that during this period the premises were not adequately stocked within the meaning of cl 9.02(c) in that, although I am not entirely satisfied about the accuracy of the count of lines out of stock given in respect of the period relevant to the notice by Mr Powell, I am persuaded that during the period relevant to the default notice, there were considerably more lines out of stock, particularly in the grocery department, than ought to have been the case if the ordering processes had been properly and efficiently carried out.

236 I am assisted to that conclusion by reports prior to and following the time in question, and particularly by the evidence of Mr Powell and Mr Horton, together with other evidence which I have discussed above which is admittedly of a more anecdotal character. Whether that situation was contributed to by the nature of the computer programme for ordering stock applicable at the time and by the fact that it was only later that there was a change in the process of shelf filling from night to day stacking, I do not know, but I am satisfied that the result in terms of stock availability on the shelves was less than it ought to have been.

237 Further, I accept that there was at this time apparently a problem in the fruit and vegetable department which had the result that the quality of the produce on display was in some cases at the relevant time quite unacceptable. If that was caused by the inadequacy of the manager of the department at the time, then the overall store management was not sufficiently alert to pick up the difficulty and it should have been. It is not possible for me, however, to say whether the display for sale in that department of produce which was not fit for consumption or sale resulted from inadequacy of the process of ordering produce, its supply, its storage or its rotation so that old stock no longer fit for sale was culled out and replaced by fresh produce. It matters not. The end result was a contribution in this regard to the breach of cl 9.02. Finally, in that regard I should say that I am not satisfied that in the display for sale of out-of-code produce, there was anything to cause concern about the diligent carrying on of the business of the store.

238 Nonetheless, for all the above reasons, I do conclude that the defendant was in June 2000 in breach of the various lessee's covenants to which I have referred, in the manner discussed. There was a failure to remedy the breaches and I would make the order for possession sought by the plaintiff so as to terminate the lease pursuant to cl 11.01, subject to the question of relief from forfeiture.

239 Before I make the order for possession, it is necessary to consider the defendant's counterclaim for relief from forfeiture. As has been seen in my review of the pleaded cases of the parties, a matter of fact additional to those which I have already discussed which arises in respect of the counterclaim is the valuation of the business and specifically the question whether it has attached to it any significant goodwill which would be lost if the lease is forfeited. The defendant pleads that that would be the case. The plaintiff pleads that the supermarket is not profitable and currently has no goodwill attached to it.

240 Clearly, the defendant's business carries a very significant debt load, agreed by the parties at the conclusion of the trial to be in the order of $750,000 to $780,000. The customer counts and turnover of the business have reduced over recent years, but as to the present value of the business, I need to resolve the views of expert witnesses whose evidence is in conflict.

241 Mr Todd was the valuer called by the plaintiff. He and Mr Baker, the defendant's witness, knew each other and obviously respected each other's expertise and processes of valuation. It is, of course, to be borne in mind that these witnesses were valuing the business, not real estate. Mr Todd's evidence was that while he accepted that there was a significant demand for supermarkets of the kind represented by Supa Value Marmion and that such businesses sold rapidly, he thought that what he described as the "out of the way location" of the supermarket in the Marmion Village Shopping Centre was a limiting factor in its capacity to generate trade and he thought that the trading figures over the last four years, particularly what he described as "a sharp downturn in gross profit in 1998", raised concerns about poor management which might depress the value. He thought this particular supermarket was generating gross profit slightly below what he regarded as being an acceptable average profit for Supa Value supermarkets. He noted that after deduction of various expenses, the net earnings before depreciation, interest and taxation was for the years 1998, 1999 and 2000, below what he would regard as a good range of 6 to 8 per cent. Mr Todd thought that probably reflected management capacity of an average kind rather than at the good end of the range, although for the 1999 and 2000 financial years, the percentage result was steadily increasing.

242 Adopting a cash profit figure of about $174,000, and a rate of return on investment of around 45 per cent, which Mr Todd thought appropriate having regard to comparable businesses, produced a value of just under $390,000. Mr Todd noted that the average actual figure in relation to stock was $250,000 and the written down value in the books of the defendant for plant and equipment was $140,000 as at the end of the 2000 financial year. That therefore compelled his conclusion that the goodwill value in the business was nil, goodwill being for this purpose of valuation the extent to which the calculated value of the business exceeds the value of stock in hand and plant and equipment, ie, the intangible value attributable to the business. In his evidence, Mr Todd was prepared to concede that as at the date of trial, the written down value of the plant and equipment might have reduced somewhat, and on the basis that the actual value of the business did not change, he thought there might be about $20,000 worth of goodwill in the business.

243 The defendant's witness, Mr Baker, thought this approach was too mechanically based on the mathematics of the calculation. He thought it was necessary to take account of the market. When he gave his evidence in November 2001, he thought demand had now increased for mid range supermarkets. Demand was strong and he thought this supermarket to be fairly typical of supermarkets of its size, age and type. His visits to the store, for valuation purposes, did not suggest to him that it was understocked, understaffed or selling poor quality produce. He thought that in all respects the layout, appearance and operation of the supermarket appeared perfectly normal. He therefore valued it accordingly. There was a slight difference in his approach to that of Mr Todd. He used a capitalisation rate of 22.5 per cent. In adopting that lower rate, he had regard to the owners' salary or drawings, and in my view that is an appropriate decision to take. On that basis, Mr Baker presented an analysis of the 1998, 1999 and 2000 financial years.

244 On the basis of this analysis, he adopted a projected profit and loss calculation which produced a projected net profit of approximately $130,000 as the future maintainable profit of the business annually. Adopting the capitalisation rate of 22.5 per cent and rounding off the calculation gave him a value of $575,000 (coincidentally what the defendant paid for the business in 1995) from which he deducted stock valued at $275,000, a greater figure than that adopted by Mr Todd, and an in situ value for plant and equipment of about $150,000, not significantly different from that adopted by Mr Todd. This led him to the conclusion that the goodwill component of the value of, say, $575,000 was approximately $150,000.

245 Without detailing the figures, there is some reason to suppose that Mr Baker's projected annual sales figure of $4,200,000 might be rather over-optimistic by almost $200,000. Making that allowance does produce a difference of some substance in Mr Baker's calculations. If the expenses to be deducted from the gross profit remain the same, it would substantially cut into the goodwill attributable to the business but I have not the expertise to know precisely how the calculation should be modified.

246 The difference between the two witnesses is the extent to which they consider that an optimistic approach to the valuation may be adopted. As has been seen, Mr Todd worked on a capitalisation of profit before deducting a return to management. Mr Baker worked on post-management profit. Mr Todd says the capitalisation rate adopted by him on that basis was too low. Rather than 22.5 per cent, he thought the figure should be about 30 per cent, and if that calculation was applied to Mr Baker's figures, Mr Todd suggests the result would be not dissimilar from his calculation. Mr Todd considers that Mr Baker is over-optimistic. He suggests that the risks attendant on this particular business are greater because turnover is in decline, the lease has an unexpired term (upon the basis that the option to renew it has been effectively exercised) of less than 10 years, the plant and equipment and shop fittings are old and the business is in need of major refurbishment.

247 Mr Baker on the other hand takes the view that the location and nature of this business makes it a supermarket of a kind which is in demand despite the limited size of the catchment area. He thinks the decline in turnover is likely to be arrested by external market factors. Mr Baker suggests that people are more inclined to see the value in a smaller supermarket of this kind and patronise it to a greater extent than in recent years. As I have said, although the plant and equipment and shop fittings are now of quite a reasonable age, Mr Baker did not consider that the business was in need of major refurbishment, and he did not consider that the unexpired term of the lease would be a depressing factor in the value which a potential purchaser might attribute to the business.

248 It is, of course, very much a matter of judgment for experts. I am inclined to think that an appropriate conclusion as to the true value of any goodwill attached to this business would be somewhere between the rather pessimistic approach adopted by Mr Todd and the perhaps over-optimistic approach taken by Mr Baker. It would not surprise me if the business was sold upon terms which would cause a purchaser to attribute to it a goodwill valued at somewhere between $75,000 and $100,000. I appreciate, however, that that is a very rough conclusion resulting from my struggle to reconcile the different approaches taken by these two witnesses, both of whom seem to me to give evidence from an appropriate standpoint of expertise and to present persuasive arguments justifying their approach. It is of no moment in the context of these reasons that I should analyse further the evidence of these two witnesses. I think I must simply do the best I can to tread what seems to me to be the appropriate middle ground between their views.

249 As I have said, the defendant's counterclaim for such relief relies upon s 81(2) of the Act. The matter therefore lies in the discretion of the Court, "having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances". It has long been held that the discretion is a wide one and that it is inadvisable to attempt to lay down an exhaustive set of rules to guide the exercise of the Court's discretion: Hyman v Rose [1912] AC 623, 631. In Shiloh Spinners Ltd v Harding [1973] AC 691 at 723, Lord Wilberforce, delivering the judgment of the House of Lords, referred to the power, of equity in that case, in appropriate and limited cases to relieve against forfeiture for breach of covenant. His Lordship said:

"The word 'appropriate' involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach."

250 That approach was adopted in respect of the application of s 81(2) of the Property Law Act and equivalent provisions in Australia in Pioneer Gravels (Qld) Pty Ltd v T & T Mining Corp Pty Ltd [1975] Qd R 151 by Hart J and in Love v Gemma Nominees Pty Ltd, unreported; SCt of WA; Library No 4642; 14 October 1982 by Burt CJ. Guided by those authorities, I would propose to take the same approach.

251 Under cl 11.01 of the lease, the notice of default having been served and the breach remaining unremedied after the expiration of 14 days, the right of re-entry or forfeiture was vested in the plaintiff. In this case, of course, the right of re-entry or forfeiture was sought to be enforced by action. I have held the right to be made out and therefore under cl 11.01, in that event, "the Term shall cease and determine." The writ was issued on 13 July 2000 and was, no doubt, served then or shortly thereafter. It is the service of the writ (if not the notice to quit) which operates as a re-entry and brings about the forfeiture from that date: Canas Property Co Ltd v KL Television Services Ltd [1970] 2 QB 433.

252 But if I should grant relief from forfeiture, the order so made restores the lease, without the need for any formal regrant, as if it had never been forfeited: Maryland Estates Ltd v Joseph [1998] EWCA Civ 693; [1999] 1 WLR 83, 87 - 91. It is therefore a very significant question in the context of this litigation whether relief should be granted. I have set out the terms of s 81(2). Under par (b), relief from forfeiture may be granted on terms, "as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future". If I should grant the relief, no terms are sought. The plaintiff's defence to the counterclaim is absolute. It asserts that the defendant is disentitled to the relief from forfeiture which is claimed.

253 I do not propose to cite the cases I have read which merely provide examples of the circumstances in which relief from forfeiture has been granted. They seem to me to show that relief will generally be granted where the breach has been remedied or any financial loss made good so that the bargain secured to the parties by the lease may continue for their mutual benefit. However, the Court on occasions displays a rather punitive attitude and may refuse relief in the exercise of discretion where the applicant for relief is a recidivist, in breach of the lessee's covenants on numerous occasions, or where the breach is wilful or deliberate, unless the lessee can be seen to recognise the error of his ways.

254 In this case, the matters which seem to me to be material to the question of the grant or refusal of relief from forfeiture are largely those identified in the pleadings. The evidence establishes that the breaches which would lead to forfeiture are not of the first order of seriousness, although they are certainly not trivial, and like breaches, I think on the evidence, have been committed from time to time. As I have said, there is a lack of cogent evidence to establish that the plaintiff has suffered loss as a result of such breaches. By and large the defendant's business is operated diligently and as I have indicated, it seems to me that now and for some time, the business has probably been operating in a satisfactory way in accordance with the lessee's covenants under the lease. This is not at all a case of a lessee who wilfully or deliberately refuses to conduct the business of the supermarket in such a way as to satisfy the covenants in the lease.

255 Where defaults have occurred, I am satisfied they have been the results of failures to meet appropriate standards of performance from time to time rather than, as the plaintiff submits, that the breaches were wilful in the sense that "Mr and Mrs Anderson knew their obligations at all times and simply chose to disregard them." This store is their livelihood and I have no doubt they want the business to succeed as much as do the plaintiffs. Where they have been in default, it has been a matter of human error on particular occasions rather than the reflection of an endemic or systemic failure to comply with the covenants of the lease.

256 The evidence establishes that the defendant has committed itself to a significant investment in this business secured by guarantees provided by the Andersons and the commitment of their personal assets. If the lease is to be forfeit, they will lose their income; they will lose the capacity to service their loan commitments; they will lose the value of such goodwill as the business commands; they will lose the capacity to sell the stock by retail, and it may be that their principal financier, the National Australia Bank Ltd, would suffer loss in the recovery of funds loaned to the defendant. Other third parties would be affected. The defendant's employees might secure positions with a new tenant taking over the business of the supermarket from the plaintiff, but their jobs would certainly be thrown into hazard.

257 What, on the other hand, is the position of the plaintiff if relief from forfeiture should be granted? As I have said, I would not find that any diminution in customers frequenting the shopping centre results from breaches of the covenants of the lease by the defendant. Whilst there have been complaints from other tenants about the operations of the defendant, that they have suffered a downturn in the returns achieved from their businesses and that they are concerned about continuing to commit themselves to substantial leases, I have expressed the view that it is not established that their perception that the defendant is to blame for their financial difficulties is valid. It would be unjust in those circumstances to visit forfeiture upon the defendant simply upon the ground that the perception of other tenants and of the plaintiff is that the operations of the defendant are harming their business interests.

258 In effect, the plaintiff also submits that the extent of the defendant's indebtedness to the National Australia Bank, the profit-generating capacity of the business, and the defendant's incapacity to make real capital improvements to the premises or extend the size and turnover of the business shows that, "it would be a financial relief to the Andersons that the lease be forfeit and an end put to their operation of this unprofitable business". It is pointed out that once all the payments required have been made, for about half the period during which Mr and Mrs Anderson have operated the defendant's business, a net loss has been made.

259 I do not regard this argument on the part of the plaintiff as sound. It would be for the Andersons to decide to cut their losses and let the business go. This they do not do. They wish to continue to operate a business which seems to me to have every capacity to run profitably. The business may ultimately fail but that is for them to deal with and it is no argument for the plaintiff that the Court should make a judgment about that and refuse them the relief from forfeiture they seek upon this ground. Nor do I think this argument is assisted by reference to Mr Anderson's earlier dubious practices in relation to the allocation of the purchase price of the business, the payments to his building company and the like.

260 In my opinion, the arguments in favour of the grant of relief from forfeiture substantially outweigh those to the contrary effect. I would order relief from forfeiture unconditionally as no terms have been pressed upon me. It is put to me for the plaintiff that that will condemn the parties to the continuation of a dysfunctional commercial relationship. To my mind, this is not a weighty consideration in respect of the exercise of the discretion to grant or refuse relief from forfeiture. In truth, I think that it is about time these parties put aside their antipathy and got on with business in a co-operative, mutually supportive way for their common financial benefit.

261 I have mentioned that the term of the lease expired on 19 February 2001. The defendant purported to exercise the option to renew for the further period of 10 years from and including 20 February 2001 by a notice given at the appropriate time on 13 October 2000.

262 I have referred to the fact that the response of the plaintiff was that the defendant was precluded from exercising the option to renew because it was said to be continuing to breach of the lessee's covenants contained in clauses, which I have assumed to be cl 5.06 and cl 9.02, referred to in the notices of default dated 12 May 2000 and 8 June 2000. In other words, it was said that the defendant was in breach of the lessee's covenant to keep the premises in a thorough state of cleanliness and it was in breach of the covenant to conduct the business with due diligence. No complaint was then made that the defendant was in breach of the obligation to pay rent. I remind myself in passing that relying on those breaches and following the issue of the notices of default, the plaintiff gave the defendant notice to quit the premises on about 5 July 2000.

263 As I have held, whether from that time or from the time of issue of the writ matters not, the plaintiff had a right of re-entry or forfeiture by virtue of the breaches of the lessee's covenants which I have found against the defendant. However, I have also considered it appropriate to exercise my discretion to grant relief from forfeiture, the effect of which is to expunge the right of re-entry, as the lease is restored as from the date of forfeiture.

264 I have mentioned the proviso affecting the exercise of the lessee's option to renew the term of the lease which is contained in cl 12.03. For convenience I set it out again:

"PROVIDED THAT all rent then owing shall have been paid and there shall not then be any subexisting breach of the covenants conditions and stipulations herein contained (provided that breaches which have been waived shall not be deemed to be unremedied breaches for the purposes of this sub-clause)."

265 By the lease cl 2.02 and cl 3.01, the rent is the Annual Base Rental set out in item 4 of the second schedule, subject to review and variation as provided in the lease. The lessee has, of course, to make additional payments as a contribution to various outgoings in respect of the premises. The evidence does not establish to my satisfaction that as at 13 October 2000 there was any rent unpaid, although it is clear that from time to time the rent was paid late, an event which attracted the issue of default notices. In my opinion, having regard to the context of the proviso in cl 12.03, a "subexisting breach" of the lessee's covenants, conditions and stipulations is an existing unremedied breach.

266 I have found the lessee to have been in breach in June 2000 in the way charged in the relevant default notice, but I am not prepared to find that the defendant continued to be in breach of the covenants in cl 5.01, cl 5.06 or cl 9.02 as at 13 October 2000, or that as at that time the defendant was in breach of any other covenant, stipulation or condition applying to it. I can see no need to trawl through the voluminous evidence in an effort to identify any such covenant, stipulation or condition upon which the plaintiff does not specifically place reliance.

267 I would therefore conclude that there was in terms no impediment to the valid exercise of the option to renew in respect of the term which then still continued because by my grant of relief from forfeiture, the right of re-entry or forfeiture asserted in July 2000 was, in effect, retrospectively removed.

268 The plaintiff argues that in respect of the exercise of the option to renew, I should have regard to the provisions of s 83A to s 83D of the Property Law Act. By s 83A, an option enabling the lessee to require the lessor to renew the lease is an option to which the sections refer. By s 83B(2), the provisions of the Act mentioned, apply to this lease. By s 83C(1), the notice contained in the plaintiff's letter to the defendant dated 26 October 2000 would be in part a prescribed notice within the meaning of the Act.

269 Section 83C(2) provides:

"(2) Where an act or omission that constituted a breach by a lessee of his obligations under a lease containing an option would, but for this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of 14 days next succeeding the purported exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and -

(a) an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the Court before the expiration of the period of one month next succeeding service of the notice; or

(i) the proceedings in which the relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief; or

(ii) where relief is granted upon terms to be complied with by the lessee before compliance by the lessor with the order granting relief, the lessee fails to comply with those terms within the time stipulated by the Court for the purpose."

270 To my mind, this provision does not apply to this case. I have taken the act or omission relied upon in the letter of 26 October 2000 to be the continuation of unremedied breaches of cl 5.06 and cl 9.02 referred to in the default notices, particularly, having regard to my views about validity, that of 8 June 2000. Because I do not find those breaches to have been current or unremedied as at 13 October 2000, that would not have the effect under cl 12.03 of the lease of precluding the defendant from exercising the option. In any event, as I have said, the defendant sought relief against the effect of the breach in relation to the purported exercise of the option by par 19 of the amended counterclaim dated 24 November 2000 and so within the period of one month next succeeding service of the notice given by the letter of 26 October 2000.

271 Therefore, if s 83C(2) does have application to the case, then by s 83C(2)(b), the matter will turn upon the fate of the application made in the counterclaim for relief against the effect of the breach. These being proceedings described in s 83D(1) in which such relief may be sought under that section, the grant or refusal of the relief depends, by s 83D(3) upon the consideration of the sorts of circumstances which on the authorities will guide the decision taken under s 81(2) to grant or refuse relief from forfeiture, those being the same considerations as those to which the Court may advert in considering the exercise of the general equitable power preserved outside the confines of the statute, as to which in addition to the cases to which I have referred above see the decision of the Full Court in Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279, particularly at 289 per Burt CJ and 307 - 308 per Brinsden J.

272 If it was necessary to consider the grant of relief against the effect of the alleged breaches in relation to the purported exercise of the option to renew, I would make that order, generally for the reasons to which I have referred in respect of the question of relief from forfeiture. In my opinion, the breaches complained could not be regarded as being of sufficient moment and weight as to effectively destroy the defendant's business by denying to it the renewal of the term sought. The breaches could not be considered in the relevant sense to be wilful disobedience or a deliberate refusal to observe the covenants in the lease and they represented, in my view, a falling short of performance to the relevant standard on an occasional basis from time to time. Mr and Mrs Anderson's livelihood would be destroyed. Their capacity to discharge their indebtedness to the bank would be severely compromised. The interests of their employees might be adversely affected and cogent evidence that the continuation of the tenancy would cause any substantial harm to the plaintiff and other tenants of the shopping centre seems to me to be lacking. I need not, I think, discuss in any more detail the sort of considerations to which I have previously adverted which I have found persuasive of the grant of relief of this kind.

273 So far as the plaintiff's claim is concerned, I would therefore allow it and make the declaration that as at 5 July or, alternatively, 13 July 2000, the plaintiff had a right of forfeiture of the lease of the premises known as Supa Value Marmion in the Marmion Village Shopping Centre. I would not, of course, make the order that the defendant should yield up possession of those premises to the plaintiff. So far as the counterclaim is concerned, I would order relief from such forfeiture. For completeness, I would declare that the lease validly subsisted as at 13 October 2000, the date upon which the defendant exercised the option to renew the term for a period of 10 years from and including 20 February 2001.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SPARTA NOMINEES PTY LTD -v- ORCHARD HOLDINGS PTY LTD & ORS [2002] WASC 54 (S)

BETWEEN : SPARTA NOMINEES PTY LTD (ACN 008 861 345)

Costs - Forfeiture of lease and relief against forfeiture - Principles to be applied to award of costs - Relaxation of scale limits for purposes of taxation - Turns on own facts

1 MURRAY J: The plaintiff is a landlord. It leased a supermarket to the first defendant. The second and third defendants are principals of the first defendant and the defendants may effectively be treated as one party for the purpose of the consideration of costs orders.

2 The plaintiff's claim was for forfeiture of the lease for breach of covenants by the lessee. That claim succeeded. I ordered that as from July 2000, the plaintiff had a right of forfeiture of the lease of the supermarket subject to the lessee's right to relief from forfeiture, a counterclaim which it raised successfully, resulting in the grant of relief from forfeiture of the lease. Also at issue in the proceedings was the validity of the purported exercise by the first defendant of an option to renew the lease for a period of 10 years from and including 20 February 2001. I made the declaration that the first defendant had validly exercise the option to renew.

3 The question which now arises is what orders for the payment of costs should be made. The plaintiff seeks its costs of the claim to be taxed and an order that each party bear their own costs in relation to the first defendant's claim for relief from forfeiture. In addition, it seeks an order that the limits provided in the scale of costs be removed entirely, or those concerned particularly with the provision of particulars, the giving of discovery, getting up for trial and counsel's fee be removed and that counsel be allowed a fee on brief in relation to the hearing on 19 November 2001. The significance of the last order is that the action was tried for six days in July 2001, a period originally estimated by the parties to be sufficient. The trial was not, however, completed during that period and was then adjourned sine die. It could not be relisted until 19 November 2001 when a further five days were required to complete the trial.

4 Finally, for completeness I mention that the plaintiff sought the dismissal of an action CIV 2553 of 2000 with no order as to costs being made. That order was made and in these reasons I need say nothing more about the reasons for doing so.

5 The defendants seek an order that each party bear its own costs of the proceedings and naturally in those circumstances no special order as to costs would be made. The effect would be, as I understand it, much the same as granting to each party its costs of the claim and the counterclaim upon which they respectively succeeded.

6 The general rules as to costs are principally those contained in the Rules of the Supreme Court, O 66 r 1 which so far as material is in the following terms:

"(1) Subject to the express provisions of any statute and of these Rules the costs of and incidental to all proceedings including the administration of estates and trusts shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally Order that the successful party to any action or matter recover his costs.

(2) If the Court is of opinion that the conduct of a party either before or after the commencement of the litigation or that a claim by a party for an unreasonably excessive amount has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part.

(3) Where a party though generally successful in an action has, by the introduction of some issues or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues."

7 It would ordinarily follow therefore that the party succeeding on the claim and counterclaim respectively would, subject to any disentitlement by the application of r 1(2) or (3), be entitled to the costs following each event but, of course, this is a particular situation in respect of the counterclaim which is for relief from forfeiture on the basis that the party making that counterclaim is itself in breach of covenants in the lease and liable to forfeiture on that account. By s 81(2) of the Property Law Act 1969 (WA), the power to grant relief from forfeiture may be granted on terms in respect of "costs, expenses, damages, compensation, penalty or otherwise". The legislation therefore envisages that although the defendant may obtain the relief sought, it may nonetheless have to meet the reasonable claims of the wronged party to be compensated for the breach. No such claim was made in this case and the relief from forfeiture was granted unconditionally.

8 Nonetheless, in Langley v Foster (1910) 10 SR(NSW) 54 at 62, Simpson CJ in Eq said that prima facie one of the terms imposed for the grant of relief against forfeiture should be the payment of all costs because it is that party's own breach of the lease which gives rise to the claim for relief. Nonetheless, his Honour added that:

" ... this is not a hard and fast rule, for, if it were, a lessor might always oppose relief being granted knowing he would always get his costs from the lessee. If the court thinks the lessor ought not to have opposed in toto the grant of relief from forfeiture, the court may make the lessor pay the costs so far as they have been increased by the lessor resisting the claim to relief on any terms. But the court may make, and has in one case at any rate made, the lessee pay all the costs, notwithstanding the lessor contested his claim for relief at all. It is a question for the court's discretion in each case."

9 In a case of a similar kind to this one, Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49, Jackson CJ in granting relief against forfeiture of the lease of a supermarket for non-payment of rent was said by the editor at 53 to see no reason to depart from what was described as "the general rule that the tenant should pay the costs of the action [for possession] but not the landlord's costs of resisting the tenant's claim for relief against forfeiture." His Honour referred to Howard v Fanshawe [1895] 2 Ch 581.

10 It is not easy in this case to decide with any accuracy what proportion of the trial and the evidence and the debate about matters of law was devoted to the claim and the counterclaim respectively. Some particular matters may be mentioned. The plaintiff abandoned one or two of the claims of breach which were initially relied upon but it pursued the substantive claims for forfeiture of the lease for breach of the lessee's covenants to keep the premises in good repair and condition, to keep them clean and, principally, to conduct the business of the supermarket with due diligence, a covenant said to have been breached in a number of respects upon which the plaintiff substantially succeeded.

11 It was necessary, to make good this claim, that the evidence should relate not only to particular instances of apparent default but be directed to establish a course of conduct over a period to establish the relevant failures. The evidence on both sides, however, necessarily went further and much time was spent discussing the material aspects of the operation of the supermarket virtually up to the time when the trial commenced. That was necessary from the defendant's point of view to establish its claim for relief from forfeiture and the evidence led for the plaintiff in respect to the whole period could not, in my opinion, be said to have involved the costs being increased in a way which was unnecessary or unreasonable.

12 In my opinion, however, expressed in my reasons for judgment, the defendant's claim for relief from forfeiture was a strong one and I should observe that it necessarily followed, upon my view of the law, that the defendant's exercise of the option to renew the lease must be regarded as having been valid and effective.

13 I accept that the general rule is as stated above. It seems to me, with respect, to be sensible. There is no question that the defendant should bear its own costs in relation to the counterclaim for relief from forfeiture and that it should pay the plaintiff's costs in the action for possession. So far as the plaintiff is concerned, I can see no reason to depart from the general rule in this case. The plaintiff should therefore have its costs of pursuing the action for possession but not of resisting the counterclaim for relief against forfeiture. Broadly speaking, in my opinion, the justice of the case would be met by an order that the first defendant should pay the plaintiff 50 per cent of the costs of the action to be taxed.

14 The plaintiff's application for a special order as to costs is made under the Rules of the Supreme Court, O 66 r 12(1) which provides:

"Where the Court is of opinion that a special Order as to costs should be made by reason of the unusual complexity or importance of the case or for any other good or sufficient reason the Court may order that any particular allowances in any relevant scale be raised or a limit removed and in giving any such direction the Court may fix a limit within which the Taxing Officer may allow such costs."

15 The application for the order in this case, as is made clear by the terms of Mr Lin's affidavit filed in support, is based, not on the unusual complexity or importance of the case, but upon the work reasonably required of the plaintiff's solicitors and counsel for which the order for the payment of costs is to provide compensation. In City of Rockingham v Curley & Ors [2000] WASCA 202(S); 25 July 2001, the Full Court said of such an application:

"The reference in the rule to 'any other good or sufficient reason' makes it clear that consideration of the remuneration reasonably to be provided for work properly carried out may of itself provide good and sufficient reason to make a special order: Schmidt v Gilmour [1988] WAR 219, 220. A number of later decisions have further expounded the approach the court will take. The decision most recently reported would appear to be Collins v Westralian Sands Ltd (1993) 9 WAR 56 where it was held that the purpose of the order is to enable the successful party to recover costs reasonably incurred. So the court will examine the work done, consider whether it was necessarily or reasonably done and consider what remuneration ought to be provided in broad terms, matching that against the capacity to make an award within the terms of the relevant scale, appreciating always that it is ultimately for the Taxing Officer to make the proper allowance upon a more detailed consideration of the litigation and the claim for costs placed before that officer."

16 Mr Lin's affidavit refers to extensive work required of the plaintiff's solicitors to answer a request by the defendant's solicitors for further and better particulars of the statement of claim, the further and better particulars extending to 58 pages of document. He says the cost involved will well exceed the maximum amount of $1,800 which might be awarded on taxation under the Supreme Court scale. Similarly, the plaintiff was required to give discovery of documents comprising four lever arch files and over 521 items. Again the work involved, he says, will certainly cost more than the $1,800 limit prescribed by the scale.

17 As to getting up for trial, Mr Lin suggests that the maximum amount of $27,000 equating to 100 hours' work by a senior practitioner would provide insufficient remuneration. Finally, he points out that the plaintiff would be required to pay counsel's fee in an amount of $56,980. He points out that if the scale is followed, the maximum fee on brief for the first day of trial and preparation is $9,200 and the maximum fee for the second and successive days of hearing is $2,300. On that basis, the plaintiff would be entitled to recover no more in respect of counsel's fee than the sum of $32,200. Mr Lin suggests that the difficulty for the plaintiff is exacerbated by the extensive break which occurred between the hearing in July 2001 and the completion of the trial in November 2001. That, he says, necessitated counsel preparing for the hearing in November to a large extent as if this was preparation for a new trial. Counsel charged for two and a half days' preparation.

18 As to the provision of particulars and the giving of discovery, it seems to me that that was all reasonably necessary work and the arguments that the scale limits should be removed in the case of those items is a good one. I would so order.

19 As to the solicitors' costs of getting up for trial, I have no doubt that a considerable amount of work would have been required. However, the factual issues involved in the proofing of witnesses and the preparation of witness statements and bundles of documents and the like would not have been of any great complexity. It would be work which would require expenditure of time certainly, but work of a sort which could be performed by any competent junior practitioner. The limit imposed by the scale, the amount of $27,000, is not, in my opinion, ungenerous. Rather than remove the limit in this case, I am prepared to raise it to a point which would represent, in my opinion, a reasonable maximum in relation to getting up for trial in the particular circumstances of this case without, of course, in any way fettering the discretion of the taxing officer upon his or her more detailed consideration of the litigation and the costs incurred, to make a proper allowance below that limit. In that context, I would order that the upper limit be increased from the sum of $27,000 to the sum of $35,000.

20 As to counsels' fee, again there is much to be said for the argument that the delay of some four months in resuming the hearing would impose an additional burden of preparation upon counsel for which some allowance should reasonably be made but not, I think, to the extent that the additional preparation should be equated with that for the commencement of the trial by allowing a second fee on brief. On my calculation, if that second fee on brief was allowed but the maximum rates per day for junior counsel provided in the scale were adhered to, the maximum recovery would be the sum of $39,100. As Mr Lin says in his affidavit, if the limits provided in the scale are strictly adhered to, the maximum recovery would be $32,200.

21 It was necessary to adjourn the trial and resume it in November 2001 because the parties' solicitors grossly underestimated the amount of time required for trial despite the efforts made by all involved to make the trial process as efficient as possible. It seems to me that that may not be laid exclusively at the door of the first defendant by removing the limit on counsel's fee so as to permit all costs reasonably incurred in this regard to be recovered. Further, the prima facie position to be taken is that the maximum rates provided in the scale provide reasonable remuneration to counsel. I would see no reason to depart from that prima facie position in the circumstances of this case. I am of the opinion that the only special order which should be made is by way of a minor relaxation of the limits imposed by the scale to take account to some degree of the extra work which would reasonably have been required of counsel to prepare for the resumption of the trial in November 2001. I would increase the maximum provided by the scale so that no more may be recovered in respect of counsel's fee than the sum of $35,000.

22 Other than in those respects, taxation should proceed in accordance with the relevant scale of costs and I would ask counsel to provide in agreed and complete terms a minute of the final orders which I am prepared to make.