1. On the claim by the applicant for compensation by way of damages for damage to the fit out and the cost of cleaning the premises, the respondent is ordered to pay to the applicant the sum of $22,240.00 together with damages by way of interest.

1. On the claim by the applicant for compensation by way of damages for loss of stock unsealed currently in the premises because of contamination by mould, the respondent is ordered to pay to the applicant the sum of $23,884.94 together with damages by way of interest.

1. On the claim by the applicant for compensation by way of damages for loss of profits, the respondent is ordered to pay to the applicant the sum of $136,686.00 together with damages by way of interest.

1. The applicant's claim for compensation by way of damages for bank overdraft interest paid is dismissed.

1. The applicant's claim for compensation by way of damages for loss of goodwill, not having been pressed in the hearing, is dismissed.

1. The applicant's claim for compensation by way of exemplary damages is dismissed.

1. The tribunal declares the applicant has validly exercised the option to lease the premises for a further term of five years commencing 18 May 2012.

1. The applicant's claim for a declaration that there is a binding agreement between the applicant and the respondent for an option for a further term of five years to lease the premises to be contained in a new lease to commence on 18 May 2012 is dismissed.

1. Pursuant to s 91(1)(e)(ii) of the Act the time for market review of the rental under the lease be postponed until 18 May 2012.

1. The respondent is ordered to pay the further sum by way of compensation to the applicant by way of interest in the sum of $26,346.72. That sum is calculated at the rate provided for under s 2 of the Penalty and Interest Rates Act 1983 of 10.5% for a period of 418 days, being the period when application was first made in the tribunal (8 October 2010), until the date of the decision (1 December 2011) on the total compensation ordered by the tribunal to be paid by the respondent to the applicant of $218,599.63. The amount of interest will continue to accrue at the rate of $62.88 per day until all the compensation ordered to be paid by the respondent to the applicant is paid.

1. The respondent's application by way of counterclaim for a declaration that the lease has been absolutely determined is dismissed.

1. The respondent's application by way of counterclaim that the applicant pay the respondent $19,644.20 damages by way of compensation on account of claimed loss of rent and outgoings is dismissed.

1. The applicant has liberty to apply on the question of costs within seven (7) days if so advised.

1. For the reasons that follow the applicant has succeeded in part in its application and orders will be made on the application accordingly. The respondent's cross-application by way of counterclaim is dismissed.

1. By amended points of claim dated 29 March 2010 filed in the tribunal and served upon the respondent, the applicant seeks determination of a retail tenancy dispute.

1. The application is brought in the tribunal pursuant to the provisions of Division 4 of Part 10 of the Retail Leases Act 2003 ('the Act').

1. By points of defence and counterclaim dated 1 June 2011 filed in the tribunal and served upon the applicant, the respondent also seeks determination of a retail tenancy dispute.

1. There are a number of issues raised by the amended points of claim and the points of defence and counterclaim that I have been asked to determine. Before turning to those issues it is important to set out some background which is necessary to an understanding as to how the issues to be decided by me arise.

1. The matters of background are uncontroversial between the parties.

1. The applicant is a company incorporated under the provisions of the Corporations Act. At all relevant times it has been controlled by Mr Bob Spaleta and his wife Irene.

1. Prior to November 2006 the applicant acquired the Australian rights to import into Australia from Italy and market high quality women's lingerie made and sold under the market brands of 'Valery' and 'Verdissima'. I admitted into evidence at the hearing several brochures depicting the style and quality of the products.[1]

1. The applicant did a lot of research. Mr Spaleta told me in evidence, and I accept, that the applicant set about acquiring a retail shop to be used as a retail outlet in Church Street, Brighton. That location was decided upon by the applicant because its research showed Brighton to be a suburb where the residents had high incomes. The applicant's plan was to sell its expensive products to these residents whom it was thought could best afford to buy its merchandise.
2. The applicant also planned to have, and subsequently did establish, a wholesaling business. The evidence before me was that although the wholesale side of the business was subsequently established, it was modest and was conducted mostly on-line via the internet.

1. Mr Spaleta gave evidence, which I accept, that the applicant planned to establish the retail outlet for its goods in Brighton and, once established, repeat the exercise in a similar way by establishing another such retail outlet in Sydney. Because the applicant's business has been crippled by the issues that give rise to this retail tenancy dispute, that part of the plan has not eventuated.

1. Although both Mr and Mrs Spaleta would from time to time work in the retail outlet, the applicant's business was primarily run by Mrs Spaleta. She is Croatian and English is her second language. She speaks quite good English. She told me in evidence that she is from a family steeped in the business of selling women's lingerie. She is the third generation of her family to have engaged in such work.

1. Mrs Spaleta told me in evidence, and I accept, that her aim was to provide a total shopping experience for women buying her merchandise. She told me that women coming to her to purchase a bra could expect to take up to one hour being properly and professionally fitted by Mrs Spaleta, who I accept, is an expert in the business of women's lingerie.

1. For reasons that are obvious, Mr Spaleta was not involved full time in the selling side of the applicant's business. Although he did from time to time help out at the applicant's shop, his main role was in the administrative and financial side of the applicant's business.

1. Before the tribunal the applicant was not legally represented and both Mr and Mrs Spaleta appeared on its behalf.

1. The respondent is also a company incorporated under the provisions of the Corporations Act.

1. There are two directors of the respondent. The first is Mrs Ada Houghton who is aged 94 and lives in a nursing home. She holds all of the shares in the respondent. The second director is her daughter Mrs Barbara Lepp.

1. The respondent is the registered owner of retail premises located at 17 Church Street in Brighton ('the premises').

1. Mr Harold Lepp is the husband of Barbara Lepp. He is neither a director nor a shareholder of the respondent. He gave evidence before me, which I accept, that the premises were purchased by the respondent in about 1985. At first, Mrs Houghton's husband (now deceased) made most of the decisions surrounding the premises but after his death, that has now passed to Mrs Houghton who, although elderly, nonetheless still plays the major part in making any decisions about the premises.

1. Mrs Barbara Lepp also gave evidence before me which confirmed this. Mrs Barbara Lepp, whilst a director of the respondent, is not the controlling mind of the respondent. The person in firm control is still Mrs Ada Houghton. Mr Lepp assists the respondent in some matters relating to the premises, but made it quite clear to me that he does not make the decisions for the respondent and any decisions are made by Mrs Ada Houghton.

1. The respondent was represented in the hearing before the tribunal by Mr Rollnik of counsel instructed by Ms Randazzo of HWL Ebsworth lawyers.

1. Ever since the premises were acquired by the respondent, its leasing has been managed by the real estate firm of Gray Johnson[2] or its predecessor, Gray Johnson having at some time acquired the business of a previous managing agent.

1. At the end of 2006, the person at Gray Johnson charged with managing the premises was one Rajend Chetty. He was not called to give evidence in the tribunal by the respondent and no explanation was given for his failure to give evidence.

1. In about February or March of 2007, Mr Matt Brown ('Brown') took over from Rajend Chetty handling the management of the premises at Gray Johnson. He continued in that role until late 2010. Mr Brown also was not called to give evidence in the tribunal by the respondent and no explanation was given for his failure to give evidence.

1. In late 2010, Brown was replaced by Ms Elaine Hong who also was not called to give evidence in the tribunal by the respondent and no explanation was given for her failure to give evidence.

1. The premises consists of a typical shop that might be found in a retail shopping strip in suburban Melbourne. There is a shop area located at the front and a storage area towards the rear. Outside at the back is located a small toilet and beyond that an open area which provides parking for a motor vehicle, perhaps more.

1. As at November 2006, the premises were let for use as a gift shop by the respondent to Cardeaux Giftware Pty Ltd. That letting was pursuant to a lease in writing between the respondent and Cardeaux Giftware Pty Ltd dated 27 June 2006 ('the lease').[3] I admitted into evidence photographs of the premises depicting how the premises was set up when it was run as a giftware shop.[4]

1. In order to establish a retail outlet in Church Street Brighton, in November 2006, the applicant purchased the business of the giftware shop located at the premises and took a transfer of the lease from Cardeaux Giftware Pty Ltd.[5] The lease was novated to the applicant.

1. The lease is in the form of the REIV Commercial Lease. The schedule to the lease shows the 'commencement date' to be 18 May 2006. The 'term' of the lease was five years. The rental was $60,000.00 per annum payable 'Calendar monthly in advance on the first day of each month by equal instalments of $5,000 plus GST'.

1. The lease provides for a market review of rental on 18 May 2011 but otherwise the rental was to be adjusted annually with a 3% increase each year in accordance with amounts set out in paragraph 18 of the schedule of the lease on the 18th day of May in each year.

1. The lease gave to the lessee an option to renew the lease for a further term of five (5) years. The last day for renewal of the option was 17 February 2011. The lease provided that the lease for the further term shall 'contain the same terms and conditions as are set out in this lease but excluding this agreement for renewal'.[6]

1. The lease provided for the usual covenants that the lessee pay the rental in advance in accordance with the provision in the schedule and 'to pay or reimburse the lessor....all municipal and water, drainage and sewerage rates'.[7]

1. The applicant also covenanted by the lease to reimburse the lessor for all insurance premiums.[8]

1. There were other covenants relevant here. Clause 1(f) required the applicant to, inter alia:

clean and keep free of debris all drains, waste pipes, gutters, spoutings, rain heads and downpipes which exclusively serve the premises.

unblock or repair any sewers, drains, washbasins, sanitary apparatus, washing facilities or mechanical installations in or serving the premises which may be blocked or damaged and which the lessee agrees were neither blocked or damaged at the commencement date.

1. Assuming the applicant paid the rent and otherwise complied with its covenants, the respondent as lessor, covenanted and agreed to give quiet enjoyment of the premises to the applicant.

1. The lease further provided for abatement of the rental and outgoings should the premises become damaged by storm 'so as to be unfit for use and occupation by the lessee'.[9]

1. The premises are 'retail premises' within the meaning of the Act and therefore the Act applies to this dispute.[10]

1. There are a number of provisions of the Act that have application and relevance to the matters to be determined in this dispute. I will deal with them later.

The Wet Wall adjoining 15 Church Street and the Toilet

1. Soon after the applicant took a transfer of the lease, it found problems with the state of the premises. It removed the fit out for the giftware shop and commenced to install its own fit out. Removal of a plasterboard façade on the western wall in the storeroom area revealed that moisture or water was seeping into the premises from the adjoining premises at number 15 Church Street occupied by a florist. I admitted into evidence a number of photographs taken of the wall in question. The photos depict obvious damp areas of wall with obvious efflorescence and dark patches which probably depict the existence of mould.[11]

1. The applicant called the agent, Rajend Chetty, on numerous occasions to have the wall fixed. It at first thought the respondent, or its agent, would immediately attend to the fixing of the wall quickly so that it could proceed with its fit out. The applicant had planned to open its business at the premises on 8 December 2006[12] giving more than two weeks trading in the immediate Christmas period, the best time for retail of almost any kind.

1. However, the applicant's hopes and best intentions were thwarted. The respondent's agent, Chetty, did not respond to its cries for assistance. The applicant was delayed in completing the installation of its fitout of the premises. Instead of opening on 8 December as planned it was only able to open on 30 December 2007.[13]

1. Both Mr and Mrs Spaleta gave evidence as to these matters. It was not seriously contested and their evidence is corroborated by the documents tendered in evidence.

1. Mr Lepp gave evidence the first he learned of delay in the opening of the premises caused by the wet western wall was when this application was commenced by the applicant. Mrs Lepp said she had no knowledge of the matter. She said if there were any problems with the premises the agents would not contact her, rather they would contact her mother.

1. I admitted into evidence as exhibit 'A' an email from Bob Spaleta to Chetty dated 7 December 2006 and both Mr Spaleta and Mrs Spaleta gave evidence consistent with the content of the exhibit which largely speaks for itself. Inter alia the email said:

We have contacted you on numerous occasions at Gray Johnson, where we have been told that we should hold, that you are currently in a meeting or otherwise unavailable, but that you said you would return our call. Never happened.

We have left voice mail messages on your mobile telephone on at least two occasions, requesting you to contact us as soon as possible. (As telephone records will show). No response. We have been waiting on you for 10 days.

As such, your inaction is preventing us from completing our shop-fit and opening our business resulting in:

- cancellation of appointments with trades people, trades people that have not been able to perform their work, and who will not be able to return until after the New Year as they move on to other jobs, take holidays, etc,

- loss of revenue during the busiest part of the trading year (approximately $15,000 per week),

- loss of revenue, new material and labour costs should we complete our works in order to open the business as soon as possible, then have the wall repaired at a later date.

We require your immediate response. Should you fail to contact us immediately we will rectify the problem tomorrow morning and deduct costs from upcoming rents.

1. Chetty finally responded to the applicant's pleas for assistance. On or about 11 December 2006, he sent a plumber, Peter Hingston, to investigate. A fax from Hingston to Chetty referred to the problems with the wet wall at the premises and concluded simply that the problem was caused by the florist next door. The fax offered no solution but did identify that the applicant was also complaining about the state of the toilet. Hingston advised that the toilet required replacement:

The party wall adjoining the florist shop has severe rising damp towards the rear of the shop from past the centre of the shop.

The tenant is most distressed and is attempting to finish the building works to enable them to commence trading. They are covering the walls with new plaster board, however, they are unable to finish until this matter is resolved.

Also the toilet is malfunctioning and is a redundant model and will require replacement. The cost to supply and install a Caroma dual flush cistern would be $400 labour and materials plus gst of $40.00.[14]

1. The evidence subsequently shows the toilet was replaced, but in April 2011, some four and a half years later. That fact alone gives some indication as to why these parties came into dispute. In short, it is because the respondent's agent did little if anything to act on any of the tenant's complaints and the respondent itself only took action when forced to do so.

1. Although the applicant was able to open its business on 30 December 2006, it should not be assumed the problem of seepage or rising damp in the rear western wall of the premises was fixed by the respondent at that time. It was not fixed then. The respondent has recently taken steps to fully rectify the problem caused by the wet wall. The problem nevertheless remains to this day. The respondent commenced some work at the premises in mid-May 2011, which included some work on the offending wall.

1. Having reported the problem of the wet wall in November 2006, the applicant was only able to get on with the work of fitting out the shop by covering over the problem. It did this by putting a stud wall over the affected area leaving the damp wall sealed within. The respondent, it seems, was content to let the problem fester thereby relieving itself of the burden of incurring what it no doubt perceived as unnecessary expense.

1. I accept the applicant's evidence that it was delayed in opening because of the wet wall at the premises. In final submissions, the respondent conceded the applicant was delayed in opening because of the wet wall in the store area. It also conceded it was liable to compensate the applicant for any resultant loss. The dispute on this issue relates to the amount of and method of calculation of the loss.[15]

1. The applicant achieved what could only be regarded as a first class fit out at the store. Mr and Mrs Spaleta did most of the work themselves at a total cost of, what I was told in evidence, was $25,000.00. What they achieved is, I think, to their credit and reflects the amount of thought and planning they had put into setting up and opening their business.[16]

1. On 12 February 2007 the applicant again wrote to the agent by email. Inter alia it said:

When the plumber visited 17 Church Street to examine the water damage, we also pointed out the constantly running toilet that was inherited when we took over the lease. He examined the toilet and said he would report it and it would be fixed as the cistern needed to be replaced. To date this issue has not been addressed. Please have someone fix it as it is costly and incredibly wasteful given the state of water supply.

Also, you mentioned you would keep us up to date as to what action would be/had been taken re the water damage issue. We have received no news to date. Look forward to your reply.[17]

1. I accept, neither the respondent nor its agent, did anything to rectify either the wet wall or the toilet by this time. By an email dated 1 March 2007, the applicant complained to Chetty that it had received no response to its email of 12 February 2007. The email reflects the applicant's justifiable frustration. The applicant foreshadowed a complaint to relevant authorities.[18] Again, both Mr Spaleta and Mrs Spaleta gave evidence consistent with the content of these exhibits and their evidence on these issues was not challenged.

1. According to the evidence of both Mrs Spaleta and an agent and director from Gray Johnson, Matthew Hoath, Brown commenced to manage the premises for Gray Johnson around February or March 2007. According to the evidence of Mrs Spaleta, Brown attended the premises at various times after he was appointed. She said she discussed the state of the toilet with him. Mrs Spaleta said a plumber was called, who confirmed the cistern was faulty and needed to be replaced, and the door would not close and needed to be replaced. Brown told Mrs Spaleta he had reported the problems with the premises to the landlord but he had been told that the landlord had no intention of investing in repairs to the premises. Mrs Spaleta said Brown told her 'Some things are not the landlord's priorities'.

1. I accept the evidence of Mrs Spaleta on these matters. Faced with this evidence, the respondent made no attempt to call Brown, who no longer works for Gray Johnson, nor did it lead any evidence of any failed attempts to locate him to give evidence. I infer that had Brown been called on any issue he could not have given evidence that would have assisted the respondent's case. Further, although this conversation took place soon after Brown was appointed as manager of the premises, subsequent events tend to corroborate what I find he did say to Mrs Spaleta. The respondent did not spend any money on repairs to the premises until many years later. To my mind, that shows that in fact, spending money on repairs was not a priority for the respondent as landlord.

1. Further, photographs taken of the toilet show its poor state. 'Dilapidated' is perhaps a better adjective.[19] The photographs show rising damp in the walls. Image 14 depicts the damp floor area consistent with a constantly leaking toilet. Image 17 shows the water slowly exiting the toilet towards a drain trap in the concrete outside of the toilet. The images show the toilet has not had a paint of any description for many years.

1. Although the applicant would have inspected the toilet before taking a transfer of the lease, it could not have known of the extent of the problems with the toilet then. It would only have been later when required to use it. The toilet certainly does not fit with the otherwise top class fit out achieved by the applicant with the rest of the store. I very much doubt the type of client which the applicant hoped to attract would have enjoyed the experience of visiting the toilet at the premises.

1. The applicant traded successfully during the calendar year 2007. Although the Trading and Profit & Loss statements show the applicant traded at a net loss, it had invested heavily in stock. Later I will deal with the trading figures. At this time, it is sufficient to note that in the first four months of trading of 2008, the applicant was achieving sales on average 15.67% higher than in the same period in 2007.

Interruption from Building Works at adjoining property at 19 Church Street

1. Mrs Spaleta said in evidence she was visited at the premises in December 2007 by a person, Sam Opat, who identified himself as the owner of the premises at 19 Church Street Brighton. In fact, Opat controlled a company that owns the adjoining premises. Opat told Mrs Spaleta he would commence work in February 2008 to renovate and extend his property. Mr Opat told Mrs Spaleta that he would contact the respondent's agent to inform them of his plans.

1. Mrs Lepp gave evidence that in late 2007, Mr Opat made contact with her mother. He told her of his plans to add a first floor extension and produced the plans and a building permit. She said her mother did not give Opat consent to enter the premises. I do not accept that evidence.

1. It transpired that the work included the construction of a first floor. The construction was of brick and included construction of a brick wall along the boundary adjoining the premises. The work involved in the construction of this wall has caused many subsequent problems at the premises, resulting in disruption to the applicant's business, and it seeks compensation from the respondent.

1. An image depicting the rear area of the premises and the property adjoining at 19 Church Street is in evidence. It shows that pre-construction of the first floor extension the two properties were similar.[20]

1. Images 19 to 23 inclusive of Exhibit X, depict some of the construction work in progress. Images 24 and 25 of the same exhibit, depict the completed work from which one can get an impression of the scale of the work which eventually extended from about the end of February 2008 until August 2008.

1. According to the evidence of Mrs Spaleta, which I accept, the work commenced with the construction of a concrete slab at the rear of the adjoining shop. Mrs Spaleta told me that the workers involved turned the backyard of the premises into a building site.[21] The workers pulled down an adjoining fence. Mrs Spaleta complained to Brown who did nothing.

1. Mrs Spaleta complained she was verbally abused by the workers. On one occasion Mrs Spaleta told me she called the local police. The workers came onto the premises parking their cars there, making it difficult for her to find a carpark.

1. The points of claim seek compensation because the respondent failed to take steps to prevent third parties illegally parking on the land at the rear of the premises. The respondent brought an application to have that part of the claim summarily dismissed under s 75 of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act'). I upheld that application, made at the conclusion of the applicant's case, on the basis that, at law, the respondent could not be held responsible for the acts of third parties entering the land in the circumstances shown by the evidence. I gave brief ex tempore reasons at that time. It is not necessary that I repeat them here.

1. After the slab was constructed, the builders erected scaffolding in the rear yard of the premises.[22] No-one asked the applicant for permission to do this. The owner next door, and it seems to me the respondent, proceeded as if the applicant had no rights worthy of protection. Having not been asked for permission, Mrs Spaleta told me the applicant did not give permission.

1. As the building work continued, scaffolding was erected upon the roof of the premises to support workers, and materials for the construction of the wall and the rendering of it. As the applicant attempted to conduct its business beneath, construction of the extension to the adjoining property proceeded overhead. Mrs Spaleta gave evidence the scaffolding over the roof was clearly visible from Church Street. Whilst work proceeded Mrs Spaleta said workers could be heard making noise above. They walked over the roof of the premises to gain access to the scaffold. Material, such as bricks and cement, were hoisted onto the scaffold. Objects, such as hammers and bricks, were frequently dropped onto the roof of the premises making conditions within the premises both noisy and unsatisfactory to say the least. Mrs Spaleta said the work on the roof caused dust to fall from the roof into the shop.

1. Mrs Spaleta complained to Brown about what was going on. She asked Brown why he had permitted the erection of scaffolding on the roof of the premises. He replied that he had spoken to Mrs Houghton and she had given consent.[23] Mrs Spaleta asked him to bring the landlord down to the premises to see what was happening. No-one from the respondent came to the premises. Brown responded by telling Mrs Spaleta that the owners of both properties had reached an agreement which allowed those constructing the extension at 19 Church Street to use the grounds of the premises to construct the whole wall of the premises. I accept the evidence of Mrs Spaleta that she was told these things by Brown.

1. Brown did send a plumber, Brad, from R W Gill & Sons, to inspect the roof of the premises in 2008, but he could do nothing. Mrs Spaleta said in evidence, he was prevented from doing anything because of the presence of the scaffolding on the roof of the premises when he was there. I accept her evidence.

1. Mrs Spaleta gave evidence that in June 2008 she saw a worker involved in the construction work pouring concrete down the drain at the rear of the premises.[24] She reported the matter immediately to Brown who said he would speak to both the owner of 19 Church Street and to the respondent. But again it appears he did nothing. Mrs Spaleta gave evidence nothing happened as a result of what she reported to Brown. I accept the evidence of Mrs Spaleta.

1. The construction work at 19 Church Street did cause significant damage to the premises. The roof was damaged. Nails securing it were rendered loose. Spouting and drains were blocked with concrete remnants. I admitted into evidence numerous photos depicting this which were not challenged.

1. However, because of the drought conditions which existed throughout 2008 and 2009, the fact of or extent of the damage was not revealed until March of 2010 when breaking rain caused flooding at the premises. I will turn to those matters later. Suffice to say at this point that the drain where a worker was seen depositing refuse concrete was found to be blocked.

1. The Trading & Profit & Loss Statements of the applicant for the calendar year 2008 show that the applicant's business dropped away significantly after the construction work began at the adjoining premises and never recovered. Mrs Spaleta said her customers just did not want to be in the store with all of the work going on. She said the customers just would not remain in the store for the hour needed to properly fit them with expensive bras. Being unable to provide her service, she said the applicant's business suffered. I accept that evidence.

1. Mr Lepp gave evidence that he and the respondent were aware that there was work going on at the adjoining premises from the application for a planning permit to construct the extension. He said that, apart from declining to object to the planning permit, the respondent had no involvement or contact whatsoever about the building work. He said he and his wife were interstate from March until April of 2008. Mrs Lepp confirmed that evidence. She said she had no contact with either the agent or the tenants about the premises in 2008. She said she had no knowledge of the building work going on.

1. Mrs Spaleta gave evidence she was told by Brown that Mrs Ada Houghton had consented to the construction work being carried out and permitted the work to be done, using the premises at the rear and on the roof to stage the construction at the adjoining premises.

1. The respondent discovered no documentation whatsoever relating to the building works at the adjoining property. Some documentation must exist. It was not produced.

1. Further, Mrs Houghton was not called to give evidence nor was any affidavit produced from her. I infer that Mrs Houghton could not have given evidence in some form that would have assisted the respondent's case. As I said earlier, Brown was not called to give evidence and neither was Mr Opat.

1. On 17 March 2008, Mr Opat emailed Brown seeking to arrange a meeting at 19 Church Street Brighton.[25] Because Brown was not called as a witness there is no evidence he attended such a meeting.

1. On 26 March 2008, Opat emailed Brown again.[26] He said:

Further to our conversation we are about to commence construction of a brick wall on our boundary. We will be doing this wall 'overhand'.

There will however be concrete remnants that fall on your client's property. As we build the wall we will need access to clean the concrete. This will only occur over a couple of days and it can be prior to 10am in the morning. We hope your client is acceptable to this. We await your response.

1. There is no evidence of any response. The following day, there was a further email from Opat to Brown as follows:[27]

Please note we will be pulling down the fence on Monday morning to enable us to construct our brick wall on the boundary as per the planning permit drawings. We do ask that you allow us permission to clean up any concrete remnants that fall onto your client's property. Can you please contact me to discuss.

1. Again, there is no evidence of any response. On 4 June, Opat wrote a further email to Brown:[28]

We are now well underway with construction. We need to put scaffolding in the rear yard of 17 Church Street to complete cladding and rendering to the first floor wall. We would like to do this next week. It will remain there for no more than two weeks.

1. On 4 July 2008, Brown emailed Opat.[29] He complained of the scaffolding present on the roof of the premises. He complained that Opat's workers had disturbed the roof of the premises. By then it was too late.

My builders spoke with your plumbers the other day.

The scaffolding is down but we are just waiting for the renderers to return to finish the wall between us and your client's property. They may use a small scaffold. My builder will check each nail/screw and clean off your roof thereafter. We will also advise you when this is complete so that you can have the works checked. Please forward by email or post your plumbers bill on receipt. We are hoping works will be complete on your side this week.

1. There is clear evidence that Opat sought permission to enter upon the premises. I find that the respondent was approached by Opat and advised of his proposal to construct a first floor extension to the adjoining premises at 19 Church Street. I also find the respondent agreed to the construction work being carried out in the way it was in fact carried out. I am satisfied Mrs Houghton was approached and agreed to this as was related by Brown to Mrs Spaleta. In its points of claim, the applicant claims the respondent denied it the right to quiet enjoyment by consenting to the construction work being carried out in a way that involved the use of the premises. I agree that this was the case.

1. In final submissions, Mr Rollnik submitted, in effect, that as owner, the respondent had no standing or power to do anything about the actions of the owner of the adjoining premises which he submitted was a trespass. He submitted the only party with any standing at law to do anything about what was happening was the applicant as occupier. I expressed some scepticism about the submission and suggested that perhaps the Building Act gave the owner some standing. Mr Rollnik made no submissions about this suggestion.

1. The proposed construction was one that required notice to be given by Opat to the respondent as owner of the premises under s 84 of the Building Act 1993. Part 7 of the Building Act 1993 requires the owner of a property adjoining another, who is proposing to undertake building work, to give a notice under regulation 602 of the Building Regulations 2006 to the owner of the adjoining property. The owner of the adjoining property must respond within 14 days as to whether the owner agrees with proposed protection work to be done to protect the adjoining building or, be deemed to have agreed.

1. There is no evidence of what, if any, protection measures were proposed by the owner of 19 Church Street for the premises whilst construction was underway. Having heard the evidence of Mrs Spaleta about the way the construction was carried out, with apparent complete disregard for the applicant and the fact that even when complaint was made, nothing was done either by the respondent, its agent or the adjoining owner, I have concluded the respondent consented to the work being carried out without any regard to the rights of the applicant as a tenant occupying its premises and without a proper plan to protect the premises in place.

1. I find that the respondent was approached by Opat and advised of his proposal to construct a first floor extension to the adjoining premises at 19 Church Street. The proposed construction was one that required notice to be given by Opat to the respondent under s 84 of the Building Act 1993. I accept that Mrs Spaleta was told by Brown that Mrs Ada Houghton had consented to the work being carried out in such a way that the applicant's quiet enjoyment of the premises was ignored.

1. The respondent had given a covenant of quiet enjoyment to the applicant. The applicant was paying rent and outgoings and was not in arrears. The applicant had established a business in the premises which, at the time the building work commenced, was showing signs that it would be successful. In my judgment, in order to ensure the applicant had the full benefit of the covenant of quiet enjoyment, the respondent should have exercised its rights under the Building Act and the Building Regulations to ensure the premises were adequately protected during the course of the construction work at the adjoining premises. There is no evidence that it did so. In fact, the evidence is that the respondent consented to the premises being used to help stage the construction. There was no trespass so far as the construction was concerned. The premises were used by Opat and his workers with the consent of the respondent.

1. In its final written submissions, the respondent spent a great deal of time addressing this issue.[30] The written submissions assume a finding that Opat and his workers were tresspassers. I do not accept that they were. I find they were on the premises for the purpose of construction work on the adjoining property with the consent of the respondent given by Mrs Houghton either direct or through the agent, Brown. The submissions also suggest there is no evidence Brown gave consent. I do not agree. Brown told Mrs Spaleta the respondent had consented. In that circumstance, it is most likely he responded to Opat's requests detailed in the emails. I accept the evidence of Mrs Spaleta.

1. As I said earlier, neither Mrs Houghton nor Brown was called as a witness. Mr and Mrs Lepp both acknowledge that Mrs Houghton was the controlling mind of the respondent. Because of that, I have no confidence in the evidence they have given about this matter. Because neither Mrs Houghton nor Brown was called as a witness and no explanation given as to why that was so, I infer that had they in fact been called, they could not have given evidence that would support the respondent's case.

1. Relevantly, s 54 of the Act provides as follows:

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord is liable to pay to the tenant reasonable compensation for loss or damage (other than nominal damage) suffered by the tenant because the landlord or a person acting on the landlord's behalf -

(b) unreasonably takes action that substantially inhibits or alters the flow of customers to the retail premises; or

(c) unreasonably takes action that causes significant disruption to the tenant's trading at the retail premises; or

(d) fails to take reasonable steps to prevent or stop significant disruption within the landlord's control to the tenant's trading at the retail premises.

1. Section 54(2) provides a remedy for a tenant to claim compensation from a landlord where the landlord, or a person acting on behalf of a landlord, unreasonably takes action that substantially or significantly affects the tenant's business, or fails to take reasonable steps, to protect a tenant's business within the landlord's control. Here, the respondent having consented to the construction, failed to take any steps within its control to prevent or stop disruption to the applicant's trading, both before and during the construction.

1. In my judgment, the applicant has proven a case for entitlement to compensation under s 54(2) of the Act and on the basis the respondent has breached the covenant of quiet enjoyment. The effect upon the premises and on the applicant's business after the construction at the adjoining premises was serious. That construction work was a direct cause of a significant reduction in the business of the applicant. That is demonstrated by the dramatic fall in gross sales after the construction work took hold.[31] The series of flooding events in 2010 and 2011 exacerbated the problem.

1. It is common ground between the parties that there was a meeting at the premises in May 2009 attended by Mrs Ada Houghton, Mr and Mrs Lepp and her sibling and husband who were visiting from Queensland. The meeting was arranged impromptu after Mr and Mrs Lepp took Mrs Houghton and the other relatives to the premises so that everyone could see it. Mr Spaleta was also present.

1. Mrs Spaleta said that she took Mrs Houghton around the premises pointing out the problems with it. In particular, she said she complained about the toilet leaking and the fact it needed replacing. She complained about the tap in the shop and the fact it did not work, in the result no water was available for the purpose of drinking or washing. She also complained about the problems with the rear of the premises and the fact that other persons parked their cars there.

1. The tap issue, like the toilet issue, is one that remained unaddressed by the respondent right through the term of the tenancy until recently.

1. Both Mr and Mrs Spaleta said they were at pains to point out the problems with the agent. They said that they told the Houghtons about the wet wall and the fact Chetty had not addressed their complaints. They complained about Matt Brown who, although more accessible and contactable than was Chetty, nonetheless did not act on their complaints. Mrs Houghton wrote down her telephone number and said, if they were having problems, to call her as she also had problems with Matt Brown.

1. Mrs Spaleta gave evidence Mr Lepp was shown all the problems with the premises. Mr Lepp said he would talk with the agent. Thereafter nothing happened, except a short time later, Mr Lepp put a chain across the back of the premises.

1. According to the evidence of Mrs Spaleta, Mrs Houghton was taken through the shop by Mrs Spaleta. She liked what the applicants had achieved with the shop fit out and said she wanted to keep the shop as an investment for her children. Mrs Spaleta gave evidence Mrs Houghton said she wanted to keep the applicant on as tenant and offered a 5 + 5 conditions for a new lease when the existing five year option was exercised. Mrs Spaleta said, Mrs Houghton told her she (Mrs Houghton) had said she always had given a 5 + 5 lease and wanted to keep it that way. Mrs Spaleta said Mrs Houghton agreed that when the time comes for a market review[32] the new lease will include a further option period.

1. Whether or not there was agreement on a further option period being included in any subsequent further lease is also an issue I must decide.

1. In evidence Mr Lepp agreed there was a meet and greet, as did Mrs Lepp. He said it was an opportunity to see the premises and meet the tenant. He said his group was greeted warmly by the Spaletas. He said Mrs Houghton was impressed with the fit out. He said Mr Spaleta showed him the toilet and the problems with the car parking. He said as far as he could see they were the only issues concerning the applicant at that time. He said he had no recollection of the issue of building work being raised or any question of delay in opening the store. Neither did he recall any discussion of any problem related to the tap. He agreed Mrs Houghton offered her phone number and invited that she be contacted. He said Mrs Houghton asked him to fix a chain across the back of the property to prevent people parking there which he attended to a week or so later.

1. Mr Lepp said after the meeting no complaint was made about anything by the applicant to Mrs Houghton and he assumed all was well with the premises.

1. Mrs Lepp largely confirmed this evidence. She said she gave her telephone number to Mrs Spaleta. She said her husband agreed to look at the toilet. She said the toilet was dirty and the only problem seemed to be the cistern was running into the toilet bowl.

1. There was no further discussion about the respondent granting a further five year option to the applicant at this time. The applicant, through the evidence of Mr and Mrs Spaleta, says the issue was again raised in April and May of the following year.

1. In its points of claim, at paragraph 27 and following, the applicant pleads a claim for an order that the respondent be held to the agreement said to have been reached initially with Mrs Houghton at the meet and greet meeting in May 2009. I will return to this issue later in these reasons.

1. Both Mr and Mrs Spaleta gave evidence of flooding at the premises on or about 6 March 2010. When Mrs Spaleta attended the premises she said the backyard, storeroom and the shop were completely flooded. Everything was said to be wet with soil. Mrs Spaleta said that whilst she was cleaning the storeroom there was further heavy rain which entered the store through the roof. She could not prevent water flooding the shop floor.[33]

1. Both Mr and Mrs Spaleta said attempts were made by telephone to inform the agent Matt Brown. Messages were left for him to return their calls but there was no immediate response.

1. There was further flooding of a similar kind on or about 9 March 2010.[34] Again, attempts were made to speak with the agent and messages left. Again, there was no immediate response.

1. Mrs Spaleta gave evidence that on 12 March 2010 she spoke with Brown and complained about what had occurred at the premises. She said by this time there was a strong smell at the premises and she complained about this. Brown said he would visit her at the premises. He attended on 15 March.[35]

1. According to the evidence of Mrs Spaleta, Brown visited the premises on 15 March 2010 when she again complained about the smell. Brown said to her that the smell was a serious issue and he would call a plumber. According to the evidence of Mrs Spaleta, he told her the drain had been unblocked in 2008 after she had complained of seeing someone putting concrete down it. She said she denied to Brown that the drain had been cleared because, although a plumber had attended in 2008, he had done nothing to the drain. I accept her evidence. I note no invoice has been discovered suggesting the drain had been cleared in 2008 and nor has the relevant plumber been called as a witness.

1. Mr Spaleta said when Brown visited the premises he told him the problem was with the drains. Mr Spaleta gave evidence that what he recorded in a summary of events relating to the premises which went into evidence as exhibit 'L' was true and correct. In that document Mr Spaleta recorded:

I told Matt that it was not difficult to ascertain the reason why the store was flooding. It was the result of the drains which had been blocked by the construction workers at 19 Church Street, who poured cement/concrete into the drains, which had happened over 2 years ago and was reported to him immediately, but no action had been taken by him.

I removed the grill from the drain, which was full of concrete. I also showed him the concrete samples that had been taken from the drain. Matt did not claim that the drains had been cleared.[3]

1. On or about 15 March 2010, a plumber, Mark, visited the premises but did not inspect the drain. This plumber was not called to give evidence by the respondent.[36]

1. Mrs Spaleta gave evidence there was further flooding at the premises on 29 March 2010. She said she immediately contacted Brown and Mrs Lepp by telephone and complained to her about the smell at the premises.

1. Mrs Lepp in evidence agreed that she had been contacted by Mrs Spaleta in late March. She said she and Mr Lepp were preparing to go away for the Easter break. She said her suggestion was that Mrs Spaleta should ring the agent, Brown. A couple of days later she said there was another phone call from Mrs Spaleta after a further problem with flooding. When asked what she did her evidence was 'I am not a plumber'.

On 29 March 2010, following another flood in the store, and still no plumber, I managed to get into contact with Matt to report the flood and ask what was going on. Matt claims to have called the plumber the week earlier, which cannot be earlier than 22 March 2010, which is one week after he originally claimed to have organised the plumber, that is, the 16th March, 2010, and at least 10 days after we finally managed to get hold of him.

It took one month from the time we first tried to contact Matt for him to organise a plumber and for work to begin. In that time the store was flooded a further 3 times. Strangely enough, he didn't find it worth following up between the 15th and 29th of March, 2010, as he obviously hadn't received a plumber's report from the plumber he claims to have organised for the 16th of March, 2010....

On 29th March, 2010, Matt Brown stated that the drain had been unblocked in 2008, and that other work had been performed by the plumber and that he had invoices to prove it. I strongly disagree as it was obvious that the drain had not been touched since the completion of the construction at 19 Church Street. I (or anyone else at 17 Church Street) never saw anyone at the premises drilling out the drain.

When asked to explain the work which he claimed had already been performed and for which he had invoices for, Matt Listed; cleaning of the roof of concrete and other building debris, unblocking of the drain of concrete and other building debris, cleaning of the gutters of concrete and other building debris and repair of the roof - replacement of screws that had become loose due to the scaffolding and heavy foot traffic on the roof.[37]

1. According to Mr Spaleta's summary, Mark the plumber, comes to the premises on 31 March 2010 to examine the drain. Mark said to Mr Spaleta the drain was completely blocked with cement/concrete, it had not been cleared and needed to be rodded out. According to the evidence of Mrs Spaleta, the plumber told her he had not cleared the drain back in 2008 as claimed by Brown.

1. According to an invoice dated 17 April 2010 from R W Gill & Sons for plumbing work said to have been done on 19 March 2010:

Matt Brown, ensure the drains are clear, ensure the roof is not leaking at the rear of the shop and why the toilet is not working at the back. Investigate blocked storm water drains at rear of property found 2 x drains require machining inspect roof leak and spout at rear roof sheets require re-screwing and spouting cleaned roof needs to be swept clean due to render and mortar due to site next door checked toilet service cistern, replaced inlet valve at cistern on rear toilet. To rod out stormwater drains at rear of property, to clean off roof area, clean and flush out spouting at rear, repair and refit roof sheets at rear to eliminate water leaks.[38]

1. The applicant denies this work was carried out at all. Neither Brown nor the plumber, Mark, was called to give evidence and no explanation given as to why not. The Spaletas both gave evidence there was no 'machining' done of the drain at this time and the invoice itself does not suggest otherwise.

1. According to the evidence of both Mrs Lepp and Mrs Spaleta, the latter phoned Mrs Lepp on the 21 April 2010 and again complained to her about the continuing smell in the premises. Mrs Spaleta complained the problems stemmed from the construction next door in 2008. According to Mrs Spaleta, Mrs Lepp said she could not recall what had occurred back in 2008 and 'her job was just to make sure her mother was receiving the money from the rent.' They agreed to meet at the premises on the following day.

1. Mrs Spaleta said there was a continuous bad smell of damp in the premises from the time of the first flooding in March 2010 right up to and following the meeting on 22 April 2010. She was concerned the smell had affected the stock not damaged by water.

Waiver of rental by the Respondent for March/April 2010

1. It is common ground there was a meeting at the premises on the 22 April 2010. Present were the Spaletas, the Lepps and Brown.

1. Mrs Spaleta said in evidence that as a result of the repeated flooding during March and April at the premises, the applicant had suffered from a lot of damaged stock and trade had dropped right off because of the ongoing smell in the premises. She said she and her husband complained to the Lepps and Brown that all of their problems were caused as a direct result of the failure of the respondent to properly maintain and manage the premises. They pointed out they had complained about the performance of Brown the previous May but nothing was done. They also pointed out they had complained about the construction work in 2008 but nothing was done.

1. According to the Spaletas, Matt Brown said that in 2008 he had spoken with Opat about the construction next door. The Lepps claimed they knew nothing of the construction next door or of the problems. They claimed at the meeting that they had been kept completely in the dark by the agent about problems with the premises.

1. It was a case of Brown blaming the respondent and the respondent blaming Brown. Mrs Spaleta said she and her husband took the view there were inconsistencies in the stories of both the Lepps and Brown.

1. In his summary, Mr Spaleta said of the meeting on 22 April:

Brown claims 21st April was the first time he had ever been advised of flooding at the store and only after he was contacted by Mrs Lepp.

Mr Lepp says he had advised Brown to rectify various problems at the premises in mid 2009.

I had spoken with Mr Lepp about all ongoing issues when he visited the store in 2009 with Mrs Houghton, and we went into further detail when he returned soon after to install the chain at the rear parking area....Mr Brown could not explain why he had not followed Mr Lepps instructions with regard to rectification of these issues....At the meeting at 17 Church Street on 22 April 2010, I repeated to Matt that the damage caused to our business was the direct result of the blocked drain and Matt's negligence and inability to properly manage the 17 Church Street property, and not because of the recent storms.

1. According to Mrs Spaleta, the Lepps blamed the agent for the damage suffered by the applicant. Mrs Spaleta said she told the Lepps that she was not paying the rent for March or April because of what had occurred. Mr and Mrs Spaleta were both adamant that the Lepps agreed the applicant should not pay the rent for March and April 2010.

1. The Lepps deny any such agreement. This is another issue raised by the points of claim and the points of defence and counterclaim which I must decide.

1. The Lepps were shown around the premises on 22 April. They were shown the leaking roof in the store and shop. They were shown the leaking toilet and the fact the tap in the rear of the shop was inoperative except with assistance of strength and the aid of a tool such as pliers.[39]

1. Mr Lepp gave evidence that at the April 22 meeting the applicant was strongly critical of the management of Brown. The Spaletas said at the meeting they had been previously told by Brown that Mrs Houghton had said she was not prepared to spend money repairing or maintaining the premises. Mr Lepp said Brown denied having made such a statement previously. He added Brown's explanation was unconvincing. He said he and his wife were 'flabbergasted' by what they had been told.

1. Mr Lepp said the conversation then turned to the issues. There was discussion of whether the spouts were clear. He said there was a repeat of the toilet problem and the car parking problem. According to his evidence, he thought to himself 'here we go again'. He said there was water on the floor and a box stored on the wet floor.[40] They went outside. There was a lot of debris in the back yard. He said he agreed to clear the area at the respondent's cost.

1. Mrs Lepp also gave evidence the applicant's main complaint at the meeting was about the agent, Brown, whom they complained was not passing on information. She confirmed the evidence given by her husband. She said she looked over the premises and was very upset at the way the agent had allowed it to deteriorate. She said, inside the back of the shop, there was discussion about what further needed to be done. She said there was a discussion about whether the damaged stock was covered by the respondent's insurance.

1. Mrs Lepp said she did not believe the question of the applicant not paying rent for March or April 2010 was discussed. She said after the meeting she and her husband had discussed whether the respondent's insurance covered loss of rent. She said 'if the insurance had given us some money to compensate the respondent for loss of rent we could have agreed to pass it on to the tenant'. She said there was no agreement the applicant not pay rent for March and April and 'it wasn't really an issue on that day.' She said she phoned Gray Johnson and asked Brown to investigate that issue. She agreed in her evidence the ongoing issue of the toilet was discussed, as was the faulty tap and the question of the accumulation of rubbish in the back yard following the building in 2008.

1. Pausing here, there is clear evidence which is not contested that there was rubbish left in the rear yard of the premises from the construction of 2008. Mr Lepp estimated the volume of it at three (3) cubic metres.[41] That this volume of rubbish was allowed to remain on the premises for at least 18 months after the construction ceased demonstrates to me that the respondent did not care to check on the premises or maintain them at all. The photo (unnumbered) in Exhibit X, depicting the remnants of concrete in the guttering, is another example of this.[42] Common sense dictates that the respondent would have checked whether the construction next door affected its premises. In the face of complaints from the applicant, one would have thought the premises would be thoroughly checked by the respondent, even if common sense was not applied. That the premises were not checked by the respondent indicates to me the respondent was not in the least concerned for the wellbeing of the tenant. It was only concerned with receiving its rent regularly and spending as little money as possible in maintaining the premises.

1. I do not accept the evidence of Mrs Lepp that the question of whether the applicant should have to pay rent for March and April 2010 was not discussed. It clearly was, for there was no reason why Mrs Lepp would have asked Brown to investigate the position of whether the respondent was covered by insurance for loss of rent.

1. Further, the evidence subsequent shows that Brown, on behalf of the respondent, made a claim for loss of rent on the respondent's insurer. I find it very difficult to imagine he would have done so without instruction from the respondent. I find it even more difficult to imagine such a claim would have been made absent some agreement with the applicant at the meeting that it not pay rent for March and April.

1. It is necessary to analyse the documentary evidence that shows a claim for loss of rent was made by the respondent on its insurer.

1. After the meeting on 22 April 2010, Brown wrote to the respondent at the address of Mrs Houghton at 'Greenslopes Retirement Village' in which he was confirming 'the issues raised and the items that will be addressed regarding recent water damage'.[43] The fact he addressed his letter to Mrs Houghton suggests to me he regarded her as the director of the respondent from whom he should take his instructions.

1. The letter deals with a number of issues the first of which is 'insurance'. Relevantly, he said:

the landlords insurance company has already been notified of the circumstances surrounding the water damage. They will also be advising on the loss of rent issue. (my underlining)

R W Gill has been advised to re-check the drains to ensure they are not blocked. This will form part of their initial invoice, which is in question. They have also been advised to provide a report/quote, if required, on the roof, guttering system, water supply and drainage.

1. The Spaletas have always maintained that, Mark the plumber, did not unblock the drain when he attended in mid-March 2010. They maintained this position at the meeting on 22 April. In my view, whether the plumber unblocked the drain in mid-March 2010 is not to the point. Even if he did, it is now obvious he did not do so properly because it is common ground this work has only recently been done properly.

1. The Spaletas clearly complained about what had happened with the 2008 construction at the 22 April meeting. Brown's letter to the respondent attached a hard copy of his email exchange with Opat which I have set out above. I infer this was done because the applicant had complained at the meeting about the way in which the construction work had occurred in 2008.

1. Also, on 22 April 2010, there was an email to Brown from Richard Noble at Hiscock Insurance Brokers advising the policy number of the respondent's insurance and who to contact to claim under the policy.[44]

1. Mr Lepp gave evidence about Exhibit E and the reference in it to the question of insurance for loss of rent. He said at the time we 'thought it may be possible the insurance policy dealt with the situation such as we were facing, namely a possible loss of rent'. He said 'we were subsequently advised by the insurer there was no provision in the cover for loss of rent and that closed the option for us concerning loss of rent.' He went on and said the applicant had said that, in view of its loss of stock and loss of trading time, it was only fair it not pay rent. He said the respondent responded by saying we will ask the insurer. I do not accept this evidence of Mr Lepp which I find is inconsistent with actions taken by Brown on behalf of the respondent.

1. From 22 April 2010 Mr Lepp did become involved in the repair of the premises. On 23 April 2010 he emailed to Brown, and copied to the applicant, instructions to rectify problems at the premises.[45] The email sets out a list of things to be done. But, although Mr Lepp may have been motivated in April 2010 to assist, the respondent was very slow to react in terms of actually getting things done.

1. An invoice from the plumber shows that he attended a meeting at the premises on 27 April 2010 to 'To attend on site meeting, investigate stormwater guttering/downpipes, drainage and quote for further works, service tapware, replace 2 spindles internally at rear of property'.[46]

1. The applicant had been complaining to the agent about lack of drinking water because the tap was inoperative since the day it took occupation. The tap was now repaired. Three and a half years later.

1. R W Gill and Sons, the plumbers, provided a quote to carry out work at the premises. It listed a number of items. Items 1 to 4 were undertaken at the instruction of the respondent through Mr Lepp shortly thereafter. Item 5 was more expensive. That work was not undertaken. It related to the blocked drain. Mr Lepp it seems, did not want to undertake this work until he was sure he would recover the cost from Opat, who was responsible for blocking the drain. Without the drain being unblocked the premises were liable to flooding again. The drain remained blocked for some time. The quote provided by the plumber was as follows:

Quotation dated this date from R W Gill & Sons offering quote for scope of works as discussed on site:

Remove existing quad spouting at rear, regrade and replace with 175mm stratco quad spouting;

Separate price - Excavate and replace approximately 3m below ground storm water drain.[47]

1. Prudence would dictate that a blocked drain in a commercial building that had been shown to have already caused, or substantially contributed to flooding in the building, be repaired immediately. Whilst the drain remained blocked the tenant, as occupier, was at risk from flooding. The respondent, for reasons best known to it, took that risk. It preferred to do nothing until it was assured of the costs being recovered from another party. I reject any submission the respondent acted immediately. Mr Lepp acted, but he did not do enough.

1. On 3 May 2010, Mr Lepp emailed Brown - asking him to please proceed promptly with works items 1 to 4:

As for item 5 please negotiate agreement with Sam Opat for him to pay for these works. The storm water drain in question was blocked by concrete washed into it by contractors washing trowels and other equipment during the building extensions at No 19 Church Street.

Mark from R W Gills attempted to clear the blockage but was only partially successful. The remaining blockage consists of hard concrete not able to be removed by available methods- except to replace the affected pipe section..... I look forward to your early response to this email - and progress with rent in arrears payment. The current rent in arrears is creating significant stress with us as the rent is used to pay for Mrs Houghton's accommodation in her retirement home.[48]

1. Brown responded to Mr Lepp the same day saying he would instruct the plumber to proceed as advised. He said he would take up the issue of unpaid rent.[49]

1. The following day Brown emailed the applicant advising the respondent had agreed to do some work and he demanded payment of the unpaid rent. He said:

Our client has also advised that the rental must be paid immediately. March, April and May rental, together with some outgoings remain in arrears.[50]

1. Mrs Spaleta said there was a telephone conversation between her husband Bob and Mrs Lepp on 5 May 2010. According to Mrs Spaleta, Mrs Lepp claimed the respondent was not responsible for any loss suffered by the applicant and claimed it was all the fault of the agent Brown, and Opat, the owner of 19 Church Street. Mr Spaleta had phoned her asking for her address to send the bill for the applicant's damage. According to Mrs Spaleta, Mrs Lepp said it was all to be sorted out between Gray Johnson and the applicant. I accept this conversation occurred. Mrs Lepp was effectively washing her hands of the problem.

1. By the following day, 6 May 2010, Mr Lepp was looking to Opat to compensate the applicant. He emailed the applicant and said:

This morning I have instructed Matt Brown to proceed with a claim on VEO Pty Ltd (Opat) to:

Complete all works not done or not completed to our satisfaction at VEO cost.

Pay compensation to Versus for stock damage and trade interruption due to internal flooding which is directly attributable to concrete from construction works at 19 Church Street, Brighton - blocking drains and downpipes at 17 Church Street, Brighton - resulting in substantial gutter overflow to enter 17 Church Street. I indicated to Matt Brown that damage in the order of $24,000 is involved and that you would provide him a more accurate claim figure in the near future.[51]

1. It is interesting that Mr Lepp was not suggesting the applicant should claim on Opat's company, rather, the advice was that the respondent was going to make the claim. This strongly suggests to me the respondent recognised it was responsible for any loss and damage suffered by the applicant and it was looking to Opat for some form of recovery. The respondent would have done well at this point to have recognised its obligations to the applicant as tenant. It did not do so. Instead, it looked for ways to spread the blame.

1. Mrs Spaleta said in evidence, and I accept, that by this time it was clear to herself and her husband that they were in dispute with the respondent.

1. On 12 May 2010, the applicant emailed the respondent and Mrs Lepp advising there was still a strong smell in the store. The email advised the rent had been paid 'for the month of May' and asked to pay the rent in future direct to Mrs Houghton, by-passing Gray Johnson. It also advised the applicant had been contacted by the respondent's insurer about its loss.[52]

1. On 13 May 2010, Brown emailed the applicant. The email drew attention to the unpaid rental but went on to say:

Furthermore, we advise that neither Gray Johnson or our client, ANH Nominees Ltd, has received any written evidence of a potential claim for any losses as a result of the storm. Unless this is received, we will be seeking full payment of rental.[53]

1. The words I have underlined strongly suggest to me there had been previous discussion of offsetting the rent for March and April against losses suffered by the applicant.

1. An email from the applicant to Brown of 17 May 2010 reflects the applicant's frustration. No-one was attending to its claims for compensation. Yet demands for the rent were still being made:

We were contacted by the landlord's insurance company, and when we returned their call Bob was told that the insurers head office would contact him regarding a time/date for an assessor to come out. Bob also spoke to Mr Lepp about this. We are waiting for the insurer to get back to us. Once again, it is surprising that you, the property manager, are not aware of this. Please forward a copy of the terms and conditions of the landlord's insurance policy. That is, what is covered by the policy.

Also, we have not received any information, nor have we been contacted by Gray Johnson's insurer. We ask that you supply this information and have your insurer contact us when we meet with you and Mr and Mrs Lepp at 17 Church Street on 22 April 2010.

Smell. We contacted Kristie Coade at AMC Cleaning via email on 5 May 2010 regarding the smell which remains in the store. In her reply of 6 May 2010 Ms Coade wrote that she had contacted you, and you said you would address this further. It is now eleven months since, and we have still not heard from you regarding the above.[54]

1. By 19 May 2010, the applicant was still demanding payment of arrears of rent for March and April subject to proof of damages. Again, this suggests to me there was discussion on 22 April that the applicant would not have to pay rent for those months.[55]

1. During May 2010, the plumbers attended to carrying out the works listed in items 1 to 4 of their April quotation. They also attended to replacing loose nails on the roof with screws.[56]

1. On 25 May 2010, there was another meeting at the premises between the Spaletas and Mr Lepp. This arose as a result of a suggestion in an email to Mr Lepp by Mr Spaleta on 12 May that matters could be resolved between the parties.[57]

1. Mrs Lepp gave evidence she had read Exhibit Y and she could see there would be issues so she sent her husband. She said she did not want to be put on the spot. She said her husband would listen to the applicant's suggestions and report back to her when decisions would be made. She said her husband told her he had discussed the issues of stock damage and rent abatement with the applicant. She said she was told by him he had asked the applicant to send a list of the damaged stock and 'we'll work something out'.

1. As to the applicant's proposal that it pay no rent for March or April, she said she didn't believe the applicant had to close its shop. She said perhaps there was a half day here, a half day there. She said she and her husband felt that if they compensated the applicant for its damaged stock then that would be fair. She added 'we didn't know if we could claim the rent back'. She said there was never any agreement the applicant would not pay rent for March or April.

1. Mr Lepp gave similar evidence. He said the meeting took place at a local coffee shop 'The Groove Train'. He said when he arrived at the premises, he saw a sign to effect there was a sale on with '20% off'. This was denied by the Spaletas. He said he told the Spaletas 'whatever you say I will take back to the directors'. He said the Spaletas expressed a desire for the respondent to waive the rent for March and April and pay for the damage to stock. He said he responded by saying 'we don't have particulars of damaged stock'. He said he told the Spaletas they were asking for a benefit without justification. He said they then walked back slowly to the premises. He said during this walk Mr Spaleta said 'don't worry about fixing the toilet and the tap, just compensate us for our loss.' He then said in evidence, Mr Spaleta said 'the business at the shop is just a front, most of our sales are over the internet'. He said Mr Spaleta went on to say that 'the global financial crisis has had a serious affect on our business like all of the other businesses in Church Street.' Mr Lepp then gave evidence Mr Spaleta said in this discussion that Mrs Spaleta cannot be in the shop all of the time. She has other things she must do - we are thinking of employing someone to look after the shop full time.'

1. This alleged conversation deposed to by Mr Lepp was a clear attack on the credit of the Spaletas. The reference to other things to do was a reference to an allegation advanced by the respondent that the applicant's business failed because the Spaletas spent most of their time caring for an elderly gentleman named Vojtek. Despite the seriousness of the evidence, the conversation was not put to Mr Spaleta in cross-examination. I pointed this out to counsel in running. No application was made to recall Mr Spaleta to put the alleged conversation.

1. Mr Lepp said he told the Spaletas that unless some proof of damage sustained was provided, there was nothing the respondent could do to assist the applicant. Mr Lepp said there was discussion about the applicant's desire that any new lease also contain a five year option which would have the effect of extending the them to 2021. He said he did not make any agreement. He was there to have the discussion and report back.

1. Mrs Spaleta gave evidence about the 25 May meeting. She said she and her husband told Mr Lepp the applicant was going to sue the respondent and that it was inappropriate that the applicant's loss was not being paid. Mr Lepp said he would discuss the matter with the respondent and come back to the applicant. According to Mrs Spaleta, Mr Lepp came back on 27 May to fix a door at the back of the premises. He said the rent for March and April unpaid would be offset against trade losses suffered by the applicant.

1. Mrs Spaleta said she and her husband made it clear they were going to sue. Mr Lepp responded by saying he and his wife knew nothing of the problems at the premises. He asked the Spaletas for time to sort things out with the agent and the owner of 19 Church Street, Opat. According to the Spaletas, they explained to Mr Lepp the responsibility lay with the respondent, as landlord. They agreed to withhold any action. Mr Lepp asked for a summary of events. The applicant prepared Exhibit 'L' which was sent to Mr Lepp by email on 15 June 2010.

1. I accept the applicant's version of what took place at the meetings on 22 April and 25 May 2010. Their evidence is corroborated by subsequent events, as shown by the documents tendered in evidence. I reject the evidence of Mr and Mrs Lepp that relates to meetings on these dates.

1. On 1 June 2010, Warren Kernaghan, an insurance assessor, arrived unannounced at the premises. He told Mrs Spaleta he was there to assess the building and the cause of the still ongoing smell.[58]

1. On 3 June, a report commissioned by the respondent from FBI (Atchison), was prepared. That report shows that on inspection of the premises on 27 May 2010 there was evidence of rising damp in the store area and mould in the store area and the shop. The existence of mould in the premises remains a significant issue that denies the applicant ongoing occupation and use of the premises. I will return to this issue shortly.

1. On 26 June 2010, Brown forwarded an email to the insurance assessor, Kernaghan. It said, inter alia:

Further to your letter dated 9 June 2010 please see the attached correspondence. Our client is also claiming loss of rent. Is this going to be accepted by the insurer?[59]

1. It is clear from this email that Brown was not just involved in exploring whether there was a possibility of the respondent recovering any loss of rent. He had actually made a claim asserting the respondent (who was the named insured) had in fact lost rental. This fact strongly suggests to me that as early as the meeting on 22 April 2010, the respondent, through Mr and Mrs Lepp, had agreed to waive the rent for the months of March and April.

1. I find there was agreement reached at the meetings on 22 April 2010 and the 25/27 May 2010 that the respondent would waive its right to the rent for the two months, March and April 2010. The intention of the agreement was to, in part, compensate the applicant for damage caused to its stock by the floodings. Later I deal with the question of compensation owed by the respondent to the applicant for damage to its stock. In calculating the final amount owing, I have deducted the amount of $10,927.00, being the rental unpaid for the months of March and April 2010.

1. On 15 July 2010, Kernaghan responded to Brown's email. He made it clear the respondent's policy of insurance did not cover it for lost rent. Inter alia, his response said:

In relation to the loss of rent claim, the tenant never moved out of the premises and it is my understanding, they will not pay rent. It would need to be established that the tenant could not trade and be proven. The tenant indicated to me that they stayed at the premises. We need to confirm that the insured has loss of rent cover as according to our instructions they do not.

1. Brown did not report this response to Mr Lepp until 12 August.[60]

1. By 2 September 2010, the applicant was becoming very frustrated with what was happening. The insurer refused to assess its damaged stock and no-one was addressing the on-going problem of the bad smell in the premises, which was turning the customers away. Fed up with dealing with Mr Lepp, Mrs Spaleta wrote to Mrs Houghton direct. Relevantly, her letter complains that no-one has been to assess damages and no-one has been to the premises to rectify the problems which have existed since 2006 despite complaints to Brown and Mr Lepp.

I made it clear on more than one occasion that regardless of Gray Johnson's negligence or mismanagement, it is the landlord who is responsible for the damages caused to Versus's business from November 2006 to date. Harold said he would need time to sort things out with Gray Johnson and the owner of 19 Church Street and asked for our patience. That is a separate issue which you are free to pursue, but it does not diminish or replace your responsibility toward Versus and settling the matters and problems at hand.....I kindly ask that you address all of the issues now.....The damages caused to the business and the smell in the store, store room and changing rooms seem to have been forgotten and remain unaddressed....Please send out your insurance assessor to examine the damage caused to our goods and chattels. I kindly ask that you remedy the issues of the toilet and the smell in the shop as we are approaching the summer & pre Christmas sales periods, which are very important to our business and we wish to work through this period without distraction and disruption.[61]

1. The response was not swift but neither was it sympathetic. It was in the form of a notice of default served by the respondent through its solicitors HWL Ebsworth dated 20 September 2010.[62] The notice of default asserts the applicant had failed to pay rent for July to September and outgoings. It claims $25,515.59 in total to be outstanding at that time. In fact, the applicant had paid all of the rent, except for March and April. The agent applied rental paid in subsequent months to arrears first so that its records showed unpaid rental in subsequent months instead of just March and April 2010.

1. From this point, the parties quickly descended into full scale disputation. On 7 October 2010, the respondent served a Notice of re-entry which was delivered to the premises and the respondent re-entered possession.[63] Soon after that, the applicant broke back into the premises and then applied to the tribunal for an injunction restraining the respondent from re-entering the premises.

1. On 29 October 2010 Senior Member Riegler made orders restraining the respondent from re-entering into possession. The applicant gave undertakings to continue to pay the rent and outgoings.

1. On 24 November 2010, there was yet a further flooding at the premises, this time through the ceiling.[64] The following day, the applicant sent an email to the respondent's solicitor reporting the fact.[65] The email said the problem had been reported to the respondent and Mr Lepp previously but the problem continued to exist.

1. On 27 November 2010, the applicant sent an email to the respondent's agent, Mr Hoath. By this time Brown had gone. Mr Hoath is a director of Gray Johnson. The email said, inter alia:

The plumber was here yesterday and spent approximately 10 minutes up on the roof. He did not speak with me prior to leaving, so I do not know what he did. Today we had the roof leaking from the same spot, and water was coming into the storeroom, wetting the floor and boxes with goods in them. Instead of focusing on my work in the store I have spent the entire day repacking and moving goods into dry boxes. The problem has not been addressed appropriately. A better assessment of the state of the roof is required and appropriate action must be taken to prevent water from coming into the store, damaging stock and interrupting trade.[66]

1. Still nothing was done to provide relief to the applicant. Instead, Ms Hong (who took over from Brown towards the end of 2010) wrote back saying:

We confirm the plumber visited the subject property on Friday and siliconed various problem areas. Peter Hingston (plumber) will contact you in the short term to investigate.

1. On 29 November 2010, the plumber Hingston, reported on the state of the roof of the premises, saying:

In my opinion, this roof has the potential to cause ongoing problems for a number of reasons at any time, subject to conditions such as prevailing winds with heavy rain, similar to the conditions we are now experiencing.[67]

1. There was a further event where water entered the premises on 4 and 5 February 2011. Mrs Spaleta gave evidence of water again entering the premises and damaging stock within. I accept that evidence.

1. Between December 2010 and May 2011, the respondent, through Mr Lepp, made arrangements to repair the premises. A number of exhibits were tendered that show emails passing between Mr Lepp and the agents and Mr Lepp and various trades persons. It is not necessary to go through each of them in detail. The scope of the work, and who was to carry it out, are all explained in a number of documents that were introduced into evidence.[68]

1. The toilet was finally fixed by the plumber, Hingston, on or about 1 December 2010.[69] That was more than four years after the applicant had first complained about its state and Hingston had first reported that it needed replacing. That gives some insight into why this dispute has escalated in the way that it has. The respondent either did not listen to the applicant or ignored its complaints. From the evidence I have seen, each of the applicant's complaints, over what is now five years, is entirely justified.

1. The applicant had to vacate the premises in May 2011 to enable repair work and refurbishment to be carried out. The applicant has not been able to return into occupation of the premises since it vacated for reasons which I will come to shortly.

1. The roof of the premises was replaced, as have the guttering and downpipes. Some work has been done to the wet wall between May and August 2011. There is still some work to be done to the wet wall but from the other side, that is, by sealing the wall from 15 Church Street. The drain has been fixed and a back veranda put on the premises and the floor of the toilet lifted. An email from the builder, Mr Entwistle, to Ms Hong and Mr Lepp of 25 August 2011 advises all works are complete and that the building is fit for purpose.[70] But that statement proved to be incorrect. At the time of the hearing the premises were not fit for occupation.

1. But even the arrangements for having the applicant vacate the premises were poor. The respondent did not give proper notice to the applicant under the Act or the lease that it was proposing to carry out the repair and refurbishment works until ordered to do so by the tribunal. The respondent's agent, Hong, was conscious of the fact that proper notice had to be given to the applicant as an email from her to the eventual builder and Mr Lepp of 16 March 2011 suggested.[71] Further, the builder was also conscious of the fact the applicant had to be given notice. He asked when the applicant was vacating.[72]

1. The applicant was forced to write requesting information about what works were proposed for the premises and when they would commence on 13 April 2011 when it emailed Ms Hong as follows:

I requested this as the landlord has provided no information or timeframe with regard to building maintenance/works. Our previous experience with the landlord, meetings with the landlord and the verbal agreements made at those meetings show that the landlord has a history of denying what was discussed or agreed at those same meetings. As such, we prefer the communications with the landlord be in written form and only via email. To date, we have received no information regarding the above, despite my request to you on 8 April 2011 and 11 April 2011 that the landlord forward their complete list of proposed maintenance plan/works, including timeframe, in writing. I note that in the attachment to your email of 11 April 2011 there is no information regarding the list of works that the landlord proposes to perform at the store. You did not provide but I had requested. I kindly ask that this information be forwarded as soon as possible, via email.[73]

1. In my view, the stand taken by the applicant in its email of 13th April, 2011[74] was justified. Because of the way it had been treated by the agent and the respondent (both of whom repeatedly ignored its requests), the applicant had formed the view it could trust neither of them. The respondent by this time was legally represented. Through its lawyers it had engaged the tribunal regularly. It made fruitless applications about discovery when, at the same time, the discovery that it had given was less than satisfactory. On the eve of the hearing it made a useless application for security for costs in a jurisdiction where the Act specifically provides for each party to bear its own costs. The applicant could not afford legal representation, its business having been financially crippled by the events. The applicant did its best to represent itself through Mr and Mrs Spaleta by turning to the Act and the lease to seek relief in the tribunal.

1. In the hearing and, in submissions, the applicant was at times highly critical of the respondent's solicitors for the way in which they have treated it throughout the proceedings. This is not a matter that I have to decide, however, from what I have seen there is some justification for the applicant's criticism. I assume the many applications in the tribunal by the respondent, through its solicitors, were made on instructions.

1. In the email of 13 April, the applicant also asked for copies of the actual rates notices for the premises for the period covered by the lease. The applicant had been seeking this information for more than a year. Like every other request the applicant made, it was ignored.

1. The email of 13 April 2011 having been unanswered, the applicant made a further request for the information it was seeking about the scope of the repair/refurbishment works two days later. This time the terms of the request were somewhat more formal:

Please let us know by the end of business at 5.00pm today when or if the landlord will supply:

1. The complete list of proposed maintenance plan/works for the store, including timeframes, in writing. Without this information, it is not possible to ascertain the level of disruption/interruption and denial of quiet enjoyment of the premises the proposed works will cause to the business, and the amount of compensation required as a result of disruption/interruption to business and denial of quiet enjoyment.
2. Copies of all council rates bills and water rates bills paid by Versus since 2006. Please note that we require the requested information as soon as possible.[75]

1. Even though the agent, Ms Hong, was aware the applicant had to be given proper notice of the proposed works, on 5 May 2011, she emailed the applicant seeking a meeting to discuss them. She said:

As the owner would like to commence with the maintenance works, can you please make time to meet early next week so we can go through the intended maintenance works. I appreciate you are both busy, however all parties wish for the same outcome therefore a meeting would be the easiest way to get the maintenance started.[76]

1. This approach reflects very poorly on the respondent and its agent. No-one seems at any stage to have had regard to the fact, the lease and the Act controlled arrangements between the parties and the applicant was actually trying to carry on a business within those arrangements.

1. On 9 May, the applicant responded with yet a further request. In my view, the applicant's requests were very reasonable and proper. The applicant emailed Elaine Hong requesting a list of maintenance works to be carried out and relating to requests for water rates bills and so forth. In part the email relevantly said:

However the landlord asked to meet with us regarding renovation/maintenance works. It is hard to understand why the landlord is proposing a meeting with us when the landlord has failed or is refusing to provide a list of renovation/maintenance works before the meeting, as this is crucial information and the topic for the said meeting.[77]

1. It was left to the tribunal to make orders on 12 May 2011 directing that the rent be abated from 1 June and advising a notice of the work proposed by the respondent be served. That was done the following day, via the respondent's solicitors. It still did not comply with the Act.[78]

1. The applicant advised the respondent of the wet wall as early as 26 November 2006.[79] Exhibit X, images 3 to 6 inclusive, show the wet wall and very dark spots are depicted in the photographs. From November 2006, the respondent has been on notice of the existence of damp in the building but chose to do nothing about it until very recently.

1. The premises experienced flooding in March, April and November of 2010 and in February 2011. According to the evidence from the Spaletas, which I accept, significant amounts of water came into the building from the back yard, from the roof and from the failed guttering at the rear.

1. In May of this year, the applicant engaged the services of Raphael Siket, a building biologist, from the firm Ecolibria. He found the existence of both surface mould and airborne mould in the premises.

1. The interim report of Mr Siket is dated 20 May 2011, following inspection of the premises on 17 May 2011.[80] In his interim report Siket said, inter alia:

A general visual inspection was conducted and moisture readings as well as surface and airborne mould samples were taken. The entire floor slab area from the front to the rear of the store (including change room and storage areas was 100% saturated. Both sides of the centre of the floor area recorded maximum readings on the moisture meter. The complete saturation of the wall material was recorded half to 1 metre above the floor level. This is a serious case of excessive moisture and water intrusion and has created an ideal environment for mould proliferation to occur.

Considering the reported health effects by the occupants, very high moisture levels, water ingress issues as well as visible mould growth and moisture damage it is highly recommended that stock be removed from the store and that it is not occupied until such time that the results are obtained and the risks to health properly evaluated. It is highly possible that the stock in the store has been contaminated by the airborne mould spores. The current indoor environment at Versus (Aus) is a potential health risk which needs to be confirmed by the laboratory results in relation to the samples taken on site but it is recommended that the precautionary approach discussed be implemented.

1. I admitted into evidence a number of medical reports related to treatment Mrs Spaleta has received for various health complaints including fungal infections.[81]

1. The subsequent full report from Mr Siket repeated the findings set out above. It warned of potential health risks. It found that the mould in the premises was of long standing. The results from sampling taken by Siket found levels of mould of 'High to Very High' levels 'and therefore constitute a potential health risk'. The report from the analyst went on to find high levels of fungal hypae collected from the western wall indicating active mould growth. The mould known as 'stachybotrys' or 'black toxic mould' is known to be highly dangerous to human health. It was detected in the storeroom floor.

1. Even though Mr Siket recommended remediation of the mould by an accredited mould remediator, by the conclusion of the hearing before the tribunal, this was yet to occur.

1. Further sampling conducted on 21 October (10 days before the hearing and after completion of the repair and refurbishment) showed the continued existence at that time of both surface and airborne mould within the premises at high to very high levels.

1. It is obvious from a reading of the reports on mould in the premises that they cannot be occupied until the mould is properly treated.

1. The tribunal ordered that the rent be abated and continue to abate until all remedial work is finished and the premises are rendered fit for occupation. That was on 30 June 2011. One would have thought that was sufficient to motivate the respondent to do something about the existence of mould immediately. Yet the respondent failed to engage an accredited mould remediator.

1. It was not until the eve of the hearing that the respondent actually did something which showed it was properly concerned about the mould problem. On 30 October 2011, the respondent received an email from a company, Pure Protect, about eradicating the problem. The email said, inter alia:

Of concern is the high level of contamination and in particular that of the mould genus known as Stachybotrys, which is better known as toxic black mould.[82]

1. On 9 November 2011, Mr Lepp engaged Pure Protect to do the work as soon as possible.[83] Even if that work is carried out immediately, because of the need to fully dry out the premises and then take steps to eradicate the mould, I find it highly probable the premises will, at best, not be fit for re-occupation until at least 1 January 2012.

1. In evidence Mr Siket described the level of mould growth observed by him to be 'prolific'. He was adamant the premises should not be occupied. He gave evidence it is highly likely airborne mould exists in the stock. He said the stock, not being sealed, 'almost certainly' has been contaminated by mould. According to the evidence of Mr Siket, the stock being fabric, there is no way removal of any mould can be guaranteed. He said the reports showed the presence of two types of mould, stachybotrys and aspergillus, the latter being the dominant mould present. He said aspergillus was also known to be dangerous to health. He said the chances of the levels of mould found in the premises affecting health were high. I accept the evidence of Mr Siket which was not seriously challenged.

1. Mr Siket said that there is a connection between mould and the smell of mould. He said 50% of the time the mould present gives off a smell but, just because there is no smell noticed, does not mean mould is not present in a building.

1. The applicant claims damages for the stock presently located in the store which it claims, because of the evidence of Mr Siket, is contaminated by mould. The applicant's case is the lingerie products, being fabric, cannot be cleaned with any guarantee the mould will be eradicated. The applicants argue the product, being lingerie, will be sold in the knowledge it will come into contact with human skin and there is thus, a high risk of infection which it cannot take, in fairness to its customers, and the manufacturer of the lingerie.

1. The applicant argues there has been mould present in the premises since it took possession. It points to the fact of, and the photos of, the wet wall and the ingress of water since. All of this, it argues, lead to an inescapable finding the mould is of long standing, it must be eradicated and this will not be achieved at the earliest, by the end of this calendar year. The applicant seeks relief from the payment of rental until the mould is completely eradicated and the premises rendered safe for re-occupation.

1. In its written submissions, the respondent admits the presence of mould in the premises, but only since 20 May 2011.[84] I find that submission somewhat disingenuous. In my opinion, the evidence (especially that of Mr Siket which I accept in full), invites an obvious finding that mould has been present in the premises for a long time. Probably since the premises were occupied by the applicant but certainly since March/April 2010 when the applicant observed and complained of the presence of a bad smell within.

1. The respondent's submissions continued on to say the applicant has failed to identify any particular stock that has been mould affected and lost or damaged and no garment has been tested to confirm the presence of mould and the applicant has suffered no recoverable loss connected with the mould.[85]

1. I also reject these submissions put forward by the respondent. Given the levels of mould detected by Mr Siket in the surfaces and in the air, I act on the evidence of Mr Siket, who was of the opinion that it is highly likely the stock that is not sealed has been contaminated. The stock is not sealed.

1. I find the applicant has proven a case for compensation for loss of stock caused by contamination by mould. It has also proved a case for orders to be made it not be liable under the lease for the payment of rental until the premises are fully fit for re-occupation.

1. In its points of claim the applicant claimed $24,534.41 for delay in opening its store. It is common ground the applicant intended to open on 8 December 2006 and did not in fact open until four days after Christmas in 2006.

1. In the hearing and in final submissions the applicant sought compensation by way of damages under this claim of $27,787.76. It particularised its claim in a spreadsheet which went into evidence.[86]

1. The applicant's claim is calculated on a gross profits basis. I disagree this is the correct approach. The applicant is only able to claim any loss on a net profits basis.

1. The respondent concedes that it is liable for any loss suffered by the applicant occasioned by the delay in opening. It argues the applicant's method of calculation of its loss is wrong. It also argues the applicant would not have opened for each day in December 2006 that it claims for and that the proper method to adopt is the one recommended by its expert, Mr Lavelle, who found that the correct amount of compensation under this claim is $4,608.46.

1. I am of the view that any measure of the loss suffered by the applicant in December 2006 must be made against what was earned in December of 2007. In my view, that is the appropriate measure. I do not accept Mr Lavelle's approach that I should arrive at a monthly average of net profit. December is a special month in this business. To take into account other months of lesser sales would not properly compensate the applicant.

1. But, as I said, the applicant's loss must be calculated on a net profit basis.

1. The applicant's net profit in December 2007 was $22,214.00.[87] But that was for the whole of the month and it was earned after the business had been in operation for a year. I think it unlikely the applicant could have expected to derive sales in December 2006 at or about the amount achieved by it in December 2007. I accept the applicant would have opened in December 2006 on the days it claims. However, in my view, if the December 2007 net profit is used as a starting point or guide, it needs to be reduced substantially.

1. Having regard to all of the circumstances here, I am of the opinion the applicant is entitled to damages by way of compensation for the delay in opening in December 2006 in the sum of $10,000.00. There will be an order the respondent pay that sum to the applicant together with damages by way of interest.

1. In its points of claim, the applicant claims damages for not being able to use the toilet at the premises. It claims to be entitled to compensation of $38,888.98.[88] The claim is based on evidence from Mrs Spaleta she was forced to close the shop 5 or 6 times a day in order to attend a public toilet.

1. The claim in effect seeks an adjustment against the total rental for the time the premises were closed to trading.

1. The respondent makes a number of points, but as to damages, it argues the claim can only proceed as a claim for loss of profits, if any, and there has been no quantifiable loss proved under this claim. The respondent argues the rent is payable notwithstanding the existence of a faulty toilet and the claim is misconceived in so far as it seeks to claim compensation as an offset to rent paid.

1. During the hearing I dismissed the respondent's application for summary dismissal of this part of the claim. I did so because I thought the plaintiff's claim at least arguable.

1. Having now heard all of the evidence, whilst I have some sympathy for the applicant who could not have its justified complaints about the toilet actioned by the respondent, I am nevertheless not satisfied the applicant has proved a proper basis for entitlement to compensation under this part of its application.

1. The problems with the toilet have been a problem since the applicant took possession of the premises until recently. Notwithstanding the problems, the applicant was able to trade in 2007 and markedly increase its gross sales in the first four months of 2008. In those circumstances, I am not satisfied on the available evidence, the applicant has demonstrated a proper claim for lost profits occasioned by the faulty toilet.

1. Accordingly, the applicant's claim for compensation arising under the lease and the Act for compensation for the existence of a faulty toilet at the premises is dismissed.

1. This claim is put by the applicant as the claim for damages relating to the toilet. Again, whilst I have some sympathy for the applicant's claim, for the same reasons it is dismissed.

1. As I have said, in its points of claim, the applicant claimed damages for not being able to access the parking space from December 2006 until September 2009.

1. During the hearing I dismissed that part of the claim under s 75 of the VCAT Act, 1998. The respondents did not seek compensation for its costs.

Building Works at Adjoining Premises during the period March to August 2008

1. The applicant claims compensation by way of damages for the period March to August 2008 during which time the building work was occurring at the adjoining premises owned by Mr Opat.

1. I have found above that the respondent breached its covenant to the applicant of quiet enjoyment of the premises. I have also found that the applicant is entitled to be compensated by the respondent pursuant to s 54(2)(d) of the Act.

1. The applicant seeks compensation, being return of rental, for six (6) months from March to August of 2008 in the total sum of $31,362.00.

1. Whilst I have concluded the applicant is entitled to compensation, I am of the opinion the applicant can only claim loss of net profits as a basis of compensation, not return of rental. In my view, this is especially so in a situation where the applicant remained in occupation and continued to trade whilst the interruptions occurred around it.

1. I have concluded the applicant has proved its case for entitlement to compensation from the respondent for damages for loss of profits from May 2008 to until the end of 2011 when, I both hope, and expect, the respondent will have the premises ready for the applicant to re-commence occupation. The applicant lost profits because the respondent breached its covenant of quiet enjoyment and failed to comply with s 54(2)(d) of the Act and failed to properly maintain the premises. I reject the argument the applicant lost profits because Mrs Spaleta was engaged in assisting Mr Vojtek.

1. Accordingly, any damages which the applicant is entitled to under this part of the application merge with the claim for loss of profits generally and will be included in that part of the claim.

1. In its final submissions, the respondent submitted 'no loss has been shown to have sprung from the claim'.[89] I reject that submission. Whereas the applicant had increased its gross sales markedly in the first four months of 2008. In sharp contrast, once the effects of the construction work on the adjoining property took hold, an immediate downturn in sales followed.[90] In my judgment, the applicant has a valid claim for loss of profits. I reject the respondent's submission that there is no evidence that loss has been caused to the applicant.

Damage to Stock caused by Flooding in March and April 2010 and November 2011

1. The applicant claims damages for damage to its stock which it claims to have lost as a result of flooding of the premises in March, April and November of 2010 and February 2011. It claims $36,715.69 under this part of the claim. That sum is said to be the cost price of the items of lingerie that were damaged.

1. The basis of the claim is that the respondent failed to maintain the premises properly. It did not ensure that the drains and spouting and roof were in proper working order after the construction work at the adjoining premises in 2008. Much of the respondent's submission on this issue is devoted to the 'Respondent's Action'.[91] But the submission misses the point. The fact remains that, before and after the respondent took action, the premises flooded. Whatever the respondent did, it was not enough. The applicant must succeed on this part of its claim. Whatever the respondent did do in March or April 2010 and since was too little too late. The respondent only acted after the applicant repeatedly suffered and then it quibbled.

1. Mrs Spaleta gave evidence concerning this issue. She produced in the hearing the actual articles of lingerie said to have been damaged. She said it was impossible to mitigate the applicant's loss by having the garments dry cleaned. To do so would not properly clean the garments which have been damaged by water and mud and the labels damaged. She said the high quality of the garments prevented her from selling them on ebay (as was suggested by counsel for the respondent) because to do so would damage the reputation of the manufacturer. She also asked me to bear in mind the damaged goods were high quality, high fashion ladies lingerie which would have to be worn against the body.

1. The respondent conceded that it was liable for provable loss but said the applicant had not proven any loss. It argues the fact of purchase of the goods has not been proved. It argues each item damaged has not been properly identified.

1. At paragraph 93 of its written submissions, the respondent submits:
   1. However, despite having the opportunity to do so, the Applicant at no stage demonstrated that the stock which was brought in to the Tribunal was that which was listed in the annexure to its Points of Claim or in the invoices. Put differently, there is no reliable evidence before the Tribunal that:
      • (a) The stock brought to the Tribunal was damaged;
      • (b) That stock was in the store at the time of the flooding;
      • (c) That stock is the stock listed in the invoices provided to the Tribunal and has the values in the invoices.

1. This is an extraordinary submission. Mrs Spaleta gave evidence about each of these matters. I accept her evidence.

1. Further, the respondent argues the applicant has not mitigated its loss by selling the goods as best it could. The applicant repeatedly made its stock available for assessment by the respondent's insurance assessor. Like everything else the applicant suggested to the respondent in this case, it was ignored.

1. In evidence Mrs Spaleta produced the items she said were damaged by the floods in bags together with a folder containing every invoice in which stock damaged and lost was purchased and paid for. She produced a list identifying each item of lingerie lost, the quantity of items and the cost price per item. Everything is cross-referenced properly. I accept Mrs Spaletas evidence and act upon it. I think it absurd to suggest that every item of lingerie (totalling several hundred) should first have been dry cleaned and then sold by the applicant on ebay. It is after all, underwear. The cost of dry cleaning, far from mitigating the applicant's loss would have exacerbated it.

1. I find the applicant has proved its claim for damages for loss of stock occasioned by flooding amounting to $36,715.69.

1. However, there is the affect of the agreement which I have found that the parties agreed in April and May 2010 that the applicant should not be required to pay rent for the months of March and April 2010. That agreement as I have found was reached to in part compensate the applicant for its damaged stock.

1. Acting on that agreement, the applicant has not paid the rent in March and April 2010. Accordingly, the total of the rent not paid under the agreement reached, amounting to $10,927.00 will be deducted from the value of the stock lost by the applicant occasioned by the flooding in 2010 and 2011.

1. There will be an order that the respondent pay the applicant the net sum of $25,788.69.00 being $36,715.69 minus $10,927.00 rent not paid. There will also be an order for damages by way of interest on this sum.

1. The applicant claims the sum of $37,000.00 plus GST for the work involved in repairing damage to it's fit out to the premises. The evidence about this is a quotation from Newvan Developments Pty Ltd dated 14 April 2010.[92] Mr Sheruga gave evidence for the applicant the cost to rectify damage to the applicant's fit out was of the order of $40,000.00.

1. The applicant also claims the cost paid by it of cleaning up after the floods in 2010 being $2,240.00 paid to persons who cleaned the premises. As I understand the respondent's submissions, there is no dispute as to this latter sum.

1. The respondent argues however, that the sum claimed for rectification exceeds the original cost of $25,000.00. That is so. Mr and Mrs Spaleta gave evidence they were able to achieve a good fit out at the cost of $25,000.00 because they did most of the work themselves. Just because the fit out cost $25,000.00 does not mean the cost of rectifying damage to it could not exceed that sum. The real question is, what is a fair and reasonable cost of rectification?

1. The respondent also argues the quotation includes the cost of rectifying the wet wall which has already in part been undertaken by the respondent at its cost.

1. Making allowance for this work already attended to by the respondent, I am of the view, that a fair and reasonable allowance for the cost of rectifying the damage to the applicant's fit out is $20,000.00. The applicant is also entitled to be paid the cleaning cost of $2,240.00. There will be an order the respondent pay the applicant the sum of $22,240.00 damages under this part of the claim together with damages by way of interest calculated on the sum of $2,240.00 only, it being the only sum thus far paid by the applicant.

Loss of Stock due to existence of Mould at the premises

1. According to the evidence of Mrs Spaleta there remains stock at the premises which is not sealed. By the same method that she valued the stock lost because of the flooding, Mrs Spaleta valued the stock presently located in the store at $23,884.94.[93]

1. The respondent submits 'there is no evidence that this stock is affected by mould'.[94] The submission is quite wrong. Mr Siket gave evidence of the high probability that stock on the premises, unsealed, is contaminated by mould. I act on that evidence. I find it probable the stock presently located on the premises is contaminated by mould. I reject the respondent's submission there is insufficient evidence to make this finding. In my view, the evidence the stock in the premises is contaminated is very strong. The respondent did not call contrary evidence.

1. There will be an order that the respondent pay to the applicant damages by way of compensation for the loss of stock presently located in the premises valued in the sum of $23,884.94 together with damages by way of interest.

1. The applicant claims loss of profits for each of the calendar years 2008 to 2011 inclusive. In its final submissions, the applicant calculated the amount of its loss of profits in the sum of $270,304.15.[95]

1. The applicant's claim is made on a gross profits basis. The applicant contends that the only calendar year during which its business was able to trade uninterrupted by the breaches of the respondent was the 2007 year. It contends that year should be used as a base and a growth rate in sales of 15.67% applied to the sales figures achieved in the 2007 year. I agree the evidence shows 2007 to be the only unaffected year. From April 2008, the takings of the business plummeted as it was affected by the adjoining construction works and the problems of flooding that later beset the premises which were also a consequence of the construction works.

1. The applicant seeks to calculate its loss of profit on a gross profits basis because in each year that it has traded it has incurred a net loss. In its final submissions, the applicant submitted as follows:

1. The Applicant's business operated throughout the building works (February 2008 to August 2008), flooding (March 2010 to February 2011) and despite issues with smell (a number of years) and mould (years). Consequently, the business continued to incur the (sic) all normal operating costs such as rent, power, telephone etc. As such, the only costs avoided by the business were the direct selling costs, i.e. stock and transaction costs such as merchant fees.
2. Therefore, the appropriate compensation measure that will put the business back into the position that it would have been is the lost gross profit; sales revenue less direct selling costs.
3. The only time when net profit may be an appropriate measure of loss are periods when the business was/is completely closed and not incurring normal operating costs.
4. In 48. (pg 7.) Lavelle concedes that loss calculated on a gross profit basis is an acceptable method for calculating the loss in income.

1. Contrary to what the applicant submitted in paragraph 106 of its submissions, Mr Lavelle did not concede that calculation of any loss of income on a gross profits basis was an acceptable method. In fact, he said quite the contrary. His evidence was that a claim for loss of profits must be calculated on a net profits basis as that was the most accurate method of restoring the applicant to the position it would have been in but for the breach of contract by the respondent.[96]

1. In his report, Mr Lavelle used the sales figures for 2007 as a starting point and applied a growth rate to projected sales of 2.85%. He calculated the applicant's loss on a net profits basis for each of the years 2008 to 2010 inclusive in a total sum of $30,123.00.

1. Adopting the same approach, but assuming a gross profits basis of calculation, he arrived at a calculation for the loss in the same years at $112,354.00.

1. Although the applicant had discovered its actual trading and profit and loss figures, the solicitors instructing Mr Lavelle did not provide him with these documents. Why that was so is not clear to me. That should have occurred. The applicant justly criticises Mr Lavelle's report for being based on estimates only. Mr Lavelle did his calculations of loss both on a net profit basis and a gross profit basis using the figures in attachment 'J' to the points of claim. Those figures contained actual profit and loss figures for the 2007 year and projections for the years thereafter. That is part of the reason why I have not applied the calculations of Mr Lavelle.

1. Difficulty in calculating loss should not deter a court or a tribunal in calculating such a sum. Calculating damages for a breach of contract necessarily involves a degree of hypothesis and pragmatism and a court or tribunal must do the best it can to calculate any loss, bearing in mind the onus is at all times on the applicant to prove both the fact of and the amount of such loss. In the face of uncertain evidence, the law is willing to take 'a broad brush approach'.[97] I have applied these principles here, doing the best I can with the known figures. I am satisfied the applicant has suffered loss and damage caused by the respondent and has proved its claim for loss of profits on the basis I have calculated it below.

1. In the hearing, the applicant has produced and relied upon its actual trading and profit and loss figures for each of the calendar years that it has traded.[98] It has also discovered and made available for inspection, all of its invoices and banking records and BAS statements lodged with the Australian Taxation Office on a quarterly basis.

1. A chart went into evidence as attachment 'L'. That chart plots what is recorded in the BAS statements comparative to what is recorded in the Trading and Profit and Loss Statements. The chart proves the two sets of figures mirror each other save for a minor glitch in 2007 explained by a mistake subsequently reported by the applicant to the Australian Taxation Office.

1. I accept the evidence of Mr Spaleta as to the accuracy of all the financial documents produced into evidence by him on behalf of the applicant. I am satisfied that the trading and profit and loss figures produced in evidence are accurate.

1. The respondent criticises the applicant for not producing its taxation returns for the relevant financial years. The applicant has given evidence those records were lost as part of flood damage. I accept that evidence and reject any criticisms of the applicant by the respondent on that account.

1. Even though there are some difficulties in this case in calculating the applicant's loss of profits resulting from the respondent's breaches of the lease and the Act, I am of the firm view that the applicant's actual loss can be calculated with a reasonable degree of certainty.

1. There are some issues to be resolved first before turning to the calculations.

1. The first issue to decide is, which is the most appropriate method of calculating loss of profit? Are calculations to be done on the basis of net profits/loss or gross profits?

1. The law in Australia is clear on this question. The calculation must be done on a net profits basis:

Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.[99]

1. I have calculated the applicant's loss of profit as best I can on the available evidence on a net profit basis.

1. The next question in this case is, what year should be used as the base year upon which to make any calculation of profit lost?

1. It is clear here that the 2007 year was the only year of the tenancy where the applicant appears to have been able to trade relatively unaffected by any breach of the lease by the respondent. I say relatively unaffected because, instead of having the benefit of a full month of trading in December 2006, the applicant was forced, because of the factors discussed above, to effectively commence its business in January 2007. The calendar year 2007 was very much a complete start up year.

1. The applicant submits, and I did not understand Mr Lavelle to disagree, that the 2007 year should be used as a base year from which to make any calculations of lost profit. Accordingly, in making my calculations and findings as to lost profits, I have also used the actual figures for sales as disclosed in the applicant's Trading and Profit and Loss Statements for the calendar year 2007.[100]

1. It is necessary to apply a growth factor to the 2007 sales figures and extrapolate that into the years 2008 to 2011. That is because the applicant's claim is based on the fact, as I have found, that had it not been for the breaches of the lease and the Act by the respondent, it would have achieved higher sales figures in those years.

1. Attachment F-1 shows the total actual retail sales achieved by the applicant since opening amounted to $391,694.00.

1. A number of things stand out from the first page of attachment F-1. By far the highest sales were in what I have described as the relatively uninterrupted year of 2007 which amounted to $120,945.00. The very first full month of trading of January 2007 produced sales of $13,174.00. That was the fourth best month of trading of the monthly figures reported. Sales then tapered off during the rest of 2007 until October when there was a decided trend upwards culminating in December 2007 sales of $34,571.00. This evidence supports the evidence given by Mr Spaleta that the pre-Christmas trade is critical to the applicant's business. I accept that evidence.

1. In January 2008, although the sales were down 7.27% on the previous year at $12,215.00, nonetheless the sales were holding firm at the start of 2008. The reduction might be due to the novelty of the new store in Church Street the previous year. In February 2008 sales increased 45.39% on the same month in the previous year. In March 2008, sales increased 11.96% on the same month in the previous year and in April 2008, the sales increased 13.21% on the same month in the previous year.

1. At that point, the sales of the applicant's business went into a sharp decline. Based on the evidence of Mrs Spaleta as to what was happening in the building work on the adjoining property, I have formed the opinion the sharp decline in sales was caused by those building works and the customers rejecting the applicant's store in consequence. The applicant had designed its store to be a pleasurable shopping experience for those customers who chose to go there. The work on the roof and the adjoining wall and the presence of workers and scaffolding all combined, in my view, to make the shopping experience far from a pleasure and this was suddenly reflected in the sharp decline in sales after April 2008.

1. Significantly, the work on the adjoining premises extended from February 2008 to August 2008. By May 2008, when the effects of the work began to take hold, the sales dived 28.47% on the same month in the previous year. In June, it was 60.46% down and in August, it was 51.52% down on the same month the previous year.

1. The applicant submits that, based on the actual trade sales figures for the first four months of 2008, to restore the applicant with parity to the 2007 figures, a growth rate of 15.67% should be applied to the 2007 sales figures for the purpose of extrapolating those figures into the years 2008 to 2011.[101] 15.67% is the average rate of growth for the first four trading months of calendar year 2008. The applicant submits, with some justification, that at the time the applicant's business was affected by the building works on the adjoining premises the actual sales figures show that it had been trading for sixteen months and that the rate of growth in sales was trending upwards at the average rate of 15.67%. At the same time expenses remained known and fairly constant.

1. The respondent, through the witness Mr Lavelle, submits that a growth rate of only 2.85% is appropriate. Mr Lavelle deals with how he arrived at this growth rate in paragraph 43 of his report. In short, it is the average inflation rate based on information published by the Australian Bureau of Statistics.

1. I reject the growth rate applied by Mr Lavelle. In my view, the inflation rate, being as it is, based on a basket of selected expenses, has little to do with the actual sales figures of the applicant's business. In my view, the growth rate adopted by Mr Lavelle is far too conservative and to apply it would result in unfairness to the applicant and not properly compensate it for its lost profits.

1. In my opinion, the actual sales figures, up until the time that the applicant's business was affected by the building works on the adjoining premises, were increasing at a rate well above the inflation rate, as is demonstrated by the first page of exhibit F-1.

1. In my opinion, based on the first four months of trading of 2008 and, comparing those figures with the same period in the previous year, the applicant could reasonably have expected its sales to continue to increase over the previous year at a rate of at least 6%. That rate is more than twice the inflation rate but, in my view, better reflects the way the applicant's business was headed so far as sales are concerned. I recognise it is considerably less than the 15.67% sought to be applied by the applicant.

1. Whilst I accept the applicant's figures show an actual average rate of growth of 15.67% in the first four months of 2008, in my view, it is unrealistic to expect the business to continue to grow in sales at that rate. Four months is only a small period of time from which to estimate what sales would be over a period of four years. In my view, it is more appropriate to apply a growth rate of 6% to the 2007 sales figures and in my calculations of loss of profits I have used this figure.

1. In making my calculations of loss of profits I have ignored the actual sales from the wholesale side of the applicant's business. In the 2007 year, wholesale comprised 17.70% of total sales, reducing to 16.34% in 2008. In 2009, wholesale dropped away to a negligible 0.78% and rose only slightly to 1.67% in 2010. No wholesale is recorded for sales in the figures for 2011. The premises closed in May and the applicant has been unable to return. I note in Mr Lavelle's calculations he included the actual wholesale figures for 2007 and the estimates of wholesale figures in subsequent years. He was wrong to have done so in my view, because they do not form any part of the basis of the applicant's claim.

1. In calculating the applicant's loss of profits entitlement I have used actual sales figures for 2007 recorded in attachment F-1. In the years 2008, 2009, 2010 I have used the 2007 sales figures as a starting base and applied an increase of 6% for each year to bring the sales in each of those years into parity with 2007 in an effort to arrive at the amount of sales lost but for the respondent's breach.

1. My calculations have used the actual cost of sales plus 6% to arrive at the gross profit figures. In doing this, I have assumed that if gross sales increase each year by a growth rate of 6%, then so too should the costs of sales. In making the calculation, I have assumed more stock would have to be purchased to meet the increased sales and this should be reflected in increased actual cost of sales. The actual cost of sales was highest in the first two years (2007 and 2008) reflecting heavy purchases of stock in those years to get the business up and running. This resulted in modest actual gross profit in each of those years.

1. In contrast, in 2009 and 2010, the actual sales figures were lower than 2007 and 2008, but actual gross profit figures were higher because of lower costs of sales than in the previous two years and the reduced need to replace stock. I have made no other adjustment to my calculations for reduced purchases of stock in 2009 and 2010 and 2011, other than to increase costs of sales by 6% each year over actual cost on the basis that the impact of the higher purchases in the first two years of trading should be averaged out.

1. In arriving at a net profit for the years 2008, 2009 and 2010, I have used the actual expenses incurred. That is because in the applicant's business, those expenses are relatively constant or fixed. The main expense reflected in the figures is rent, which is a constant.

1. The actual trading and profit and loss statements show a trading loss in each year as follows:

1. The respondent argues, somewhat simplistically in my view, that those figures demonstrate the applicant's business would always operate at a loss and there could be no loss of profits because there were in fact no profits. I reject that argument.

1. My calculations assume that because of the respondent's breaches the applicant lost sales that would have increased from the 2007 base at the growth rate of 6%. Applying that assumption to the sales figures on a net profit basis, my calculations show the applicant's business would have returned to profit in the 2008 year and been profitable thereafter.

1. In calculating an entitlement to loss of profits therefore, I have totalled the differences between the projected profits based on a growth rate of 6% and the actual losses incurred.

1. I have included the 2011 year. That is because the applicant was required to vacate the premises in May to accommodate the respondent's request to repair and refurbish the premises. Although the builder declared the premises to be fit for purpose in August 2011, the applicant has been unable to return to occupation because the building has mould in it. The respondent accepts this to be the case.

1. The tribunal ordered that the rent and outgoings be abated whilst the applicant is required to vacate the premises. Whilst the applicant has not had to pay those expenses, it has nonetheless lost the opportunity to earn profits which it could reasonably have expected to earn had it been in occupation and trading. Therefore, I have projected the figures for loss of sales into the 2011 year until 31 December 2011. I have applied the same level of expenses as was in fact incurred in the 2010 year. The figures for expenses are remarkably constant for this business. My calculations assume the premises will be ready for the applicant to resume occupation in January 2012. Regrettably, it will lose the benefit of another Christmas trading period.

1. In so doing, I have arrived at a figure for loss of profits of $136,686.00 for the calendar years 2008 to 2011 calculated as follows:

1. The sum of $166,428 must be reduced by the sum of $19,826.00, representing four months (January to April) of the 2008 monthly average net loss. This gives a loss of profits of $136,686.00. This is on the basis the applicant is entitled to compensation for loss of profits from May 2008 onwards and not for the months of January to April of 2008. In my judgment the evidence in attachment F-1 shows the impact on the profitability of the applicant caused by the building work on the adjoining property being carried out by using the premises was not felt until May of 2008.

1. The applicant claims interest paid on its overdraft. At the end of submissions this amounted to $60,783.00.[102] The basis of the claim is that, had it not been for the breaches of the lease and ss 52(2)(a) and (c) and 54(2) of the Act, the applicant would have traded profitably and would have been able to make the lease payments out of income and not from its overdraft.

1. As I have set out above, in my judgment, the proper way to assess the applicant's claim is to view it as a claim for loss of profits. I reject the applicant's claim for damages under a separate head of loss of interest paid.

1. In its points of claim, the applicant sought to claim loss of goodwill of $261,512.00.[103] That claim was abandoned in running. Accordingly, I do not have to decide that issue.

1. In final submissions, the applicant sought an order for damages calculated as aggravated, or exemplary damages.[104]

1. In final submissions, I expressed the view that such a claim cannot be made in this dispute which is essentially contractual in nature. Exemplary damages for breach of contract is not part of the Australian law of contract.[105] Accordingly, the applicant fails in this aspect of its claim.

1. In final submissions, the applicant drew attention to s 77 of the Act which deals with unconscionable conduct. The section was not raised in the points of claim and did not arise as an issue during the hearing until final submissions.

1. Whilst I have sympathy for the applicant, and can well understand it feels aggrieved at the conduct of the respondent and its solicitors, that conduct has really gone to the manner the dispute was conducted in the tribunal rather than being connected with the lease itself.

1. I make no orders under this heading of the applicant's claim.

Has the first five year option been validly exercised?

1. The lease provides for a further five year option to be exercised by the applicant on or before 17 February 2011.

1. The respondent does not recognise that the option has been exercised. It claims to have validly terminated the lease before the option was exercised. Alternatively, it claims that by terminating the lease, the option has been lost with the lease.

1. On 16 February 2011, the applicant sent an email to Mr Lepp and copied it to Ms Hong.[106] The email advised, inter alia, the applicant was exercising its option of a further term of five years.

1. Ms Hong acknowledged receipt of the applicant's email by letter on 21 February 2011.[107] That letter said, inter alia, 'we acknowledge you have exercised your lease option for five (5) years'.

1. Later I will set out my reasons for dismissal of the respondent's counterclaim. I will be refusing the declaration the respondent seeks that it has validly terminated the lease. It has not done so.

1. In those circumstances, I find that the applicant has validly exercised its option for a further term of five years.

1. There will be a declaration in the orders to that effect.

Was there agreement for a further five year option?

Was there agreement there would be no market review of rent on 18 May 2011?

1. The applicant seeks a declaration that the respondent, through Mrs Houghton, agreed to granting it a further five year option when the first option period expires in 2016. That agreement was said to have been made at the so-called meet and greet in May 2009.

1. The evidence of Mrs Spaleta was that Mrs Houghton agreed to give a further term and that this would be put into place when there was a rental review. Mr Spaleta said that Mr Lepp had also agreed to a further term.

1. In final submissions, Mr Rollnik made the valid point there is no contemporaneous documentary evidence to support the claim.

1. Whilst I accept the evidence of both Mr and Mrs Spaleta as to these matters, the evidence is not sufficiently clear for me to conclude that there was a binding agreement reached on this issue. In my judgment, at best, there was discussion of the issue with final agreement to be reached at a later time, probably shortly before the next lease (now due) is entered into. The evidence is not sufficiently clear for me to be able to find and agreement for a further term with sufficient certainty.

1. For these reasons, I decline the applicant relief in the nature of a declaration that there was agreement reached in May 2009 that the respondent would grant to it an option of a further term.

1. In submissions the applicant submitted there was agreement reached between the parties on 22 April 2010, 26 April 2010, 27 May 2010 there would be no market review of the rental on 18 May 2011 as provided for in the lease.[108] The submissions properly point to the poor state of the premises as at the time of the proposed market review of the rental and the fact that since that time the applicant has actually been out of occupation of the premises. The premises are still not fit for occupation.

1. There was very little, if any, evidence directed to this issue during the course of the hearing. I am not satisfied there was agreement reached on this issue. I decline to grant the relief sought by the applicant. The respondent has carried out work to the premises but they remain unfit for occupancy at the present time. Accordingly, on the evidence I have heard there would be no justification for a rental review at the present time. Indeed the time for a rental review has passed. I am of the opinion that provided the applicant acts quickly the premises should be fit to be reoccupied from January 2012. Assuming that target is achieved and the respondent has the premises fit for occupation by that time, I am of the view that the date for rental review provided for in the lease of 18th May 2011 should be postponed to 18th May 2012. An order will be made accordingly. In making this order I use the discretion provided to me by s 91(1)(e)(ii) of the Act.

1. I will make orders on the application in accordance with the reasons given above.

1. As to damages, the applicant is entitled to orders for compensation in accordance with the reasons stated above, together with interest, calculated under s 2 of the Penalty and Interest Rates Act 1983.[109] From February 2010 to date that interest rate has been fixed at 10.5% per annum. The calculation will be made from the date the application was commenced in the tribunal.

1. The respondent seeks relief by way of counterclaim.

1. Although not pleaded in submissions, the respondent sought a declaration the lease had been 'absolutely determined' by it on or about 7 October 2010 when it re-entered the premises.[110]

1. The notice of re-entry is dependant upon a default notice allegedly served on 20 September 2010 by the respondent's solicitors.[111] That default notice claimed the applicant was in default under the lease by not paying rent and outgoings totalling $24,965.59. It claimed the rent had not been paid for the months of July, August and September 2010, amounting in total to $16,718.71 of the amount claimed.

1. The notice of default was wrong in fact. Mr and Mrs Spaleta gave evidence they continued to pay the monthly rental from May 2010 but they did not pay rental for the months of March and April 2010 because of the agreement that had been reached with the respondent. The applicant's bank statements[112] confirm this evidence. I accept the evidence of Mr and Mrs Spaleta. The respondent's agent applied any rental received from May 2010 to arrears. In fact, there were no arrears of rental at all. I have found there was agreement the rental for March and April 2010 was waived.

1. The remaining sum claimed in the default notice related to alleged unpaid outgoings being council and water rates and GST claimed on those amounts.

1. In the hearing, I expressed reservations as to whether the applicant was required, under the terms of the lease, to pay GST on outgoings where a supplier had not charged that tax to the landlord. Under the lease, the applicant's obligation is to 'pay or reimburse the lessor' for water and council rates.[113]

1. In this case I do not have to finally decide that issue. Section 46 of the Act provides as follows:

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord must give the tenant a written estimate of the outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings.

(3) The tenant must be given the estimate of outgoings-

(b) in respect of each of the landlord's accounting periods during the term of the lease, at least one month before the start of that period.

(4) The tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant as set out in this section until the tenant is given that estimate.

1. The expression 'outgoings' is defined in s 3 of the Act to include rates and levies and GST.

1. Both Mr and Mrs Spaleta gave evidence they had for some time been requesting from the respondent's agent copies of the actual rates notices showing how the rates were calculated. They did so in the knowledge the relevant 'supplier' did not charge GST. They both told me the agent failed to supply the documents they requested. I accept their evidence.

1. Section 46 of the Act is clear. It requires a landlord to provide an estimate of outgoings in writing both before the lease is entered into and at various times thereafter. Both Mr and Mrs Spaleta gave evidence they were not provided with such a notice and the respondent has not lead any evidence showing that it did provide such a document. I find the respondent has at no time complied with its obligations under s 46 of the Act. Accordingly, I find that, at the time the notice of default was served, the applicant was not liable for the payment of the outgoings.[114]

1. In submissions, the respondent relied upon an invoice from the respondent's agent to justify its claim that the lease had been 'absolutely determined' and to justify its claim for $19,644.20 on the counterclaim.

1. For the same reasons expressed above, the applicant's are not presently liable to pay any sum to the respondent.

1. For these reasons, the respondent's application for a declaration the lease has been absolutely determined is refused and the counterclaim is dismissed.

1. Although not legally represented in the hearing of the dispute the applicant nonetheless seeks compensation for various expenses it has incurred in bringing the dispute in the tribunal.

1. Section 92 of the Act relevantly provides as follows:

(1) Despite anything to the contrary in Division 8 of Part 4 of the Victorian Civil and Administrative Tribunal Act 1998, each party to a proceeding before the Tribunal under this Part is to bear its own costs in the proceeding.

(2) However, at any time the Tribunal may make an order that a party pay all or a specified part of the costs of another party in the proceeding but only if the Tribunal is satisfied that it is fair to do so because-

(a) the party conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding; or

(b) the party refused to take part in or withdrew from mediation or other form of alternative dispute resolution under this Part.

(3) In this section, costs includes fees, charges and disbursements.

1. The tribunal can only make an order for costs in favour of a party if the evidence justifies a finding within s 92(2) of the Act. It seems to me the Act imposes a high evidentiary burden for a party seeking an order for costs against another party to overcome. Thus far I have not seen evidence of either party behaving in a 'vexatious' way within the meaning of the section of the Act. However, I will consider the matter fully if, and when, any further application for costs is made.
2. I will grant liberty to the applicant to apply on this question within seven (7) days if so advised.

1. In making the many findings which I have in this matter it has been necessary to make an assessment of the various witnesses called. So far as the applicant is concerned the principal witnesses were of course Mr and Mrs Spaleta. From the respondent's case the main witnesses were Mr and Mrs Lepp.
2. I have expressed the view throughout these reasons that, generally, I have accepted the evidence of either Mr or Mrs Spaleta or both of them. I found each of them to be witnesses of truth and I accept their evidence. Where that evidence conflicts with that of either or both of Mr or Mrs Lepp then I prefer the evidence of Mr or Mrs Spaleta or both of them. They had a very good recall of the evidence and, in my view, did not overstate it. On almost every issue, the evidence that each of them gave was corroborated by documentary evidence.
3. In contrast, on some important issues, both Mr and Mrs Lepp did not have a very good recall of the evidence and, in my view, each of them tended to overstate the evidence in order to gain favourable position for the respondent. They showed very little, if any, sympathy for the plight the applicant found itself in from time to time and went out of their way to try to justify the respondent's slowness in reacting to the applicant's complaints about the premises. At times they tried to paint themselves as the victims when the opposite was clearly the case. Mr and Mrs Lepp seemed never to accept the position that the respondent was responsible for the acts of its agent. I do accept that both Mr and Mrs Lepp did what they could, but it was too little too late. The documentary evidence did not corroborate them on critical issues.
4. In the background, Mrs Houghton was clearly still in control of the affairs of the respondent and I am satisfied that Mr and Mrs Lepp could only do things as instructed by her. As I have said previously, Mrs Houghton was not called to give evidence and there was no evidence lead from her in any other form. She did not corroborate Mr and Mrs Lepp on critical issues. I infer she could not have assisted the respondent's case.
5. The same might be said for Brown who also was not called as a witness.

1. The tribunal declares there was an agreement reached between the applicant and the respondent that the applicant would not be required to pay rental to the respondent under the terms of the lease for the months of March and April 2010 (amounting in total $10,927.00) as part compensation to the applicant for loss of stock caused by flooding at the premises.
2. The rent and outgoings payable by the applicant to the respondent will continue to abate until all mould is eradicated from both the surfaces and in the air at the premises. Before the premises are re-occupied by the applicant, the respondent is to obtain a report, at its expense, from a qualified mould remedial specialist certifying that all mould has been eradicated from the surfaces and in the air within the premises.
3. On the claim by the applicant for compensation by way of damages for the delay in opening the premises in December 2006, the respondent is ordered to pay the applicant the sum of $10,000.00 together with damages by way of interest.
4. The applicant's claim for compensation for the faulty toilet at the premises is dismissed.
5. The applicant's claim for compensation for the lack of running water at the premises is dismissed.
6. The applicant's claim compensation by way of repayment of rental for the period of March to August 2010 is dismissed.
7. On the claim by the applicant for compensation by way of damages for the loss of stock arising from flooding of the premises in March and April and November of 2010 and February of 2011, the respondent is ordered to pay to the applicant the sum of $25,788.69 together with damages by way of interest.
8. On the claim by the applicant for compensation by way of damages for damage to the fit out and the cost of cleaning the premises, the respondent is ordered to pay to the applicant the sum of $22,240.00 together with damages by way of interest.
9. On the claim by the applicant for compensation by way of damages for loss of stock unsealed currently in the premises because of contamination by mould, the respondent is ordered to pay to the applicant the sum of $23,884.94 together with damages by way of interest.
10. On the claim by the applicant for compensation by way of damages for loss of profits, the respondent is ordered to pay to the applicant the sum of $136,686.00 together with damages by way of interest.
11. The applicant's claim for compensation by way of damages for bank overdraft interest paid is dismissed.
12. The applicant's claim for compensation by way of damages for loss of goodwill, not having been pressed in the hearing, is dismissed.
13. The applicant's claim for compensation by way of exemplary damages is dismissed.
14. The tribunal declares the applicant has validly exercised the option to lease the premises for a further term of five years commencing 18 May 2012.
15. The applicant's claim for a declaration that there is a binding agreement between the applicant and the respondent for an option for a further term of five years to lease the premises to be contained in a new lease to commence on 18 May 2012 is dismissed.
16. Pursuant to s 91(1)(e)(ii) of the Act the time for market review of the rental under the lease be postponed until 18 May 2012.
17. The respondent is ordered to pay the further sum by way of compensation to the applicant by way of interest in the sum of $26,346.72. That sum is calculated at the rate provided for under s 2 of the Penalty and Interest Rates Act 1983 of 10.5% for a period of 418 days, being the period when application was first made in the tribunal (8 October 2010), until the date of the decision (1 December 2011) on the total compensation ordered by the tribunal to be paid by the respondent to the applicant of $218,599.63. The amount of interest will continue to accrue at the rate of $62.88 per day until all the compensation ordered to be paid by the respondent to the applicant is paid.
18. The respondent's application by way of counterclaim for a declaration that the lease has been absolutely determined is dismissed.
19. The respondent's application by way of counterclaim that the applicant pay the respondent $19,644.20 damages by way of compensation on account of claimed loss of rent and outgoings is dismissed.
20. The applicant has liberty to apply on the question of costs within seven (7) days if so advised.

[2] The Management Agreement is Exhibit 43.

[6] See Exhibit B-1 clause 3(f)(iii). My underlining added.

[15] Respondents written submissions paragraphs 6 & 7.

[16] See Photographs of the finished fit out Exhibit X images 11 to 13 and Exhibit 1.

[24] The drain in question is depicted in Exhibit X Image 17 after it was repaired. Images 43E and 43F depict the drain before repair.

[30] Respondent's written submissions paragraphs 51 to 80.

[33] Images 27 to 43F inclusive of Exhibit X depict damage to the store and damaged stock.

[39] According to the evidence of Mr Lepp.

[40] Exhibit X-3 is photographs taken of this by Mr Lepp.

[42] The photo is stapled to the second page of the exhibit.

[68] See Exhibits 31, 32, 33, 34, B-14, 35, B-10, 36, 37, A-3, 38, 39, B-4, A-4, 42,41.

[84] Respondent's written submissions paragraph 133.

[85] Respondent's written submissions paragraph 135.

[86] Attachment A-1 to the Points of Claim.

[88] Applicant's final submissions paragraph 16.

[89] Respondent's written submissions paragraph 74.

[91] Respondent's written submissions page 19.

[93] See the Schedule that is part of exhibit B-11.

[94] Respondent's written submissions paragraph 101.

[95] Applicant's final submissions page 17 paragraph 109.

[96] See paragraphs 11(g) and 46 to 48 of Mr Lavelle's report exhibit 25.

[97] Cheshire & Fifoot, Law of Contract, 9th edition 23.24 and the cases referred to therein.

[98] Attachment F1 to the Points of Claim.

[99] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80 (Mason CJ and Dawson J).

[101] Applicant's submission paragraphs 106 to 109.

[102] Applicant's written submissions paragraphs 55 to 57.

[104] Applicant's written submissions paragraphs 120 to 124.

[105] See Cheshire & Fifoot, Law of Contract, 9th edition at paragraph 23.2 and the cases referred to therein.

[108] Applicant's written submissions paragraph 58.

[110] Respondent's written submissions paragraph 159-160. Also see Exhibit B-9.