Assessment of damages
236 We have found the resolution of this matter to be the most difficult of all the tasks that have confronted us in this case. The evidence on quantification of damages put before the Tribunal and before us was detailed and voluminous. It chiefly comprised financial statements relating to the Applicant's business, both in the Premises and in a neighbouring shop in which it traded until July 2004. By contrast, the submissions (compared with those advanced on the issues relating to liability) were comparatively brief. We are bound to state that in determining an amount to be awarded to the Applicant we did not derive a great deal of assistance from this material.
237 We have decided since the second hearing of the appeal that a methodology for assessing damages that did not receive any significant attention in the evidence or the submissions should be adopted.
238 It would of course have been preferable for us to hear submissions about the appropriateness of this methodology. But since the parties have had the opportunity to address the question of assessment of damages on three separate occasions - once before the Tribunal at first instance and twice during the appeal - we do not think that the disposition of these excessively lengthy proceedings should be further delayed by any further hearing or by the receipt of further written submissions. An additional reason for this conclusion is that, as will become apparent, the approach that we are adopting focuses on a topic that featured prominently in the parties' negotiations during in the Lease and in the proceedings themselves - namely, the Applicant's claim for abatement of the rent payable under the Lease.
239 As indicated above, the Applicant claimed in the second appeal hearing that its loss should be assessed by reference to the following categories: (a) the lost gross profits from the loss of trade caused by the Respondent's unconscionable conduct; (b) the lost value of its business; and (c) the amount of the unpaid rent for which it had been held liable to the Respondent.
240 We accept that damages within the first of these categories would prima facie be appropriate under section 62B(8) of the RL Act. To award such damages would accord with Mr Angyal's proposition, involving a comparison of the 'pecuniary impacts' on the Applicant's business of two different configurations of kiosks near the Premises. It would also accord with our revised version of this proposition.
241 For three reasons in particular, however, we believe that the evidence relating to the Applicant's financial performance at the Premises since the commencement of the Lease fell significantly short of what was needed to quantify any loss of profits caused by the Respondent's unconscionable conduct. This evidence did not establish either (i) that the diminution in these profits during the Applicant's occupation of the Premises was wholly attributable to this conduct of the Respondent (as Mr Fernon argued) or (ii) that this conduct had no impact at all on the Applicant's profits (as Mr Angyal argued) or (iii) most importantly, what proportion of the decline in profitability should be held attributable to this conduct.
242 In explaining the first of our three reasons for this conclusion, it is useful to begin by quoting comments that we made in the first appeal decision (at [208] and [209]) regarding the Applicant's comparative sales figures for each quarter between January 2001 and June 2007:-
208 Relevantly, these figures showed increases in gross takings for most quarters, compared with the equivalent quarter in the preceding year, during the period between 1 July 2002 and 30 June 2004. An explanation for this, on which the expert witnesses agreed, was the increase, in July 2002, in the size of the Applicant's trading premises, due to the addition of Shop 417. But the turnover in virtually every quarter thereafter - that is, between 1 July 2004 and 30 June 2007 - was distinctly less, and sometimes very much less, than the turnover for the equivalent quarter of the preceding year.
209 This decline in sales may be sufficiently illustrated by saying that the total sales figures for the fiscal years 2002-03, 2003-04 and 2004-05 were respectively $2,268,737, $2,245,972 and $1,529,752. The amount by which the sales figures decreased in 2004-05 was accordingly $716,220, representing 32% of the figure achieved in 2003-04.
243 At [257], we commented further as follows:-
257… These [sales figures] show that the decline in the Applicant's takings which [Mr Fernon] claimed to be of great importance did not commence until the third quarter of 2004, more than 18 months after the Boost Juice kiosk was erected. On the basis of these figures, the erection of this kiosk alone would appear not to have had a significantly detrimental effect on the Applicant's trade. Instead, the downward trend in its sales did not commence until more than a year after installation of the Telechoice kiosk in May 2003. This trend became more pronounced after the installation of the Love Salad kiosk in February 2005.
244 In paragraph 7 of an affidavit sworn for the purposes of the second appeal hearing, Mr Bell, who was one of the Respondent's expert witnesses, observed that what we called the commencement of 'the downward trend' in the Applicant's sales did not occur immediately after, or even within the period of a few months after, the erection of any of the three kiosks. He stated:-
7.16 My analysis… shows that there was no apparent detriment to sales following the opening of the Boost Juice and Telechoice Kiosks…
7.18 I refer to the decline in sales in the September 2004 and December 2004 quarters [i.e. the third and fourth quarters of 2004] and note that this decline began:
7.18.1 Approximately 20 months after the opening of the Boost Juice kiosk and 12 months after the opening of the Telechoice kiosk; and
7.18.2 Approximately 7 months prior to the opening of the Love Salad kiosk (which opened February 2005).
245 These specific passages in Mr Bell's affidavit were not challenged during cross-examination at the second appeal hearing.
246 What this material indicates is that the Applicant's assertion of a substantial overall decline in the profitability of its business on account of the erection of the kiosks is not backed up at all by financial data showing that the erection of any of them had an immediate, or briefly delayed, negative impact on its turnover. There appears to have been no correlation in time between the erection of a kiosk and a decline in turnover.
247 Our second reason is a matter mentioned in the Tribunal's decision and at a few places in the evidence. It is that in or about April 2004, approximately three months before the commencement of the major decline in the Applicant's sales, the Applicant ceased selling two prominent brands of surf wear, namely Billabong and Mambo.
248 The Tribunal, having mentioned this occurrence at T50, referred to it again at T242 as a 'suggested' cause of the failure of the Applicant's business, but expressly refrained from expressing an opinion about this suggestion.
249 In his affidavit, Mr Bell stated (at para 7.17) that 'importantly' the commencement of the major decline in the Applicant's sales 'coincides with' its 'apparent cessation of purchases of Billabong and Mabo brands of surf wear from around April 2004'. In cross-examination, however, he acknowledged that he did not have any experience in the operation of businesses in the surf industry or 'any particular experience of a brand affecting a store in sales' (Transcript, 21 June 2012, p 9, lines 45-46).
250 Further significant testimony on this question was given by the Applicant's expert witness, Mr Standley. As summarised at T177, his answers to questions from non-judicial members at the Tribunal hearing included the following two propositions:-
… (c) The loss by a shop of the right to sell a particular brand in a shopping centre would have a significant effect on the shop.
(d) His reference to "high fashion" in relation to the business of Surf City had been made in the sense "… the term high fashion in surfwear would denote the key brands…" and "… a business such as Surf City is very, very brand dependent…"
251 In contesting the proposition that the loss of these two brands caused the decline in the Applicant's business, Mr Fernon pointed to a statement by Mr Terrill in cross-examination (Transcript 21.5.09, p 52, lines 18-19) to the effect that the loss of a brand such as Billabong 'could be picked up with the other brands'. Mr Fernon relied also on the fact that although the Applicant had lost the Billabong brand a potential buyer (Mr Gunn) appeared in October 2006 to be willing to pay $250,000 for the business.
252 Undoubtedly, the evidence as to the likely impact of the loss of these two brands on the Applicant's trade is far from conclusive. But it is significant that the Applicant's own expert witness, Mr Standley, described its business as 'very, very brand dependent'. The possibility that this event in April 2004 was a contributing cause of some significance to the pronounced decline in turnover commencing in or about July 2004 cannot be discounted.
253 Our third reason is that the Applicant provided nothing in the way of evidence or argument to assist us in evaluating the possible impact on the Applicant's business of some external factors to which we drew attention in the first appeal decision at A324. In that paragraph, we wrote:-
324 Furthermore, in its submissions to us so far, the Applicant has not pointed to any evidence in this case of the kind that in other comparable situations has assisted a court or tribunal to determine the extent, if any, to which such interfering factors have in fact impaired the trade of a lessee and to award damages accordingly. For instance, our attention has not been drawn to any evidence, expert or lay, on the question whether customers of retail businesses selling street clothing and clothing and accessories for surfing, skating and snow sports were frequently 'impulse' or 'casual' buyers, or more often would decide in advance both that they wished to buy such goods and what shop they would visit. Clear sightlines would be more important in the former situation than in the latter. We have not been made aware of any evidence of trends, upward or downward, in the number of customers to whom the Applicant sold goods (as opposed to the amounts that the Applicant received from these customers). There appears to us equally to have been no evidence of trends, upward or downward, in the trading fortunes of other similar retail businesses within the general neighbourhood of the Centre.
254 Furthermore, with reference to the last of these matters, Mr Terrill stated in his report that the 'surf retail category' had 'experienced slower sales over the 2006 period'. As far as we can discern, this was not challenged by the Applicant.
255 We agree with Mr Fernon that a number of other suggestions as to the reasons for the decline in the Applicant's sales do not carry much weight. Criticisms by Mr Terrill of the range of products, visual presentation, customer service and management standards that he perceived when inspecting the Premises were sufficiently answered by Mr Fernon's argument that this inspection occurred when the Applicant's business was only a few months away from closure. The evidence regarding the impact of the closure (during April 2004) of the Applicant's nearby business at Archer Street was equivocal.
256 Our overall assessment, however, of the evidence and submissions on which the Applicant relied is, as we have already stated, that it has failed to establish either that the substantial decline in its turnover and profitability following construction of the Boost Juice kiosk was wholly attributable to the conduct of the Respondent that we have held to be unconscionable or, most importantly, what proportion of this decline, even in broad terms, can properly be held to have been caused by this conduct. Although, in a passage from a High Court decision quoted below, it has been held that when evidence as the amount of alleged lost profit is inconclusive, a court or tribunal may have to engage in 'guess work rather than estimation', the range of possibilities left open by the evidence is too wide to permit us simply to 'guess at' a figure.
257 The Applicant's claim for damages within the second category - the loss of the value of its business - could only be sustained if the evidence showed that a decline in the profitability of the business brought about by the Respondent's unconscionable conduct was of a sufficient scale to cause the business to fail completely. But as we have just said, the evidence was insufficient to support any finding at all as to the amount of lost profit. It follows that there can be no award of damages based on the value of the business.
258 As to the third category, we see no warrant for an order totally relieving the Applicant from its liability for rent. We may add that equally we do not understand the grounds on which, in its 'Summary of Applicant's Claim for Damages and Relief Sought' filed on or about 10 February 2010, the Applicant sought an award representing the value of rent and outgoings that it had paid from 1 September 2006 to 28 February 2007.
259 Our rejection of the Applicant's arguments on quantification of damages does not preclude our adoption of the different methodology that we have foreshadowed. We have decided that the order that we should make under section 72AA of the RL Act should take the form of an order reducing the amount of rent payable under the Lease.
260 An important reason for this is that a significant component of the conduct of the Respondent that we have held to be unconscionable was its refusal to grant continuing rent relief to the Applicant, despite the Applicant's concerns, conveyed on numerous occasions commencing as early as August 2002, about the adverse consequences of contravention of the 2002 Height Restrictions. As was indeed emphasised by Mr Angyal (see in particular [128 - 130] above) , the main response to its complaints that the Applicant sought to elicit from the Respondent was a willingness to reduce the rent. If indeed the Respondent had granted a continuing rent reduction of any significance, we would have been reluctant to characterise its conduct as unconscionable.
261 These observations accord with an important aspect of our decision on liability in this case. We did not decide that the Respondent was bound by a contractual obligation to the Applicant to require that any kiosk established close to the Premises should comply with the 2002 Height Restrictions. In the first appeal decision, we upheld the Tribunal's rejection of an argument along these lines, based on the handwritten amendment made by Mr Mimis to the memorandum of lease prepared on the Respondent's behalf. If the Respondent had been bound by any such obligation, its approvals of the plans for the three kiosks would in each case have been a breach of contract, and liability to pay damages, assessed according to normal contractual principles, would have followed as a matter of course.
262 Our finding of unconscionable conduct against the Respondent was instead dependent on proof of a continuing course of conduct, extending beyond the approval of contraventions of the 2002 Height Restrictions so as to include also the Respondent's refusal to acknowledge that contravention had occurred, its reliance on a greatly liberalised version of the Restrictions that it issued in 2005 and, as we have just pointed out, its refusal of rent relief.
263 It is at least arguable that because the Respondent's liability for unconscionable conduct differs in these significant respects from simple contractual liability, an award of damages for lost profits, such as would normally follow from a finding of breach of contract, would not be appropriate in this case. But we do not need to pursue this question, since there were, as we have already indicated, quite different grounds for rejecting the Applicant's claim for damages for loss of profits.
264 It is for these reasons that the order that we now make under section 72AA of the RL Act is one directed solely at reducing the amount of rent and interest payable by the Applicant to the Respondent.
265 The questions remaining are (a) what amount or proportion of the rent payable should be the subject of abatement and (b) over what period should the abatement occur.
266 With regard to the first of these questions, we derive guidance from the fact that as at March 2002, when negotiations for the Lease were in train, the current minimum rent paid by the Applicant for Shops 415 and 416 was $229,200 per annum and the current minimum rent for Shop 417, being then payable by the tenant preceding the Applicant, was $169,900. The evidence for this is contained in an internal document of the Respondent, headed 'Business Case Recommendation' and dated 13 March 2002. The total of these two amounts is $399,100.
267 In the same document, it was noted that the minimum rent being proposed for the Lease being negotiated for all three Shops was $427,500. This was in fact the amount ultimately agreed on, with provision for annual increases calculated by reference to the CPI and for an additional percentage rent based on turnover.
268 In this document, it was also noted that the 'Surplus to Current Rent' that would then be generated would be $28,500. This represents 7% of the rent being obtained by the Respondent under the two earlier leases and 6.7% of the rent due under the Lease.
269 It was claimed by Ms Mimis-Weeks and indeed acknowledged in the testimony of witnesses called by the Respondent - for example, its expert witness, Mr Terrill (see Transcript, 21.5.09, p 41, lines 28 to 36) - that the shop premises formed by combining Shops 415 and 416 with Shop 417 occupied a 'premium site' on Level 4 of the Centre because of its position at one end of the north-south walkway leading from the car park entrance. This was the case even though at the time of commencement of the Lease the B-Zone kiosk interfered to some extent with the sightlines from the walkway.
270 It is legitimate, in our opinion, to treat the 'surplus' amount of $28,500 within the rental figure of $427,500 stipulated in the Lease as reflecting, at least to some degree, the additional value of the site occupied by the Premises by virtue of its 'premium quality'. This value was diminished by the interference to sightlines caused by the erection, over the ensuing period of about 30 months, of the three kiosks about which the Applicant complained.
271 Mr Terrill's evidence effectively confirmed these two matters. In cross-examination (Transcript, 21.5.09, p 41, lines 39 to 47), he acknowledged that 'subject to a consideration of the impact of the kiosks a landlord could charge a premium or higher rent for shops 415 to 417 because of that positioning at the end of a corridor' and that 'in light of the erection of the three kiosks and their signboards there's some interference with what would otherwise be an excellent line of sight directly ahead to 415 to 417'.
272 The evidence of another expert witness called by the Respondent, Ms Radosevic, included statements in cross-examination (see T169 and A64) making it clear that, in her view, the overall impact of the three kiosks was to interfere more significantly with the sightlines than the B-Zone kiosk had done.
273 The Respondent chose, however, to reject the Applicant's requests for rent relief on account of this interference. This rejection constituted, as we have said, one of the grounds for our finding of unconscionable conduct. If the Respondent had been prepared to, in effect, surrender to the Applicant a significant segment of the 'surplus' annual rent of $28,500 that it had secured by entering into the Lease, we would, as we have said, have been reluctant to make this finding.
274 In determining what annual amount of rent foregone would have been sufficient for this purpose, we receive no specific guidance from the evidence or from legal principle. We must simply abide by a well-known pronouncement (to which Mr Fernon referred us) contained in the judgment of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83:-
The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v Schiffmann (1971) 124 CLR 303 at 308, Menzies J went so far as to say that 'assessment of damages… does sometimes, of necessity, involve what is guess work rather than estimation'. Where precise evidence is available the court must do the best it can.
275 Although this passage relates to damages for breach of contract, not for unconscionable conduct under the RL Act, the broad message that it conveys is, we believe, applicable to the latter category of case.
276 Doing 'the best we can', we conclude that an offer by the Respondent to 'surrender' 50% of this annual minimum rent 'surplus' of $28,500 - i.e., $14,250 - during the period after the Boost Juice kiosk was constructed would have been sufficient to ward off any finding of unconscionable conduct and is accordingly appropriate for present purposes.
277 As indicated at T21, the Respondent's cross claim for unpaid rent and outgoings related to (a) the period of almost exactly five years between the commencement of the Lease on 2 July 2002 and the Applicant's vacating of the Premises on 28 June 2007 and (b) a further period until the commencement of rent payments under new leases on 24 September 2007 (Shops 416 and 417) and 1 November 2007 (Shop 415). In approximate terms, a period of 5 years and 4 months is involved.
278 The amount to which the Applicant should be entitled, with respect to the loss occasioned by the Respondent's refusal to grant rent relief, is accordingly $14,250 x 5.3333: i.e., $76,000. The Applicant should also receive interest on this sum.
279 As noted near the commencement of these reasons, the Tribunal, in its principal decision (Spuds Surf Chatswood Pty Ltd v PT Ltd (No 2), PT Ltd v Spuds Surf Chatswood Pty Ltd [2011] NSWADT 152), upheld the Respondent's cross claim against the Applicant and ordered that the Applicant was to pay $327,633.55 on account of unpaid rent and outgoings (plus interest) to the Respondent.
280 If that amount has already been paid, the order that we now make will operate an order that the amount of $76,000 plus interest (calculated in the same manner as under the Tribunal's order) should be refunded to the Applicant, pursuant to paragraph (a) of section 72AA(1) of the RL Act. If it has not been paid, our order will take effect as an order under paragraph (b) that the amount of $76,000 plus interest is not due or owing under the Tribunal's order, or alternatively an order under paragraph (a) that this amount is now to be paid by the Respondent to the Applicant (thereby permitting set-off of the smaller debt against the larger).
281 In its second decision (Spuds Surf Chatswood Pty Ltd v PT Ltd (No 3), PT Ltd v Spuds Surf Chatswood Pty Ltd (No 2) [2011] NSWADT 186), the Tribunal held that the amount of interest to be paid by the Applicant to the Respondent, being pre-judgment interest from 23 April 2008 to 3 August 2011), was $92,811.46.
282 The amount of interest payable by the Respondent to the Applicant under our order should therefore be $76,000 x 92,811.46 divided by 327,533.55. The resulting figure for interest is $21,535.72, and the total amount to be paid under our order is $97,535.72.