Rovere Holdings Pty Limited v O'Shea and Wilson [2011] NSWADT 106

Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Rovere Holdings Pty Limited v O'Shea and Wilson [2011] NSWADT 106 Hearing dates: 14 April and 5 May 2010 Decision date: 17 May 2011 Jurisdiction: Retail Leases Division Before: Bluth D - Judicial Member Decision: 1. The Respondent is to pay the Applicant $28,278.23 plus interest at 15% per annum from 30 November 2007 at a daily rate of $11.62. 2. The Respondent is to pay to the Applicant the sum of $12,111.00 plus interest at 15% per annum from 23 January 2009 to date at a daily rate of $4.98. 3. No order as to costs. Catchwords: Make good, compensation for water damage, claim for costs in the District Court Legislation Cited: Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Cases Cited: Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Limited (No 2) [2007] NSWADT 58 Martins Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2NSWLR 15 Category: Principal judgment Parties: Rovere Holdings Pty Limited (applicant) Michael O'Shea and Brian Wilson (respondents) Representation: Canosa (Applicant) Bussoletti (Respondents) File Number(s): 095106 and 105075

REasons for decision

Background 1The Applicant is the owner of premises at 177 Keira Street, Wollongong. 2The Respondents occupied the premises from 11 May 2002 to 10 May 2007 pursuant to registered lease number 9447177 (the Lease) and continued to occupy the premises pursuant to the holding over period under the Lease until vacating on 30 November 2007. The Respondents carried on business of pawn broking and sale of second hand goods. 3During the course of the tenancy by the Respondents there were a series of incidents and issues between the Applicant and the Respondents which will become relevant later. 4The Applicant commenced proceedings in the Wollongong District Court against the Respondents claiming outstanding rent and the costs of make good pursuant to the Lease, in total $79,451.47. Such proceedings were commenced by Statement of Claim on 19 March 2008. 5The Applicant obtained default judgment against the Respondents and applied on 1 September 2008 for a writ of levy of property. 6The Respondents quickly were spurred into action presumably as a result of service of the writ. On 24 November 2008, lawyers for the Respondents filed in the Wollongong District Court Notice of Motion to set aside the default judgment and stay the enforcement of the judgment entered against the Respondents. An Amended Defence was filed as well as a Cross Claim to the Statement of Claim on 24 November 2008. 7Pursuant to the Cross Claim allegations were made with respect to breach of Section 34 of the Retail Leases Act (RLA) (lessee to be compensated for disturbance) and also failure by the Applicant to maintain the premises in tenantable condition as well as claim for damages as a result of a burst water pipes, electrical faults and rectification works carried out by the Applicant to sub standard repairs and maintenance performed by the Applicant in respect of renovation of the shop front. 8Ultimately, the proceedings on application of the Respondents was transferred to this Tribunal by orders of His Honour, Judge N Delaney on 4 May 2009. 9Mediation on 29 September 2009 was not successful. 10Subsequently the matter was heard before me on 14 April 2010 and 5 May 2010. 11At the hearing evidence was given by Mr Claude Rovere on behalf of the Applicant his builder Mr Ivan Danzo and air conditioning consultant Shane Funnell and evidence was given on behalf of the Respondents by Michael O'Shea and his building consultant Mr Yates. 12Mr N Canosa of counsel appeared for the Applicant and Mr N Michael O'Shea appeared on behalf of the Respondents.

Claims by the Applicant 13The claim by the Applicant was for rent arrears of $28,278.23 and repairs to the premises on vacation by the Respondents.

Rent arrears 14The Lease was for five years commencing on 11 May 2002 and terminating on 10 May 2007. The Lease was stamped on 1 October 2002. 15There was a delay of four months between the commencement date of the Lease and the signing by the Respondents. The Respondents were in occupation of the Premises and trading during this time as they were the assignees under a previous lease. 16The respondents argue that they did not have to pay the new rent amount until the Lease had been signed namely in September 2002 and accordingly kept on paying the old rent amount of $6,412.50 as opposed to the new rent of $7,791.67. Thus there was a shortfall for some considerable time and also a shortfall of rent payments at the end of the lease together with CPI increases thus the amount being claimed amounted to $28,278.23.

Repairs and make good 17These repairs were undertaken by the Applicant after failure to do so by the Respondents on the basis that the Applicant believed the Respondents had a duty to restore the premises to the state they were in prior to commencement of the lease. The costs of the repairs were broken up into the following matters: Demolition of the suspended ceiling cost $5,500.00 Removal of walls fitted out by previous tenants $4,950.00 Removal of all brackets $5,950.00 Demolition of shelving on walls and slat walls $5,700.00 Removal of waste left on the premises and tip fee $6,900.00 Repair damage gyprock and cement render walls $8,040.00 All necessary repairs to ground floor, mezzanine and top floor $4,500.00 Replace broken glass pane above awning $1,150.00 Replace two large glass panels $9,800.00 Repair broken toilet $1,500.00 Paint ground floor, mezzanine and top floor - $18,860.00 Total inclusive of GST $72,850.00

Rent Claim 18The Lease was clear that commencement date was the 11 May 2002. The Respondents contended that because the Lease was only signed in September 2002 the higher rent should only commence then. It is irrelevant when the lease was signed as rent commenced from the commencement date. I am satisfied that the total rent claimed including CPI and missed payments is $28,278.23. 19Pursuant to clause 14.1 of the Lease, interest and overdue moneys run at 15% per annum. The Applicant has claimed interest.

Repairs and make good 20The work to be done on the expiration of the Lease is encapsulated from the affidavit and evidence of Claude Rovere the Managing Director of the Applicant. In his affidavit of 16 November 2009 Mr Rovere at paragraph 23 and 24 stated as follows: 23. The Applicant claims the cost of repairs carried out at the premises arising from the Respondents' occupation and use of the premises pursuant to clauses 4.3, 4.4, 7.1, 7.2(xii) and 7.3 of the Lease. Annexed and marked "X" is a copy of the tax invoice of Danzo Constructions Pty Limited dated 8 January 2009 for repair work carried out at the premises upon the Respondents' vacation together with receipt of Danzo Constructions Pty Limited dated 23 January 2009 for an amount of $72,850.00 and the Applicant brings a claim for the costs incurred in repairing the premises. 24. Danzo Constructions Pty Ltd had initially given a quotation for the repair and restoration work for an amount of $29,500.00. Annexed and marked "Y" is a copy of the quotation of Danzo Constructions dated 29 January 2008 which was a preliminary quotation. However, when the work was commenced, there was considerable additional work which had to be undertaken to repair and restore the premises and this additional work was not accounted for until the repair work was commenced and completed. 21When one looks at the tax invoice of Mr Danzo marked "X" being the itemised work of the make good at the premises one of my initial observations was that there is reference to "removal of all walls that were fitted out by previous tenants". 22Thus the Tribunal critically examined the actual work that was required to be done and it became apparent during the course of the evidence presented by the Applicant's witnesses and the Respondents' witnesses that there was a considerable amount of work that was done to the premises to improve the premises for the purposes of a new tenant which could not be laid at the feet of the Respondents in accordance with the terms of the Lease. 23The clauses in the Lease referred to by the Applicant do not require the restoration of the premises to the condition the premises were in at the time that the Respondents negotiated the Lease and took possession. Although discussion took place regarding the state of the premises there was no requirement under the Lease to measure the condition at the commencement of the Lease (or even at the commencement of the Respondents' occupancy which was before the commencement of the Lease) and the termination. Nevertheless, the clauses were specific in a number of items upon which the Respondents were required to repair and restore. 24The clauses referred to by Mr Rovere in summary required the Lessee to remove any fixtures or fittings installed by the Lessee and paint and paper or treat such items that require treatment. It transpired that a number of the items in the tax invoice of Danzo Construction marked "X" to the affidavit of Mr Rovere were not items for which the Respondents were responsible in particular the large amount incurred for painting the ground floor, mezzanine and top floor. The Respondents were able to provide quotes that in fact only patch work painting was required not a full painting exercise. As noted I suspect the full painting exercise as well as a number of other items undertaken by Mr Danzo were with respect to the forthcoming letting of the premises. Mr Danzo's original quote referred to as Annexure Y to the affidavit of Mr Paul Rovere at $29,500.00 was probably closer to the mark but even that was excessive. 25After two days of hearing the parties reached a position where the claim by the Applicant was reduced to the following: (a) Rent outstanding $28,278.33; (b) Interest on the outstanding rent from 30 November 2007; (c) Air conditioning $4,521.00; (d) Replacement for roller shutter door $2,250.00; (e) Costs of ceiling repair $1,830.00; (f) Painting costs $3,000.00; (g) Repair to toilets $1,500.00; and (h) Broken glass over the awning $1,150.00. Total inclusive of GST $45,292.30.

Cross claim of Respondents 26Towards the end of the hearing the Respondents wished to prosecute the Cross Claim that had been filed in the District Court. Unfortunately this Cross Claim had not been carried over when the file was transferred to this Tribunal and there was no Cross Claim in the Registry file. 27The matter was then stood over by me while the Respondents sought to file the Cross Claim that had been filed in the District Court. 28An issue arose in relation to the filing of the Cross Claim in that it was out of time pursuant to section 71B of the RLA, which states: A retail tenancy claim may be lodged more than three years but no later than six 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. . 29Section 71B(3) states: "The Tribunal may make an order under this section: (a) on the application by the party or former party concerned, and (b) after hearing (from) such of the persons likely to 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." 30The Respondents requested this Tribunal to make an order under section 71B(3) to allow the filing of the Cross Claim. 31This application for an order under section 71B(3) came before me in chambers and I made the following orders on 6 September 2010: (a) The Applicant in the application (the Respondent in these proceedings) is to file an amended application for original decision in proceedings number 105075 limited to the particulars in the Cross Claim lodged in the District Court proceedings within fourteen (14) days; (b) The Applicant is to provide with the amended application, full particulars of the claim including production of monthly trading records, trading books and tax returns and any relevant company tax returns including financial statements and monthly trading records for three years prior and subsequent to the alleged period of loss of trade; (c) The Respondents are to provide any response and relevant material within fourteen (14) days of receipt of the amended application and the full particulars referred to in order (b); (d) Both the Applicant and the Respondents are to file submissions relating to the amended application for original decision within fourteen (14) days of filing of the response referred to in order (c). 32The Respondents filed an application for an Original Decision (Cross Claim) seeking compensation for the following: (a) Loss of trading suffered during the period November 2003 to January 2004 during renovations to the shopfront estimated at $20,000.00; (b) Damages for chattels and the replacement of Respondent's fittings caused by burst and leaking water pipes and electrical damage. Damaged chattels were estimated at $1,500.00 and the replacement of fittings were estimated at $2,000.00; (c) Costs of District Court Proceedings No. 39 of 2008 incurred prior to referral to the Tribunal. 33In relation to the claim for loss of trading the Respondents subsequently advised the Tribunal and the Applicant that it was not proceeding with this claim. 34The Applicant filed submissions in relation to the Cross Claim on 7 October 2010. The Applicant stated that the burst water pipe is not a matter that the Applicant should compensate the Respondents for, on the basis that the plumber engaged by the parties to repair the water leak identified the cause of the water leak to be as a result of a "nail penetrating the pipe at some previous time during renovations, and further the Applicant submitted that it had responded promptly and efficiently to repair the leak. 35The Respondents say in its submissions and response that it was not informed of the alleged cause of the leak at the time it was repaired by the plumber and that there was no mention of the cause of the leak in the invoice from the plumber. The letter provided by the Applicant from the plumber was written some six months after the leak asserting that a nail penetrated the pipe but most relevantly the Respondents say that they undertook no renovations during the term of the lease and occupancy in relation to the floor. 36Clause 8.1 of the Lease states: "The Lessee, upon paying the rent and other moneys payable hereunder and performing and observing its covenants and obligations hereunder shall and may peaceably possess and enjoy the Demised Premises during the continuance of this Lease without any interruption or disturbance from the Lesssor or any person or persons lawfully claiming by from or under it." 37Weighing up the two submissions from the Applicant and the Respondents I am inclined to view more favourably the submission by the Respondents. In particular as no renovation work to the floor was done by the Respondents, that would indicate the cause of the damage to the pipe was not as a result of action taken by the Respondents. A Lessor generally has responsibility to provide secure premises being the covenant for quiet enjoyment (Martins Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2NSWLR 15). Clause 8.1 of the lease is also apt in this situation. Consequently I find that the Applicant (Landlord) is responsible for losses suffered by the Respondents as a result of the leak. 38The losses incurred by the Respondents are itemised in a letter to the Applicant dated 19 January 2005 on letterhead of ICN Group Pty Limited (ICN). The Applicant tried to make issue of the fact that ICN was not a party to the Lease, but it is obvious that that company was connected to the Respondents and occupied the Premises, perhaps under an oral licence, but in any event certainly occupied the premises and ran the business. Further the Applicant had received other correspondence from ICN and taken no objection on those occasions. 39The claim of the Respondents amounted to $3,940.00 and comprised a number of items such as consumables (printing etc for $45.00, repair to phone $400.00, carpet replacement $1,800.00 etc). 40Firstly, the carpet replacement was covered by insurance and the Respondents were compensated and thus should not form part of the claim. 41Secondly a claim was made for staff time with respect to drying off flood damaged items for $750.00. The Applicant says that the staff were already employed and no additional wages or expenses were incurred by the Respondents in relation to this item and thus the item should not be allowed as compensation. However, I believe that the claim made by the Respondents is in fact an estimate of costs for personnel who were diverted from their normal duties, to dry off the items as a result of the leak. Therefore there was an implied cost of loss of staff efficiency and time, rather than actual payment, estimated at $750.00. 42In fact, all the items claimed by the Respondents, other than the carpet replacement, appear to be estimates only. This is most unsatisfactory. I have found that there was a leak, and pursuant to the terms of the Lease and the general law, the Applicant as Landlord is responsible for the quiet enjoyment. Nevertheless, notwithstanding the unsatisfactory nature of the claim and lack of evidentiary material, on balance, I allow the claim of $3,940.00 for damages, less the $1,800.00 already paid for the carpet, amounting to a claim by the Respondents payable by the Applicant of $2,140.00. 43The Respondents also prosecuted the claim for costs incurred in the District Court proceedings. Included in the claim was costs incurred as a result of the failed mediation.: 44Firstly, I do not understand on what basis costs are claimed for the failed mediation. It is, in my view inappropriate to claim costs from the Applicant for the failure of mediation. Just because the mediation failed it should not be the case that one party must bear the costs of another party unless there has been some gross action taken by one of the parties in the mediation to cause the failure. No suggestion was made here in this connection other than the mere inference only that as a result of failure of mediation the matter proceeded and the Respondents incurred unnecessary costs. This claim is rejected. 45The Respondents claim costs as a result of action in the District Court comprising: (a) Costs to have the default judgment entered in the District Court proceedings against Michael James O'Shea set aside. Those costs were $2,750.00; (b) Costs of attending the motion to have the matter removed from the District Court to the Tribunal. These costs were $3,824.14; (c) Costs of $1,100.00 paid to the Applicant's solicitors to have the matter transferred to the Tribunal (in fact, only $550.00 was paid and $550.00 appeared to become costs of the cause pursuant to the orders of Judge Delaney of the District Court). 46Section 77A of the RLA gives this Tribunal discretion under section 88(1) of the Administrative Decisions Tribunal Act 1997 to award costs. The section specifically relates to the awarding of costs "in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to certain matters". 47Subsection 88(4) of the Administrative Decisions Tribunal Act defines costs as follows: "In this section "costs" includes: (a) costs of or incident to proceedings in the Tribunal; and (b) the costs of or incidental to the proceedings giving rise to the application as well as the costs of and incidental to the application." 48Section 68(1) of the RLA requires the parties to mediate. There seems to be a suggestion from the Respondents' submission that because the mediation failed and proceedings arose in the District Court that the costs incurred by the Respondents should be recompensed by the Applicant. 49Whether it was appropriate or not to commence proceedings in the District Court nevertheless, it is imperative that a party who is served with court proceedings must diligently have those proceedings looked at and if they wish to defend the proceedings lodge a defence, otherwise of course the plaintiff in any proceedings will proceed to default judgment. The Applicant obtained default judgment because no appearance or defence was filed by the Respondents. 50I note that the Tribunal declined to award costs in favour of a successful applicant lessee in Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Limited (No 2) [2007] NSWADT 58 where overall the Lessor's conduct was held to be unconscionable noting that: The lessor's conduct in relation to two interlocutory hearings, its alleged refusal to negotiate and its failure to comply with the Tribunal's directions was not "vexatious" or "unreasonable". 51While on review one could say that the Applicant should have commenced proceedings in this Tribunal in the first instance and not in the District Court and should have prosecuted the matter diligently, the Respondents by their own inactions in not responding to the Statement of Claim in the District Court diligently were the cause of a significant part of the costs incurred by the Respondents. 52Consequently, I decline to award costs as part of the damages sought by the Respondents on the Cross Claim 53In relation to costs before this Tribunal overall the Applicant was the more successful on its claim but such claim was substantially reduced from the amount originally claimed. Consequently I make no order as to costs. 54In reviewing the whole matter I find as follows: (a) The Respondents are liable to the Applicant for loss of rent of $28,278.23; (b) The Respondents are liable to the Applicant for repairs to the premises amounting to $14,251.00; (c) The Applicant is liable to the Respondent for $2,140.00 for loss suffered as a result of the water leak; (d) The amount referred to in paragraph (c) should be deducted from the amount in paragraph (b) resulting in a payment by the Respondent to the Applicant of $12,111.00; (e) Interest of 15% should run on both amounts. In relation to the rent interest is to run from 30 November 2007 and in relation to the net damages amount of $12,111.00 interest is to run from 23 January 2009.

Orders 1The Respondent is to pay to the Applicant $28,278.23 plus interest at 15% per annum from 30 November 2007 at a daily rate of $11.62. 2The Respondent is to pay to the Applicant the sum of $12,111.00 plus interest at 15% per annum from 23 January 2009 to date at a daily rate of $4.98. 3No order as to costs. I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal. Registrar The decision was amended on 8.6.11 pursuant to the slip rule, Order 1.

Amendments 09 June 2011 - slip rule Amended paragraphs: Order 1 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: 09 June 2011