Gotze v Ylitalo[2005] QSC 12

SUPREME COURT OF QUEENSLAND

1. Mr Gotze was born in East Germany.  He first came to Australia in 1972 as a young man and worked in a variety of manual occupations.  For a time he worked at Groote Eylandt in the mining industry.  Later he was a meatworker.  Mr Gotze met his wife in Australia.  Mrs Gotze was born in Switzerland.

2. In 1990, being unable to find work, the Gotzes returned to Europe and lived for six years in Switzerland.  Mr Gotze had no difficulty finding work in Switzerland but he suffered from the cold weather.  Mrs Gotze worked in a clerical and book-keeping role with a financial institution.

3. Mr and Mrs Gotze saved sufficient money in Switzerland to return to Australia in 1996.  Mr Gotze again had difficulty finding work so the Gotzes decided to invest their capital in a business.

4. Ultimately they decided to buy the Clairview Creek Driveway which is the subject of these proceedings.

5. The Clairview Creek Driveway (“the business”) consisted of a service station driveway, a kiosk and a fairly rudimentary caravan park.  It was located at a locality, called Kalarka, about 20 km south of Clairview on the Bruce Highway.  The nearest highway businesses were a service station about 50k to the south and a service station at Carmila, a small town about the same distance north of Clairview Creek.  In addition there is a food and ice cream business at Flaggy Rock just south of Carmila which is not associated with a petrol outlet but caters to the tourist trade.  There are also facilities at Clairview, about 20 kilometres north of the business but off the highway.

6. The business is located on an allotment of about 5 acres excised from Clairview Station sometime prior to 1986.  In 1986, Mr Ylitalo bought the site.  It had existing planning approvals for a service station, caravan park and motel.

7. On 24 November 1986 Mr Ylitalo lodged a building application with the Broadsound Shire Council.  The buildings for which approval was sought were described as a “kiosk and amenities”.  In reality this was an application for a service station and caravan park.  The builder nominated in the application was a Mr KV Huttunen. 

8. On 8 December 1986 the council requested further information.  Relevantly the information included a site plan, type and specification of the filtration plant proposed and an application for septic installation.

9. A building approval was granted on 19 January 1987.

10. The builder nominated in the application and for whom the approval was given, Mr Huttunen, played little, if any part in the construction.  Although the transcript of the trial records the builder identified by Mr Ylitalo as Mr Hagedorn, this is an error.  My notes record that Mr Ylitalo said he dealt with Mr Huttunen in relation to the building.  Mr Hagedorn was a plumber who gave evidence early in the trial.  I do not think the identity of the builder matters.  Mr Ylitalo’s evidence was that the builder lived in Brisbane and visited the site only once when he happened to be in the area.  Apart from that one visit Mr Huttunen was available to speak to Mr Ylitalo on the telephone if Mr Ylitalo asked for any advice.  In fact Mr Ylitalo performed the role of builder himself.  In his youth, Mr Ylitalo had obtained a certificate following a two year vocational course in building in Finland.  He had worked in the building industry for a time in Australia but held no formal qualification in this country.

11. It is unnecessary at this stage of the narrative to outline more of the early history of the premises but it will be necessary to return to some matters later.

12. The vendors of the business to Mr & Mrs Gotze were Mr & Mrs Connor.  The lease under which the Connors operated the business was for 3 years from 15 February, 1995.  The assignment of the lease to Mr & Mrs Gotze was effective from 1 July 1997.

13. The following terms of the lease may be relevant:

The Lessee … hereby covenants with the Lessor as follows:

LESSEE TO PAY RENT

1(a)To [pay] the rental hereby reserved at the times an in the manner herein stipulated or in such manner as the Lessor may from time to time direct, and that there shall be no need for the Lessor to make any formal or legal demand for the same.

NO STRUCTURAL ALTERATIONS WITHOUT CONSENT

1(c)That they will not make any structural alterations substitutions or additions to the demised premises or any part thereof or cut mark drill or make holes in or allow the same in any of the walls ceilings panelling lining brickwork timbers or other materials thereof or the Lessor’s fixtures therein without the consent in writing of the Lessor first had and obtained…

KEEP IN GOOD REPAIR

1(d)That they will at all times during the continuance of this lease keep and at the termination thereof yield up the demised premises including all the Lessor’s fixtures and fittings therein and all windows and keys the property of the Lessor in good and tenantable repair having regard to their condition at the commencement of the term damage from fire flood lightening (sic) storm and tempest or any Act of God and reasonable wear and tear excepted.

CLEAN DRAINS

1(k)That they will at their own expense keep clean all drains forming part of the demised premises and will duly and punctually comply with and observe all the terms and provisions of all statutes now or hereafter in force and all regulations ordinances and by-laws thereunder and all requisitions notices and orders issued by any local authority health authority or other authority relating to the demised premises and communicated to the Lessee in all cases in which the non-compliance therewith or the non- observance thereof would or might impose some charge or liability upon the land of which the demised premises form part or any part thereof or upon the Lessor except insofar as the same may involve structural alterations or complete electrical rewiring for the basic lights and power circuits within the demised premises and that in default of compliance with such acts regulations bylaws notices orders or requisitions or any of them the Lessor may without prejudice to the power of re-entry hereinafter contained do all things necessary to comply with the same and all moneys expended by the Lessor in so doing and all incidental expenses shall be repaid by the Lessee to the Lessor on demand.

PURPOSE OF USE

1(m)The lessee shall have the right to use the demised premises for the purpose of conducting therein the business of the caravan park, service station and food and takeaway food business and for no other purpose without the Lessor’s consent first had and obtained.  The Lessee shall keep the demised premises open for business during ordinary business hours and will at all times give to the Lessor a true and faithful account of the nature of the business carried on by the Lessee and the times during which the demised premises had been kept open for business and in any proceeding in relation to the demised premises the onus shall be on the Lessee to prove that the premises were used in accordance with this covenant and not otherwise.

REPAIR OR REPLACE DAMAGED FIXTURES

1(o)That they will replace or repair any of the Lessor’s fixtures or fittings in the demised premises which may through the neglect or default of the Lessee their agents visitors become missing broken worn out lost or destroyed or unfit for the purpose for which the same may be used at the commencement of the term, by adequately repairing the same or by substituting therefor other fixtures or fittings of a like nature and of equal standard or quality.

KEEP PREMISES CLEAN AND TIDY

1(q)That they will at all times during the said term keep the demised premises in a clean and tidy condition and will not allow to accumulate upon the demised premises any refuse waste or rubbish which might become a harbourage for rodents or vermin of any description and in particular will arrange for the disposal or removal of rubbish from the demised premises forthwith upon being directed to do so by the Lessor.

PUBLIC RISK INSURANCE

1(r)That they will indemnify and keep indemnified the Lessor in respect of any accident however occurring (other than through the negligence of the Lessor) which may occur in conection with the use by the Lessee their servants employees invitees and agents and visitors on any part of the demised premises (excluding the Lessor’s proposed residence hereinafter referred to) any installation therein and to secure and maintain from time to time and at all times during  the said term a Public Liability insurance policy in respect of the demised premises …

REPAIRS AND MAINTENANCE

1(t)The Lessee acknowledge (sic) that they shall be responsible for the maintenance of the demised premises and shall keep the same in good and tenantable repair fair wear and tear to be excepted.  The Lessee shall upon demand pay the Lessor all of the Lessor’s costs incurred on the maintenance of the premises to maintain the same on (sic) good and substantial repair fair wear and tear excepted.  The Lessor acknowledges that he is responsible for the maintenance and repair of a structural nature that may be required including all maintenance and repairs of the roof, electrical wiring and broken pipes caused otherwise than through the negligence of the Lessee or their servants agents or invitees.  The Lessor acknowledges that should the Lessor fail to carry out such repairs of a structural nature of the demised premises as provided for then the Lessee shall have the right to carry out such structural repairs and deduct the costs of the same from the rental moneys paid by the Lessee to the Lessor

LESSOR”S RESIDENCE

1(u)Allow the Lessor to enter upon the demised land for the purpose of building and occupying a residence and thereafter conducting the business of cutting precious stones and selling then to the public from the said residence PROVIDED ALWAYS that the Lessor shall not otherwise interfere with the Lessee’s quiet enjoyment of the demised premises.

THE LESSOR HEREBY COVENANTS WITH THE LESSEE AS FOLLOWS:

2(a)That subject as hereinafter or hereinbefore provided and the Lessee paying the rent hereby reserved and performing the covenants hereinbefore on their part contained, shall and may peaceably possess and enjoy the demised premises for the term hereby granted without any interruption or disturbance from the Lessor or any person lawfully claiming under or through the Lessor.

2(b)That in respect of the Lessor’s building and occupation of a residence upon the demised land and also in respect of the carrying on of the aforesaid business by him he will pay all electricity gas and telephone charges … and keep the premises clean and tidy …

DEFAULT IN RENT

3(a)If the Lessee shall make default in payment of any rent hereby made payable or any part thereof shall be in arrear for FOURTEEN (14) days next after the day whereupon the same ought to be paid (whether formally demanded or not it being agreed that no formal demand is necessary) or if the Lessee shall make default in the observance performance or fulfilment of any covenant condition agreement or stipulation on their part herein contained or implied whether positive or negative … and in any such case it shall be lawful for the Lessor thereupon or at any timethereafter notwithstanding that the Lessor may have waived any previous default of a like nature either to determine this lease by notice to the Lessee or to enter (by force if necessary) into and upon the demised premises or any part thereof and the same to have again repossess and enjoy as of his former estate anything to the contrary herein contained or implied notwithstanding.  This lease shall be deemed to have been determined at the time when the said notice is served personally or left for the Lessee at their (sic) usual place of business or if posted on the day following the date when the envelope containing such notice was posted or when re-entry shall have been made by the Lessor.

14. As conducted by Mr & Mrs Gotze the main business consisted the sale of gourmet hamburgers to the passing trade which as the business developed included tourist buses.  This business was styled “Famous Hamburgers”.  It was signposted on the highway for about 50 kilometres north and south of the driveway.  The “Famous Hamburgers” was a new business commenced by Mr & Mrs Gotze.  Petrol sales declined during the period the business was operated by Gotzes because the Clairview driveway was not able to compete on price with the petrol outlet at Carmila.  In any case, the profit margin on petrol was not high enough to make selling petrol a viable business in its own right.  The main purpose of the petrol sales was to encourage motorists to stop and hopefully buy hamburgers or other merchandise.

15. When the Gotzes took over, the lease of the premises contained two options for renewal of the business for further terms of three years each.  The first option was exercised and the lease renewed from February 1998 until February 2001.  A deed of renewal of lease was entered into which, among other things, varied the original lease by fixing the rent for the renewed term at $550.00 per week.  The deed also excluded the option clause in the original lease.  While it seems to me to be likely that the effect of this exclusion of the option clause had the effect of extinguishing the second option it does not seem to me to be necessary to decide that at this time.

16. The relationship between the Gotzes and Mr Ylitalo deteriorated throughout the period of the Gotzes operation of the business.  Well before the landlord re-entered the premises in July 2000 the relationship appeared to have irretrievably broken down.  Numerous complaints were made by the Gotzes at trial concerning Mr Ylitalo and the Broadsound Shire Council.  Despite the number of complaints two stood out as being critical to what ultimately happened.  These related to the septic system and the exhaust fan in the kitchen.  I propose to deal with those in some detail.

17. At page 485 of the transcript I asked Mr Gotze to confirm my impression that there were really two causes of the problems between him and his wife on the one hand and  Mr Ylitalo on the other.  The two problems I identified were the septic system and the exhaust system/ventilation hood in the kitchen.  Mr Gotze acknowledged that this was so.  He also acknowledged that if these two problems had not existed he would probably have put up with the other deficiencies which he identified in the premises.

18. An application was made by Mr Ylitalo to the Broadsound Shire Council in March 1987 for permission to install the septic system.  The licensed plumber who was to do the installation was identified in the application as Mr Brownsey.  Mr Browsey in fact only did one days work in relation to the septic system for which he was never paid.  His work involved laying pipes under the slabs for the kiosk and the amenities block for the caravan park.  Since the inspections in relation to the slabs were done in February 1987 it appears that Mr Browsey had already been and gone before permission to install the septic system was sought.  Subsequent work was done by a Mr Burrows.  It is not known whether Mr Burrows was a licensed plumber.  Mr Ylitalo neither asked for nor sighted any license.  Having regard to Mr Ylitalo’s general attitude to the need for formal building qualifications, I believe that if Mr Burrows was a licensed plumber, this was mere coincidence and not as a result of Mr Ylitalo seeking the assistance of a qualified tradesman.  Mr Burrows lived at Bribie Island.  He was travelling north with a friend of Mr Ylitalo.  On the way back they stopped at Clairview and spent a few days during which period they did the plumbing.  This work was not only in relation to the septic system but also in relation to the water supply. 

19. The work on the septic system was not of an acceptable standard.  Mr Hagedorn, a plumber who did repair work for the Gotzes gave evidence of the problems at page 129 of the transcript:

“Well the gist of the problem – the water – the water – the water there is what was causing all the problems because water just calcium up everything and nothing would work.  Toilets would clog up and couldn’t be run, so that – the – there’s no fall on pipes to – so there’s always still water laying in the pipes and – well, it was generally not sort of – not built in a tradesmanlike manner.”

And at page 130:

“Well there was just – just coming out of the septic system that wasn’t – wasn’t functioning properly.  Grease traps and that were not – everything – there was nothing separated.  The grey water was not separated from the black water, so you had a – by law you – your toilet’s supposed to run into a septic system and go out into the drainage and they’re not – not – both units are not supposed to be joined together, which is what they were which is causing feed-back and smell into the floor waste and into your sink pipes and that of the actual complex.”

20. Of lesser concern to Mr Hagedorn was the fact that the toilet bowls were badly stained from the bore water.  In the men’s toilet in the kiosk, a urinal had been installed.  Instead of being directly connected to the septic system, the outlet from the urinal went into the men’s shower and drained through the floor trap in the shower cubicle.   The underlying problems with the overall system that Mr Hagedorn identified in a written report of August 1999 were the lack of fall on the pipes and the routeing of the pipes which resulted in excessive and excessively tight corners in the pipes.  In his oral evidence he also referred to the fact that the diameter of the water pipes coming in was only about half the diameter required to operate the number of toilets.  The result was that cisterns took a long time to fill and when tourist buses arrived the usage was such that they were unable to flush.

21. The defendant’s case appeared to be that the problem was caused by Mr Gotze’s interference with the filtration system on the bore.  Whether the allegation that Mr Gotze had interfered with the filtration system was correct or not, it could not have caused the problems faced by Mr and Mrs Gotze with the septic system.  Mr Hagedorn, whose evidence I accept, thought that the level of corrosion in the system he observed in 1998 would have taken a minimum of three to four years to build up in the absence of any filtration on the water from the bore.  This places the start of the problem years prior to the Gotzes taking over the business.

22. There was also evidence from Mrs Kahler who leased the business from 1990 for a number of years.  She gave evidence that the septic system never worked properly.  Apart from confirming this in a letter which appears at C24 of the tendered bundles of documents, Mrs Kahler gave oral evidence at pages 69 and 70 of how the problem had to be dealt with.  She said that if there was heavy usage of the toilets they would overflow.  Mr Ylitalo told Mrs Kahler’s husband that the only way to deal with the sewerage was to open the system and shovel it out into a wheelbarrow.  Her husband then wheeled the barrow over the road and dumped the sewerage into the bush.

23. Perhaps not surprisingly, Mr Connor from whom the Gotzes had bought the business, did not recall having any problems with the septic system.  Mr Connor said he would manually flush the toilets when a bus load of tourists arrived but he did not accept that there were blockages.  Mr Connor’s evidence seems inconsistent with the evidence of Mrs Kahler who preceded him and the Gotzes and Mr Hagedorn who followed.  It seems to me that Mr Connor would in any event be reluctant to admit to selling the Gotzes a business where the toilet system had to be manually emptied on a regular basis. I think he is understating the problems he faced.  Mr Gotze gave evidence that Mr Connor told him that the system blocked up from time to time as a result of patrons throwing foreign objects such as excess paper or even nappies into the pans.  He said that Mr Connor told him that the way to deal with it was to put six buckets of water down the system every morning and another six at lunchtime and six more at night.  I find that this also understates the extent of the problem.  At one point in time Mr Gotze was so frustrated that he inspected the toilets after every usage for a period to see if foreign matter had been placed in them.  He found no evidence of such foreign matter. The toilets blocked up anyway.

24. Mr Gotze gave evidence that the blockages started within a week or two of him and his wife taking over the business.  He followed Mr Connor’s advice concerning the buckets of water with the result that urine and human faeces began oozing out of the inspection hatch on the walkway beside the kiosk.  The blockages continued.

25. Mr Gotze became visibly distressed recounting a particular incident at page 465 of the transcript:

You mentioned in your affidavit an incident when the toilet was being cleared and some of your customers got very upset and one of them smashed a hamburger in your face.  Remember telling us about that  in your affidavit? – Yeah.

When was that, was that early in the piece? --  When we got the Famous Burgers going, yeah, and the toilets have been blocked up many, many times a week.

All right.  What, many times a week, you say? – Yeah, three times.

Was Henry there clearing them up every day, was he? – With a wheelbarrow, yeah, open the septic tanks.  We had seats not far away from the toilet, seats with a cover over the head. Wooden benches, so they could – was easy to look at – we were there and they seen – must have seen Henry open up the – I mean the landlord open up the septic tank and shovel some out of the septic, putting it in his wheelbarrow, carting it away to his trees.  One customer – definitely remember, I never forget it in my whole life – he stormed in that shop.  Asked me, “What is your employee doing out there?”  I said, “I’ve got no employee.  What are you talking about.?”  He said, “That’s what I’m talking about” and he squashed that burger  - put it in my face.”

26. Mr Gotze explained that that was just one of a significant number of such reactions from customers before breaking down and weeping.   He explained his distress by saying, “The human faeces business, I couldn’t – I can’t cope with it.”  I accept Mr Gotze’s evidence in relation to these matters.

27. Not surprisingly the revulsion engendered by this pattern of events resulted in an increasing animosity between the Gotzes and Mr Ylitalo.

28. Because of the septic problems the Gotzes began conducting searches at the council to find out who had built the septic system.  As a result of these searches they uncovered other matters which increased their distress.  No certificate of classification had ever been issued for the premises.  While the council officers would not admit to the absence of such a certificate in their evidence before me, it seems to me plain that none was issued.  Technically, the premises were being illegally operated.  I do not think anything flows from this in the context of this action.  A certificate has since been issued.  The absence of the certificate of classification, the apparently inadequate inspections of works, the absence of a licensed builder or plumber and the council’s indifference to these matters fuelled the Gotzes’ growing obsession with the problems of the premises. The Gotzes believed the council had been complicit in the failures of Mr Ylitalo to build the premises in accordance with the approved plans and to proper standards. The council officers for their part became hostile to the Gotzes seeing them as troublemakers and the situation declined further.

29. As early as August 1997 the Gotzes relying on clause 1(f) of the lease, ceased rental payments for a short period to offset a repair bill for the septic system.  The solicitors for the Gotzes wrote to Mr Ylitalo from December 1997 requiring action to be taken to ensure a properly operating septic system.  In November 1998 the council wrote to Mr Ylitalo requiring repairs to the toilets.

30. In a report to the council by Mr Darby, who was then the Broadsound Shire Council Health and Building Inspector, reference was made to the 1998 requisitions.  The report is undated but has a date stamp of 26 August 1999.  No action appeared to have been taken.  The report also noted that the Gotzes were told that the rainwater tanks at the premises were not in accordance with the building approval.  The Gotzes were apparently directed to comply with the conditions of building approval in relation to water storage.  The Gotzes did this by installing proper sized tanks at their own expense.

31. A report from the Council’s Water and Sewerage Officer, Mr Webber, produced at the same time as Mr Darby’s report confirmed Mr Hagedorn’s opinion that the system was not built in accordance with council approvals, was inadequate, had inadequate fall to enable pipes to clear, had an inadequate transpiration area and included a non complying grease trap.

32. The picture that emerged in evidence was that due to the shoddy installation of the septic system and the pipes associated with it the toilets blocked up regularly, requiring the manual removal of faeces and other matter.  This was done by Mr Ylitalo in full view of the patrons of the business.  The patrons and Mr & Mrs Gotze were understandably revolted.  The business suffered.  All of this was readily foreseeable.  The water pipes coming into the system were of inadequate size to enable the toilets to flush properly when groups of patrons arrived.  There was insufficient fall on the pipes and unnecessary sharp corners in the pipes.  The result was that when the toilets did flush the bore water lay in the pipes causing a calcium build up which further restricted the clearance and caused increasing blockages.  The improper connection of the grey water to the septic system resulted in sewerage odours in the kitchen of the kiosk making the situation even worse.  Installation of the septic system at the relevant time was governed by the provisions of the Sewerage and Water Supply Act 1949 which regulated the fall on pipes, angles of bends in pipes and separation of grey and black waste water.  The failure of the system to comply with the statutory requirements in all of these respects was the major source of the problems in the system.  In addition, the system did not comply with the specifications prescribed by the Act.  Some respects in which the septic system failed to conform to the approved plan were that the transpiration area was significantly smaller than shown in the approved plan and the pipes did not follow the direct route from the toilets to the transpiration area as shown on those plans. 

33. I am satisfied that the septic system was negligently installed.  It was not done by qualified tradespeople.  It was not done properly.  It was always foreseeable that people in the position of Mr & Mrs Gotze would suffer damage if the septic system was not properly installed.  Even if the damage caused was purely economic Mr Ylitalo as the builder and the person responsible for the installation would nonetheless remain liable.  Whichever formulation of the principle in Perre v Apand^[1]  is adopted, a landlord who personally constructs premises for a particular commercial purpose and then leases those premises to a tenant will be liable for the foreseeable economic loss flowing from negligent construction.

34. Eventually the Broadsound Shire Council accepted that the septic system was unserviceable and required it to be replaced.  This was in about September 1999.  A new system was installed shortly after that.  After the new work was substantially completed in late 1999, there were no further problems with the operation of the toilets.

35. By the time the septic system was replaced the second of the major problems the Gotzes faced had become apparent.  This was in relation to the exhaust fan in the kitchen and the ventilation hood.  In his affidavit, Mr Ylitalo said that he had no recollection of complaints about the kitchen exhaust fan either from Mrs Kahler or Mr Connor.  There is no evidence concerning the extent to which the kitchen was used by either of those prior tenants.  Certainly the nature of the business conducted by the Gotzes was different from that conducted by the two previous tenants.  The Gotzes business was based around the wide variety of gourmet hamburgers which were cooked individually as ordered rather than pre-made food such as pies which did not require use of the kitchen.

36. Mr Ylitalo said in his affidavit that the first recollection he had of complaints concerning the exhaust fan was in 1998 and related to water entering the kitchen through the exhaust.  The exhaust system had been installed as a requirement of the original approvals and licensing.  As early as September 1990, the council required a suitable ventilation hood over the cooking equipment to be installed.  A council search undertaken by the Kahlers before leasing the business in 1990 resulted in the council informing Mr & Mrs Kahler that no certificate of classification had been issued because, inter alia, of outstanding health matters which included the kitchen exhaust system.  The ventilation hood was part of the kitchen exhaust system.  The exhaust fan and ventilation hood as constructed by Mr Ylitalo included recycled building materials and was inadequate.  It did not meet the council’s requirement for a suitable exhaust fan/ventilation hood which was a condition of the issue of a certificate of classification.^[2]

37. In her letter to Mr & Mrs Gotze in August 2000 to which I made reference earlier, Mrs Kahler confirmed that the kitchen fan was not effective in removing cooking fumes and odours resulting in cleaning difficulties.  In the light of evidence given by Mr Manley it seems that the fan was inadequate even for Mrs Kahler’s requirements.  The result was the Kahlers had to regularly clean the door, window screens and walls.  The grease problems also seem to be related to the failure to provide grease guttering on the sides and rear of the ventilation hood to which reference is made in a report of Mr Manley set out below.

38. In September 1997, the council directed the Gotzes to replace the filters in the exhaust system with filters conforming to AS1668.  The Gotzes entered into a contract to have the filters regularly swapped for clean ones but eventually cancelled the contract because the filters were being choked with cooking oil within hours of being installed.  Photographs of the exterior of the exhaust system at C33 show what appears to be a home made system incorporating an old road sign and chicken wire.

39. Despite regular cleaning, oil dripped from the exhaust system onto the hot plates below where food was being prepared.  Eventually as a result of direct approaches to the Department of Health, Mr Manley inspected the premises in January 2000.  Mr Manley gave evidence before me that on testing the airflow through the exhaust it registered only about one-third of the required capacity.  Mr Manley wrote a report to the Broadsound Shire Council dated 21 January 2000.  In that letter Mr Manley reported that:

“A test of the kitchen hood extraction fan showed that the system was only operating at approximately one-third capacity in that the capture velocity was tested at 0.13 cubic metres per second whereas the Australian Standard for a general cooking wall mounted hood requires a mnimum of 0.4 cubic metres per second. … As a consequence the stove hood not operating efficiently and the internal surfaces of the kitchen were greasy.

“It was also noted the at the time of inspection that the stove hood has come loose at the front of the fitting and that it is not provided with grease guttering on the sides and rear.  As a consequence oil escapes the system to run down the walls.”

40. In a letter to the council dated 6 September 1999 Mr Ylitalo confirmed that he had been required to repair and upgrade the exhaust system over the kitchen hot plates and had engaged Mr Hickmott to perform that work.  According to the letter, Mr Hickmott had also been engaged to replace the septic system.  Even though the septic system was replaced the work was never finished.  The old system was not removed as it was required to be and the cleaning up was never completed.  In particular the effluent and the food and grease residues were not emptied from the old grease trap.  This resulted in offensive odours in the kitchen and was probably a health risk.  According to Mr Hickmott the work was not finished because he was not paid.  Neither Mr Hickmott nor Mr Ylitalo did anything about the exhaust fan or ventilation hood.

41. Mrs Gotze gave evidence that with the amount of cooking being done by early 2000 oil was dripping from the exhaust onto the cook top notwithstanding that she cleaned up oil drips even while cooking was being undertaken.  The other serious problem caused by the condition of the exhaust system was the attraction of flies.  The vent in the roof was not properly screened and flies were attracted to the kitchen in alarming numbers. 

42. Even the council, which had largely ignored all entreaties by the Gotzes for action to be taken, finally pursued the issue of the kitchen exhaust.  On 20 January 2000, following Mr Manley’s inspection the council issued a requisition requiring Mr Ylitalo to provide a compliant exhaust system by 18 February 2000.  The CEO of the council telephoned Mr Ylitalo on 3 March 2000 to enquire as to the progress in this regard.  On 12 May 2000, the council wrote to Mr Ylitalo noting that the requisition had not been complied with and requiring compliance within 14 days.  Again, nothing was done.  It was now eight months since Mr Ylitalo had written to the council advising that he had engaged Mr Hickmott to rectify the problem. 

43. In January 2000 the Gotzes ceased paying the rent to Mr Ylitalo and instead paid the money into a separate bank account to create a fund from which they could finance the necessary repairs or upgrades.  The Gotzes by that time had expended all their own capital.  By this time, I am satisfied that the Gotzes had been worn down by Mr Ylitalo’s failure to rectify the negligent construction of the premises and the landlord’s fixtures and fittings and by the council’s apparent indifference to Mr Ylitalo’s failure to comply with council requirements in that regard.

44. When the Food Hygiene Licence under which the kitchen was operated came up for renewal in June 2000, the Gotzes refused to renew it on the basis that the premises were unfit for the preparation of food. While they were criticised for this stance at the trial, I am satisfied that this was a proper position for them to adopt.  Even though the council was prepared to renew the licence despite knowing its requisitions concerning health matters had not been complied with, the Gotzes knew, as was the case, that the premises were not in fact fit for the safe preparation of food for sale to the public.  The Gotzes had erected signs in the kiosk warning patrons about the health risks and railing against the council’s inactivity.  I accept that the Gotzes determination to continue the business had effectively gone by this time although financially they were unable to extricate themselves.  I am satisfied, however, that this was entirely due to the acts and omissions of Mr Ylitalo.  In particular, it was due to his failure to properly construct the premises in the first place and then to rectify the problems when they became apparent.

45. A notice to remedy breach of covenant was served on the Gotzes by post on 4 July 2000.  The breach complained of was the non-payment of rent.  On 28 July 2000, Mr Hewitt, Mr Ylitalo’s solicitor posted a notice terminating the lease to the Gotzes and requiring them to deliver up possession on 30 July, a Sunday.  On Sunday 30 July, Mr Ylitalo broke into the shop and retook possession.  In my view, serving a notice by post on a Friday requiring delivery up of possession on a Sunday knowing the notice could not be received by the addressee until at least Monday bears the hallmarks of sharp practice.  It does Mr Hewitt little credit.  According to his evidence Mr Hewitt advised Mr Ylitalo that on the basis of this notice he was entitled to break into the premises on the Sunday when the Gotzes were absent.

46. If the above history was not sufficient, on 21 July 2000, the Broadsound Shire Council, having done virtually nothing to enforce the requisition to Mr Ylitalo of January 2000, issued a complaint and summons against Mr & Mrs Gotze for operating the kiosk with a non-complying exhaust system in breach of the Food Hygiene Regulations.

47. I am satisfied that the Clairview Creek Driveway business failed because of the negligence of the defendant Mr Ylitalo.  Mr Ylitalo was aware of the problems with the septic system and with the kitchen exhaust and ventilation hood.  The problems arose because he had not constructed them either in accordance with the approvals granted by the Broadsound Shire Council or in a manner which met acceptable standards of quality and utility.  It was foreseeable that persons, such as Mr and Mrs Gotze, who leased the premises for the purpose, inter alia, of operating a roadside retail food business would suffer loss in the circumstances.  The toilets did not operate adequately, the business required the daily manual disposal of raw sewage, the kitchen smelt of faeces and the extractor fan and ventilation hood in the kitchen were such that food could not be prepared in an acceptably hygienic way.  Grease dripped from the stove hood onto cooking food on the hotplates.  These matters were the responsibility of the landlord under clause 1(f) of the lease.  They were therefore matters within the landlord’s control. 

48. The negligence of Mr Ylitalo in relation to the septic system and the kitchen exhaust was not confined to the installation of these defective items.  The failure to rectify the defects when they were or ought to have been known to Mr Ylitalo constituted further ongoing negligence.  Had Mr Ylitalo acknowledged that the septic system and the kitchen exhaust were defective when the problems first became apparent and had he then brought them into compliance with the building approvals and proper standards, I am satisfied that things would have been very different.  The difficulties in the relationship between landlord and tenants would not have arisen.  The ongoing expense of dealing with the problems to which the defects gave rise would not have occurred.  As a result the business would not have failed. 

49. I am also satisfied that without the negligence, the Gotzes would either still be running the business or would have sold it as a going concern.  It was readily foreseeable that if the premises were not built to a proper standard in such fundamental respects and if, when the problems to which this gave rise became manifest nothing was done about the defects, persons using the premises would suffer loss. The Gotzes had no capacity to protect themselves from the harm caused by Mr Ylitalo’s negligence.  By the time the septic system was replaced the Gotzes lacked the financial capacity to replace the extractor fan themselves otherwise than by withholding the rent and accumulating the amounts withheld.  They tried to cover the cost in this way but it resulted in the landlord treating the non-payment of rent as a breach of the lease which entitled him to re-enter and take possession.

50. The defects in the septic system and in the exhaust fan and ventilation hood were latent defects about which an incoming lessee would not have the means of knowledge.  In my view, this additional features make it easy to take this case outside the general proposition that a landlord does not warrant the fitness of the premises for any particular use even if the lease is limited to that use.^[3]

51. Here the claim is in negligence for the landlord’s own acts rather than in contract.  In any event, clause 1(t) of the lease imposes a positive obligation on the landlord to carry out repairs of a structural nature.  The particular deficiencies in relation to the septic system and the exhaust fan/ventilation hood fall into that category. 

52. It is not necessary for me to look in detail at the myriad of lesser complaints made by the Gotzes because of the findings I have made in relation to the septic system and the exhaust fan/ventilation hood.  Apart from the need to install tanks of the approved size to which I have referred, the other complaints did not relate to matters which themselves caused material damage to the business.

53. Having found Mr Ylitalo liable to the Gotzes for damages it remains to assess those damages.

54. The most recent claim by the Gotzes has been quantified by them in the sum of $958,181.26.  This sum is made up of eight separate components.  $262,000 is claimed for loss of the business, stock and income and other related losses.  The particulars of this claim can be found in the schedule attached to the original statement of claim.  The second component is for recovery of the sum of $88,550 being the lease payments made throughout the lease.  This is claimed on the basis that the Gotzes occupation of the premises was illegal because no certificate of classification had been issued.  $50,000 is claimed for harassment and false accusations.  This appears to relate to the claim made by Mr Ylitalo throughout the lease period that many of the complaints made by the Gotzes were their own responsibility because they were for matters which were either covered by the tenants’ contractual obligation to maintain or were caused by customers of the business.  Another $50,000 is claimed for loss of reputation.  $500,000 is claimed stress.  $7,088.06 is the cost of the Gotzes acquiring the business.  $543.20 seems to be properly categorized as costs of the action.

55. I am not satisfied that the Gotzes have made out a case for compensation for either harassment or loss of reputation.  The particulars of the former claim in paragraph 15 of the current pleading disclose that the damages are sought for asserting that some of the problems were caused by abuse of the septic system by customers of the business and abuse of the bore water pump by Mr Gotze.  I accept that although the problems with the septic system were caused by the negligent construction of the system Mr Ylitalo, at least for a substantial part of the period genuinely did not accept that this was the fact.  There remains a genuine dispute between the parties as to the cause of the failure of the bore pump.  Whether or not harassment can give rise to a tortious claim, the assertion of a genuinely held belief as to the cause of a problem is not in itself actionable.  There is no evidence that Mr Ylitalo went out of his way to deliberately cause annoyance to the Gotzes. 

56. The defamation claim is particularised in paragraph 18 of the current pleading.  As framed the claim is that because the Gotzes stopped paying the rent and eventually lost the business people erroneously thought they “went broke”.  Although there is reliance in paragraph 2 of the pleading on the Defamation Act 1889 a claim cannot arise from the facts pleaded.  Section 7 of the Act makes the publication of defamatory matter an actionable wrong.  Section 5 of the Act requires publication to be by “spoken words or audible sounds, or by words intended to be read either by sight or touch, or by any signs, signals, gestures, or visible representations.”  In other words, the damaging imputation must arise by reason of some positive act of communication by the alleged defamer.  No such act is alleged or proven.

57. I will now turn to what I consider to be the most substantial of the claims made.  This relates to what might be described as the damages flowing directly or indirectly from the negligence I have found and which makes up the sum of $262,000.

58. The schedule of particulars to which I made reference earlier includes under this head the capital cost of acquiring the business, various amounts spent on repairs and on obtaining reports from tradesmen as well as capital expenses that the Gotzes expected would have passed to the ultimate purchaser of the business.  It also includes a total of $18,298.22 which the Gotzes spent on legal costs.  These costs included costs arising from the disputed retaking of possession by Mr Ylitalo, costs in relation to the summons issued by the council and costs for the renewal of the lease.

59. The conventional method of assessing damages in tort is to calculate how much better off the victim of the tort would have been if the tort had not occurred.^[4]  More recently, in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd^[5]the High Court adopted a different approach in relation to assessing damages under the Trade Practices Act 1974.  The approach was to determine the “real” as opposed to “market” value of the asset acquired as a result of the misleading or deceptive conduct.  In assessing the “real” value the Court was entitled to take advantage of hindsight and take into account things that in fact happened that would not have been ascertainable by the market at the time of acquisition.  In that case the outcome was the same whichever method was adopted.  In this case the outcome would also be materially the same.

60. In this case, if the premises had been properly constructed, the Gotzes would have had a saleable asset the value of which would depend on the degree of success they had had in operating the business.  The asset would in my view have included all those things which are identified in the schedule as “Should have gone with business.”

61. The evidence as to what the business would have been worth if the septic and kitchen exhaust problems had not occurred is scant.  There is evidence from the Gotzes that the business had built up over the time they operated it.  This evidence was not disputed.  There is evidence of the original purchase price of $82,000 plus stock of $19,472.07.  There is also evidence of additions and improvements made over the term of the Gotzes operation and the cost to the Gotzes of those additions and alterations.  The cost of the additions or alterations do not, of course, have any necessary correlation to any overall increases in the overall value of the business.

62. Little assistance is provided by the profit and loss statements.  This is because a substantial part of the profit of the business was spent on repairs and maintenance necessitated by the condition of the premises.  The profitability of the business was also affected by the problems, particularly in the 1999/2000 financial year.  The profit and loss statements do show an increase in turnover in the food side of the business and a reduction in the less profitable petrol side.  This is consistent with the evidence given by the Gotzes as to the way the business was progressing. 

63. I am satisfied that the business would have been worth more in 2000 than it was in 1997 if the problems with the septic system and the kitchen exhaust had not arisen.  How much more is impossible to calculate on the evidence before me.

64. Having regard to the evidence to which I have referred I assess the value the business would have had as at July 2000 when Mr Ylitalo retook possession at $90,200.  While this is necessarily arbitrary for the reasons I have given, it seems to me conservative to estimate the increase in value at 10% having regard to what was spent on it.  In addition, it seems to me that the Gotzes are entitled to recover the money spent on the repairs to the septic system and toilets on the basis that the problem was caused by the defects and not properly to be categorised as maintenance or, alternatively, those expenses fall within the “fair wear and tear” exception.  Those expeses comprise the payments to Mr Hagedorn of $1,050 on 08 June 1999 and of $550 on 22 June 1999.  The sum of $160 paid to Mr Hagedorn on 22 June 1999 to deal with the sewerage smell in the kitchen was also a direct consequence of improperly connecting the grey water to the septic system.

65. As I have indicated above, one of the deficiencies in the premises was the failure of Mr Ylitalo to install the rain water tanks of the capacity required by the approved plans.  As a result the council required those tanks to be installed by Mr and Mrs Gotze.  Appropriately sized tanks were acquired from Betatanks.  One of those tanks was removed by the Gotzes when they left the premises.  The other was left behind and in my view the Gotzes are entitled to the cost of that tank and pump in the sum of $2,550 and of the installation of that tank being $1,000 or half the cost of installing both tanks.  Those amounts were paid to Mr Hagedorn.  KC’s Dingo Hire were also paid $525 for a hole to place the amenities block tank into.  The building was not otherwise high enough for the tank to be effective.  There is a claim for the cost of water haulage.  Since this postdates the installation of proper sized tanks, I am not satisfied that this amount can properly be charged against Mr Ylitalo.  I am not satisfied that the cost of various reports obtained by the Gotzes can properly be categorised as damages.  They may or may not be recoverable as costs depending on the nature of the report and the timing.  I am not satisfied that the payment of $15,000 to Mr Mylrea in May 1999 for upgrading the caravan park is chargeable against Mr Ylitalo.  This seems to me to be an optional expenditure which may have been reflected in the value of the business to a degree.  Since the lease contains no express or implied warranty as to the fitness of the premises for the purpose of a caravan park^[6] and as no attempt has been made to establish that the caravan park was negligently constructed so as to cause damage to the Gotzes, this sum is not recoverable as a discrete item.

66. After retaking possession of the premises Mr Ylitalo became gratuitous bailee of the stock in the various fridges.  Mr Ylitalo stayed in the premises for some time to prevent the Gotzes themselves going back into possession.  During this period he failed to maintain the refrigeration units with the result that stock was lost.  In my view that loss was caused by the negligence of Mr Ylitalo in failing to maintain the refrigeration.   As well, at least part of the goods seem to have been consumed by Mr Ylitalo while he was in the premises.  In any case the perishables were not returned to the Gotzes.  The Gotzes have claimed $10,000 without particularisation.  When they took over the business stock was valued at just over $19,000.  The Gotzes estimate seems reasonable.  Since it includes some souvenirs as well as perishable stock I propose to discount the sum to $8,000.

67. A part of the claim for $262,000, $85,000 was claimed as lost income.  This is claimed at $100 per day.  There is no support for this quantification although some income was undoubtedly lost.  The amount seems to be a gross figure which fails to take into account the cost of goods sold.  The profit and loss accounts for the business show gross profit ranging between 12% and 15% of sales.  This would mean the loss of sales claimed would translate to a loss of between $10,000 and $12,000 in gross profit.  This is probably low because the lost income would be principally in relation to the more profitable food side of the business. As it is impossible to calculate the extent of this loss on the evidence, I propose to allow a relatively nominal sum of $10,000.

68. As I said earlier, even if I adopted the approach used in the Astonland case here the outcome would be similar.  This approach is appropriate if it is claimed that but for the negligence the plaintiff would have acquired the asset.  That is not the case.  The business acquired by the Gotzes had a “real” value.  Its “real” value was the present value of the net income earned over the three years the Gotzes operated the business.  Applying 5% tables this would be about $35,000.  The damages using this method would have been the difference between the amount paid by the business and its “real” value.  In addition consequential losses would be the amounts actually expended during the currency of the lease less the proceeds of any items later sold by the Gotzes and the value of any items retained by them.  The loss of profit claim would not have been sustainable at all under this method of assessment of damages.  The end result is a figure very similar to the figure I have assessed using what I consider to be the proper method having regard to the particular facts of this case.

69. In relation to the claim of $262,000 I therefore allow damages in the sum of $112,435.50.

70. I do not propose to order the repayment of any of the lease payments.  The Gotzes occupied the premises throughout the period they paid rent and derived an income thereby.  I do not consider that the absence of a certificate of classification has resulted in any loss.

71. Amounts properly identifiable as costs are not recoverable as damages.

72. This leaves the claim for stress.  In essence this is a claim for personal injury.  The medical evidence is sparse.  There is no such evidence in relation to Mrs Gotze.  In relation to Mr Gotze I have been provided with a short statement from a general practitioner stating that he has been treating Mr Gotze for depression since 2000 and stating that Mr Gotze always attributed his problems to his business concerns.  Mr Gotze gave evidence that he suffered from stomach pains, vomiting and loss of sleep.  He was prescribed the antidepressant Aropax.  He identified the cause as stress from being evicted from the premises and the loss of all his money.  Mrs Gotze gave evidence that at around the time of the eviction Mr Gotze became violent towards her.  She said this was entirely out of character.  I am satisfied that Mr Gotze did suffer from a depressive condition for which he required treatment.  I cannot conclude on the evidence that it was a severe condition or that it will not resolve.  I am satisfied that having regard to problems Mr Gotze went through and which were entirely brought about by Mr Ylitalo’s negligence, it was foreseeable that a person of ordinary fortitude would be likely to suffer a depressive illness.  Mr Gotze’s presentation throughout the proceedings before me was consistent with a person suffering a significant depressive condition.  This includes the occasion I referred to above where he became tearful recounting the history of the matter.  I assess the damages for the pain and suffering component of this illness at $7,500.

73. No point was taken concerning any deficiency by the plaintiffs in complying with the provisions of the Personal Injuries Proceedings Act 2002.  The failure to raise the issue would in any event constitute an implied waiver of the requirements of the Act under s 18(b).

74. In the absence of any evidence that Mrs Gotze suffered a similar depression I am not persuaded that any distress she may have felt was such as to constitute an illness.  She presented throughout the trial as a woman of considerable strength and stoicism.  There was no evidence of any physical symptoms or treatment she received.  I am not satisfied that she has made out a case for compensation.

75. The defendant has a counterclaim for the unpaid rent from January until July 2000.  Because the plaintiffs remained in occupation of the premises throughout that period and continued to derive income from the business and since I have already compensated the plaintiffs for the income lost as a result of the defendant’s negligence it seems to me that the defendant is entitled to the unpaid rent in the claimed amount of $16,185.

76. Setting off the damages to which I have found the plaintiffs to be entitled and the defendant’s entitlement to unpaid rent leaves a net amount due to the plaintiffs of $96,250.  I propose to allow interest on that sum at the rate of 10% from 28 July 2000 until today (4.5 years) in the total sum of $43,312.50.  In the result I give judgment for the plaintiffs against the defendant in the sum of $139,562.50 being $96,250 for the claim and $43,312.50 for interest.  I further order that the monies held in the Capricornia Credit Union account “51083S2B – Gotze and Ylitalos Account, Grant & Simpson as trustee for” be paid out to Mr & Mrs Gotze in partial satisfaction of the judgment.  I order that a copy of the final statement of that account showing the amount paid out to the plaintiffs be provided to the solicitors on the record for the defendant.  I give judgment for the second named plaintiff against the defendant in the further sum of $8,175 being $7,500 for damages together with interest at 2% in the sum of $675.  I order the defendant to pay the plaintiffs’ costs of the action to be assessed on the standard basis.