Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd

Victorian Civil and Administrative Tribunal|2011-12-01

The applicant's claim for compensation for the faulty toilet at the premises is dismissed.

The applicant's claim for compensation for the lack of running water at the premises is dismissed.

The applicant's claim compensation by way of repayment of rental for the period of March to August 2010 is dismissed.

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.

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.

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.

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

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

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

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.

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.

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.

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.

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

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.

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

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.

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.

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').

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.

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.

The matters of background are uncontroversial between the parties.

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.

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]

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.
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.

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.

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.

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.

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.

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

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

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.

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

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.

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.

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

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.

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.

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.

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.

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.

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]

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.

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'.

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.

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]

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]

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

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.

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.

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]

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

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

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]

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.

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]

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.

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.

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.

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]

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.

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.

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.

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]

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]

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]

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.

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'.

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.

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.

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.

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

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.

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.

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.

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]

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

(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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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]

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.

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.

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]

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.

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]

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]

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.

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]

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.

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]

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.

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.

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

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

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.

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.

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.

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.

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.

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.

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]

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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]

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.

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.

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]

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.

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:

At a glance

Court

Decision date

Source

Judgment (481 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)

Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd (Retail Tenancies) [2011] VCAT 2273 (1 December 2011)