A Perth couple with a struggling coffee franchise has learnt a tough business lesson after they took legal action that involved property developer Finbar Group, listed engineering company Monadelphous and commercial property agent Knight Frank.
Rashmi Nidagal and Shaun Tubic believed they had a great deal in August 2010 when they signed a seven-year lease for a Caffissimo franchise in the Gateway building in Victoria Park.
With 600 Monadelphous staff in the building and no other cafes in the immediate vicinity, they felt very positive about the venture.
The husband and wife team took the developer to the State Administrative Tribunal, seeking for the coffee service to be shut down and for damages to be paid for loss of business incurred.
They lost the case. The pair had entered into a lease with a Finbar joint venture, which owns the Gateway building, through the developer’s representative, Knight Frank, on August 25, 2010.
Monadelphous facilities manager John Collings told the tribunal his company started relocating staff to the building, at 59 Albany Highway, in July 2010.
It was at this time arrangements were made with Venn - an art, design and cafe business -to set up the coffee service “so as to cater for the needs of the Monadelphous staff’.
Venn director Jade Rubino told the tribunal the coffee service was set up at the request of her father’s company.
Mrs Nidagal and Mr Tubic alleged Finbar did know about the coffee service and failed to inform them before they signed the lease.
However, the tribunal found against the pair, ruling that Finbar learned about the coffee service only after the lease was signed.
Mr Tubic said that when he found out about the coffee service, “he immediately raised concerns with Knight Frank, since the presence of the coffee service had a direct impact on the commercial viability of the Caffissimo”.
He said he had then been given an assurance by the representatives of Knight Frank that the service was temporary and would be shut down as soon as possible.
Director of asset management services at Knight Frank Ryan Abbott told the tribunal he only became aware of the coffee service around January-February 2011.
Mr Abbott said the Monadelphous lease provided for a tea preparation/lunch area “but not for a coffee service as currently operates on level 3 of the office area”.
Mr Abbott said he immediately spoke to Mr Collings, who explained the coffee service was of a temporary nature and would operate only until Caffissimo started operations. When it failed to close, Mr Abbott sent a breach of lease notice to Monadelphous on July 8, 2011.
In September, Finbar project coordination general manager Scott Cameron also wrote to Monadelphous, noting the service was in breach of the Monadelphous lease “since it constituted a ‘separate business’ within the office area”.
However, SAT member Bertus De Villiers said in his judgment Finbar obtained legal advice that the service did not necessarily breach the lease terms.
“(Finbar) decided that it (was) not in its commercial interests to engage in litigation against Monadelphous”, Dr De Villiers said. “These (were) all valid legal and commercial considerations and cannot be classified as ‘unconscionable conduct’.”
The disclosure statement that formed part of the Caffissimo lease “did not contain false or misleading information”, and Finbar “did not obstruct the flow of business to (Caffissimo) by allowing the coffee service to operate”, he said.
While Dr De Villiers accepted that in the absence of the coffee service some staff might utilise Caffissimo, he noted that staff might also choose to make their own coffee or use the vending machine.
Jade Rubino told the tribunal she would continue to operate the coffee service for as long as Monadelphous requested it.
The tribunal is yet to rule on costs.