FEDERAL COURT OF AUSTRALIA

 

Coolabah Tree Aust-Wide Pty Ltd v Dib Group Pty Limited [2010] FCA 805

Citation:	Coolabah Tree Aust-Wide Pty Ltd v Dib Group Pty Limited [2010] FCA 805
Parties:	COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) and ANDREW DONALD GRANT v DIB GROUP PTY LIMITED (ACN 002 889 474); DIB GROUP PTY LIMITED (ACN 002 889 474) v COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) and ANDREW DONALD GRANT; DIB GROUP PTY LIMITED (ACN 002 889 474) v KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679); KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679) v DIB GROUP PTY LIMITED (ACN 002 889 474)
File number:	NSD 1020 of 2008
Judge:	FOSTER J
Date of judgment:	30 July 2010
Catchwords:	TRADE PRACTICES – whether prospective corporate lessee and fuel reseller misled by allegedly false representations as to the likely future revenues to be achieved at a redeveloped service station outlet with the consequence that the sublease and fuel reseller agreement entered into by that corporation should be set aside or varied – alleged misrepresentations not made – no reliance upon statements actually made – application dismissed LANDLORD AND TENANT – commercial premises let to fuel wholesaler and then sublet to franchisee – business unsuccessful – sublessee abandoned premises – lessee also abandoned premises – whether abandonment in each case constituted repudiation of the lease and sublease respectively – whether other conduct on the part of the lessee constituted repudiation in any event – lease repudiated by lessee and sublease repudiated by sublessee – property owner (lessor) and sublessor entitled to damages – damages assessed as the value of the lost bargain – other damages awarded for breach of the lease
Legislation:	Conveyancing Act 1919 (NSW), s 133A(1) Trade Practices Act 1974 (Cth), ss 51A, 52, 87
Cases cited:	Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 applied Hanson v Newman [1934] 1 Ch 298 applied James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243 applied Jones v Dunkel (1959) 101 CLR 298 applied O’Brien v Robinson [1973] AC 912; [1973] 1 All ER 583; [1973] 2 WLR 393 applied
Dates of hearing:	2, 6, 7, 8 and 9 October 2009
Date of last submissions:	16 October 2009
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	197
Counsel for the Applicants/ Cross-Respondents in the First Cross-Claim:	Dr AJ Greinke
Solicitor for the Applicants/Cross-Respondents in the First Cross-Claim:	Freestone Law Pty Ltd
Counsel for the Respondent/Cross-Claimant in the First and Second Cross-Claims/Cross-Respondent in the Third Cross-Claim:	Mr DL Cook
Solicitor for the Respondent/Cross-Claimant in the First and Second Cross-Claims/Cross-Respondent in the Third Cross-Claim:	Macree Law
Counsel for the Cross-Respondent in the Second Cross-Claim/Cross-Claimant in the Third Cross-Claim:	Mr S Flanigan
Solicitor for the Cross-Respondent in the Second Cross-Claim/Cross-Claimant in the Third Cross-Claim:	Wilshire Webb Staunton Beattie

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1020 of 2008

 

BETWEEN:	COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) First Applicant   ANDREW DONALD GRANT Second Applicant
AND:	DIB GROUP PTY LIMITED (ACN 002 889 474) Respondent
AND BETWEEN:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Claimant in the First Cross-Claim
AND:	COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) First Cross-Respondent in the First Cross-Claim   ANDREW DONALD GRANT Second Cross-Respondent in the First Cross-Claim
AND BETWEEN:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Claimant in the Second Cross-Claim
AND:	KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679) Cross-Respondent in the Second Cross-Claim
AND BETWEEN:	KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679) Cross-Claimant in the Third Cross-Claim
and:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Respondent in the Third Cross-Claim

 

JUDGE:	FOSTER J
DATE OF ORDER:	30 JULY 2010
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.                  The Application brought by the applicants (Coolabah and Andrew Donald Grant) against the respondent (Dib Group) be wholly dismissed.

2.                  Coolabah and Mr Grant pay Dib Group’s costs of and incidental to that Application.

3.                  There be judgment in favour of Dib Group against Coolabah on the First Cross-Claim (being Dib Group’s Cross-Claim against Coolabah and Mr Grant) in the amount of $370,580.35.

4.                  The First Cross-Claim as against Mr Grant be wholly dismissed.

5.                  Coolabah pay Dib Group’s costs of and incidental to that Cross-Claim.

6.                  There be no order as to the costs of that Cross-Claim as between Dib Group and Mr Grant.

7.                  The Cross-Claim brought by Dib Group against the cross-respondent in the Second Cross-Claim (Kevmark) be wholly dismissed.

8.                  Dib Group pay Kevmark’s costs of and incidental to that Cross-Claim.

9.                  There be judgment in favour of Kevmark against Dib Group on the Third Cross-Claim (being Kevmark’s Cross-Claim against Dib Group) in the amount of $251,113.68.

10.              Dib Group pay Kevmark’s costs of and incidental to that Cross-Claim.   

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1020 of 2008

 

BETWEEN:	COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) First Applicant   ANDREW DONALD GRANT Second Applicant
AND:	DIB GROUP PTY LIMITED (ACN 002 889 474) Respondent
AND BETWEEN:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Claimant in the First Cross-Claim
AND:	COOLABAH TREE AUST-WIDE PTY LTD (ACN 115 559 101) First Cross-Respondent in the First Cross-Claim   ANDREW DONALD GRANT Second Cross-Respondent in the First Cross-Claim
AND BETWEEN:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Claimant in the Second Cross-Claim
AND:	KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679) Cross-Respondent in the Second Cross-Claim
AND BETWEEN:	KEVMARK INDUSTRIES PTY LIMITED (ACN 097 354 679) Cross-Claimant in the Third Cross-Claim
and:	DIB GROUP PTY LIMITED (ACN 002 889 474) Cross-Respondent in the Third Cross-Claim

 

JUDGE:	FOSTER J
DATE:	30 JULY 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1                                             The first applicant (Coolabah) operates food outlets on the eastern seaboard of Australia serving the travelling public and truck drivers.  These outlets take the form of a café/restaurant and are often located in a fuel service station.  They are commonly called roadhouses.

2                                             The respondent (Dib Group) is a wholesaler and retailer of motor vehicle fuels.  It markets those fuels under the brand Metro. 

3                                             The second applicant (Mr Grant) is a director of Coolabah.  Mr Grant guaranteed the obligations of Coolabah under a fuel reselling agreement entered into by Coolabah with Dib Group.

4                                             On 6 September 2007, Coolabah began to operate a service station outlet at 18–20 Bengal Street Coolongolook (the premises).  At that time, the premises comprised a café/restaurant, a convenience store with a postal agency and bottle shop attached and a fuel sales console with several fuel pumps for dispensing fuel.  As at early September 2007, the buildings and equipment which comprised the premises had only recently been constructed and installed although the site at Coolongolook had been continuously used as a fuel service station for many years prior to 2007—at least since the 1950s.  The site is located on the eastern side of the Pacific Highway on the corner where that highway intersects with Bengal Street.

5                                             Coolongolook is approximately 45 km south of Taree and 25 km north of Bulahdelah on the mid north coast of New South Wales.  The Pacific Highway is the main north/south route on the eastern seaboard of Australia.

6                                             At all relevant times, the premises were owned by the cross-respondent in the Second Cross-Claim (Kevmark).  In 2007, Kevmark leased the whole of the premises to Dib Group which then subleased those premises to Coolabah. 

7                                             The new business conducted by Coolabah from the premises was not profitable.  Coolabah abandoned the premises on 1 July 2008. 

8                                             Coolabah contends that it was induced to enter into its sublease with Dib Group by misrepresentations made to its representatives by employees of Dib Group.  It alleges that several statements concerning the likely performance of the new business were made orally at a meeting attended by representatives of Coolabah and employees of Dib Group.  It also alleges that an additional representation relied upon by Coolabah is to be implied from the oral statements made at that meeting.  Coolabah also relies upon certain statements made in writing in an email sent by an officer of Dib Group to a representative of Coolabah.

9                                             Mr Grant contends that he was induced to enter into the guarantee and indemnity contemplated by the fuel reselling agreement between Coolabah and Dib Group by the same misrepresentations.

10                                          Coolabah seeks to be relieved from some or all of its obligations under its sublease and an associated fuel reselling agreement.  It also claims compensation.  It relies upon s 87 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act).  Mr Grant seeks to have the guarantee and indemnity declared void ab initio.  He also claims compensation or damages.  

11                                          Dib Group sues Coolabah for unpaid rent, unpaid outgoings and certain other sums said to be due under the sublease and for damages being such amount as it may be required to pay to Kevmark as a result of the termination of its lease with Kevmark and in order to make good the premises when Coolabah left.  Dib Group claims the same amount from Mr Grant under the guarantee and indemnity.

12                                          Dib Group has also claimed against Kevmark for damages for breach of the head lease and for damages or compensation under s 87 of the Trade Practices Act.

13                                          Kevmark has sued Dib Group for damages for repudiating the head lease and for breach of the head lease.  The damages claimed comprise lost rent, unpaid outgoings and the cost of restoring and rectifying the premises after Coolabah left.

The Disputes Between Coolabah and Dib Group

The Case Pleaded by Coolabah and Mr Grant against Dib Group

14                                          In their Amended Statement of Claim, Coolabah and Mr Grant allege that, at a meeting held on 4 May 2007, John Dib and George Dib, on behalf of Dib Group, represented to Andrew Grant and to Mike Roycroft that:

(a)                The premises would generate fuel sales conservatively estimated at 400,000 litres per month;

(b)               The convenience store operation to be conducted on the premises would generate sales of at least $100,000 per month at a gross profit margin of 35%.  That figure excluded liquor sales.  In their pleading, Coolabah and Mr Grant did not allege that a statement to this effect was made to them expressly.  Rather, this representation is said to be implied from the statement made as to the projected fuel sales;

(c)                Water would be supplied to the premises at no cost to Coolabah because the premises would use bore water; and

(d)               Coolabah would be able to place a sign on the windmill which was to be constructed on the site and would also be able to erect a sign on the top of the canopy over the fuel dispensing area.

15                                          In addition, Coolabah and Mr Grant allege that, in an email sent by George Dib to Mike Roycroft on 8 May 2007, the following representations were made, namely that:

(a)                The bottle shop would achieve a turnover of $12,000 per week, resulting in $187,200 gross profit per annum;

(b)               The newsagency would achieve a turnover of $4,000 per week, resulting in $31,200 gross profit per annum;

(c)                Municipal rates and other municipal charges would amount to $3,500 per annum;

(d)               Rubbish removal costs would be $1,500 per annum;

(e)                Sewerage costs would be $1,000 per annum;

(f)                 Insurance costs would be $2,400 per annum; and

(g)                Electricity costs would be $12,000 per annum.

16                                          It is also alleged that George Dib said to Mr Grant in May 2007, words to the effect that Coolabah would be one of only a few suppliers of LPG AutoGas in the local area. 

17                                          Coolabah and Mr Grant contend that each of the representations pleaded by them was a representation as to a future matter within the meaning of s 51A of the Trade Practices Act.  They also allege that the representations were misleading and deceptive within the meaning of s 52 of the Trade Practices Act.  They contend that Dib Group had no reasonable basis in fact for making the representations.  They also rely upon s 51A of the Trade Practices Act.

18                                          In respect of the representations concerning the supply of water to the premises, the erection of signs and the installation of an LPG AutoGas tank, certain additional specific particulars supporting the allegation that the representations were misleading and deceptive are pleaded. 

19                                          Coolabah alleges that, in reliance on the representations made to it by officers and employees of Dib Group, it executed an undated sublease of the premises in registrable form and an undated fuel reselling agreement.  Mr Grant alleges that, in reliance upon the same matters, he executed an undated Deed of Guarantee and Indemnity in favour of Dib Group.

20                                          Coolabah seeks an order pursuant to s 87(2)(a) of the Trade Practices Act declaring the sublease and the fuel reselling agreement to be void as from 15 July 2008 or from such other date as the Court thinks fit.  In the alternative, it seeks an order pursuant to s 87(2)(b) varying the sublease or rectifying same by the deletion of cl 53 of the sublease.  Alternatively, it seeks an order pursuant to s 87(2)(b)(a) of the Trade Practices Act refusing to enforce cl 53 of the sublease.  It also seeks compensation pursuant to s 87(2)(d) of the Trade Practices Act, interest and costs. 

21                                          Mr Grant seeks an order pursuant to s 87(2)(a) of the Trade Practices Act declaring the Deed of Guarantee and Indemnity void ab initio or from such other date as the Court thinks fit.  Mr Grant also claims compensation, interest and costs.

22                                          The compensation which Coolabah claims was originally assessed in the alternative.  Under Scenario 1 explained in the report of Mr Thynne, an expert accountant called by Coolabah and Mr Grant, the claim is $1,010,401.  Under Scenario 2 propounded in that report, the claim is $1,803,811.  At the conclusion of the hearing, Coolabah abandoned its claim under Scenario 2.  Its claim for damages is, therefore, a claim for $1,010,401 plus interest (Scenario 1).

Dib Group’s Pleaded Allegations against Coolabah and Mr Grant

23                                          Dib Group denies making any of the alleged representations.  It accepts that it sent the email dated 8 May 2007 upon which Coolabah relies but denies that it made the representations alleged to have been made by the sending of that email and the attachments to that email.  Dib Group also puts in issue the allegations of reliance made by Coolabah and by Mr Grant.

24                                          Dib Group has cross-claimed against Coolabah and Mr Grant.  In that Cross-Claim, Dib Group alleges that:

(a)                Pursuant to a Put Option contained in the sublease, Dib Group could effect a renewal of the sublease by giving an appropriate notice pursuant to the Put Option contained in cl 53 of the sublease;

(b)               On 29 April 2008, Dib Group exercised the Put Option by giving the requisite notice;

(c)                The sublease was thereby renewed for a further term of five years from 15 July 2008 at a rent not less than the rent payable under the sublease;

(d)               On or about 17 July 2008, Coolabah abandoned the premises leaving them in an unsatisfactory state;

(e)                The abandonment of the premises, in the circumstances, constituted a repudiation of the sublease by Coolabah or, alternatively, a fundamental breach of that sublease which entitled Dib Group to terminate the sublease;

(f)                 On 17 July 2008, Dib Group sent a notice of termination of the sublease to Coolabah and thereby terminated the sublease; and

(g)                Dib Group is entitled to recover damages from Coolabah on account of Coolabah’s repudiation of the sublease and in respect of unpaid rent, unpaid outgoings and other sums due under the sublease and for the cost of rectifying the premises after they were abandoned.

25                                          Dib Group also purported to terminate the fuel reselling agreement.  It also claims damages for breach of that agreement.  Mr Grant is alleged to be liable for those damages pursuant to the guarantee and indemnity. 

26                                          Dib Group claims against Coolabah and Mr Grant any sums which it may be ordered to pay to Kevmark in respect of its lease arrangements with Kevmark. 

The Transactions Entered into in September 2007

27                                          By a lease dated 18 September 2007 (the head lease) entered into between Kevmark, as lessor, and Dib Group, as lessee, Kevmark leased the whole of the premises to Dib Group for an initial term of one year commencing on 16 July 2007 and ending on 15 July 2008.  On 25 October 2007, the head lease was renewed for a further term of five years.

28                                          By an undated sublease (the sublease) entered into on or about 18 September 2007 between Dib Group, as sublessor, and Coolabah, as sublessee, Dib Group subleased the whole of the premises to Coolabah for an initial term of 10 months and nine days commencing on 6 September 2007 and ending on 15 July 2008.  This sublease was, in effect, a back-to-back arrangement with the head lease.

29                                          Clause 53 of the sublease provided:

PUT OPTION FOR RENEWAL

Offer of renewal

53(1)    The Lessee offers a renewal of this Lease to the Lessor on the terms specified in this clause which the Lessor should accept strictly in accordance with the provisions contained in this clause, otherwise this offer shall lapse.

Binding Lessee’s successors and assigns

53(2)    This offer and the option bind the Lessee and the Lessee’s successors and assigns being the lessee for the time being of the Leased Premises.

Parties who may renew

53(3)    This offer may be accepted by

(a)        the Lessor or by the Lessor’s successors and assigns being the owner for the time being of the Leased Premises;

(b)        in the event of there being two or more persons holding as Lessors as joint tenants, upon the death of any of them by their survivors.

Conditions for exercise of option

53(4)    The Lessor may only accept this offer and exercise the option if the Lessor has served on the Lessee notice of exercise of this option after 16 October 2007 but before 15 July 2008.

Conditions of renewal

53(5)    (a)        The renewal which the Lessor may accept under this clause is for the renewal of this Lease for the further term of five (5) years from the day after the date of expiry of the term of this Lease, containing identical covenants to the covenants of this Lease (except this clause)

(i)         at a rent which shall be determined in accordance with clause 9(4), CPI adjustment but which is not less than the rent payable under this Lease immediately before the expiration of the term of this Lease;

(ii)        and containing such further options for renewal as are specified in Item 10 in the Reference Schedule.

30                                          Under cover of a letter dated 29 April 2008 from the solicitor for Dib Group to Coolabah, that solicitor enclosed a Notice.  That Notice was in the following terms:

NOTICE OF EXERCISE OF OPTION

To:       Coolabah Tree Aust-Wide Pty Limited

            Level 1, 26 Railway Street

            Southport QLD 4215

Dib Group Pty Limited, the Lessor to Coolabah Tree Aust-Wide Pty Ltd under Sublease dated 17 September 2007 of the premises known as 18-20 Bengal Street, Coolongolook (Lease), gives you notice of exercise of its option of renewal of the Lease pursuant to clause 53 of the Lease and requests and requires you to accept a renewed lease of the premises for a term of five years from the expiration of the term granted by the Lease and subject to the covenants, agreements and conditions of the Lease.

Dated:  28 April 2008

31                                          Therefore, if cl 53 is not to be declared void or set aside and if the Notice extracted at [30] above was a valid exercise of the put option provided for by cl 53, the sublease was also renewed for a further period of five years commencing on 16 July 2008 and ending on 15 July 2013.

32                                          The sublease contemplated that an individual might execute the document as guarantor and thus become obliged to perform the guarantee covenants contained in cl 16 of the sublease.  Mr Grant was not named as guarantor under the sublease (see the introduction where the parties are identified).  Item 3 of the Reference Schedule provided:

Item 3 (introduction)

Guarantors: Not applicable while Coolabah Tree Aust-Wide Pty Limited is the lessee

33                                          Nor did Mr Grant execute the sublease as guarantor.  Although he signed the document, he did so on behalf of Coolabah and not in his individual capacity.  

34                                          Mr Grant did not become a guarantor of any of Coolabah’s obligations under the sublease and was never liable as such.

35                                          At about the same time as they entered into the sublease, Coolabah, as retailer, and Dib Group, as supplier, entered into an undated Fuel Re-Selling Agreement (the fuel agreement).  Under that agreement, in return for a payment of $220,000 inclusive of GST, Coolabah acquired the right to operate a fuel reselling business from the premises under the Metro brand. That right was exclusive to an area within one kilometre of the site.  Under the fuel agreement, the supplier (Dib Group) had a right to terminate the agreement for cause.

36                                          Under an undated Deed of Indemnity entered into between Dib Group, as beneficiary, and Mr Grant, as guarantor, Mr Grant provided the following guarantee and indemnity to Dib Group:

2.         GUARANTEE & INDEMNITY

2.1       The Guarantors guarantee to the Franchisor that the Retailer will comply with all its obligations under the Fuel Re-selling Agreement at the time they should be complied with.

2.2       The Guarantors agree to indemnify the Franchisor for any loss the Franchisor suffers as a result of the Retailer not complying with its obligations under the Fuel Re-selling Agreement.

2.3       The guarantee and indemnity in this clause is a continuing guarantee and indemnity and they do not come to an end until released in writing by the Franchisor.

2.4       The Guarantors indemnify the Franchisor in respect of any claim or demand made or action commenced by any person against the Franchisor or for which the Franchisor is liable in connection with any loss or damage suffered in connection with the Fuel Re-selling Agreement or the subject matter of this Deed, including but not limited to any legal costs as between solicitor and client incurred by the Franchisor or for which the Franchisor is liable.

37                                          The guarantee and indemnity attached to Coolabah’s obligations under the fuel agreement.  That agreement contained the following clause:

1.4       Fuel Re-selling Business Interdependent with Lease of Location

The Fuel Re-selling Business hereby granted is interdependent with the Lease or Sub Lease of the subject premises (“the Lease”), granted to the Retailer by the Supplier and a breach of this agreement shall be deemed to be a breach of the Lease and any breach of this agreement entitling the Supplier to terminate this agreement shall be deemed to be a breach of an essential term of the Lease entitling the Lessor to terminate the Lease.

38                                          The effect of that clause is to give to Dib Group the capacity and entitlement to terminate the lease in the event that it chooses to terminate the fuel agreement.  It does not provide that a breach of the lease will be a breach of the fuel agreement nor does it provide that, in the event that Dib Group becomes entitled to terminate the lease, it may also terminate the fuel agreement.

39                                          Thus, the guarantee and indemnity provided by Mr Grant does not extend to Coolabah’s obligations under the sublease.

The Events Leading up to the September 2007 Transactions

40                                          Representatives of Dib Group first saw the site in early February 2007.  On 12 February 2007, Dib Group paid a holding deposit to the agent acting for Kevmark in respect of the transaction. 

41                                          According to Mr Grant, in about March or April 2007, Louis Haddad (Mr Haddad), who was and is an employee of Dib Group, telephoned Mr Grant and said to him that Dib Group wished to discuss with Coolabah the prospect of Coolabah participating in the redeveloped Coolongolook site.  Mr Grant passed on Mr Haddad’s enquiry to Mike Roycroft, who was, at that time, the Managing Director of Coolabah.  This contact led to a meeting on Friday, 4 May 2007 (the 4 May meeting).  In his evidence, Mr Haddad suggested that Mike Roycroft contacted him first. I do not think that much, if anything, turns on who made the initial approach in relation to the redevelopment. 

42                                          The 4 May meeting took place at the offices of Dib Group at Bankstown.  The meeting commenced in the morning and concluded shortly after lunch. 

43                                          The persons present at the 4 May meeting were Mr Grant, Mike Roycroft and Deborah Roycroft, on behalf of Coolabah, and George Dib and Mr Haddad, on behalf of Dib Group.  Deborah Roycroft is the wife of Mike Roycroft.  From time to time, other Dib Group officers and employees came into the meeting room but those persons did not play any part in the discussions which took place at the meeting.  Those additional persons were John Dib, Ross Morris and Gary Tong.

44                                          Deborah Roycroft, Mike Roycroft and Mr Grant all testified on behalf of Coolabah at the hearing.  Dib Group called Mr Haddad as a witness but did not call George Dib or any of the other persons who came into the meeting room from time to time.

45                                          The recollections of each witness who was called to testify as to what was discussed at the 4 May meeting differ quite markedly from the recollections of each of the others.  It is, however, reasonably clear that Messrs John Dib, Morris and Tong were not present at the time when the critical statements were alleged to have been made.  It is also reasonably clear that the Coolabah witnesses’ consistent recollection is that it was Mr Haddad who did most of the talking on behalf of Dib Group and that George Dib did not make any significant contribution to the discussion, although he remained in the room throughout the meeting.  Mr Haddad did not dispute this.

46                                          It seems to me that, in light of the above facts, no Jones v Dunkel (1959) 101 CLR 298 inference should be drawn against Dib Group on account of the absence from the witness box of any of John Dib, Ross Morris or Gary Tong but that such an inference might be drawn, if it is appropriate to do so, by reason of the absence from the witness box of George Dib.

47                                          I will summarise the recollections of each of the witnesses as to what was said and done at the 4 May meeting in the next section of these Reasons for Judgment. 

The 4 May Meeting and the Succeeding Few Days

Deborah Roycroft

48                                          Mrs Roycroft gave evidence that:

(a)                As at the date of the meeting, she was the Operations Manager of Coolabah.  In that role, she had overall responsibility for the day-to-day business operations of Coolabah’s roadhouses;

(b)               When initially asked about the 4 May meeting, Mrs Roycroft summarised the discussions at the meeting by reference to topics but did not, at that stage, give an account of the substance of what was said in respect of those topics;

(c)                Then the following question and answer were given:

Q:        So, you referred to figures being given.  Do you recall any particular figures?

A:        Yes.  We talked about the convenience.  100,000 a month, which is around about the 25,000 a week, and fuel, 400 litres a month, and we then … (objection);

(d)               After the objection was dealt with, Mrs Roycroft gave further evidence concerning the figures which she had mentioned.  However, she became confused and said that Mr Haddad had mentioned a figure of “100,000 a month in fuel”;

(e)                The following exchange then occurred:

Q:        You mentioned the 400,000 litres per month fuel, and you’ve mentioned the $100,000 per month convenience store sales.  Are there any other particular figures that were said, by any of the DIB Group representatives?

A:        Lewis [sic] Haddad said that the LPG would give us a profit of around $5,000 a month—and that all came from Lewis—because there was nobody else in the area that would do it.  Lewis said the—and that the 400 litres was what their sites do.  Again, that would—that, basically, there was no issues with that.  Their sites did those easily, was Lewis Haddad’s words.

Mrs Roycroft went on to say that Mr Haddad said that the LPG AutoGas would be available at the site from the commencement of trade by Coolabah (he said “from day one”);

(f)                 George Dib said that the site was well-known for the big windmill and that Coolabah would be able to erect a big sign on the windmill structure that people would be able to see from miles away;

(g)                In cross-examination, Mrs Roycroft said that other figures had been discussed at the 4 May meeting.  She said that the profitability of the convenience store was discussed but she could not remember the figures;

(h)                In cross-examination, she again became confused as between the statements which she said had been made about the volume of fuel that was likely to go through the site and the gross sales figure for the convenience store;

(i)                  When pressed, she said that Mr Haddad had said that Dib Group does $25,000 a week in all of its convenience stores;

(j)                 In further clarification of the statements made by Mr Haddad, she said that Mr Haddad had told those present at the 4 May meeting that Dib Group estimated that the site would do 400,000 litres of fuel a month;

(k)               She denied that Mr Haddad had given a range of figures for the likely volume of fuel sales at the site;

(l)                  She did not make notes during the meeting nor at any time afterwards as to the discussions that took place at the meeting;

(m)              When challenged as to whether she had read her husband’s Outline of Evidence, she was evasive in the answers which she gave, answering “No” on some occasions and “Not really” on others.  Eventually, she conceded that she had discussed his evidence with him; and

(n)                She testified that Mr Grant took notes during the meeting.

Mike Roycroft

49                                          Mr Roycroft testified that:

(a)                The purpose of the meeting was to see whether Coolabah would operate all of the businesses contemplated for the site, including the sale of fuel, the convenience store, the post office agency and the bottle shop;

(b)               Mike Roycroft asked about the historical performance of the site—that is to say, he was interested in the trading figures of the businesses that had previously been conducted at the site although, of course, the proposal involving Dib Group and Coolabah was for an entirely new business to be conducted at new premises;

(c)                Mr Haddad gave figures as to the historical performance of the site.  He said that the fuel sales had been 400,000 litres a month and that sales in the convenience store had been $100,000 a month.  Mr Haddad said that he did not have information about the bottle shop or the post office but that he had a friend who ran a bottle shop and he would talk to that friend and give Coolabah some details on what to expect, in the way of profitability, from that part of the business;

(d)               In addition, Mr Haddad said that Coolabah could expect to achieve a gross profit in the convenience store of 35% of gross sales.  He said that in the context of discussing benchmarks for such a business;

(e)                Mr Roycroft did not take any notes during the meeting but he noticed that Mr Grant was taking notes during the meeting;

(f)                 Mr Haddad said that LPG AutoGas would be available at the site from the commencement of Coolabah’s operation;

(g)                Mr Haddad also said that there was nobody else along that strip of highway from Bulahdelah right through to Taree who would have LPG AutoGas available;

(h)                In cross-examination, Mr Roycroft reinforced his assertions that the statements made by Mr Haddad related to the performance of the site under the previous operators.  His evidence was that Mr Haddad did not provide any estimates as to the future in respect of the dollar amount of the gross sales likely to be achieved in the convenience store or the likely volume of fuel to be sold from the site;

(i)                  He denied that a range of figures for the volume of fuel for the new operation had been given by Mr Haddad at this meeting;

(j)                 He accepted that Mr Haddad did make statements concerning fuel volumes by reference to other sites and that, in that context, more than one figure was referred to;

(k)               There was no discussion as to what sales would be achieved in the period immediately after the business commenced to trade or whether it would take time to ramp up the sales;

(l)                  He could not recall whether there was discussion at the 4 May meeting about a sign on the windmill;

(m)              He accepted that nothing was said at the 4 May meeting to the effect that Coolabah could expect to make a profit of $5,000 per month from the sale of LPG AutoGas;

(n)                In cross-examination, he added that Mr Haddad said that they could expect to achieve gross sales in the convenience store of $100,000 per month.  This evidence was a reference to future or projected sales; and

(o)               He said that Mr Haddad had said that 400,000 litres per month was a “normal” benchmark.

Andrew Grant

50                                          Mr Grant gave evidence that:

(a)                Mr Haddad said that Coolabah could expect to generate 400,000 litres of fuel per month and that this estimate was conservative;

(b)               Mr Haddad said that an LPG AutoGas tank and pumps would be installed and available for use at the commencement of Coolabah’s operation;

(c)                Mr Haddad said that Coolabah could put a sign on the windmill and other signs on the canopy;

(d)               Mr Haddad said that Coolabah could expect to achieve $100,000 gross sales per month from the convenience store and that this estimate was conservative;

(e)                Mr Grant made notes during the meeting.  He did so in a notebook which he maintained for the purpose of making notes.  The notes which he made on the page in question in his notebook were mostly made during the course of the meeting although some entries may have been made subsequently.  He accepted that the notes were a summary of the meeting.  The notes were not intended to be a record of words actually spoken.  He used his notes to construct the email of 8 May 2007 which he subsequently sent to others within Coolabah;

(f)                 He accepted that the meeting was a very preliminary meeting; and

(g)                The figure of 400,000 litres per month did not mean a lot to him.  He did not know whether it was a good figure or a bad figure.

51                                          After the 4 May meeting, on 7 May 2007, Mike Roycroft sent an email to George Dib with a copy to Mr Grant.  In that email he sought further information. 

52                                          On 8 May 2007, Mr Grant sent an email to various persons within Coolabah, including Mike Roycroft.  That email was not sent to Dib Group.  The terms of that email were as follows:

Andrew Grant- Coolabah Tree Cafe- Info

From:      "Andrew Grant- Coolabah Tree Cafe- Info"

To:          "Rod Dee" rdee@ctcafe.com.au; "MIKE ROYCROFT" , "Mike Suthers"

Sent:        Tuesday, 8 May 2007 2:21 PM

Subject:  METRO FUELS/DIB GROUP -meeting 4/5/07

Just a snapshot of the meeting held Friday. In attendance MR, AG, DR plus Georg Dib (CEO), Louis Haddad (Franchising & Business development), Georges cousin???, plus Gary Tong (GM- Mobil/Hill & Co), Ross Morris (CFO) & John Dib (George’s Brother & MD).

After the initial 90 minute meeting we were joined by all the hierarchy and later had lunch.  In all a 3 hr meeting.

It’s obvious that the Dib Group are excited that CTC may be an excellent fit to their current lack of good food options in their 90plus sites. Realistically, there may only be a dozen or so that may be worthwhile as a CTC operation or an “express” option. (To be assessed).

Firstly is Cooloongoolook, with offer currently as follows:- (Noting that MR has requested further info which will assist our financial modelling)

1.  Plan supplied of the site, with a chance to make some changes in Cafe, now, prior to builders being on-site this week.

2  The main option we are considering is taking over the whole site, i.e. Fuel, Food, Convenience shop, Liquor license on takeaway Bottle shop, Post office, ATM.

3.  Lease term of 15 years, either 5 x 5 x 5 or 10 x 5.

4.  Rent $250,000 pa plus gst.

5.  Fuel can either be 2% commission, and Dib will own fuel and set price. Anticipated conservative sales of 400,000 litres per month. (If we choose, at some point we can takeover ownership of the fuel, i.e. pay for the holding stock, and set our own price. Dib advises this normally increase margin to 4-5% of sales volumes)

6.  Shop/Conv. sales estimated at $100,000 pm at a 35 % GP.

7.  Liquor/Bottle shop sales. Estimate unknown. George to supply a contact with the Pubmart Group to give some advice. (liquor License needs urgent attention and has to be transferred prior to 30th June 2007??? (Need to assess in the timing of takeover, but if we are not on-site we can’t take this over!)

8.  Food sales- Unknown. Need to consider Eagle Boys option. Consider worst case $20-$25k per week, but should be closer to $30k per week.

9.  Dib to provide Coolrroms, counters, shelving, Planogram & training for console & convenience.

10.  Stock for Console side must be thru Dib’s existing National Suppliers including Schweppes, Norco, Elgas, etc.

11.  Console IT system to be used for that part of business. (8850 Fuel IT).

12.  air-conditioning to be supplied by Dib. Water is at no charge as they use Bore water.

13. A fully furnished house is available for use by Management couple.

14.  Internet cafe is also being installed and proceeds to CTC.

15.  Timing: They were hoping an end of June/July, which does not seem possible and more likely August.

16.  Fuel options: they will be installing 4 islands, with 6 diferent fuel offers including the popular Bio Fuel. Also it will be one of only a few in the area to offer Autogas.

17.  Signage- The site is known for the “Golden Windmill”. CTC will be able to put signage on the windmill, and the rest of the site already lends itself to further “aussie theming”. Also Pole signage available.

18.  Metro & Mobil cards are accepted.

19.  Some truckie parking exists, but plenty of traveller parking.

20. Sit-down and alfresco dining available.

21.  Franchise/Goodwill fee: Further details to follow as to how this is made up, but they would be looking at a fee of approx. $200,000 in 3 mths, to be part of the Group and this site.

22.  Trading Hours: 24 hrs fuel/convenience. Probably 6am to 8pm (variable) for the cafe.

Other opportunities

A)  Sites mentioned include: Goulburn, Bomaderry, Williamtown, Cowra, Greta…..

B)  Assessment/comparison on Group Supplier deals; we currently enjoy, in a bid to improve going forward. Suppliers, Banks, Armaguard, etc.

George also advised details of his Solicitor, Basil McCree 02 9744 0005 (ph) 02 9747 3721 (fax)

53                                          Coolabah tendered in evidence Mr Grant’s notebook.  There is a page in that notebook which appears to be the notes which Mr Grant says he made at the 4 May meeting and perhaps subsequently.  The handwriting on the relevant page appears to be that of Mr Grant and appears to have been made with the same pen—it is all in the same blue colour.  Some notes proceed down the left hand side of the page, others appear in boxes in the middle of the page whilst others are on the right hand side of the page.  The form of the notes is such that they do not appear to represent a record of what was said but rather notes of things Mr Grant was told, his interpretations of things he was told and his own thoughts about various matters. 

54                                          On the right hand side of the page commencing about a third of the way down the page, the following entries appear:

2¢ per litre
(4–5¢ per litre)
– 400k litres p.m.
– $100k pm (shop)
– Food	35% GP
• – Liquor
(Pubmart)
(Bottleshop)

55                                          On the left hand side of the page, about two-thirds of the way down the page, the following entry appears:

Signage (Golden

Windmill, Pole Sign)

56                                          The note also refers to “4 islands”.  Presumably this is a reference to the number of pump islands.  There is also reference to “6 offers”.  This is probably a reference to different types of fuel.  Under that reference there is a reference to “Gas”.  There is also a reference to the fuel arrangement with Dib Group being under a “Commission Agency Agreement”.

Louis Haddad

57                                          Mr Haddad testified that:

(a)                Mike Roycroft asked all the questions on behalf of Coolabah;

(b)               The Coolabah people seemed very keen to join the Dib Group;

(c)                He told the Coolabah representatives what fuels would be available at the premises.  In the course of that discussion, Mr Haddad told them that LPG AutoGas would be available for sale at the premises from the commencement of Coolabah’s operations there;

(d)               Mr Roycroft asked for “figures”.  Mr Haddad said that he did not have figures for the new business.  He told Mr Roycroft that the new premises would be configured very differently from the way in which the old site had been set up and that the figures from the old operation would be of little assistance to him;

(e)                Mr Haddad told Mr Roycroft that the nearest service station which sold LPG AutoGas was approximately 15 km away from the site so that there was an opportunity to get customers in for the LPG AutoGas;

(f)                 He told the Coolabah representatives that the site was capable of doing 300,000, 400,000 or even 500,000 litres per month as the volume of fuel sales.  He said that he did not discuss figures in terms of a minimum likely sales volume of fuel.  He said that Dib Group had sites with similar configurations and that those sites did those sorts of volumes.  He denied saying that the Coolongolook site would generate fuel volumes of 400,000 litres per month or that Dib Group had estimated that it would generate volumes of that order.  When giving his evidence, he sought to make a distinction between the capacity of the site, on the one hand, and the likely actual volumes to be achieved when the site was up and running, on the other hand;

(g)                He described the convenience store and associated services;

(h)                He told the Coolabah representatives that there was going to be a windmill on the site;

(i)                  He told them that bore water would be available at the site;

(j)                 He did not mention in his evidence in chief making any statement at all about the likely or estimated level of gross sales to be achieved from the convenience store.  However, he accepted in cross-examination that he did say that the convenience store was capable of doing $100,000 per month;

(k)               He denied saying that all of Dib Group’s convenience stores did $100,000 per month, whether in answer to a question from Deborah Roycroft or otherwise;

(l)                  He said that Deborah Roycroft did not ask any questions at the 4 May meeting and he denied mentioning that the LPG AutoGas was likely to produce a profit of $5,000 per month;

(m)              He did say what the capacity of the convenience store was and what the capacity was in respect of fuel sales (“what the forecourt could do”); and

(n)                He did not discuss the likely turnover of LPG AutoGas.

58                                          In the afternoon of 8 May 2007, George Dib sent an email to Mike Roycroft to which was attached a spreadsheet providing certain figures.  This is the email which is alleged by Coolabah to contain misrepresentations in writing.  The text of the email was as follows:

From:      George Dib [mailto:GeorgeDib@dibgroup.com.au]

Sent:       Tuesday, 8 May 2007 3:08 PM

To:          miker@ctcafe.com.au

Cc:          Gary Tong; Louis Haddad; Colin Zibara

Subject:   FW: coolongolook discussion and info requirements

Dear Mike

Attached file for state award for service station console operator, in the same file, I listed 1) extra income on turnover on Liquor stores and newsagency alike 2) fixed expenses

For the list below, please see comments in Blue

1.  Time frame. Delay should not be a problem once all parties agree that the project is going ahead. August would be a possible date pending the speed on which all parties can execute the necessary documents, terms and conditions. Early August ok.

2.  George to email AG a copy of their lease plus costs of outgoings etc. Our solicitor will forward that in due course

3.  Goodwill price of $200k is based on the fact that we are receiving a fully fitted out servo excluding the restaurant fit out for free, for a term of 15 years.

Fixout and equipments to the site are for the dealer to use, and maintain, it must remain under dib’s asset register, never the dealer’s

4  Goodwill on other sites if any, will be based on their merit. We acknowledge that

5.  George to supply contact for CTC to discuss scenarios’ re bottle shop turnover v profit and labor costs plus the same for the Post Office part of the business etc.

Please see attached file

6.  George to arrange landlord to supply for the restaurant fit out. Tile floor, cold room, freezer, ceiling, Air-conditioning, any extra under floor hydraulics and wall partitions to CTC requirements. We would fit out sevice station side of the business including Tile floor, coolroom, ceiling, air-con and wall partitions, at the stage of discussion, there were no mentions on freezer, extra under floor hydraulics to CTC requirement. These must be discuss including other fitout like grease trap etc

7.  George to supply current labor rates for console workers. CTC has to determine if it can bring all its employees under its CA or if it has to split them under the different awards EG, fuel and alcohol etc. I could only provide cost of labor for service station in the form of state awards see attached fife. All others can be source from www.industrialrelation.nsw.gov au.

regards

George Dib

59                                          The spreadsheet contained information about the wages that would be required to be paid to persons likely to be employed in the business.  It also contained the following information:

Other Income beside service station and restaurant
	Yearly gross profit
Based on historical data, Turnover bottles shop per week 30% due to most retailing on single bottles	$12,000	$187,200.0
Month fee from Post office	$400	$4,800
Based on historical data, Turnover Newsagency per week	$4,000	$31,200.00
15% on total turnover
Total yearly gp		$223,200.0
Other fixed expense
Land/Council p.a.	$3,500	$3,500
Land tax p.a.	Nil	Nil
Rubbish removal general for service station only (not restaurant)	$1,500	$1,500
Sewerage pump out	$1,000	$1,000
Insurances for building	$2,400	$2,400
Electricity per month (service station only)	$1,000	$12,000
Total Yearly expense		$20,400

Subsequent Events

60                                          Negotiations between Coolabah and Dib Group about the premises and a fuel reselling arrangement continued throughout the period from early May 2007 until mid September 2007.  Initially, Coolabah was to be a commission agent in respect of fuel earning 2 cents per litre on fuel sales.  Subsequently, it became a franchisee.  As a franchisee of Dib Group, it purchased fuel from Dib Group and resold that fuel to the public.

61                                          The evidence did not make clear when Coolabah decided to proceed with the venture, who made that decision, what process was undertaken in order to arrive at that decision or what was the thinking behind the making of that decision.  There was precious little evidence as to what use (if any) was made by Coolabah of the information which was provided to it. 

62                                          There was tendered in evidence a spreadsheet headed “Wotif”.  Mr Grant said that that spreadsheet was prepared by Mr Rodney Dee, Coolabah’s accountant.  Mr Grant said that some of the information in that spreadsheet had been supplied to Mr Dee by him and that other assumptions recorded in the document had been made by Mr Dee without any input from Mr Grant.  The spreadsheet broke down the Coolongolook business into its various components. It recorded the following assumptions:

(a)                In respect of the café, gross sales were estimated or assumed to be $30,000 per week ($1,560,000 per annum).  The cost of sales was estimated or assumed to be $546,000 (or 35% of the gross sales figure) resulting in a gross profit of 65%;

(b)               In respect of the convenience store, gross sales were estimated or assumed to be $23,000 per week ($1,196,000 per annum).  The cost of sales was estimated or assumed to be $797,732 (or 66.7% of the gross sales figure) resulting in a gross profit of 33.3%;

(c)                Revenue from fuel sales was estimated or assumed to be $2,000 per week ($104,000 per annum).  This is $8,666.67 per month.  This is very close to 2 cents per litre in respect of 400,000 litres;

(d)               In respect of the bottle shop, gross sales were estimated or assumed to be $12,000 per week ($624,000 per annum).  The cost of sales was estimated or assumed to be $187,200 (or 30% of the gross sales figure) resulting in a gross profit of 70%; and

(e)                Other assumptions were recorded in respect of the postal agency and the newsagency.

63                                          Mr Grant testified that the “Wotif” spreadsheet was part of the bundle of documents given to Westpac Banking Corporation when Coolabah applied to that bank for finance in respect of Coolongolook.

64                                          The estimates or assumptions recorded in the “Wotif” spreadsheet in respect of the volume of fuel to be sold from the premises and in respect of the gross sales to be earned and gross profit percentage to be derived from the convenience store were the same as the information about those matters recorded in Mr Grant’s email of 8 May 2007.  The estimates or assumptions recorded in that spreadsheet in respect of the performance of the bottle shop, the postal agency and the newsagency were the same as the information about those matters recorded in George Dib’s email to Mike Roycroft of 8 May 2007.

65                                          The estimates or assumptions about the café recorded in the spreadsheet were the result of Coolabah’s own assessments. 

66                                          On or about 14 August 2007, the solicitor for Coolabah received from the solicitor for Dib Group a draft of the fuel agreement and a draft of the sublease.  Those documents were then considered by various persons within Coolabah and by Coolabah’s solicitor.  In the course of considering those documents, the solicitor for Coolabah advised Mr Grant that Coolabah required the prior approval of the local authority and perhaps other relevant authorities before erecting any signs on the premises.  This advice was given in a letter to Mr Grant dated 17 August 2007.  Coolabah took no steps at that time to ascertain what might be involved in obtaining the requisite approvals. 

67                                          By 27 August 2007, Mike Roycroft and Mr Grant were well aware that the LPG AutoGas would not be available when Coolabah commenced operations at the site and might not be available for some time.  In an email from Mike Roycroft to Mr Grant sent on 27 August 2007, after referring to these circumstances, Mr Roycroft said:

As approaching them now could cause a major argument, I suggest we hold off until we open and then tell them that there will be a reduced rent until they fix the problem.  They have to learn from day one that we are not pushovers. 

We could reduce the rent to say $215k PA????

You may wish to put it to Tony.

But remember possession of the site would put us in a much stronger position than being locked out before we open due to our threats of a reduced rent.

What are your thoughts?

68                                          The reference to “Tony” in that email is a reference to Coolabah’s solicitor.

69                                          In response to that email from Mr Roycroft, Mr Grant sent an email the next day (28 August 2007).  The text of that email was as follows:

Lets open.  The Lease still hasn’t been sorted yet and we are arguing over stuff like not putting up Bank Guarantees, etc. Additionally, we have a semi-hold on them as we are paying the Franchise fee in a few instalments, so lets address it in a few weeks time.

Finance: Part of the Westpac finance was a $2000,000 loan to cover the Franchise fee, and Wayne has advised docs will be to hand probably by tomorrow and will need all signatures, the other docs for the equipment finance are still being done. Scott has now been paid $200,000, and Oswald has received 80%. Coates, advise they should have an Invoice to me today & CFE, only sent their amended Invoice yesterday, which I will send thru to you for checking.

70                                          In a further email sent on 29 August 2007 by Mr Grant to Coolabah’s solicitor, Mr Grant repeated the decision to which he and Mr Roycroft had come, namely, that Coolabah did not wish to “raise too many ripples” until after it commenced trading at which point in time it would “vent its frustration” and seek a rent reduction.

71                                          As I have noted at [4] above, Coolabah commenced trading at the premises on 6 September 2007.

72                                          Thereafter, there were difficulties encountered by Coolabah in finalising the terms of the sublease and the fuel agreement.  Ultimately, these difficulties were resolved and the two agreements were signed on or about 18 September 2007.

73                                          Trading was not good at the premises.  There were problems with the septic sewerage system and with the toilets on the premises.  The installation of the LPG AutoGas tank and associated equipment did not proceed rapidly and there were difficulties about placing signs on the windmill and on the canopy.  By February 2008, Coolabah was actively considering not exercising its option to renew the sublease.  This option was the option contained in cl 6 of the sublease, not the option afforded to Dib Group under cl 53 of the sublease.

74                                          Coolabah’s discontent increased during the first few months of 2008.  At that time, it was tentatively putting in place plans to walk away from the site at the expiration of the term of the lease.  The first term was due to expire on 15 July 2008.

75                                          Although Coolabah and its lawyers wrote several letters in the period from late 2007 to mid 2008 complaining about various aspects of the site and the premises, it never once asserted that it had been misled by statements made at the 4 May meeting into entering into the sublease and fuel agreement.

76                                          As mentioned at [30] above, on 29 April 2008, Dib Group purported to exercise its option to renew the sublease.

77                                          The delivery of the Notice of Exercise of Option by Dib Group to Coolabah hit Coolabah like a bombshell.  It appears that neither Coolabah nor its solicitor had appreciated that Dib Group had the capacity under the sublease to compel its renewal unilaterally.

78                                          In an email sent to Coolabah’s lawyer and to Mr Grant on 6 May 2008, Mike Roycroft set out his views as to the options available to Coolabah in light of the delivery of the Notice of Exercise of Option by Dib Group.  The text of that email was as follows:

From:      Mike Roycroft [miker@ctcafe.com.au]

Sent:       Tuesday, 6 May 2008 11:38 AM

To:          'Andrew Grant- Coolabah Tree Cafe- Info'

Cc:          Tony Freestone; michaels@ctcafe.com.au

Subject:  cooiongolook overview

Guys, I have put some thought to the possible outcome of this issue and have briefly noted them for discussion.

Obviously we now find ourselves in the position that the “PUT” clause has put a stop our ability to vacate as we originally planned.

The Dib group have done exactly what we would have done had we found ourselves under the same circumstances.

They have nothing to lose, the still get fuel sales CTC has to still pay the rent.

Like AG I cannot see them going to far out of their way to take the fight to Kevmark.

The big question here is how long is CTC going to continue be stuck in a five years lease losing $400k per annum?

The answer to that is that we are not?

I am meeting with the Dib Group this Thursday to find what they think about the position we now find ourselves in.

I have no intent to disclose what we are thinking of doing, but at some stage they will have to be put on notice to what the possible outcome could be.

At some stage the Dib group will have to be told that this issue can and most likely will destroy the CTC Metro relationship.

I have listed below my thoughts.

1.         Obviously CTC has to first fight for self preservation and this means minimising the financial impact that this site will continue to have on our bottom line profits

2.         We should first look at all options to allowing us to first vacate the site and fight the battle later on?

3.         To achieve this we have to find the vehicle that is going to allow us to breach both the landlord and the Dib group both via the lease and the franchise agreement.

4.         Or Join forces with, the Dib group only if they are totally receptive and committed to that option. I don’t really have enough trust in these guys to pursue this option.

5.         At worst We would be better off to vacate the site and pay the annual rent, it would be cheaper than losing $400k per annum to keep it open.

We would probably still expose ourselves for legal action due to non performance clauses etc? However doing this would force the Dib group to take over the site, obviously they could arrange to pay Kevmark a $1.00 a week rent and still get the balance off CTC. Tony I am not to sure of the legality of that practice?

6.         At the worst, we remain at the site, remove the restaurant and set up a small Express café at the console end, which would allow us to consolidate the overheads and maybe if we could negotiate a rent deal it could become commercially viable. AG and David would have to do some work on this scenario.

Regardless to all the above we should still position ourselves to Sue their asses off and the sooner we disclose that intent to both parties the sooner we may see some resolve.

Your thoughts.

Mike

MIKE ROYCROFT

Managing Director

79                                          Ultimately, Coolabah decided to run the gauntlet and abandoned the premises on 1 July 2008.  By the time that it abandoned the premises, it had removed those fittings which belonged to it, cleaned the premises and secured them.  As will be discussed in more detail below, Mike Roycroft and his manager took photographs of the premises on that day. 

80                                          On 17 July 2008, Dib Group purported to terminate the sublease.  On that day, it served a Notice of Termination of Sublease.  That Notice was in the following form:

NOTICE OF TERMINATION OF SUBLEASE

Sublease:

From:         Dib Group Pty Limited (ACN 002 889 474) (“Sublessor”)

To:             Coolabah Tree Aust-Wide Pty Limited (ACN 115 559 101)

 (“Sublessee”)

Property:   18-20 Bengal Street, Coolongolook NSW 2423

The Sublessee having abandoned the Property on or about 17 July 2008 has by its conduct repudiated the Sublease during the term of the Sublease and the Sublessor accepts the Sublessee’s repudiation and

HEREBY TERMINATES the Sublease reserving its rights to damages

81                                          The next day (18 July 2008), Dib Group purported to terminate the head lease.  On that day, it sent a formal notice to that effect (as to which see [150] below).

Were Representations Made as Alleged by Coolabah?

The Oral Statements at the 4 May Meeting

82                                          My findings in relation to these issues depend upon an assessment of the evidence of the four witnesses called to testify about the meeting.  That assessment must be made in light of the contemporaneous documents and the context in which the meeting took place.

83                                          I make the following findings:

(a)                The 4 May meeting was the first occasion when representatives of Coolabah had met representatives of Dib Group.  It took place at a very early stage of the negotiations.  It was, in the words of Counsel for Dib Group, “very preliminary”;

(b)               There was some discussion about likely volumes of fuel that would be sold from the site once it was redeveloped.  There was also some discussion about likely sales figures for the main components of the business (other than the café)—the convenience store, the postal agency, the newsagency and the bottle shop.  Such statements as were made by Mr Haddad and George Dib were not made in the terms alleged by Coolabah;

(c)                All persons who attended the meeting appreciated that historical figures, that is to say, figures which related to the performance of the businesses previously conducted at the site would be of little or no use in trying to assess the likely future performance of the businesses to be conducted at the revamped site;

(d)               Mr Haddad was qualified to mention and did mention certain average or benchmark figures for fuel throughput and convenience store operations by referring to other sites operated by Dib Group.  He did not mention any figures for the other parts of the business;

(e)                Mr Haddad probably indicated that 400,000 litres of fuel per month was the level of sales being achieved from similar sites elsewhere in the business of Dib Group.  I do not think that he said that the Coolongolook site would generate fuel volumes of 400,000 litres per month.  He was doing no more than giving a broad indication of the trade at other comparable sites.  This is why he focused on “capacity” when giving his account of what was said at the meeting.  The Coolabah representatives appreciated the nature of the remark;

(f)                 Mr Haddad probably also mentioned a figure of $100,000 per month when discussing the gross sales of the convenience store.  But he did so by reference to the gross sales of other convenience stores in the group.  I do not think that he said that the convenience store at the premises would generate or was likely to generate gross sales of $100,000 per month resulting in a gross profit of 35%;

(g)                In their thinking, the Coolabah representatives did not transform these guidelines or benchmark statements into firm promises or representations as to what would be achieved at the site.  These were results that might be achieved if the site performed in a fashion similar to other comparable sites in the Dib Group.  The Coolongolook site would have to be operated efficiently and productively by Coolabah and the Coolabah representatives understood this also;

(h)                Either Mr Haddad or Mr George Dib did suggest that Coolabah could place a sign on the windmill and also on top of the canopy;

(i)                  Mr Haddad did say that Coolabah would have access to bore water at the site.  This statement was true; and

(j)                 Mr Haddad did say words to the effect that Coolabah would be one of only a few suppliers of LPG AutoGas in the local area and that LPG AutoGas would be available at the site.

84                                          My reasons for making the findings set out at [83] above are as follows:

(a)                There was no real dispute in the evidence about findings (a), (b), (c), (h), (i) and (j);

(b)               Coolabah’s misrepresentation case depends upon my accepting the evidence of Deborah Roycroft, Mike Roycroft and Andrew Grant as reliable or, at the very least, accepting the core allegations made by Coolabah as having been established by the evidence of those three witnesses;

(c)                Mrs Roycroft’s evidence was unreliable.  She did not have a particularly good recollection of the 4 May meeting.  She gave the impression of having tried to learn the important points (the 400,000 litres of fuel and the $100,000 gross sales out of the convenience store at a gross profit of 35%) off by heart and of trying to get those points out in her evidence.  She manifested a selective memory.  She had discussed her husband’s evidence with him.  She became confused, even about the important points, on more than one occasion.  She had to be led on a couple of occasions into giving the evidence which it appeared that she was expected to give.  I think that, at best, she was engaged in an impermissible process of reconstruction when she gave her evidence;

(d)               Mr Roycroft gave the impression that, at times, he was overreaching in his account of what happened.  He was combative and appeared to advocate Coolabah’s case. He steadfastly adhered to the proposition that Mr Haddad gave him figures which related to the historical performance of businesses at the site.  He was the only witness who gave evidence to that effect.  It did not make much sense for Mr Haddad to give those figures to the Coolabah representatives, even if he had them.  Mr Roycroft gave some evidence about the due diligence process generally undertaken by Coolabah when investigating a site and attempted to relate that evidence to the present circumstances.  He said: 

Well, the data you are given—well, you ask the experts for information.  For expert information you expect to get an expert reply.  So you take that data and you put it into a spreadsheet, and you do a cash flow.  Now, on that proviso—on that basis, you look at the volume of the fuel and the volume of dollars through the convenience operation, and you work—and you try and work out then on that basis of the foot traffic.  And the foot traffic then gives you an idea of what to expect through the food operation.  It’s all connected on one hand, but, you know—so we all knew about—if you did $20,000 a week in food what you’d make out of that.  But we had no idea what you’d make out if you sold 400,000 litres a month in fuel and if you did $25,000 a week or $20,000 in convenience.  So once we gathered that information, we were able to then put that in context to what turnover the site would do, what the cost of sales would be in all instances.  Whether it be your fuel profit margin—one or two cents a litre and then you worked that backwards, then you add all your expenses in, being your rent, your wages, and all other fixed and floating costs relating to the business so you can work out what your minimal break even would be in the business.  Then you take in your cost of financing et cetera and end up with a—go from an EBIT down to an EBIT profit.  That would then tell you the feasibility of the business, and will give you some idea whether it was worth pursuing on the worst case or the best case scenario.  And that’s an exercise we do with everything we look at.

That evidence did not make much sense and was given, in my view, in an endeavour to bolster or strengthen a significant weakness in Coolabah’s case viz whether it was going to be able to establish any reliance on the representations alleged to have been made;

(e)                Mr Grant endeavoured to give his evidence honestly and to the best of his ability. But his recollection of the meeting was patchy and was obviously heavily influenced by the terms of his email of 8 May 2007 viewed through the prism of Coolabah’s case and coloured by hindsight.  That email was not sent to Dib Group.  It was an internal communication only.  It was prepared using Mr Grant’s handwritten notes.  Those notes themselves were not a record of what was said at the meeting.  They constituted a summary of things that were said, interpretations, extrapolations or observations in relation to things that were said and Mr Grant’s own thoughts.  The email also manifests these features.  The comment in par 5 of the email “Anticipated conservative sales of 400,000 litres per month”, was most probably originally sourced to something Mr Haddad or Mr George Dib had said at the meeting.  It is, however, just as consistent with the statement that was made about that topic being less firm than the Coolabah witnesses would now have me accept.  The remark about the gross sales and gross profit of the convenience store may be similarly viewed; 

(f)                 No complaint was made by Coolabah until these proceedings were commenced to the effect that its representatives had been misled as to the matters which are now said to have been the subject of misrepresentations at the meeting.  In particular, Coolabah did not assert in the letters of complaint which it wrote or which were written on its behalf in the period from March 2008 to the end of June 2008 that they had been misled.  If the statements which Coolabah now asserts were made to its representatives at the 4 May meeting had in fact been made, surely some reference to being misled at the outset would have been made.  After all, Coolabah was desperate to extricate itself from the sublease and the fuel agreement and was casting around for any half reasonable basis for doing so.  Yet no such allegation was made;  

(g)                The absence of George Dib from the witness box is unexplained.  On the other hand, a party is not obliged to call every available witness who might be expected to testify as to the discussions which took place at a particular meeting.  I have decided to apply Jones v Dunkel 101 CLR 298.  But the circumstances of the present case are such that the inference to be drawn does not weigh heavily in the balance against Dib Group.  I have approached my consideration of what occurred at the 4 May meeting upon the basis that the evidence of George Dib would not have assisted Dib Group’s case; and

(h)                Mr Haddad was a straightforward witness who endeavoured to give his recollections without overreaching or reconstructing.  When he spoke of “capacity” of the site to generate fuel sales and sales in the convenience store, I think that he was endeavouring to capture his recollection that his remarks at the 4 May meeting concerning fuel volumes and sales in the convenience store were made by reference to Dib Group’s and his experience at other sites.  He did not make firm statements about those matters in respect of the Coolongolook site.  In the end, I prefer the evidence of Mr Haddad. 

The Written Statements in George Dib’s Email of 8 May 2007

85                                          This email was sent by George Dib in response to Mike Roycroft’s email of 7 May 2007 and also in response to Mr Roycroft’s request made at the 4 May meeting for figures in respect of the bottle shop, the post office agency and the newsagency.

86                                          The relevant part of the text of Mr Roycroft’s email was:

5.         George to supply contact for CTC to discuss scenarios re bottle shop turnover v profit and labor costs plus the same for the Post Office part of the business etc.

87                                          In his covering email of 8 May 2007, George Dib said:

Attached file for state award for service station console operator, in the same file, I listed 1) extra income on turnover on liquor stores and newsagency alike 2) fixed expenses

88                                          A sensible interpretation of this email and its attachments is that Mr Dib had obtained some historical figures as to the turnover and gross profit of the other components of the business and was passing them on.  There is no indication in the covering email or in the spreadsheet that he had performed any analysis of his own and the discussions leading up to the communication support the conclusion that he was going to get the historical figures and pass them on to Coolabah for what they were worth. I do not think Mr Roycroft viewed these figures in any other light.

Reliance

89                                          In 2007, the directors of Coolabah were Mr Grant, Mr Roycroft and Mr Michael Suthers.  The Board of Coolabah also seconded to it as advisers or consultants two or perhaps three other persons.

90                                          Mrs Roycroft said that she did not participate in Coolabah’s decision to proceed with the Coolongolook proposal or in the preparation or discussion of any feasibility calculations or assessments.  Mr Roycroft may have done so, but the nature and extent of his participation is unclear.  He did not analyse or make use of the figures which he was given at the 4 May meeting and in George Dib’s email of 8 May 2007.

91                                          Mr Grant copied his 8 May 2007 email to Mr Dee who then seems to have incorporated the statements concerning fuel and the convenience store into his “Wotif” spreadsheet.  He also appears to have incorporated the income and gross profit figures from George Dib’s 8 May 2007 email into that spreadsheet.

92                                          But there is no evidence of the decision-making process or what use (if any) was made of these figures by those who made the decision to proceed.  Mr Suthers has not been called nor have the other potential participants in the making of the decision (the advisers).  The evidence was that the proposal was submitted to the Board of Directors of Coolabah and that the decision to proceed was made by that Board.

93                                          I am left to wonder about that process and to try to discern what reliance (if any) was placed upon the statements which I have found were made.

94                                          As far as the remarks about fuel throughput are concerned, I do not think those remarks were of any importance to Mr Roycroft or Mr Grant.  The fuel profit was to be 2 cents per litre if Coolabah was to be a commission agent and 4–5 cents per litre if it became a reseller. Two cents a litre produces $8,000 per month on a volume of 400,000 litres and 4‑5 cents produces a little more than twice that amount.  These are not large figures in comparison with the café or the convenience store.  The fixed costs and staff costs required to generate the fuel sales would be incurred irrespective of the volume.

95                                          Mr Roycroft tried to explain his interest in and thus the importance of the fuel volumes by saying that he wanted to know the fuel volumes because they would assist him in estimating what he called “the foot traffic” through the site.  The foot traffic is his expression for people who come to the site in motor vehicles and who are likely to eat in the café and/or shop in the convenience store. 

96                                          Neither Mr Roycroft nor Mr Grant could sensibly explain the relationship between fuel volumes and foot traffic except by referring to the obvious general truth that people who come to the site to buy petrol will often eat at the café and shop in the store.

97                                          Further, there was no evidence explaining what use Coolabah actually made of the fuel volumes information beyond including it in the “Wotif” spreadsheet.

98                                          The evidence of Mr Roycroft and Mr Grant made quite clear that the assumptions or estimates which Coolabah made as to the gross sales of the café and the gross profit of the café were derived from their experience at other sites.

99                                          There was no evidence demonstrating how, if at all, the information concerning the gross sales and gross profit of the convenience store was used by the decision-makers at Coolabah.  A similar position obtained in respect of the other components of the business.  As far as those components were concerned, I find that Coolabah regarded them as necessary integers in the bundle or package of businesses that they intended to run from the premises but that Coolabah was not particularly interested in them.  Each of the bottle shop, post office agency and newsagency had a licence or contract which was effectively attached to the site.  The local community expected those activities to continue.  Coolabah saw them as desirable adjuncts to the main business activities—fuel, convenience store and café.

100                                       I find that, by the time Coolabah executed the sublease and the fuel agreement, Mr Roycroft and Mr Grant knew that:

(a)                Coolabah may not have been able to erect a sign on the windmill or on the canopy.  A Development Consent from Great Lakes Council was necessary; and

(b)               There was no LPG AutoGas tank or associated equipment at the site and there would not be such equipment at the site when Coolabah commenced to trade at the site.  Further, they appreciated that the installation of these facilities may not take place for some considerable time

and that nonetheless they were prepared to proceed with the proposal in any event and to deal with these matters in due course.  Neither of these matters was a deal breaker.

101                                       Each of the sublease and the fuel agreement contained an Entire Agreement clause and the Franchise Disclosure document made clear to Coolabah that Dib Group would not provide earnings information.  Although these circumstances are not an answer in law to Coolabah’s case, they may be taken into account in assessing the veracity of its case.  I have taken them into account as part of the evidentiary matrix.

102                                       For all of the above reasons, I am not persuaded that Coolabah relied upon any of the statements which were made to its representatives at the 4 May meeting or in George Dib’s email of 8 May 2007.

Conclusions on Liability (Coolabah’s Case)

103                                       I have found that Dib Group did not make all of the representations which Coolabah alleges Dib Group made to it.

104                                       As far as the representations as to signs and LPG AutoGas are concerned, I have found that those representations were made but that Coolabah did not rely upon either of them when entering into the sublease and fuel agreement.

105                                       As far as the alleged financial representations are concerned, I have found that certain statements were made but that they were not in the terms alleged or as clear and firm in their content as Coolabah contended.  I have also found that Coolabah did not rely upon those remarks in this category.

106                                       For these reasons, Coolabah’s case against Dib Group for damages or compensation founded upon misleading and deceptive conduct fails.  Its claim must therefore be dismissed with costs.  The same result flows in respect of Mr Grant’s claims for relief.

107                                       No case was sought to be made by Coolabah at the hearing in support of its claim that cl 53 of the sublease should be declared void or set aside.  No particular grounds or arguments for such relief were put.  That claim must also be rejected. 

Damages

108                                       As I have mentioned at [22] above, Coolabah’s claim for damages was confined to its claim pursuant to Scenario 1 in Mr Thynne’s report.  The amount of that claim was $1,010,401.00. 

109                                       The method adopted by Mr Thynne to arrive at that figure was not challenged or criticised by Dib Group.  In addition, only one substantive challenge was mounted to the detail of Mr Thynne’s calculations.  This challenge concerned the way in which Mr Thynne had brought to account the value of the equipment, fixtures and fittings which Coolabah was admittedly able to remove from the premises when it abandoned them on 1 July 2008.  Mr Thynne used the depreciated value of those items for tax purposes as the amount which he should take into account in assessing Coolabah’s loss.  This was an arbitrary approach designed to overcome the fact that no attempt had been made by Coolabah to prove the market value of those items.  This was a gap in Coolabah’s evidence.

110                                       Were I to assess damages in favour of Coolabah (a task which I am not required to do given the findings which I have made), I would need to consider what adjustment (if any) I should make to Mr Thynne’s assessment of damages on account of this difficulty. 

111                                       It is fair to say that Mr Thynne’s other work was appropriately supported by sufficient primary records of Coolabah to satisfy me that his assessment was a reasonable one, having regard to the assumptions which he made and the records and evidence tendered to prove the truth and reasonableness of those assumptions. 

Dib Group’s Claims Against Coolabah and Mr Grant

112                                       These claims are for unpaid rent and damages for repudiation of the sublease.  Allegations were made in Dib Group’s Cross-Claim that Coolabah was also liable in damages for breach of the fuel agreement.  However, such a case was not pressed.

113                                       Coolabah wrongfully repudiated the sublease when it abandoned the premises on 1 July 2008 and refused to pay rent thereafter.

114                                       Counsel for Dib Group submitted that I should simply award to Dib Group such amount by way of damages as it may have to pay Kevmark.

115                                       I do not think that that is the correct approach to the assessment of damages in Dib Group’s case against Coolabah.  The correct approach is to give judgment for:

(a)                Such amounts as were payable under the sublease but remained unpaid as at the date of termination of the lease;

(b)               The amount of lost rent for the period when the premises were vacant; and

(c)                The quantum of damages for the lost rent thereafter (loss of bargain damages).

116                                       In the next section of these Reasons for Judgment, I deal with disputes between Dib Group and Kevmark which arose out of this unfortunate series of events.

117                                       Dib Group has not approached the amount of damages in the same way as Kevmark.  

118                                       It has not attempted to prove its outgoings in order to found a claim for contribution to outgoings.  It relies upon Kevmark’s evidence in respect of lost rent.

119                                       The sublease was validly renewed on 29 April 2008.  The new term was from 16 July 2008 to 15 July 2013.  The rent payable would have been $250,000 per annum plus GST.  That rent was subject to annual CPI increases.

120                                       The new lessee found by Kevmark took up occupation of the premises on 1 October 2008.  The premises were vacant for three months.  The monthly rent payable under the sublease was $20,833.33 plus GST.  The lost rent for the three months when the premises were vacant comes to $62,500.00.  Interest is payable on that amount from 1 July 2008.

121                                       I propose to use the base rent of $250,000 to calculate the lost rent for the period from 1 October 2008 to 15 July 2013.  That is a period of four years and 288 days.  The quantum of lost rent is therefore $1,197,260.  From that must be subtracted the amount of rent to be received from the new lessee. I have calculated that figure at [189] below.  It is $900,325.47.  The net loss, in raw dollar terms, is therefore $296,934.80.

122                                       As is the case with Kevmark, no discounted cash flow analysis has been furnished to me and I have been driven to taking a relatively a broad view of the damages claim.  I do so on the same basis as I have approached the matter as between Kevmark and Dib Group. 

123                                       There will therefore be judgment in favour of Dib Group in the amount $370,580.35 made up as follows:

(a)	$62,500.00	(being damages for the lost rent for the period from 1 July 2008 to 30 September 2008)
(b)	$11,145.55	(being interest on the amount in (a) at the prescribed rates from 1 July 2008 to 30 July 2010)
(c)	$296,934.80	(being damages for repudiation of the sublease)
	$370,580.35

124                                       The claims made by Dib Group against Mr Grant fail.  The Cross-Claim against him must be dismissed with costs.  Mr Grant was not a guarantor of Coolabah’s obligations under the sublease.  He did guarantee Coolabah’s obligations under the fuel agreement.  The damages which I propose to award are not being awarded for breaches of the fuel agreement.  The guarantee and indemnity signed by Mr Grant is not engaged.

The Claims Between Dib Group and Kevmark

Introduction

125                                       After these proceedings were instituted, Dib Group joined Kevmark as a cross-respondent in a Cross-Claim filed on 28 November 2008.  Kevmark defended that Cross-Claim and brought its own Cross-Claim against Dib Group.

126                                       The following issues arise on the pleadings as between Kevmark and Dib Group:

(a)                Whether the head lease contained an implied term to the effect that Kevmark would take all necessary steps, including obtaining an occupation certificate from Great Lakes Council, to ensure that the occupation of the premises by Dib Group and Coolabah and the carrying on of any business permitted under the head lease during the term of that lease were lawful;

(b)               Whether, upon the true construction of the head lease, the head lease contained an express term to the same effect as that noted in (a) above;

(c)                If either (a) or (b) is answered in the affirmative, whether the relevant contractual term was breached by Kevmark by failing to obtain an occupation certificate;

(d)               Whether, upon the true construction of the head lease, the septic sewerage system and certain other items were required to be kept in good repair by Kevmark;

(e)                If the answer to (d) is in the affirmative, whether Kevmark failed to keep the septic sewerage system and other items in good repair and thereby breached the head lease;

(f)                 Whether Kevmark’s failure to obtain an occupation certificate and failure to keep the septic sewerage system and other items in good repair, if proven, amounted to a repudiation of the head lease by Kevmark;

(g)                If the answer to (f) is in the affirmative, whether Dib Group accepted Kevmark’s repudiation of the head lease and validly terminated the head lease on account of that repudiation;

(h)                Whether Dib Group was unlawfully prevented by Kevmark from removing certain fixtures and equipment from the premises and thus lost the value of those items;

(i)                  Whether Mr Wortes, on behalf of Kevmark, orally represented to Mr George Dib and to Mr Haddad, on behalf of Dib Group, that:

(i)                  When the premises were completed, there would be installed on the site a 30,000 litre LPG AutoGas tank; and

(ii)                The proposed conversion of a diesel fuel tank to a septic sewerage system would comply with all relevant planning and safety legislation;

(j)                 If made, whether Kevmark had any reasonable grounds for making the representations referred to in (i) above at the time each of the representations was made;

(k)               Whether Kevmark engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act by making the representations referred to in (i) above;

(l)                  What loss (if any) was suffered by Dib Group by reason of those alleged contraventions;

(m)              Whether, as between Dib Group and Kevmark, the installation and cost of the LPG AutoGas tank was the sole responsibility of Dib Group;

(n)                Whether Kevmark is entitled to a lien over the fixtures and equipment described in (h) above;

(o)               Whether, by notice dated and sent on 25 October 2007, Kevmark validly exercised the Put Option contained in cl 53 of the head lease and thereby effectively renewed the head lease for a further term of five years commencing on 15 July 2008 at a rent not less than the rent payable under the head lease as at the date it was renewed;

(p)               Whether, on or about 30 June 2008, Dib Group abandoned the premises, thereby repudiating the head lease, or otherwise repudiated that lease, with the consequence that the lease was subsequently terminated;

(q)               Whether Dib Group left the premises in a poor state of repair.  If so, what is the reasonable cost of rectification;

(r)                 What is the quantum of Kevmark’s damages caused by Dib Group’s breaches and repudiation of the head lease. 

127                                       During the course of the hearing, some of the issues between Dib Group and Kevmark were abandoned and others were refined.

128                                       Dib Group abandoned its claim that, as between it and Kevmark, Kevmark had the obligation to install the LPG AutoGas tank. 

129                                       In addition, there was no evidence to sustain the proposition that Mr Wortes did not have a reasonable basis for saying that LPG AutoGas would be available at the premises when Coolabah commenced to trade from the new premises in September 2007.  

130                                       There was no evidence in support of the allegation that Mr Wortes had told Mr George Dib and Mr Haddad that the proposed conversion of a diesel fuel tank to a septic sewerage system would comply with all relevant planning and safety legislation.  Mr Haddad did not allude to any conversation in which such a statement was made; there was no document which suggested that such a conversation had taken place; Mr George Dib was not called as a witness; and Mr Wortes was not called as a witness. 

131                                       By the time that the parties were making their final addresses, the misrepresentation case pleaded by Dib Group against Kevmark had evaporated.  So too had the case that Kevmark was somehow liable to Dib Group for damages because the LPG AutoGas tank was not installed at any time during Coolabah’s occupation of the premises.  

132                                       Dib Group did not seriously press its claim for the value of its fixtures, fittings and equipment said to have been left at the premises when its tenant, Coolabah, left the premises on 1 July 2008.  Dib Group did not prove what property belonging to it was left at the premises nor did it prove the value of that property.

133                                       A few issues between Dib Group and Kevmark nonetheless remained.

Issue 1—The Obligation to Obtain an Occupation Certificate

134                                       Dib Group contends that Kevmark was obliged to procure a Certificate of Occupation from Great Lakes Council prior to Coolabah taking possession of the premises.  Reliance was placed upon cl 29(1) of the head lease and upon the implied term noted at [126(a)] above.

135                                       Clause 29 of the head lease provided:

29.       LESSOR’S REPAIR OBLIGATIONS

Lessor’s general obligation

29(1)    The Lessor shall keep the Building in good repair throughout the term of this Lease.

Lessor’s specific obligations

29(2)    (a)        The Lessor shall

(i)         take reasonable action to prevent the entry of water into the Building and the Leased Premises and to keep the Building watertight and weatherproof;

(ii)        comply with the requirements of statutory and local government authorities relating to the Building which are imposed on the Lessor as owner of the Building.

(b)        The Lessor shall maintain the Building in a standard of repair having regard to its standard, quality, nature, character, situation and age, in keeping with comparable commercial buildings of similar nature and quality.

(c)        The Lessor is responsible, in respect of the Building and the Leased Premises, for

(i)         structural repair;

(ii)        latent defects; and

(iii)       fair wear and tear,

but the Lessor is not required to carry out structural repairs or to remedy latent defects or to remedy fair wear and tear, except

(A)       when required for the stability or safety of the Building; or

(B)       to maintain the reasonable use and enjoyment of the Building and the Leased Premises by the Lessee; or

(C)       to maintain the Building in the condition in paragraph (2)(b).

29(3)    The Lessor is responsible for maintenance and repair of all underground tanks subject nevertheless to the obligations of the Lessee to notify the Lessor in respect of any of the matters referred to in Clause 30(3) of this Lease.

136                                       Clause 29 concerns Kevmark’s repair obligations.  It does not require Kevmark to obtain an occupation certificate.

137                                       In Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347, Mason J (as he then was) said:

The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council [(1977) 52 A.L.J.R. 20], at p. 26: “(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

138                                       The test propounded by Mason J has been accepted in many subsequent authorities as the relevant test for the implication of a term in a contract such as the head lease.

139                                       In the present case, the term which Dib Group seeks to imply into the head lease fails every integer of Mason J’s test.  As submitted on behalf of Kevmark, Dib Group and its sublessee, Coolabah, operated continuously from the premises from September 2007 until 1 July 2008 without any suggestion from Great Lakes Council that the fact that no occupation certificate had been issued somehow rendered Coolabah’s occupation and use of the premises illegal.  Furthermore, the use of the premises as a service station facility had previously been approved.  That use was permissible even in the absence of an occupation certificate.  The absence of an occupation certificate did not interfere with or impede in any way the occupation of the premises by Coolabah.

140                                       The term which Dib Group seeks to have implied into the head lease also conflicts with an express term of the lease (viz cl 19(2)).  Clause 19(2) of the head lease provided:

Lessee’s responsibility for approvals

19(2)    (a)        The Lessee has satisfied itself, before entering into this Lease, regarding the need for the availability and existence of all approvals, consents and licences required for use of the Leased Premises by the Lessee for its business and for the intended and permitted use of the Leased Premises.

(b)        The Lessee has full responsibility, at its expense, to ensure that all approvals, consents and licences required by the Lessee for the conduct of the business and use of the Leased Premises are obtained and maintained throughout the term of this Lease and that all their conditions are observed.

141                                       For these reasons, the term which Dib Group seeks to have implied into the head lease should not be implied into that document.  There is no express provision in the head lease requiring Kevmark to obtain an occupation certificate.  Therefore, the fact that there was no occupation certificate in existence during the period when Coolabah was in occupation of the premises did not constitute a breach of the head lease.

Issue 2—The Septic Sewerage System

142                                       Counsel for Kevmark submitted that the lessor’s obligation to undertake repair works cannot arise until the lessor has information about the existence of the defect or the want of repair such as would put a reasonable person upon enquiry that repair or remedy was required (O’Brien v Robinson [1973] AC 912; [1973] 1 All ER 583; [1973] 2 WLR 393 at 400 per Lord Morris).  This submission is correct.

143                                       Kevmark was not notified of any requirement for repair to the septic sewerage system until 29 February 2008.  A new tank was provided on 6 June 2008.  The approval of the local authority was required for the installation of a new tank.  Between the end of February 2008 and the beginning of June 2008, there was an exchange of correspondence between Kevmark and Dib Group and their respective lawyers in which Kevmark sought further information concerning the requested repairs.  As submitted on behalf of Kevmark, when notified of the complaints being made about the septic sewerage system, Kevmark either conducted the necessary repairs or made further enquiries as to the nature of the complaint.

144                                       The evidence does not disclose any breach of cl 29 of the head lease on the part of Kevmark in respect of the septic sewerage system.  In any event, the premises were never closed for business. 

Issue 3—Other Alleged Breaches

145                                       Various other complaints were made by the lawyers for Dib Group.  These were:

(a)                The toilets could not function adequately;

(b)               The water supply to the site was inadequate;

(c)                The cool room did not meet the required refrigeration levels; and

(d)               Lighting was inadequate.

146                                       When raised, these matters were all addressed either by being remedied or by being investigated.  There was no evidence led at the hearing which would support these allegations.  There was nothing to suggest that Kevmark persistently and steadfastly refused to attend to its obligation to maintain the premises in good repair by failing to attend to such complaints as were made.  Dib Group failed to prove these additional allegations of breach. 

Issue 4—Was the Head Lease Validly Renewed?

147                                       Clause 53 of the head lease provided:

PUT OPTION FOR RENEWAL

Offer of renewal

53(1)    The Lessee offers a renewal of this Lease to the Lessor on the terms specified in this clause which the Lessor should accept strictly in accordance with the provisions contained in this clause, otherwise this offer shall lapse.

Binding Lessee’s successors and assigns

53(2)    This offer and the option bind the Lessee and the Lessee’s successors and assigns being the lessee for the time being of the Leased Premises.

Parties who may renew

53(3)    This offer may be accepted by

(a)        the Lessor or by the Lessor’s successors and assigns being the owner for the time being of the Leased Premises;

(b)        in the event of there being two or more persons holding as Lessors as joint tenants, upon the death of any of them by their survivors.

Conditions for exercise of option

53(4)    The Lessor may only accept this offer and exercise the option if the Lessor has served on the Lessee notice of exercise of this option after 16 October 2007 but before 15 July 2008.

Conditions of renewal

53(5)    (a)        The renewal which the Lessor may accept under this clause is for the renewal of this Lease for the further term of five (5) years from the day after the date of expiry of the term of this Lease, containing identical covenants to the covenants of this Lease (except this clause)

(i)         at a rent which shall be determined in accordance with clause 9(4), CPI adjustment but which is not less than the rent payable under this Lease immediately before the expiration of the term of this Lease;

(ii)        and containing such further options for renewal as are specified in item 10 in the Reference Schedule.

148                                       By letter dated 25 October 2007 from the solicitor for Kevmark to Dib Group, Kevmark said:

EXERCISE OF PUT OPTION

The lessor hereby exercises the put option pursuant to Section 53 of the lease between Kevmark Industries Pty Limited and Dib Group Pty Limited dated 18 September 2007.

149                                       Dib Group does not seek to set aside cl 53 or to have that clause declared void.  It does not challenge the validity of the notice of exercise of put option.  In my view, the notice sent on 25 October 2007 complied with the requirements of cl 53.  Accordingly, as between Kevmark and Dib Group, the head lease was validly renewed for a further term of five years commencing on 16 July 2008 and ending on 15 July 2013.

Issue 5—Was the Head Lease Repudiated by Dib Group?

150                                       The solicitor for Dib Group sent a letter dated 18 July 2008 to Kevmark which was in the following terms:

NOTICE OF TERMINATION OF LEASE

Re:           Lease of property at 18-20 Bengal Street, Coolongolook (“Property”)

Lessor:     Kevmark Industries Pty Limited (ACN 097 354 679) (“Lessor”)

Lessee:     Dib Group Pty Limited (ACN 002 889 474) (“Lessee”)

WHEREAS:

1.                  The Lessor has delayed in providing and has failed to provide various services to the Property,

2.                  The Lessor has failed to ensure that the Property had occupation certification issued in relation [sic] the occupation of the Property, and

3.                  The lessor has failed to provide a lease of the Property in registrable form

the Lessor, by its conduct, has repudiated the lease of the Property.

The Lessee accepts the Lessor’s repudiation and HEREBY TERMINATES the lease of the Property and reserves its rights as to damages.

151                                       As at 18 July 2008, Dib Group was not entitled to terminate the head lease.  As at that date, there was no extant breach of the head lease or, at the very least, no extant breach of sufficient seriousness to justify termination nor had Kevmark conducted itself in such a manner as to manifest an intention to repudiate the head lease.  The terms of the letter from Dib Group’s solicitors dated 18 July 2008 evinced an intention on the part of Dib Group no longer to be bound by the terms of the head lease.  The sending of that letter amounted to a wrongful repudiation of the head lease.  In any event, Dib Group had abandoned the premises by then.  Kevmark was entitled to accept Dib Group’s repudiation of the head lease.  It did so by its solicitor’s letter dated 22 July 2008.  The head lease was therefore validly terminated by Kevmark on 22 July 2008 on account of Dib Group’s repudiation of that lease.  Thereafter, Kevmark was entitled to sue for all payments due but unpaid under the lease as at 22 July 2008, for damages for those breaches of the head lease by Dib Group which occurred prior to 22 July 2008 and for the loss of its bargain caused by Dib Group’s repudiation of the head lease.

Issue 6—Kevmark’s Claims for Damages

152                                       Kevmark’s claims were quantified in a Schedule forwarded to me and served upon the other parties after the hearing had concluded.  This was done with my permission and with the consent of the other parties.

153                                       Those claims may be summarised as follows:

(a)	Unpaid outgoings as at 30 June 2008	$8,319.27
(b)	The cost of repairing and restoring the premises to their condition as at the commencement of the lease on 16 July 2007	$166,443.00
(c)	The cost of supplying and installing the LPG AutoGas tank	$121,818.00
(d)	Loss of rent for the period from 1 July 2008 to 30 September 2008 (three months at $19,708.25 per month)	$54,448.74
(e)	Damages on account of the repudiation by Dib Group of the head lease (loss of bargain damages)	$195,122.10
	TOTAL CLAIM	$546,151.11

Unpaid Outgoings

154                                       Clause 10 of the head lease provided:

10.       RATES, TAXES, INSURANCE AND MANAGEMENT FEES

Lessee’s contributions to rates, taxes and insurance

10(1)    (a)        The Lessee shall pay to the Lessor the Lessee’s percentage of rates, taxes, insurance and management fees (called “outgoings”) specified in Item 13 in the Reference Schedule for the term of this Lease.

(b)        The amount of outgoings shall be assessed by the Lessor for each annual period ending on the day in Item 13 in the Reference Schedule (called “annual period”).

(c)        The proportion attributable to parts of an annual period shall be calculated on the basis of the Lessor’s assessment of outgoings for the annual period and is payable by monthly instalments.

Rates, taxes and insurance

10(2)    (a)        In this clause “rates and taxes” means all rates, taxes, charges and impositions, currently and in the future, payable to any Federal, State, local government, statutory or public authority or corporation, in respect of the property, the Building or the Leased Premises including

(i)         municipal, local and other rates and charges payable to a local authority;

(ii)        rates and charges for the supply, reticulation or discharge of water (including excess water), sewerage, drainage and removal of waste;

(iii)               land tax payable to State government;

(iv)              pump-out treatment and waste removal;

(iii)       but not including any income tax, capital gains tax or similar tax payable by the lessor.

(b)        In this clause “insurance” means the insurance costs and charges paid by the Lessor in respect of risks to or in connection with the property and the Building and its use, control and management, which the Lessor reasonably considers necessary to cover by insurance.

Payment of Lessee’s contribution

10(3)    (a)        At least thirty (30) days before the commencement of an annual period the Lessor shall provide to the Lessee an itemised estimate of the outgoings payable during or attributable to the next annual period, and calculations of the Lessee’s percentage and the monthly instalments payable by the Lessee.

(b)        When during an annual period some additional rate or tax is charged, the Lessor may reassess the Lessee’s contribution and require the Lessee to pay it by monthly instalments during the appropriate annual periods.

(c)        The Lessee’s contributions to outgoings are payable monthly together with the rent.

(d)        Within the number of days in Item 13 in the Reference Schedule after the end of an annual period the Lessor shall provide to the Lessee an itemised statement of the total outgoings paid by the Lessor during or attributed to that annual period, verified as correct by the Lessor’s accountant or auditor.

(e)        The Lessor’s itemised statement is prima facie evidence of the outgoings during an annual period.

(f)        Within thirty (30) days after the receipt by the Lessee of an itemised statement, the parties shall adjust the contributions for the previous annual period and pay any balance due from the Lessee or refund for overpayment due from the Lessor.

155                                       Item 13 of the Reference Schedule to the head lease provided that Dib Group’s percentage of outgoings was 100%.  Further, the same item in the Reference Schedule stipulated that the annual period, for operating expenses, was 30 June in each year.

156                                       The only evidence tendered by Kevmark in support of its claim to be paid moneys on account of outgoings pursuant to cl 10 of the head lease was its letter dated 17 July 2008 sent to Dib Group.  The terms of that letter were as follows:

RE:  OUTGOINGS

Dear Sir

Please find below our outgoings as per Lease commencing 16th July 2007.  As Clause 10(3)(d) states us to give you a statement of our outgoings.

1.    Insurance	$4,525.44
2.    Council Rates	$  748.96
3.    Water Service Twise [sic] a year Council Condition	$  594.00
4.    Pump Service and repairs	$3,282.80
TOTAL	$9,151.20

Payment 7 days.          

Kevmark Industries Pty Ltd.     

157                                       The letter does not meet the requirements of cl 10(3)(d) of the head lease.  Although the letter does contain an itemised statement of the total outgoings for the period ended 30 June 2008, the statement is not verified as correct by Kevmark’s accountant or auditor.  For this reason, Kevmark cannot rely upon the terms of cl 10(3)(e) insofar as its letter dated 17 July 2008 is concerned.

158                                       Kevmark did not attempt to prove its entitlement to be paid moneys on account of outgoings by calling a witness and/or tendering primary records.  Kevmark has, therefore, failed to prove this claim.  For these reasons, I reject Kevmark’s claim of $8,319.27 for unpaid outgoings as at 30 June 2008. 

Repair and Restoration Costs

159                                       Clause 34 of the head lease provided:

34.       REMOVAL OF ALTERATIONS AND FIXTURES

34(1)    The Lessee shall

(a)        remove

(i)         any alterations, additions, fixtures, partitions and fittings made or installed by the Lessee in the Leased Premises during this Lease;

(ii)        all signs and notices erected or affixed by the Lessee to the Leased Premises and to the Building;

(iii)       all nails and screws inserted by the Lessee into any part of the Leased Premises;

(b)        reinstate

(i)         the Leased Premises to their condition before any alterations, additions, installations and partitions were made or installed by the Lessee; and

(ii)        make good, in a proper and workmanlike manner, any damage caused to the Leased Premises by the installations and their removal.

Period of removal

34(2)    The Lessee shall comply with the obligations under clause 34(1)

(a)        before the expiry or termination of this Lease;

(b)        if this Lease is terminated suddenly or unexpectedly, by forfeiture, destruction or other event, within fourteen (14) days after the termination of this Lease.

Removal of fixtures

34(3)    (a)        The Lessee is entitled to remove from the Leased Premises all fixtures installed by the Lessee during the lease term (except fixtures which the parties agreed in writing to become the Lessor’s property and not removable by the Lessee).

(b)        The Lessee may remove fixtures during the term of this Lease, during any extension of the term of this Lease, during holding over after the expiration of this Lease, and during the term of a new lease granted to the Lessee, notwithstanding the surrender of this Lease, subject to this clause.

(c)        The Lessee (or the Lessees successors or assigns) must remove fixtures within the number of days in Item 23 in the Reference Schedule after having ceased to occupy the Leased Premises,

(d)        The Lessee covenants to repair any damage caused to the Leased Premises by the removal of fixtures, or becoming apparent on their removal, in a workmanlike manner, so as to restore the Leased Premises to its condition before the installation of those fixtures which are removed.

(e)        Those fixtures which the Lessee does not remove within the period specified in paragraph (c) may at the Lessor’s option remain permanently affixed to the Leased Premises and be and remain the property of the Lessor.

Consequences of failure to remove and reinstate

34(4)    If the Lessee fails to comply with the obligations under clause 34(1) or (3) within the periods in clause 34(2) or (3)(c)

(a)        the Lessor may cause the removal, reinstatement and repairs to be carried out, and the Lessee is responsible for and shall reimburse the Lessor for the Lessor’s reasonable costs and expenses;

(c)        if the Lessor incurs further loss in reletting the Leased Premises by reason of the Lessee’s failure, the Lessor may recover from the Lessee the loss of rent and operating expenses which would have been received from a prospective Lessee.

160                                       Kevmark put this claim in the following way:

(a)                In a letter dated 23 July 2008 to Kevmark’s solicitor, Mr Wortes, of Kevmark, identified in precise terms the various items which he asserted were required to be remedied as at 23 July 2008 in order to restore the premises to the condition they were in when handed over to Dib Group (and Coolabah) in September 2007.  Substantially the same details were provided in a letter dated 20 April 2009 from Kevmark to Riverford Design Services Pty Ltd.  The items listed in this second letter were identified in photographs provided with the letter.

(b)               Those letters and photographs prove the work which had to be done; and

(c)                Steven Batger, a Quantity Surveyor employed by Mitchell Brandtman (NSW) Pty Ltd, quantified the cost of carrying out the works identified in Mr Wortes’ correspondence at $288,261.00 exclusive of GST.  That figure included an amount for the supply and installation of an LPG AutoGas tank estimated to cost $121,818.00.  Since that item is the subject of a separate claim, the amount of $121,818.00 should be deducted from the amount of $288,261.00 in order to arrive at the quantum of the present claim.  Thus, the present claim is quantified at $166,443.00 exclusive of GST.

161                                       Neither Dib Group nor Coolabah challenged Mr Batger’s quantification exercise.  Coolabah contended that much of the work was either not necessary or not required under the terms of the head lease. Dib Group relied upon Kevmark’s evidence in its case against Coolabah but also submitted that Kevmark could not recover the cost of many of the items claimed and could not recover the cost of supplying and installing the LPG AutoGas tank in any event.

162                                       Mr Wortes was not called as a witness.  Mike Roycroft and Deborah Roycroft both gave evidence as to the state of the premises when Coolabah vacated them.

163                                       Deborah Roycroft testified that she personally cleaned the whole site and that, when she left, it was “spotless”.  She said that she removed a menu board, some cupboards, a rangehood and various items of kitchen equipment.  The removal of these items had left some marks, a small unpainted area and a couple of holes.  She said that the site was in excellent condition.

164                                       Mike Roycroft swore an affidavit on 1 October 2009 in which he made specific observations about each of the items referred to in Mr Wortes’ letter dated 20 April 2009.  His observations were supported by photographs which he and his manager had taken in the afternoon of 1 July 2008 immediately before Coolabah vacated the premises. Coolabah submitted that that affidavit, when read with Mr Batger’s report, established the following ultimate propositions:

(a)                Claims made by Kevmark totalling $15,620.00 excluding markups and GST were in respect of items which were not damaged when Coolabah vacated the premises;

(b)               Claims totalling $7,698.00 excluding markups and GST were the result of wear and tear;

(c)                The repainting of the premises (at a cost of $13,772) was unnecessary; and

(d)               Claims totalling $36,214.00 excluding markups and GST were in respect of matters that plainly did not detract from the value of the reversion.

165                                       Coolabah and Dib Group contended that the total of items (a) to (d) described at [164] above (viz $73,304.00 plus markups) was not recoverable from Dib Group as reinstatement costs.  The markups can be quantified at 22% (approximately).  Thus, Coolabah and Dib Group contend that, at the very least, I should deduct from Kevmark’s claim the amount of $73,304.00 plus 22% of $73,304.00 ($16,127.00) viz $89,431.00.

166                                       Coolabah and Dib Group also challenged Kevmark’s entire claim suggesting it was exaggerated and overblown.

167                                       Neither Mike Roycroft nor Deborah Roycroft was cross-examined to any significant degree or to any real effect on the evidence which they gave as to the state of the premises when Coolabah vacated the premises on 1 July 2008.  Notwithstanding that I have reservations about some of their evidence, I accept their evidence generally as to the state of the premises at that point in time.  To the extent that it conflicts with the assertions of Mr Wortes in the two letters to which I have referred, I prefer the evidence of Mr and Mrs Roycroft. 

168                                       As I have already mentioned, Mr Wortes did not give evidence.  His assertions in the two letters relied upon by Kevmark in support of this part of its claim are unsubstantiated and untested.  Mr Wortes’ letters refer to the state of the premises as at 23 July 2008, not 1 July 2008 when Coolabah left the premises.  Both letters were written after disputes amongst the parties had arisen.  The photographs which Mike Roycroft and his manager took show that the premises were left in very good condition. Some relatively minor repairs and painting were required but the need for work of the nature and extent asserted by Mr Wortes in his correspondence is not established by the photographs taken on 1 July 2008.

169                                       Dib Group and Coolabah also rely upon s 133A(1) of the Conveyancing Act 1919 (NSW).  That subsection is in the following terms: 

133A   Provisions as to covenants to repair

(1)        Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether such covenant or agreement is expressed or implied, and whether general or specific, shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid; and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the lease have been or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement.

170                                       That subsection provides an upper limit on the amount of damages that may be recovered for breach of a covenant to leave leased premises in good repair at the termination of a lease but does not provide for a new and different method of assessing damages for breach of such a covenant (Hanson v Newman [1934] 1 Ch 298) nor does it apply to a covenant to restore a building to its original condition at the determination of a lease (such as cl 34 of the head lease) (James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243).

171                                       Coolabah called an expert valuer (Mr Mather).  He had never been to the site.  He was therefore not qualified to express opinions as to whether the various alterations which Kevmark proposed in order to restore the premises to their original condition and to rectify damage to the premises would increase or diminish the value of the reversion.  In any event, the matters in respect of which he made observations were not relevant.  He addressed the wrong questions.  Mr Mather’s evidence was of no assistance.

172                                       The onus is on Kevmark to prove its claim for the costs of repair and reinstatement.  I am not satisfied that it has done so.

173                                       Further, it is common ground that Kevmark has not yet spent any moneys on most items covered by this claim.  Whilst as a matter of principle that circumstance may not be fatal to the claim, it does tend to support the contentions made on behalf of Coolabah and Dib Group that there is nothing in this claim.  Those parties also argue that this claim involves a double-dip because the damage to the value of the reversion is built in to the lower rent obtained from the new lessee.  I do not think that this submission is correct and I reject it.

174                                       The evidence of the Roycrofts shows that the following damage required repair:

(a)                holes in the walls; and

(b)               unpainted portions of walls formerly covered up by cupboards, boards and equipment.

Some of the areas within the building required further cleaning.  The Metro badging of petrol pumps and the Metro signage needed to be removed.

175                                       Doing the best I can to relate Mr Batger’s evidence to these items, I estimate that it would have cost Kevmark approximately $15,000.00 as at 1 July 2008 to have these items satisfactorily attended to.  I therefore propose to award to Kevmark under this head of claim the amount of $15,000.00 together with interest thereon from 1 August 2008 to date.  I allow interest from 1 August 2008, and not earlier, because I am of the view that it would have taken Kevmark about one month to have this work completed. 

176                                       It was not necessary to repaint the premises and there was no evidence suggesting that the premises had, in fact, been completely repainted.

177                                       As I understand this component of Kevmark’s claim, Kevmark relies upon cl 31(1) and cl 31(4) of the head lease which provided:

31.       LESSEE’S OBLIGATION TO PAINT

Obligation to paint

31(1)    The Lessee shall paint the Leased Premises during each period specified in Item 22 in the Reference Schedule.

…

Lessee’s failure to paint

31(4)    If the Lessee fails to paint the Leased Premises in accordance with this clause, the lessor may give notice to the Lessee requiring it to commence to paint within thirty (30) days, and if the Lessee fails to commence to paint in accordance with that notice, the Lessor may paint the Leased Premises and recover from the Lessee the reasonable cost of the painting.

178                                       Item 22 in the Reference Schedule provided that painting of the premises was to occur:

During the final year of the lease term. 

179                                       The proposition was that “the lease term” was one year and that, therefore, the premises had to be painted at the end of that year.  In my view, such a construction of the head lease does not make sense and I reject it.  It is not sensible to speak of a “final year” if there is only one year.  Further, the parties no doubt intended that the premises would be repainted within one year of the lease coming to an end so that the premises would be in good condition when a new lessee took up occupation.

The LPG AutoGas Tank

180                                       Whatever may have been the position in respect of the proposed LPG AutoGas tank and pump as between Dib Group and Coolabah, the following seems to have been the arrangements as between Kevmark and Dib Group:

(a)                Kevmark was not obliged under the head lease or otherwise to supply and install any LPG AutoGas tank or associated pumps;

(b)               Kevmark was content for such a tank and associated equipment to be installed at the site;

(c)                Kevmark was prepared to assist both Dib Group and Coolabah in any reasonable way open to it in order to facilitate the installation of such a tank and associated equipment;

(d)               Dib Group was not contractually bound to Kevmark to ensure that such a tank and associated equipment was installed; and

(e)                Kevmark had no enforceable right to compel Dib Group to install such a tank and associated equipment.

181                                       Kevmark could not point to any cause of action by which it could compel the supply and installation of such a tank and associated equipment at Dib Group’s expense.  In its Cross-Claim, Kevmark pleaded an oral contract as the foundation of its entitlement to compel the supply of this equipment.  It tendered no evidence to prove that contract. 

182                                       I reject this claim.

Loss of Rent

183                                       Kevmark has secured Webb as the new lessee of the premises.  Webb signed a lease with Kevmark on 21 December 2008 (the Webb lease).  The term of the lease is five years commencing on 1 October 2008 and ending on 30 October 2013.  There are two options for renewal for a term of five years in each case.  The initial rent was $144,000.00 per annum plus GST with annual increases of 10% thereafter.  The rent for the second and subsequent years is specified in the Webb lease as follows:

Year 2	$158,400.00
Year 3	$172,800.00
Year 4	$187,200.00
Year 5	$201,600.00

184                                       There is a fixed contribution of $2,000.00 to the lessor’s outgoings.  There is a turnover rent in addition to the fixed rent.  That turnover rent is 2% of the gross revenue achieved in the shop and, in addition, after 1 April 2009, 2% of the bottle shop sales.

185                                       The Webb lease also includes a covenant to install an LPG AutoGas tank on the site.

186                                       All parties now agree that Kevmark has acted reasonably in its endeavours to secure a replacement lessee and has acted reasonably in agreeing to the terms of the Webb lease.

187                                       There are two components of Kevmark’s claim for lost rent. 

188                                       The first component is the loss under the head lease of rent for the period from 1 July 2008 to 1 October 2008.  That is a period of three months.  The monthly rent for this period under the head lease was $18,149.58 plus GST (being the initial rent of $17,916.67 plus GST increased by the CPI of 1.3%).  Kevmark is thus entitled to $54,448.75 as claimed. 

189                                       The second component is the value of the lost bargain.  Kevmark puts its claim as follows:

(a)                The total rent that would have been paid by Dib Group to Kevmark under the head lease in the period from 1 October 2008 to 15 July 2013 is $1,117,658.70 exclusive of GST.  However, this figure includes rent payable from 15 July 2008 to 30 September 2008.  I have already allowed to Kevmark rent for this period.  Therefore, I should deduct from Kevmark’s assessed figure of $1,117,658.70 the amount of $45,373.95 (being two and a half months at $18,149.58 per month).  This leaves $1,072,284.75 as the total amount of rent which Kevmark would have received under the head lease in the period from 1 October 2008 to 15 July 2013.

(b)               There must be deducted from the amount of $1,072,284.75 the total amount of rent which Kevmark is to receive from Webb under the Webb lease.  That amount is said by Kevmark to be $864,000.00 by way of fixed rent and $78,325.47 as turnover rent in respect of the shop and bottle shop.  Kevmark has overestimated the fixed rent by two and a half months because it has brought to account fixed rent for the period 15 July 2013 to 30 September 2013, a period not covered by the head lease.  There should, therefore, be deducted from the fixed rent figure of $864,000.00 the amount of $42,000.00 (being two and a half months rent at the appropriate monthly rent for the period from 15 July 2013 to 30 September 2013).  Kevmark uses Coolabah’s figures to derive an estimate of the turnover rent.  This is not ideal.  Kevmark should have proven the actual trading figures achieved by Webb.  But, in the absence of some real challenge to this approach, I propose to adopt it; and 

(c)                Kevmark then discounted the income stream under the Webb lease by 2.1% in respect of each subsequent year.  Kevmark did not discount the income stream which is postulated as being earned under the head lease.  Kevmark has not claimed any moneys on account of outgoings.  Kevmark’s claim for lost rent after 1 October 2008 is $195,122.10 exclusive of GST. 

The adjustments which I have made result in total payments under the Webb lease being assessed at $900,325.47 exclusive of GST and undiscounted.

190                                       It seems to me that, in order to value the two income streams which are to be compared as at 1 July 2008, both income streams would need to be discounted by the same discount factor.  The correct approach in principle is to assess the difference between the value of the two income streams as at 1 July 2008 and then to add to that figure interest at the prescribed rate for the period from 1 July 2008 up to the present.

191                                       No party has approached the exercise in this way.  Further, I do not have evidence before me as to the appropriate discount rate.  Rent is to be paid monthly under both the head lease and the Webb lease and these circumstances would need to be taken into account in any discounted cash flow analysis.

192                                       The actual difference between the two income streams undiscounted is $171,959.28.  That figure includes annual increases in the expected rents.  I think that the fairest way to assess this part of the lost rent is to award $170,000.00 to Kevmark (being $171,959.28 rounded down) in present day dollars and not to attempt to carry out any discounting of the two income streams.  This means that there will be no Court-imposed interest on this component.

Summary (Kevmark’s Claims)

193                                       There will therefore be judgment for Kevmark on its claims against Dib Group in the amount of $251,113.68, being the total of:

(a)	$15,000.00	(being repair and reinstatement costs)
(b)	$1,955.14	(being interest at the prescribed rates on the amount of the repairs and reinstatement costs for the period from 1 August 2008 to 30 July 2010)
(c)	$54,448.75	(being damages for lost rent for the period from 1 July 2008 to 30 September 2008)
(d)	$9,709.79	(being interest at the prescribed rates on $54,448.75 from 1 July 2008 to 30 July 2010)
(c)	$170,000.00	(being damages for lost rent in respect of the period from 1 October 2008 to 15 July 2010)
	$251,113.68	TOTAL

Costs

194                                       Coolabah has lost its claim against Dib Group.  Mr Grant’s claims for relief against Dib Group have proven to be unnecessary.  Dib Group has succeeded in its Cross-Claim against Coolabah (but not against Mr Grant) but failed in its Cross-Claim against Kevmark and in its defence of Kevmark’s Cross-Claim against it.  Kevmark has succeeded in defending the Cross-Claim brought by Dib Group against it and, to a large extent, in its Cross-Claim against Dib Group.

195                                       I think that the appropriate orders as to costs are that, as between Kevmark and Dib Group, Kevmark should have its costs.  As between Dib Group and Coolabah, Dib Group should have its costs.  I do not think that there should be any Bullock or Sanderson orders made.  Whilst it may be thought that the conduct of Coolabah was the catalyst and driver for the present litigation and provided justification for Dib Group’s stance vis-a-vis Kevmark, it seems to me that that is not the way in which I should view the matter.  Dib Group made decisions in its own interest in 2008 to attempt to extricate itself from its lease obligations with Kevmark and persisted in its refusal to accept that it had wrongfully repudiated that lease.  Further, it was Dib Group which joined Kevmark as an additional party to the present proceedings.  The causes of action relied upon by Dib Group against Kevmark have all been dismissed.  Once joined, Kevmark sought to agitate its rights and to recover damages for the losses which it says it suffered.  A substantial portion of its claim has been allowed.  In my view, Dib Group’s actions cannot be laid at the feet of Coolabah but rather constitute a deliberate or conscious course of action undertaken by Dib Group in its own interest.

196                                       Mr Grant should be liable for costs in respect of the Application but not in respect of Dib Group’s Cross-Claim against him.

197                                       There will be orders accordingly.

 

I certify that the preceding one hundred and ninety-seven (197) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

Associate:

Dated:         30 July 2010