Yan Gu and Chunhua Tao v Nicole Panetta, Neill Hendry and Giovanni

Background of the dispute

1. Part of the background to this dispute can be found from the affidavit of Mr John Panetta dated 23 December 2013 as follows: 4. In 2009 Neill and I were looking for premises in the Pyrmont area to open a good Italian restaurant. In late November 2009 my partner Veronica Rohan and I were driving along Harris Street in Pyrmont when we saw a 'for lease' sign at the front of 46 Harris Street. We noted the agent as Century 21 Panorama Realty in Pyrmont. 5. I asked Veronica to call the agent and make an appointment to inspect the premises then Veronica and I met Shirene Tong and Spencer Lau of Panorama Realty at the premises on Monday, 30 November 2009. 6. The premises were in a shocking state and my first impression was to walk away. The inside of the building was severely dilapidated. Some of the most obvious structural problems I noticed or later discovered was [sic were]… [there then is a series of statements with respect to the dilapidated state of the Premises] 7. There was a staircase going up to the first floor which was in bad shape. I saw Veronica's foot slip through one of the rotten steps. She complained of pain for a few days after the incident. 9. I explained to Ms Tong that all the damaged timber, plaster and other materials had to be taken out and the structural work had to be done before I could do my fit out. JP: This is going to be an expensive rebuilding job and too much work. ST: The owners can offer $100,000 for fit out allowance if you take the lease. 10. We entered into a somewhat long discussion which included words to the following: ST: The owner wants the premises fixed up so he can rent it. JP: It is going to cost him quite a lot of money to fix this place up. There is a lot of structural work that he needs to do before I can do my fit out. ST: He knows that he is responsible for the structural work and I can promise you he will pay to fix it up and contribute to your fit out. JP: Of course he has to pay for the building work but I need to get someone to look at this place before I can do anything. ST: You need to act straight away and tell me quickly if you want it. I have other people who are also interested in this place. ST: If you're interested we can go over to my office and discuss. 12. We were shown into the boardroom at Panorama Realty: JP: Before we go any further, how much is the rent? ST: $100,000. I have a number of other people wanting the place. One is ready to take it. He is coming tomorrow to sign off so if you want it you need to pay a deposit of $20,000 today. JP: How long is the lease? ST: 5+ 5 with annual CPI and market review. The owner will provide $100,000 for the fit out allowance. He wants the repairs of the building done first and he will pay for it. He wants the lease to be signed by 18 December 2009. This is very important to him. It is an auspicious date for him. He can give you rent free until 1 April 2010. JP: Firstly, $100,000 won't pay for the costs of the repairs. Secondly, the rent free period is too short. We have Christmas now and nothing happens January. The trade guys are all closed down for this period. I cannot submit plans for a DA until mid‑March at the earliest. ST: Don't worry, we already have the DA. Your architect can get it from Council and you can start work immediately. JP: You already have a DA? ST: Yes, yes Giovanni, the DA is available. This will not hold you up. JP: What about the costs of the building repairs? ST: The owner will pay the full cost necessary for the repairs to the building structure.
2. Following further discussions between the parties Ms Shirene Tong prepared over the next few days term sheets setting out the commercial terms. Though some of the terms changed, it is common ground between the parties that the initial offer from the Landlords was to pay for all the work necessary to repair the premises. This was subsequently altered to an offer of a fixed sum of $100,000.00 only, as recorded in Heads of Agreement dated 2 December 2009 and executed by the parties [Memorandum of 2 December 2009].
3. Mr John Panetta continues with the story: 24. On or about 14 December 2009 I got a copy of the lease from Ms Tong. I could see no mention of the structural costs to be paid by the landlord and I was not happy with this. So I called Ms Tong immediately and told her that the lease did not contain everything that we discussed. JP: I thought you told me that you had full authority for the landlord to lease the place. ST: Yes, I have the authority and I have already spoken to the landlord's solicitors. JP: We need to alter the lease then to include the full costs of the structural works to be paid by the landlord as you have agreed. ST: It is already in the lease that the structural work is the responsibility of the landlord. JP: It is not in the lease or the disclosure statement. ST: Giovanni please ask your solicitor to look at the lease again. It is there. 25. Ms Tong refused to make changes to the lease because she wanted the lease to be signed on 18 December 2009 as any changes would delay the signing of the lease. JP: I will check with my solicitor. Shirene, as long as you give me your word the owner will pay for all the structural costs I will organise for the signing of the lease. ST: Yes Giovanni the owner will pay for all the building works. 26. After this discussion with Ms Tong I sent the lease to my solicitors Church & Grace. I spoke to them late and they confirmed that the lessor was always responsible for all building and structural works and the Law Society standard lease was no different.
4. Mr John Panetta then sets out what occurred subsequent to signing of the Lease, in particular in relation to Council and the DA: 29. I have no experience dealing with the Council so one of the first thing [sic] I did after the signing of the lease was to find an architect who could start work on the premises immediately. Unfortunately no one could start until the second week in January 2010 due to the Christmas and New Year holidays. 31. Meanwhile I left the matter with my architect Mr Lombardo. Almost every day he would call to ask if I had received a copy of the DA from the landlord. I would call Ms Tong and all she would say is that she had asked the owner for a copy but it is 'faster' to get it from Council. 32. Meanwhile my architect Mr Lombardo had been trying other ways to get a copy of the DA from Council but with little success. I was becoming frustrated by the inaction from the lessors and Ms Tong to provide us with the DA. 33. On or about late February or early March 2010 after numerous attempts Ms Tong arranged for herself, Mr Gu, Mr Lombardo and myself to meet in the boardroom at Panorama Realty. 34. I reminded Shirene that we had not found the DA or received any DA for myself or Mr Gu. She suggested to start work anyway so we could be ready by 1 April. Gu: No you cannot start. The building has a heritage order and you must get approval first. You need to lodge DA. 35. I was shocked because I had no idea that the building was heritage listed prior to the meeting. If I had known this, I would have left the building works to Mr Gu and started my tenancy after he had finished. I had signed a lease in good faith based upon the representations of Ms Tong who I believed now had deliberately misled me. 38. I then asked Mr Gu to confirm that he would pay all the building costs. ST: Yes Mr Gu will pay all the costs. Gu: I will pay only up to $100,000. We have signed the lease and you must comply. JP: You must pay for all the structural works and I will send you the bills when I am finished. I also want the rent free period extended. 39. The discovery that the building had a heritage listing required the appointment of an heritage architect to prepare a report for Council prior to lodging a DA. This was costly in terms of time and expenses. I was determined to get the landlord to pay for it and all the building works.
5. After complaints by Mr John Panetta agreement was reached on 6 August 2010 to vary the payment of the landlord's contribution to provide some small concessions to the Lessees and Mr John Panetta. Even with the concessions, the Lessees could no longer continue to operate the restaurant. Mr John Panetta in his affidavit at paragraphs 48 to 51 says as follows. 48. December 2010 and January 2011 were slow months for business due to the holidays. We have battled on for over a year but by March 2012 our cash flow was completely exhausted we could not pay our rent. So we gave up the business and returned the lease of the landlord in April 2012. 49. I did notice that Ms Tong was quite pleased that we had given up and returned the lease. She was quick to agree to it and avoided any discussions and compensation. To the extent I thought that the landlord was happy that the premises were in spectacular condition and he would be able to lease it out again this time at a higher rent. 50. Subsequent to receiving the news that Ms Tong had leased the premises almost immediately after we left the premises but at a significantly lower rent. I was shocked because I could not understand the rational (sic) of the lower rent when the building was beautifully finished with ornate fittings inside. 51. Ms Tong's demeanour became quite apparent after I did some checking and discovered that the premises were leased to Rapten (Australia) Pty Limited a company solely owned by Spencer Lau, the owner of Panorama Realty.
6. As noted by Mr John Panetta, the Landlords re-let the premises to Rapten (Australia) Pty Ltd for three years from 21 May 2012. The rent was $78,000.00 per annum with a three month rent free period (the Rapten Lease). Mr Spencer Lau the principal of Century 21 Panorama Real Estate which employed Ms Shirene Tong and was the agency for the Landlords, had a commercial interest in Rapten (Australia) Pty Ltd.
7. Needless to say Ms Shirene Tong and Mr Yan Gu strongly disputed a number of the assertions made by Mr John Panetta. They say in summary that mention was made to Mr John Panetta about the heritage nature of the premises, that whilst an earlier DA was mentioned they never promised that there was a DA in existence that would save the Lessees time and at all times from the Memorandum of 2 December 2009, the agreement between the parties was that the Landlords would only contribute $100,000.00 to the cost of the structural works and Lesse's fit out and any additional expenses were solely to the account of the Lessees.
8. Ms Shirene Tong in her affidavit of 14 January 2014 says concerning conversations with Mr John Panetta: 8. … I also recall that I said to him with the words to the effect of 'This building is a heritage property as is most properties in Pyrmont area'. 9. At or around the same time, I advised Giovanni words to the effect of 'This building was used as a restaurant just before the lessors bought it, so you should not have problem with development application as far as usage is concerned. I leave it to you to sort out the fit out issues but you should ensure that you have DA for fitout'. 10. I otherwise deny I said anything about an existing DA for the property. It would be silly for me to say so as Giovanni was talking about upgrading the property to a fine dining status, I could not possibly say to him that the owner already had a DA for what he wished to do when he had not told me what he wanted to do. 11. I also said to Giovanni during one of the conversations words to the effect of 'You need to be careful with the fitout as this is a heritage building'. I was acutely aware of the issues with heritage buildings and they can cause a lot of hassle afterward if the prospective lessee is not aware of such status. 12. Giovanni replied to the effect of 'Don't worry about that, I have a very good heritage consultant that I use'. 16. I attended all meetings in relation to the Lease prior to the Lease being signed. At one of the conferences that I attended and I attended all the conferences, the Lessors and Giovanni agreed that there would be major upgrade to the property, the Lessor would contribute a total sum of $100,000.00.

The covenants in the Lease

1. As noted the Lease is in the form of the Law Society Commercial Lease. It contains the usual covenants regarding state of the premises as follows: 7. Conditions and Repairs Who was to repair the property? 7.1 The landlord must - 7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and the floors of the property and must fix structural defects; 7.1.2 maintain the property in a structurally sound condition; and 7.1.3 maintain essential services. 7.2 The tenant must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition but the tenant does not have to - 7.2.1 alter or improve the property; or 7.2.2 fix structural defects; or 7.2.3 repair fair wear and tear. 7.6 The tenant must not make any structural alterations to the property. Any other alterations require the landlord's consent in writing (but the landlord cannot withhold consent unreasonably).
2. More relevantly there were special covenants annexed to the Lease which was called Annexure A (not to be confused with the first Annexure A to the Lease which is a schedule of the relevant items in the Law Society form of the lease) and a statement to the effect that the following alterations and additions contained in Annexure A are to be made to the Lease covenants in Annexure B. I note in passing that clause 7 is in Annexure B of the Law Society form of lease.
3. Annexure A of the Lease contained the following clauses 4(a) and (b) 4(a) The tenant acknowledges that the premises is leased to the tenant in its current condition and state of repair and shall not require the Landlords to make any repairs nor provide any finishes, fixtures, fittings, equipment or services other than as provided in this lease. Further, subject to clause 7.1 in Annexure B, in the event of it being necessary to replace any items for any reason whatsoever then the tenant will effect such replacement at its own expense. (b) The landlord agrees to contribute $100,000.00 to facilitate the tenant to operate the business with the basic facilities, the tenant is responsible to obtain the consent of the local council or any public authorities in the course of any partitioning, alterations or additions made to this property at its own cost. The tenant is also required to apply any construction certificate from the local council before the commencement of the works and must apply to the local council for the Occupation Certificate when the construction works and produce a copy of the Occupation Certificate for the landlord's retention and record.
4. Annexure A also contained the following clause 11: '11. The parties agreed that the landlord's contribution of $100,000 in the renovation works will be paid in stages as follows: 1. Upon the signing of the lease by the tenant the landlord will contribute $40,000 and will be off‑set from the rental bond paid by the tenant. The parties agree that the landlord has the right to withhold the $50,000 rental bond and will remit to the relevant authority after the rent commencement date. The tenant cannot make any claim or requisition or objection or terminate this lease in this regard. 2. The landlord will contribute the next payment in the sum of $30,000 on 28 February 2010 provided that the tenant needs to produce invoices and evidence of the payment that the tenant has paid the renovation works and the landlord will at their own cost be entitled to retain a building surveyor to assess and verify the completed work in order to advise the landlord that the payment is justified. 3. The landlord will contribute the final payment in the sum of $30,000 on 31 March 2010 provided that the tenant needs to produce an Occupation Certificate issued by the Local Council stating the constructual works have been completed and the property is fit for occupation and operation of the business and also the tenant needs to produce invoices and evidence of the payment that the tenant has paid the renovation works and the landlord will at their own cost be entitled to retain a building surveyor to assess and verify the completed work in order to advise the landlord that the payment is justified.' Both clauses 4 and 11 are reproduced as written in the Lease.

Variation Agreement

1. As noted at paragraph 12 of these Reasons, the parties agreed to vary the payment structure of the capital contribution of $100,000.00 set out in clause 11 of Annexure A to the Lease. The agreement reached was that of the $100,000.00 contribution by the Landlords, $18,333.32 was deducted for two months rent, and a further $5,000.00 was deducted to bring the bond to $25,000.00 (Mr John Panetta had paid $20,000.00 on the signing of the Lease). This left $76,666.68 to be disbursed. It was agreed that it was to be paid over three payments from 1 September 2010, 6 October 2010 and 8 November 2010. A document dated 6 August 2010 was signed by all parties being the Landlords, the Lessees and the agent. The terms are as follows: Final rental concession As a renovation unexpectedly required more time, therefore, in order to assist the tenants to ease the cash flow challenge, new additional agreements have been made as follows: (1) The structural renovation contribution from the Landlords remains $100,000.00 (GST inc); (2) August and September 2010 rental payments will be waived; (3) The bond from the tenants agreed to be reduced to $25,000.00 instead of $50,000.00. The above will be the final concession from the Landlords regardless of any unexpected renovation delay might arise and both the tenants and owners are obliged to honour the signed rental agreement on 18 December 2009.

Issues between the parties

1. Mr Hochroth on behalf of the Lessees suggested that the Tribunal consider the following issues in assessing the Landlords' claim for loss of rent: (a) the proper quantification of the Landlords' claim; (b) whether the claim for relief by the Lessees should disentitle the Landlord to relief or be set off against any relief; (c) whether the Landlords have complied with their duty to mitigate; and whether there is any other reason why, in the discretion of the Tribunal, the Landlords should be refused relief.

Proper quantification of the Landlords' claim

1. 22 In assessing the damages claimed by the Landlords, there was disagreement between the parties as to how to assess the passing rent under the Lease. Mr Hochroth submitted that the Tribunal should take into account the incentives under the Lease by the Landlords being the rent free period of some three months and the $100,000.00 contribution. This would make the effective rent, as opposed to the passing rent to be less than $80,000.00 per annum under the Lease. Consequently as the Landlord had re‑let the premises at something in the order of $78,000.00 then on the Lessee's submission there was no effective loss as the expected rent under the Lease was around $80,000.00 per annum in any event.
2. Mr Chapple on behalf of the Landlords opposed this analysis and said that on this basis the Landlords are in fact paying the incentive twice. Mr Chapple points out that the rent review provisions in ss 19 and 31 of the RL Act determine market rent on the basis of an effective and not face rent (ss 19(1)(iv) and 34(1)(iv)). However there is no equivalent provision that deals with the situation of face rent versus effective rent on a termination of a lease. The Landlords are entitled to receive compensation for breach, subject to any duty to mitigate. I agree with Mr Chapple. The Landlords are to be put in the position that the Landlords would have been had the contract been performed (see Robinson v Harman (1848) 1 Ex850 at 855). Consequently the Landlords' claim is for loss of rent of $100,000.00 per annum plus the annual increase of 3.5% less the rent received from the re-leasing of the premises to Rapten (Australia) Pty Ltd.

The alleged misrepresentations by the Landlords and agent

1. Mr Hochroth on behalf of the Lessees asserts a claim for extensive damages against the Landlords based on three misrepresentations: 1. that the Landlords will be responsible for all of the cost of structural works to the premises; 2. that the premises had a current development consent which would be of assistance to the Lessees; and 3. that by silence the premises subject to a heritage order.
2. As a preliminary matter, the Tribunal notes that these events took place in 2009 and the Lessees have sought leave of the Tribunal to bring the claims outside of the three year period proscribed by s 71(2) or the RL Act pursuant to s 71B.
3. Section 71(2) states: A claim may not be lodged more than 3 years after the liability as obligation that is the subject of the claim arose.
4. Section 71B - in relation to the lodging of claims after 3 years, states: (1) A retail tenancy claim may be lodged more than three years but no later than 6 years after the liability or obligation that is the subject of the claim arose, if the Tribunal orders that the claim may be lodged with the Tribunal. (3) The Tribunal may make an order under this section: (a) an application by the party or former party concerned, and (b) after hearing such of the persons likely to be affected by the application as it sees fit, and (c) if the applicant satisfies the Tribunal that it is just and reasonable to make the order.
5. The relevant principles guiding the Tribunal in considering the granting of leave to claim outside the three year period are set out in Polylux Pty Ltd v Corpers (No 5) Pty Ltd [2009] NSW ADT 284 at [44]: The primary test for determination as to whether or not an extension of time should be granted is 'whether there can be a fair trial of the issues between the parties; see Brisbane South Regional Health Service v Taylor (1961) 186 CLR 541 and South Western Sydney Area Health Service v Gabriel (2001) NSWCA 477 (17 December 2001), in other words, whether there is a prejudice to be suffered by the defendant if the extension is granted; Sydney City Council v Sezegrarc (1998) 43 NSWLR 195. Needless to say the Landlords opposed an extension of time to be granted to the Lessees. The Tribunal notes that all the parties are present and the time is not so much beyond the period. The delay is short and readily explainable as the Tribunal understands that the parties were attempting to resolve matters commercially. The Tribunal is of the view that there can be a fair trial of the issues and no party has been prejudiced due to any delay. The Tribunal consents to the lodging by the Lessees of the claim with the Tribunal pursuant to s71B outside of the three year period.

The misrepresentations alleged by the Lessees

1. As noted in paragraph 24 of these Reasons, there are three misrepresentations alleged by the Lessees that induced them to sign the Lease, agree to the timetable to open the restaurant and commence paying rent from 1 April 2010. The major misrepresentation relates to the offer by the Landlord to pay for all of the construction work on the premises. The other two misrepresentations relate to an existing Development Approval (DA) and that there were no impediments such as heritage to a speedy commencement of opening. The latter two are the basis for the claim in recouping rent paid to the Landlords, as such misrepresentations induced the commitment to an unrealistic timetable which did not take into account the consequent lengthy delay in opening of the restaurant. The delays also placed financial burden on the Lessees inducing the signing of the Variation Agreement.

The Structural Repair Misrepresentation

1. The alleged misrepresentation by the Landlords regarding the payment for all of structural works is pursued by the Lessees and Mr John Panetta in two parts. The first is that the representation was not altered by the Landlords in the Memorandum of 2 December 2009 in that it survived the quantification of the Landlords liability for costs of construction to the sum of $100,000.00 to be still alive as a separate and continuing representation up to the signing of the Lease. Mr Hochroth submits that the Memorandum of 2 December 2009 did not expressly withdraw the earlier representation that the Landlords would pay for all of the structural work. It was agreed that initially the Landlords would pay for all the works and Mr Hochroth submits that this was still the representation made after 2 December 2009, upon which Mr John Panetta was induced to enter into the Lease. While the limited payment of $100,000.00 is expressed in the Lease, this could still sit with the representation that the Landlords would pay for all of the costs of construction.
2. The second is that the representation was specifically made by Ms Shirene Tong, as agent for the Landlords to Mr John Panetta in a telephone conversation of 14 December 2009 as stated by Mr John Panetta that Ms Shirene Tong said 'Yes Giovanni the owner will pay for all the building works.'
3. Mr Chapple in his submission says Mr John Panetta knew the "true position" when signing the Lease. His submissions are as follows: (1) Even if the Tribunal accepts Mr Panetta's evidence that he did not sign the 2 December memorandum, it is clear that by 14 December 2009, Mr Panetta was aware of the true position under the proposed lease. The lease was provided to Mr Panetta on or about 14 December 2009. On Mr Panetta's own evidence, he reviewed that lease and noted that the lease did not include a term that the 'full cost' of the structural works were to be paid by the lessors. He spoke with Ms Tong, who stated that the lease would not be amended. Mr Panetta conceded in cross examination that he knew at this point the true position under the lease, but he nevertheless was willing to enter into the lease. (2) Indeed, it is submitted that Mr Panetta at this point accepted the terms of the deal as set out in the lease. Some time after his conversation with Ms Tong, he sent an email to her. In that email he states that he has instructed his solicitor 'to be ready for signing', but also states that 'I notice a couple of changes' and notes: (a) the yearly rent increase of 3.5%; (b) the payment of the landlord contribution being subject to the supply of receipts; and (c) various options in relation to DA approvals. (3) It is surprising that Mr Panetta did not refer at all in this email to his complaint that the landlord was not going to be liable for the cost of all structural work. His explanation on cross examination was that he had already orally conveyed his position to Ms Tong and he did not need to include it in his email. However, it defies belief that such an important issue might be left only to an oral communication and not formally set out in writing in circumstances where Mr Panetta took the time to set out what are less significant matters. The more plausible explanation is that by the time of this email on 14 December 2009, Mr Panetta accepted the terms of the deal as described in the lease. (4) If this is accepted by the Tribunal, the only remaining representation alleged by Mr Panetta is an oral conversation that he stated he had with Ms Tong on 14 December in which he is alleged to have asked Ms Tong 'give me your word' that the landlord will pay for all of the structural costs. She is alleged to have responded by saying 'the owner will pay for all building work'. It is submitted that there are a number of difficulties with this representation: (a) Ms Tong vehemently denies having had such a conversation with Mr Panetta. (b) On Mr Panetta's own evidence, Ms Tong 'refused to make changes to the lease'. It is highly unlikely that a professional real estate agent would on the one hand refuse to change a lease, but at the same time give her word that the lease would in effect operate on a vastly different way. (c) Although he had the opportunity, Mr Panetta did not seek to confirm this representation in writing by email on 14 December 2009. (d) The terms of the representation are in direct conflict with the terms of the 2 December memorandum. If the Tribunal accepts that the 2 December memorandum was signed by Mr Panetta, then very little weight should be attributed to Mr Panetta's evidence of this alleged misrepresentation. (e) On Mr Panetta's own evidence he only sought Ms Tong's word 'that the owner would pay for all the building work'. He did not seek any amendment to the lease, and knew that the landlords were not amenable to the changes that he suggested.
4. Mr Hochroth makes the following responses: 1. The reference by Mr John Panetta in his email to Ms Shirene Tong on 14 December 2009 regarding rent increase of CPI could be a reference to an earlier memorandum not necessary to the Memorandum of 2 December or it is probable that he had no specific document in mind but simply knew that the previous proposal had been rent increases at CPI. 2. Although he reviewed the Lease and did not see a term providing that the 'full cost' of the structural works would be paid by the Landlords in fact the Lease does not expressly require the Lessees to undertake any structural works at their own cost. The submission is 'All Mr Panetta noticed was that the omission of the terms specifically providing for the costs of the structural works. That does not mean he understood what the Landlords say is 'true position'.' 3. Mr John Panetta's evidence was that he had asked Ms Shirene Tong for her word that the Landlords would pay for the structural works and she gave it. Mr John Panetta repeated this point in the witness box. 4. Mr John Panetta should be believed on this point over the evidence of Ms Shirene Tong on the basis that Ms Shirene Tong should be regarded as an interested and unsatisfactory witness. Further both parties to the conversation acknowledge that Ms Shirene Tong told Mr John Panetta that the relevant provision was already in the Lease and that he should check with his lawyers.
5. Mr Chapple says that even if Ms Shirene Tong had made the representation, which is denied, she was not authorised to do so and cannot bind the Landlords. However, Mr Hochroth asserts that Ms Shirene Tong was in fact authorised to make the representation for the following reasons: 1. that the representation was not only made by Ms Shirene Tong but also by the Landlords in earlier negotiations and that a reasonable person in Mr John Panetta's position would have every reason to think that Ms Shirene Tong would be authorised to repeat the representation on 14 December 2009. 2. it is well established that a real estate agent ordinarily has authority to communicate the negotiating position of his principals Restuccia v Entasil Pty Ltd [2008] NSWADT 248 at (85) citing the decision of Brereton J in Markson v Cutler [2007] NSWSC 1515; and 3. in Armstrong Jones Management Pty Limited v Saies‑Bond & Associates Pty Ltd [2007] NSWADTAP 47 at [53] the Appeal Panel stated that a potential lessee is entitled to regard a person who is a professional letting agent and with whom the lessee must deal and is on a site owned by the lessor without restriction as a person in whom the lessor has vested authority to make representations on behalf of the lessor.
6. The Tribunal accepts that the offer from the Landlords regarding the payment of structural work altered from the original offer by the Landlords to pay for all costs to the offer to pay only a limited amount of $100,000.00 and not to be responsible for any further costs. This is evident from the Memorandum of 2 December 2009, whether signed by Mr John Panetta or not. The Memorandum of 2 December 2009 clearly states "Renovation: - Tenant's responsibility". Between 2 December and 14 December Mr John Panetta did not seek to change this term. When the final lease document was presented to him, he knew to look for the clause regarding payment of structural work. He queried Ms Shirene Tong. He was directed by Ms Shirene Tong to look at the terms of the Lease and Disclosure Statement. The payment for the structural work by the Landlords to an amount of $100,000.00 only is set out in clauses 4(a) and 11 of Annexure A and specifically referred to in the Disclosure Statement. Mr John Panetta was invited to check this with his lawyers, which he subsequently did. The Lease and Disclosure Statement are consistent with the Memorandum of 2 December 2009. That was the "true position" as put by Mr Chapple.
7. The Tribunal is asked to determine that at the time the Lease was presented for execution, Ms Shirene Tong made a representation to Mr John Panetta that the Landlords would pay for all the structural works. I suspect that Mr John Panetta raised the issue, as he says in his affidavit, and attempted to go back to the earlier offer prior to the Memorandum of 2 December 2009 to have the Landlords pay for all of the costs. I have no doubt he tried. However, Ms Shirene Tong denies making the representation. I am inclined to accept that she did not for the reasons submitted by Mr Chapple, as it is highly unlikely she would say yes to such a material change during the negotiations and acknowledge at the same time that the Lease could not be altered. The Tribunal also accepts Mr Chapple's proposition that because Mr John Panetta made no mention of this alleged representation in an email afterwards, it should be inferred that it was not made. Further, the Tribunal does not accept that even if she did make such a representation, she had the authority to do so to commit the Landlords. This is because Mr John Panetta was already aware that the Landlords had changed on this very point to limit the costs of any proposed work and had instructed Ms Shirene Tong to alter the offer. Ms Shirene Tong did not on her own volition make the change to limit the Landlords' exposure to $100,000.00. So it was quite clear to Mr John Panetta that Ms Shirene Tong was an agent only and subject to her principal's instructions. This is quite a different scenario to what transpired in Armstrong Jones, referred to by Mr Hochroth.
8. The Tribunal finds that Mr John Panetta knew and accepted the position regarding the payment of structural repairs as stated in the Lease at the time of signing the Lease. More likely he relied on advice from his lawyers as he said in his Affidavit of 23 December 2013 at (26) referred to in paragraph 9 of these Reasons that 'I spoke to them later and they confirmed that the Lessor was always responsible for all building and structural works and the Law Society Standard Lease was no different.' The Tribunal finds that Ms Shirene Tong did not make the representation asserted but even if she did, she had no authority to do so. Consequently the Tribunal finds this alleged misrepresentation in both situations not made out.

The development consent representation

1. Mr John Panetta asserts that Ms Shirene Tong represented to him that a DA was already in existence and this would facilitate any construction work to be undertaken by him. Mr Chapple in response says that the making of this representation was vehemently denied by both Ms Shirene Tong and Mr Yan Gu. Further Ms Shirene Tong stated that she did refer to a previous DA that had been approved in 2004. Mr John Panetta's evidence that was Ms Shirene Tong represented that a DA was in place in respect of the premises but provided no details about the conditions of the DA including the number of persons that the restaurant would seat, the nature of any plans, the size of the kitchen and the facilities in the kitchen. Mr Chapple submits that if Ms Shirene Tong had actually made such a representation, that the DA was of assistance, it is likely that either she would have provided these details during the conversation or that Mr John Panetta would have asked about them.
2. The Tribunal has been asked to infer that Ms Shirene Tong made no such representation from the fact that this information was not provided and that it is confirmed in Mr John Panetta's email of 14 December 2013. In that email Mr John Panetta referred to the 'DA you provided' and asked: If conditions are suitable everything ok and we can proceed with work. However if Council requires a new DA, work commencement will be subject to the time it takes for Council to approve plans etc. Naturally we will push for approval as we want to be there and trading as soon as possible.
3. Mr Chapple submits that it is clear from this email that Mr John Panetta did receive some form of DA (although it may not have been current) and more importantly prior to signing the Lease he was conscious of the fact that the conditions may not be suitable and that Council may require a new DA and lastly the commencement of the work would be subject to the time that it took for Council to approve plans.
4. The final submission from Mr Chapple on this point is that pursuant to clause 4(b) of Annexure A to the Lease the Lessees were responsible to obtain the consent of the Council and any public authorities in the course of any work to be done to the premises. He says: Even if it is accepted by the Tribunal that Ms Tong did represent that there was a current DA in respect of the property, it is highly unlikely that Mr Panetta placed any significant reliance on that representation. Mr Panetta is an experienced restaurateur who was seeking to open an Italian restaurant that was substantially similar to another restaurant that he owned in Leichhardt. It is inconceivable that he was prepared to rely on a representation that a DA existed without seeking the proposed layout and structural alterations, and the conditions on which the DA was granted.
5. In response to these submissions Mr Hochroth makes the following point: In these circumstances (the premises being in a state of dilapidation) and bearing in mind the time of year, it is inconceivable that an experienced restaurateur such as Mr Panetta would agree to lease a dilapidated building with such a short rent‑free period if he did not believe that there was already an approved development consent. It would defy commercial reality to think that Mr Panetta would imagine that he could obtain a DA and Construction Certificate, complete construction including structural repairs of dilapidated building and open, all between 18 December 2009 and 1 April 2010. This representation with the later representation of no heritage listing caused significant delay to the fit out process from Mr Panetta in that he needed to obtain a new DA and it was far from a straightforward process.
6. While it might defy commercial reality for Mr John Panetta to have entered into the Lease, nevertheless, the Tribunal accepts the position of the Landlords that only a passing reference was made by Ms Shirene Tong that a DA was in existence. However, no mention of its terms was made. How could there be especially as Ms Shirene Tong did not have a copy? Even if the terms were made known, it is not comprehensible to the Tribunal as to how the existence of such a DA could have been of valuable assistance to MrJohn Panetta. The Tribunal agrees with Mr Chapple that it is highly unlikely that Mr John Panetta relied on its existence. It is for the Lessee to lodge its own development application. This is in accordance with the terms of the Lease and common practice. Mr John Panetta was well aware of this and in fact engaged architects to do this very thing. This misrepresentation is not made out.

No heritage listing representation

1. The Lessees rely on a representation from Ms Shirene Tong that the premises were not heritage listed (originally the representation was framed in the words of there was no heritage order). Mr Hochroth expresses the misrepresentation as follows: 'If the Landlords represented that there was an existing DA, or even, for that matter, a previous DA from 2004, so as to suggest to Mr Panetta that obtaining development consent would be a swift process such that he would be able to complete construction by 1 April 2010, in circumstances where the premises were heritage-listed, it would have been misleading to omit to mention the heritage listing. It is a matter of common knowledge (and will be within the Tribunal's experience) that a heritage listing will generally impose more onerous conditions and may delay obtaining of development consent.'
2. As Mr Chapple submits, whilst silence may in some circumstances amount to a misrepresentation, there is no general duty of disclosure. In Lam v Ausintac Investments Aust Pty Ltd [1990] 97FLR 458 Gleeson CJ stated: 'Where parties dealing at arm's length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other party, would or might cause the other party to take a different negotiation stance. This does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice.'
3. Ms Shirene Tong asserts that she did in fact mention to Mr John Panetta that the building had heritage status. However, the Tribunal agrees that there was no positive duty on the Landlords to disclose to Mr John Panetta the fact that the premises were in a heritage zone and a heritage item [only the facade as the evidence subsequently showed]. Mr John Panetta was undertaking substantial building works, was engaging an architect and in the normal course of events would have or should have made due enquiry at Council. While the timetable accepted by Mr John Panetta for doing of the works within the rent free period was tight, this was a commercial decision for him. The Tribunal finds that even if Ms Shirene Tong did not mention heritage, there is no misrepresentation regarding the non-pointing out of heritage issues.
4. As the Tribunal has found that none of the alleged misrepresentations have been made out, it is not necessary for the Tribunal to give consideration to the effect of the Variation Agreement. The Landlords assert that the Lessees are estopped from claiming for misrepresentations because of signing the Variation Agreement. As a preliminary view the Tribunal would say that this is not the case.

Lessees claim in contract for the cost of structural building works

1. The Lessees make a claim in contract for reimbursement for the cost of the structural repairs based upon the proper construction of the terms of the Lease based on clause 7.1 of Annexure B of the Lease which states as follows: 'Who is to repair the property? 7.1 The landlord must - 7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and the floors of the property and must fix the structural defects; 7.1.2 maintain the property in a structurally sound condition; and 7.1.3 maintain any essential services'.
2. The Lessees assert that the other provisions in the Lease specifically clauses 4(a) and (b) and clause 11 in Annexure A relating to the payment of the landlord's contribution of $100,000.00 are inconsistent with clause 7.1 and should be read down. Mr Hochroth on behalf of the Lessees acknowledges that there is no express provision in the Lease requiring the Lessees to carry out any structural repairs to the premises. He states that the proper question is whether the Landlords was required to reimburse the Lessees as a result of clause 7.1 of Annexure B of the lease. Mr Hochroth asserts that the answer is yes. That is because, notwithstanding the terms of clause 4(a), the provisions of clause 7.1 of Annexure B still obliged the Landlords to be responsible to maintain the property in a structurally sound condition. The Landlords did not do so and allowed the Lessees to undertake the works on behalf of the Landlords and consequently the Landlords must reimburse the Lessees accordingly.
3. Mr Hochroth asks the Tribunal to infer that the opening words of clause 4(a) that "the tenant acknowledges that the premises is leased to the tenant in its current condition and state of repair and shall not require the Landlord to make any repairs nor provide any finishes, fittings, equipment or services other than as provided in this Lease" in fact import the obligations of the Landlords under clause 7.1 by use of those last words "other than as provided in this Lease". This importation is carried through in the second sentence which is also subject to clause 7.1.
4. In addition to these considerations Mr Hochroth points to Section 23 of the RL Act. That section states as follows: A provision in a retail shop lease is void to the extent that it requires the lessee to pay any amount in respect of the capital costs of the building in which the retail shop is located or (in the case of a retail shop in retail shopping centre) of any building in the retail shopping centre or any areas used in association with any such building.
5. Mr Hochroth notes that while the expression 'capital costs' is not defined within the RL Act on its ordinary meaning it would clearly include construction works to the building. Interestingly as he points out the Victorian provision specifically exempts clauses requiring a tenant 'to undertake capital works at the tenant's own cost': see Retail Leases Act 2003 (Vic) 41(2). However, there is no such exemption in the RL Act. Section 23 has been applied to avoid a provision of a lease requiring a tenant to pay costs in relation to construction of a garbage compound: Sean Lytton v North Bondi RSL Club Limited [2011] NSW ADT 86 at [26].
6. Consequently according to Mr Hochroth either clause 4(a) of Annexure A of the Lease is void under s23 or it should be read so as not to be inconsistent with the requirements of clause 7.1 that the Landlords must keep the property in good repair and maintain the property in a structurally sound condition. Mr Hochroth's submission is that the Landlords did not comply with these requirements but instead insisted that the Lessees undertake structural repairs at their own expense. Consequently he says the Lessees are entitled to claim the cost of the structural repairs under the Lease.
7. Mr Chapple on behalf of the Landlords acknowledges that in the ordinary case a landlord is responsible for maintaining its property in the state of good condition and serviceable repair and is responsible maintaining the structure. However specifically in this Lease clauses 4 and 11 of Annexure A alter that position. This is further emphasised by reference in clause 4(a) to the fact that the Lessees acknowledges the poor state of repair of the premises and that the Landlords are not required to make any repairs but that the Landlord will contribute $100,000.00 to facilitate the Lessees to operate the business with the basic facilities. The clause makes it quite clear that the Lessees are responsible for the obtaining of Council and public authority consents and obtaining the construction certificate.
8. Mr Chapple submits clause 4(a) of Annexure A is clearly on its face a clause drafted by the parties for the specific circumstances of this transaction and should be read in conjunction with clause 11 setting out the payment schedule regarding the Landlord's contribution of $100,000.00. He says that it was expressly contemplated by the parties that the Lessees took the premises in the state of structural repair that existed at the date of the commencement of the lease, 18 December 2009 and that the Lessees would be responsible for any renovations or repairs of the premises. The extent of the Landlord's contribution was $100,000.00 only.Tribunal to reconcile the clauses in the Lease
9. The starting point for the Tribunal is the terms of the Lease in clause 4(a) the premises are leased in 'its current condition and state of repair and shall not require the landlord to make any repairs…'. Under clause 4(b) 'the landlord agree to contribute $100,000 to facilitate the tenant to operate the business with the basic facilities…'. The $100,000 contribution is then detailed in clause 11. As noted in paragraph 17, these covenants are made in Annexure A to the Lease as 'alterations and additions to Lease Covenants in Annexure B'. It is the intersection of these covenants with clause 7.1 in Annexure B that is at the crux of the problem here,
10. Firstly we can dispose of s 23 of the RL Act, There is nowhere in the Lease a requirement for the Lessee to undertake any work, but there are plenty of covenants concerning what happens if the Lessee do so and then what contribution is to be made by the Landlords (production of invoices and employment of a building surveyor to verify works clause 11(b)). Accordingly, s 23 is not relevant to these proceedings and there is no inconsistency with clause 4(a).
11. The second sentence in clause 4(a) which states 'further, subject to clause 7.1 in Annexure B, in the event of it being necessary to replace any item for any reason whatsoever then the tenant will effect such replacement at its own expense' may on its first reading be inconsistent with clause 7.1 itself. Clause 7 of Annexure B is the standard clause regarding repairs. Under clause 7.1.1 'the Landlord must maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls, and the floors of the property and must fix structural defects' and at 7.1.2 must 'maintain the property in a structurally sound condition'. It is obvious that at the commencement of the Lease this was not the case. Mr John Panetta in his affidavit of 23 December 2013 highlights how completely unsafe and structurally unsound the premises were. Consequently without a provision like clause 4(a) the Landlords would have been in default under the Lease from the commencing date.
12. The Tribunal believes that the drafter of the Lease tried to accommodate the situation, which Mr Chapple says was not the ordinary case. The Lease had to identify that the premises were being let in their current state and the Landlord were to do no repairs. The opening words are significant, that the Lessees acknowledge the state of the premises and the Landlord shall not be called upon to make repairs. Without these words, the Landlord would be in breach of its obligations under clause 7.1. These words relieve the Landlord of obligations to repair. The second sentence is not well drafted. It appears to be subsidiary to the first. In the context of the whole Lease where the Landlords are not required to do repairs it must mean, when it says 'subject to clause 7.1', in fact 'notwithstanding clause 7.1'. The intention is that the Lessees make all the repairs and the clause in Annexure A overrides the printed clause in Annexure B. This intention is taken from the earlier words 'and shall not require the landlord to make any repairs'. While the legal advisors to Mr John Panetta were correct in a general manner that Landlords are liable for structural repairs, the parties, of course are free to negotiate otherwise. In this particular case, they did so, as the Landlord would contribute $100,000.00 and not be obliged to make any repairs to the premises as stated in the Memorandum of 2 December 2009.
13. However, the second sentence in clause 4(a) is either inconsistent with clause 7.1 or to be read to be consistent, as I have suggested, by the substitution of the words 'subject to', by the word 'notwithstanding'. Alternatively the clause may be read to apply to the future, that is 'necessary to replace' referring to after any works have been undertaken and completed. It cannot be the situation to refer to works to be done at the commencement of the Lease, as that is totally inconsistent with the first sentence in clause 4(a). If it were to have meaning it would mean that the Landlord would be responsible in the ordinary course for structural items as specified in clause 7.1.1 and 7.1.2 that need to be replaced 'in the event of it being necessary' some time in the future after the initial works have been undertaken by the Lessees, if they are to do those works.
14. It is the view of the Tribunal that whichever way clause 4(a) might be read the Lessees' position is not assisted. The obligations of the Landlords under clause 7.1 were negated otherwise the Landlords would have been in breach of the Lease from the first day. There is no contractual requirement for the Landlords to pay for or reimburse the Lessees for the costs of structural repairs. For the Lessees to arrive at the position that the Landlords must pay, the Lessees require the Landlords not only to be subject to the obligations under clause 7.1 but also to engage the Lessees to do the work and for the Landlords to pay for the work under the Lease. However, there is no specific requirement for the Lessees to do any work on the premises. The counter view was not put by Mr Chapple but it is worth considering. That is, what if the Lessees did no works, would they be in breach of the Lease? The Tribunal interprets the Lease that provided they paid the rent and performed their obligations, then no they would not be in breach. The Lessees were under no contractual obligation to undertake any works. In fact if they did any works, then to be reimbursed for those works, clause 11 set out a stringent regime (submission of receipts, engagement of quantity surveyor). There is no similar regime for payment of any works over $100,000.00. The Tribunal infers from that omission that there was never any intention for the Lessees to be reimbursed over and above the sum of $100,000.00. Accordingly there was no contractual obligation on the Landlords to reimburse the Lessees for the works undertaken, over and above the sum of $100,000.00 contractually agreed.

Collateral Contract

1. The Lessees assert in the alternative that the alleged misrepresentations in particular the statement by Ms Shirene Tong that all costs of works would be paid for, formed a contract collateral to the Lease. The Tribunal has found that the misrepresentations are not made out.
2. However, if the Tribunal had found that the representation that the Landlords would pay for the cost of construction was in fact made does this form a collateral contract?
3. Mr Chapple submits that in accordance with Hoyts Pty Ltd v Spencer (1919) CLR 133 the High Court held that a claim based on a collateral contract cannot be maintained if its terms are inconsistent to the terms of the main contract. Isaccs J held [146] that a 'principle' which 'must govern the bargain of a contractual promise made in consideration of entering into the main contract is that the parties shall have and be subject to all (not some only) of the respective benefits and burdens of the main contract.
4. Mr Hochroth submits there would be no inconsistency between the alleged collateral contract and the main contract, namely the Lease. He bases such submission back on the construction argument of clause 4 and 11 and clause 7.1 of the Lease that the responsibility lies with the Landlords for the structural maintenance of the premises. However, If the Tribunal disagrees with the construction argument, he then submits that as the Lease does not require the Landlords to pay for the costs of construction, there is no principle that a collateral contract cannot add to the obligations of the parties set out in the main contract, nor that it cannot touch upon subject matter that is treated in the main contract. Therefore a collateral contract to pay for all of the costs of construction should be found.
5. The Tribunal has great difficulty with this argument for a collateral contract. Firstly, the Tribunal has found that Ms Shirene Tong did not have the authority to bind the Landlords, so even if the arguments put by Mr Hochroth are accepted, the capacity of one of the contracting parties is lacking. It is not alleged that Ms Shirene Tong herself entered into a contract with the Lessees based on her representation, as an indictment to the Lessees to enter into the Lease. The problem with the argument that these two contracts co-exist is with clause 4(a) of Annexure A of the Lease which clearly states that the premises are let in 'its current condition', that is dilapidated and the Landlord will not be required to make any repairs. That must be inconsistent with a collateral contract that the Landlord pay for any structural repairs. The claim for the costs of the structural work based on a collateral contract is rejected.

Unjust Enrichment

1. The claim of unjust enrichment is put by Mr Hochroth on behalf of the Lessees as follows: (1) At the end of the hearing, the Tribunal raised the issue of whether or not the Lessees have a claim against the Landlords in unjust enrichment. The Lessees submit that relief in unjust enrichment is available, and hereby make such a claim. To the extent the Lessees are required to amend their filed application (although the Tribunal is not of course bound by rules of strict pleading), the Lessees hereby seek to amend nunc pro tunc. There is no reason such an amendment should not be granted - the amendment raises purely legal issues and so there is no question of prejudice to the Landlords. (2) As a general matter, to make a claim in restitution for unjust enrichment, a plaintiff must show that: 1. the defendant received a benefit; 2. the benefit was at the expense of the plaintiff; and 3. there was injustice: see generally Australia and New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662 at 673; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 543ff. (3) The Tribunal has jurisdiction to grant relief by way of restitution for a claim for unjust enrichment see s.70(a)(i) and s.72(1)(a) of the RL Act. (4) In the present case, the Landlords have received a benefit, namely the increased value of the premises as a result of the structural repairs carried out by the Lessees. That benefit has been received at the expense of the Lessees. The question arising is whether there has been relevant injustice. (5) The Landlords correctly submit that, as a general matter, where a benefit has been conferred in accordance with a contractual obligation, there is no relevant injustice and so there is no unjust enrichment. That does not mean, however, that there is no injustice in the present case, for the following reasons. (6) First, the relevant benefit (the construction works) in the present case was not conferred in accordance with a contractual obligation. There was no requirement on the Lessees to carry out the works under the Lease. Of course, without carrying out the works, the Lessees would have been unable to enjoy the benefits of the Lease. That, however, is a different thing to the benefit being conferred under a contractual obligation for which consideration has been given. (7) Secondly, there was relevant injustice in the sense of compulsion. Compulsion is recognised a ground of injustice upon which injustice may be established for an unjust enrichment claim. Bryson v Bryant (1992) 29 NSWLR 188 at 223; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 371-274. The compulsion must be wrongful, although the defendant need not know or appreciate the wrongfulness in order to establish compulsion. Lactos Fresh Pty Ltd v Finishing Services Pty Ltd [2006] FCA 748 at [91]-[98], citing amongst other authorities, Mason v New South Wales (1959) 102 CLR 108. (8) When asked in the witness box why he continued to carry out the structural works knowing that Mr Gu's position was that he would only contribute $100,000, Mr Panetta's evidence was that effectively he did not have any choice. Mr Gu was insisting that he had to stick to the Lease and was demanding payment of rent even though construction was not complete and the restaurant had not opened. Mr Panetta had already spent substantial amounts, having bought equipment, engaged staff, etc. For Mr Panetta, to seek to terminate the Lease, would likely have involved litigation and would have resulted in substantial wasted costs. (9) On the Landlords' own case, Mr Gu sat by while Mr Panetta vastly improved his property, knowing from an early stage that Mr Panetta's position was that he had been told that there was already a DA in place and that the Landlords would pay for structural works, effectively compelling Mr Panetta to complete the works and hope for the best once the restaurant commenced trading. That was conduct that may fairly be described as unconscientious: Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [21]. (10) Thirdly, if the Tribunal finds that the structural repairs representation in particular was made, that would also supply an element of injustice in the Landlords retaining the benefit of the structural repairs without paying for them. (11) For these reasons, there was injustice in the Landlords continuing to have the Lessees carry out the structural repairs and accepting the benefits thereof. Orders should be made granting appropriate restitution to the Lessees.
2. Mr Chapple in reply submits: The principle of unjust enrichment has no application in the present circumstances because any benefit conferred upon the Landlords was done pursuant to an enforceable contract in place between the parties. It is an element of unjust enrichment that it must be unconscionable or inequitable for the defendant (in this case, the Landlord) to retain the benefit. In circumstances where the benefit was conferred on the Landlords in accordance with a contract, and for which the Lessees received valuable consideration (a contribution of $100,000 and a long-term lease), there can be no unjust enrichment. It is not simply a question of unfairness: Pavey & Matthews v Paul (1986) 162 CLR 221 at 256. There must be a further factor that would make it unconscionable for the defendants to take any benefit as a result of their conduct. David Securities Pty Ltd v Commonwealth of Australia (1991) 175 CLR 353 at 359. There are no such factors in this case.
3. Both submissions have merit. Mr Hochroth points to the evidence of Mr John Panetta under cross examination that he felt compelled in the circumstances to continue with the structural building work as he had no choice but to continue. Reference by Mr Hochroth to the decision in Bryson v Bryant (1992) 29 NSW LR 188 at 223 draws out the observation by Sheller J referring to the often cited passage of Deane J in Pavey & Matthews at 256 referred to by Mr Chapple in his submissions recognising the importance of the concept of unjust enrichment in the Law of Australia: It constitutes a unifying legal concept which explains why the law recognises, in a variety of distinct categories of cases, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary process of legal reasoning, of the question whether the law should in justice recognise such an obligation in a new or developing category of case (without citations). Sheller J then continues (223): 'However his Honour had earlier (at 256) said that to identify the basis of particular actions as restitution and not genuine agreement was not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. To assert unjust enrichment by abtraction is to assert the non-voluntary conferring of a benefit in circumstances which make its retention unjust. Examples are mistake, compulsion and a total failure of consideration.'
4. In the case of Lactos Fresh Pty Ltd v Finishing Services Pty Ltd (2006) FCA 748 the payment of rent under threat of eviction (as it turns out wrongfully) was at issue and viewed by Weinberg J as a payment made under compulsion. Similarly in Mason v NSW (1959) 102 CLR 108 the payment for permits to the State of NSW for the permission to transport goods through that State was viewed by the High Court as payment under compulsion, as the issue of permits was under challenge pursuant to section 92 of the Constitution (free trade between the States of the Commonwealth) and there the plaintiffs had rightly made those payments 'under protest'.
5. Mr Hochroth directed the Tribunal's attention to the conduct of the Landlords in particular Mr Yan Gu. Mr Hochroth submitted that Mr Yan Gu in standing by and doing nothing and consequently allowing Mr John Panetta to continue with the construction works acted in a manner that may be described as unconscientious in accordance with the observations by the High Court in the case of Tanwar Enterprises. There the High Court held at (21) that the more accurate term is 'unconscientious' rather than the word 'unconscionable'. That might be so, however the Tribunal notes that in the following paragraph (22) the High Court held: In the present case, that more accurate term directs attention to the question why the vendors ought not to be heard to assert the exercise of their legal right to terminate in answer to the claim by Tanwar for specific performance. The conscience of the vendors which equity seeks to relieve is, as Gleeson CJ put it in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 227 (45) a 'properly formed and instructed conscience'.
6. In the opinion of the Tribunal the cases referred to by Mr Hochroth do not assist the claim by the Lessees for restitution by the Landlords for unjust enrichment. Sheller J in Bryson v Bryant mentioned in passing but directed attention in particular to the comments by Deane J in Pavey & Matthews that a claim for unjust enrichment is not to be taken as a notion to just do what is fair and just in the circumstances. There needs to be more. Mr Hochroth understands this and points to compulsion. However the payments under compulsion in Lactos and Mason were far more onerous in the circumstances than the commercial pressure felt by Mr John Panetta as articulated by him in the witness box to continue with the construction works at the premises. Nor is the conduct by Mr Yan Gu in any way unconscientious in the terms as set out by the High Court in Lactos. On the contrary the High Court held in Lactos that the vendor could assert its legal enforceable right to terminate the contracts for sale with the purchasers (who were seeking to reclaim the deposit on the basis of unjust enrichment). The Tribunal does not see that the Landlords have acted unconscientiously in allowing Mr John Panetta and the Lessees to expend money on the premises. Their position was as set out in the Lease and the Disclosure Statement and the Landlords did not waiver from that position.
7. Further, a claim for restitution based on incontrovertible benefit will be denied where the applicant has acted officiously. The officious applicant is one who conscientiously takes the risk of non‑payment for the services provided. In the case of Gadsden Pty Ltd v Strider 1 Ltd (The AES Express) (1990) 20 NSWLR 57 Carruthers J (at 70) held: 'Professor Birks' in Introduction to the Law of Restitution (1985) (at 103) suggests that the word 'officious', common though it is in this particular context, in fact has no work to do which is not capable of being done through 'voluntary' and 'volunteer'. He submits that if the intervener takes the risk of losing his labour without return, then he is a volunteer and his transfer of value is voluntary. To say that he is 'officious' only re-affirms that he took the risk of disappointment. In Gadsden a vessel owned by Strider was carrying cargo belonging to Gadsden from the United States to Melbourne. During the course of the voyage the charterers of the vessel informed Strider that it was ceasing business operations and Strider terminated the charterparty. Strider took over the conduct of the vessel, however did not notify Gadsden of the termination of the charterparty until after the vessel had left Auckland on its way to Australia. Carruthers J held that, even if the carriage of the cargo from Auckland to Melbourne was of incontrovertible benefit to Gadsden, Strider could not recover from Gadsden the freight costs it had incurred. His Honour held that Strider had elected to carry the freight on to Melbourne in the near 'hope' that Gadsden would pay its rate costs, and so had acted officiously (Westlaw AU 29.1460).'
8. Similarly, Mr John Panetta acted officiously in continuing to undertake the construction works on the premises owned by the Landlords, knowing that there was no contractual ability to be recompensed for such construction works but in the hope that the Landlords would at some stage come to the party and pay for the works. Mr John Panetta took the risk of disappointment. Further Mr Chapple says there can be no unjust enrichment when there is a contract. The contract is the term of the Lease, that is the Lessees have a 5 year term with a 5 year option, 10 years of occupancy if the Lessees complied with the terms of the Lease. The reason that the Lessees are seeking reimbursement for the construction costs, is that the Lease was terminated due to breach by the Lessees. Query if the Lessees had performed under the lease for say 5 years but then did not exercise the option could the Lessees be entitled to claim for unjust enrichment from the Landlords for the construction costs to the premises? The Tribunal doubts whether that in fact would be the case. On one view the situation was no different to a head lease where the Lessee pays a ground rent and in return is granted permission to construct a building in return for securing a long term lease. At the end of the lease the building reverts to the landlord. There is no claim for restitution to the Lessee for unjust enrichment to the Landlord of the building. Here the Lessees had a Lease for 5 years and 5 years a substantial term of 10 years. Consequently, the claim for unjust enrichment is not made out.

Reletting of the premises

1. Ms Shirene Tong in her affidavit of 14 January 2014 regarding the reletting of the premises says at paragraph 24 and following: 24. On or about 24 April 2012 the Lessee abandoned the property and the Lessor took repossession. 25. I started work of advertising the property for lease in the open market soon after the property was vacated … the market was depressed at the time and there were not many enquiries. 26. By about mid May, the Licensee of Century 21 Spencer Lau said to me words to the effect of 'I have a friend who was a restaurateur (sic) and he is interested in the property at 46 Harris Street, but he will only pay $78,000.00 for the first year rent'. 27. I conveyed this offer to the Lessors and advised them with words to the effect of 'there were very little interests since the property was advertised for lease. I can take months to rent out as the shop was in a rather unique area, it is in a quiet residential area, it suits someone like Giovanni who wanted to trade upmarket and not rely on pedestrian flow. You could wait for a better offer but there is always this issue of mitigating for damages. The longer you wait the more months of rent accumulating that you need to recover from Giovanni. Then it could take months to finalise a negotiation even if someone is interested. As you know, it took us 3 months to rent out this property to Giovanni so you need to consider whether this lower rent offer is justified.' 28. I observe that the rental market of Pyrmont appeared at more or less gone downward drastically in the year 2010. Many shops were left vacant and owners were offering rent free period at a lower rent to attract customers. 29. After a couple of days, one of the Lessor, Yan Gu got back to me with words to the effect of 'I shall take up the offer, considering that I can secure a tenant and limit the damage'.
2. Ms Shirene Tong must mean in paragraph 28, the year 2012 and not 2010. Ms Shirene Tong annexed to her affidavit copies of flyers for advertisements and two emails from parties that viewed the premises but were not interested. In one of the annexed emails a person called Melody stated that the asking rent of $10,000.00 per month was too high, and made a counter offer of $68,000.00 per annum. This was rejected by Ms Shirene Tong presumably on instructions from the Landlords.
3. Mr Yan Gu in his affidavit of 30 January 2014 says at paragraphs 14-16 as follows: 14. 'My main consideration at the time was that there was hardly any offer from other people … I was told by Ms Tong … words to the effect that the market was quiet and I was aware that indeed the whole business scene in Sydney was quiet. 15. I decided to take up the offer from Mr Lau as I thought the loss would then be under control. I was acutely aware that I might not recover anything from the respondents, and I would be better off if I cut my loss. My calculation was that it cost around $9,000.00 for every month the property remained vacant. The offer from Mr Lau was $78,000.00 a year which was roughly around $20,000.00 less the Giovanni rent. I could have been further behind if the property was not rented out for more than 2 months. 16. I have sought advice from various people, the opinion generally was that I was better off cutting loss than waiting for a better offer which might or might not come.'
4. The Lessees assert that the Landlords did not mitigate its loss by seeking a more commensurate rental for the premises but rather took a lower rental as an expedient means to fill the premises. The relevant principles regarding minimising loss are set out in the decision of Karacominakis v Big Country Developments Pty Limited (2000) NSWCA 313 at paragraph 187 (Giles JA with whom Handley JA and Stein JI agreed). 187 A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130). Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did (Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452; Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5.
5. In addition to the common law principles of mitigation, Mr Hochroth points to a contractual obligation on the Landlords in clause 12.6 of the Lease which states: If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms. Mr Hochroth submits that notwithstanding a low standard as found in Karacominakis, the Landlords in fact do have a higher onus of showing that they have complied with clause 12.6 and have done 'every reasonable thing to mitigate (their) loss.
6. Further, Mr Hochroth submits that the Landlords have not complied with the contractual duty as set out in clause 12.6 for the following reasons: 1. The Rapten Lease was entered into less than a month after the Lessees had surrendered the Lease such surrender being on 24 April 2012 and the commencement date of Rapten Lease is 21 May 2012. 2. There was a very short period for the Landlords to have sought a new tenant. 3. The new tenant was not at arms length from the Landlords, in that the tenant was in fact a business partnership of the principal letting agent of Spencer Lau. 4. Both Mr Yan Gu and Ms Shirene Tong accepted that there was no negotiation with Mr Lau in respect of the rental offered by Mr Lau on behalf of his prospective joint venture partner. 5. The premises were in a vastly improved condition in 2012 from when they were leased in 2009. It is acknowledged by all the parties that at the commencement of the Lease the Premises were dilapidated and by May 2012 the premises were ready for immediate occupation. 6. Besides the evidence of Ms Shirene Tong there was no evidence given as to the precise extent to which the market had fallen in 2012 and neither parties had obtained independent rental valuation of the premises. The onus according to Mr Hochroth in light of clause 12.6 was on the Landlords to show that it had complied with clause 12.6.
7. In response Mr Chapple says that in accordance with Karacominakis the onus is on the Lessee and not the Landlord to show that in fact the Landlords did no more or less other than what would be reasonably expected in a business sense in relation to reletting the premises. Mr Chapple refers to the decision of in Blandino & Ors v Giardini & Ors (2008) ADTAP 55. Mr Chapple also referred to the decision of Young v Lams (No.2) (2001) NSWSC 1014 at [31] where Austin J stated where the assessment of damages arose in a commercial case 'it is relevant to take into account the plaintiff's financial circumstances in deciding whether his loss has been mitigated at least to the extent that the 'defendants' breach has produced the plaintiff's financial difficulty, in foreseeable circumstances'. Mr Chapple points to the evidence from Mr Gu that he had a mortgage to pay and required the rent from the premises to meet his commitments.
8. The Appeal Panel in Blandino at [65] summarised the position regarding the question of landlord acting reasonably to minimise loss as follows:- 1. Where it is alleged that a landlord has acted unreasonably in failing to minimise his or her loss from the tenant's breach of contract, the onus lies on the tenant, who is a wrongdoer, to establish this; 2. A high standard of conduct is not required; 3. A landlord will not be held to have acted unreasonably simply because the tenant can suggest other and more beneficial conduct, so long as it was reasonable for the landlord to do what he or she did; and 4. Where the assessment of damages relates to a commercial operation, the question to be determined is what a person in the landlord's situation would do 'in the ordinary course of business'.
9. In Blandino, the Appeal Panel held that notwithstanding that the onus lay with the defaulting tenant, the landlord failed to act reasonably by seeking to obtain for a long time an increase in rent over market conditions. The Panel granted the landlord in effect 3 months rent only to cover the turnover period between vacancy and a new tenant. The Appeal Panel significantly reduced the amount originally awarded by the Tribunal based on the finding that the landlord had not acted reasonably in holding out too long for much higher rent than the rent being paid by the defaulting tenant.
10. The question of the reasonableness of a landlord's actions was considered by the Tribunal recently in Perpetual Limited v Gelato Ingredients Manufacturers of Australia Pty Ltd [2014] NSW CATCD 25. Senior Member Patten held at [74, 75, 76]. 74. Failure to mitigate loss was relied upon by Gelato in this case. [He then set out the principles laid down in Karacominakis]. 75. The Lease as earlier stated was for a term of 5 years terminating 6 December 2014. At the hearing before me I was informed that the premises had not been re let and Perpetuals claim is based upon loss of rent stipulated in the Lease up to 6 December 2014. 76. It is to my mind startling and affront to common sense that a small shop in a shopping centre containing a Woolworths store cannot be relet for almost three years. Particularly when as I infer Perpetual has available to its staff and advisers extremely experienced and competent in the matter of leasing shopping centre premises.
11. The Tribunal accepts that clause 12.6 places a positive obligation on the Landlords to act reasonably and neutralises the considerations raised by Karacominakis. The clause in effect raises the standard from low to a medium standard. The clause was not under consideration in Blandino. The fact that the Rapten Lease was entered into without negotiation and with an interested party directly connected to the leasing agent is problematic. There appears to be no market assessment of the rent at the time of entry into the Rapten Lease. One would have thought that , in these circumstances to protect the Landlords and in particular where there is a perceived conflict of interest (from the leasing agents) would have obtained a market rent report.
12. What is more surprising is that at the time that the Lessees and Mr John Panetta entered into the Lease, in December 2009 the premises were in a dilapidated state but were competitively sought out at $100,000.00 per annum rental notwithstanding the terrible state they were in. The Tribunal refers to paragraph 12 of the statement of Mr John Panetta of 23 December 2013 where he discusses the day he and his partner Ms Rohan inspected the premises and showed an interest. We were shown into the boardroom at Panorama Realty. JP: Before we go any further, how much is the rent? Ms Tong: $100,000.00 I have a number of other people wanting the place. One is ready to take it. He is coming tomorrow to sign. So if your want it you need to pay a deposit of $20,000.00 today.
13. Ms Shirene Tong in her affidavit of 22 January 2014 took issue with a number of matters raised by Mr John Panetta and denied what she was alleged to have said and in particular to conversations asserted by Mr John Panetta in paragraph 12. However, this conversation regarding the fact that another party was interested in leasing the premises for $100,000.00 was not challenged by her.
14. Therefore it must be the case that at the commencement of the Lease in December 2009, the premises was in demand at annual rent of $100,000.00 but totally unrenovated. Like Senior Member Patten in the Perpetual v Gelato, I too am startled by the circumstances that premises totally unrenovated and dilapidated can rent competitively for $100,000.00 per annum, but some 30 months later the same premises completely renovated and in excellent condition cannot find a tenant for the original rent but only for some twenty percent less. While Mr Yan Gu did have financial commitments to meet, the Landlords also had an obligation under clause 12.6 'to do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms'. The Tribunal is not satisfied that in fact this is what the Landlords did. Rather the Landlords made an expedient decision to not truly test the market and obtain a tenant from a proper letting campaign. A campaign of only six weeks is not long enough, there was no proper assessment of the market rent obtainable, the campaign if it can be called that appeared very limited and the offer from the leasing agent Spencer Law was not properly checked by an independent agent or valuer advising the Landlords. Having accepted the offer from Mr Spencer Lau in those circumstances, the Tribunal finds that the Landlords have not complied with the obligations under Clause 12.6 of the Lease. As in Blandino the Tribunal will allow the Landlords to claim 3 months rent only as the usual vacancy period for a turnover of tenants.

Summary

1. The Tribunal finds: 1. None of the three alleged misrepresentations are made out 2. The Landlords are not obliged under the Lease to reimburse the Lessees for the costs of construction as claimed; 3. The Lessees have no claim for restitution from the Landlords for the costs of construction; 4. The Landlords can only claim from the Lessees as damages for breach of Lease, three months rent at $100,000 per annum increased by 3.5% annually being the sum of $26,780 ($107,123 per annum divided by 4) plus interest.

Costs

1. Both parties reserved on costs. This was a difficult and complex matter. While on one view the Lessees have not succeeded in their claims, that is not to say their claims were not without merit. The Landlords must accept some responsibility for what in the end turned out to be a poorly drafted Lease with significant inconsistencies. My provisional view is that there should be no order as to costs. I give the parties leave to make written submissions regarding costs within 28 days of the date of these Reasons, in which case the matter will be decided on the papers. Otherwise there will be no order as to costs.

Orders 1. That Nicole Panetta and Neill Hendry pay to Yan Gu and Chunhua Tao the sum of $26,780.00 plus interest at 10% from 1 May 2012. 2. That Giovanni (John) Panetta as guarantor pay to Yan Gu and Chunhua Tao the sum of $26,780.00 plus interest at 10% from 1 May 2012. 3. Subject to written submissions, no order as to costs. D Bluth Senior Member Civil and Administrative Tribunal of New South Wales 23 December 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 March 2015