FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - Trade Practices Act 1974, s 52 - lease of shop in shopping centre - representations by landlord as to occupancy levels - whether subsequent failure to correct impression conveyed by such representations misleading and deceptive conduct - whether lessee relied upon failure to correct in entering into the agreement for lease - whether lessee relied on later misrepresentation by landlord - effect of provisions of lease purporting to exclude liability for any reliance on representations - effect of allegations in cross-claim.

Trade Practices Act 1974 (Cth), ss 52, 82

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, cited

Bevanere v Lubidineuse (1984) 7 FCR 325, cited

Demagogue Pty Ltd v Ramensky (1993) 39 FCR 31, followed

Concrete Constructions NSW Pty Ltd v Nelson (1990) 169 CLR 594, applied

Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, followed

Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054, applied

Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, cited

Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048, cited

HW Thompson Building Pty Ltd v Allen Property Services Pty Ltd (1983) 48 ALR 667, cited

March v E & M H Stramare Pty Limited (1991) 171 CLR 506, cited

Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193, cited

Warren v Coombes (1979) 142 CLR 531, applied

Italiano v Barbaro (1993) 40 FCR 303, applied

Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, cited

Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950, cited

Argy v Blunts Lane Cove Real Estate (1990) 26 FCR 112, cited

leda holdings pty limited v

ORAKA PTY LIMITED & ANOR

NG 320 of 1997

BEAUMONT, BRANSON & EMMETT JJ

SYDNEY

9 DECEMBER 1997

THE COURT ORDERS THAT:

1.         The appeal be allowed.

2.         The orders below be set aside and, in lieu thereof, there be orders that the application be dismissed and that Oraka Pty Limited and Mr Johnson pay Leda Holdings Pty Ltd’s costs of the application.

3.         The cross-claim be remitted to the trial judge for consideration.

4.         The respondents pay the appellant’s cost of the appeal.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

BEAUMONT J:

INTRODUCTION

Oraka Pty Limited (“Oraka”), the first respondent, and its managing director, Bryan Clifford Johnson, the second respondent, brought proceedings in this Court against the appellant, Leda Holdings Pty Limited (“Leda”), alleging, amongst other things, that Leda had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (”the Act”).  The respondents were seeking damages under s 82 of the Act and relief under s 87 of the Act in relation to a lease executed by Oraka, as lessee, and Leda, as lessor, and a guarantee given in that connection by Mr Johnson.  A Judge of the Court ordered that Leda pay Oraka damages (including interest) in the sum of $116,172, and further ordered that the lease be varied in some respects, that the guarantee be set aside, and that Leda indemnify Oraka and Mr Johnson in respect of some of their liabilities under the lease and the guarantee.  Leda now appeals from these orders.

THE CASE PLEADED BY ORAKA AND MR JOHNSON AT FIRST INSTANCE

By their amended statement of claim, Oraka and Mr Johnson alleged the following:

Oraka carried on business as master franchisee for New South Wales of outlets for the retail sale of ice-cream and confectionary.

Between June and November 1993, Mr Johnson, on behalf of Oraka, conducted negotiations for the lease by Leda to Oraka of a shop at “Rosemeadow Marketplace” shopping centre (“Rosemeadow”), then in the course of construction.

During these negotiations, Oraka made “numerous enquiries” of Bruce Sedgwick and of Rosemary Vale (employees of JLW (NSW) Pty Limited, Leda’s letting agent) “as to the progress being made by JLW in securing tenants for Rosemeadow”.

On “a number of occasions” in the period between 6 July and November 1993 (amended during the hearing to the period “in or about July 1993”) Ms Vale informed Oraka that “the level of enquiries and the number of positive indications from prospective tenants of Rosemeadow was such that as at [its] official opening date, only the Fruit and Vegetable store and two other shop premises would be vacant”.  It was accepted in the amended statement of claim that these representations were made on reasonable grounds.

Leda knew, or ought to have known: (a) that the level of occupancy of a new retail shopping centre was “a matter of great importance” to prospective tenants;  and (b) that Oraka and Mr Johnson believed that the occupancy levels at the official opening date would be as stated in the preceding paragraph.

On 1 November 1993 Leda, by its servant or agent, Alan Keast, represented to Mr Johnson that “although tenants... were being located slowly, Rosemeadow would be fully occupied by the time it was due to open for business”.

Leda failed to disclose to Oraka or Mr Johnson that, as at 1 November 1993, and between that date and 30 November 1993 (the scheduled opening date), only eight of the seventeen shops would be tenanted.

Relying upon the representation made by Mr Keast, and in ignorance of the true position, on 3 November 1993 Oraka executed an agreement to lease (for a term of five years from 30 November 1993) and incurred substantial expense fitting out the shop, and Mr Johnson executed the guarantee.

Upon opening for trade with the public on 30 November 1993, Rosemeadow had the appearance of being incompletely constructed, and only eight of the seventeen shops were occupied by tenants.

But for Leda’s misrepresentation and its failure to disclose the true position, Oraka would not have executed the lease agreement.

By reason of Rosemeadow’s low level of occupancy, Oraka suffered trading and other losses.

LEDA’S DEFENCE PLEADED AT FIRST INSTANCE

By its defence, Leda admitted that, at the time of the opening on 30 November 1993, only eight of the seventeen shops were occupied by tenants.  Although it admitted the execution by Oraka and Mr Johnson of the lease agreement and the guarantee respectively, Leda denied that this was done in reliance on any representation made by it or that Oraka or Mr Johnson were ignorant of the true position.  By way of special defence, Leda also relied on the matters raised in its cross-claim, mentioned below.

LEDA’S CROSS-CLAIM

By its cross-claim, filed in October 1995, Leda sued Oraka for unpaid rent and unpaid levies up to October 1995.  Leda stated that in 1994 it had sold the land on which the shopping centre was located to Permanent Trustee Australia Limited (“Permanent Trustee”), but that it was a term of the contract for sale that Leda was entitled to recover moneys owed by tenants at the date of completion of the sale (13 May 1994);  and that Permanent Trustee had assigned to Leda its right to claim rent for the period 14 May 1994 to 13 May 1996.

Leda also cross-claimed against Mr Johnson on the guarantee.

Leda further cross-claimed against Oraka and Mr Johnson as follows:

By cl 9.1 of the lease agreement, Oraka represented and warranted to Leda:  (a) that Oraka was not induced by any of the representations there described;  (b) that Oraka had relied entirely on its own enquiries in relation to the premises;  and (c) that Oraka had obtained independent legal advice as to its rights and obligations under the lease agreement (“the representations”).

Leda relied on the representations, as Oraka acknowledged in cl 9.2 of the agreement.

By cl 9.3 of the lease agreement, Oraka agreed to indemnify Leda for liability or loss arising from breach of the terms set out in cl 9.2

By cl 11.4 of the lease agreement, Mr Johnson agreed to indemnify Leda against any loss arising from Leda’s inability to recover from Oraka the moneys owing under the agreement for lease or the lease.

By cl 11.7 of the lease agreement, Mr Johnson agreed not to raise any counter-claim or set-off while moneys were outstanding under the agreement for lease or the lease.

In instituting the proceedings and in alleging the misrepresentations pleaded in the statement of claim, Oraka had, accordingly, breached the lease agreement.

If, contrary to its contention, Leda were to be held liable to Oraka and Mr Johnson, then Leda was entitled to a full indemnity from Oraka and Mr Johnson under the terms of the lease agreement.

Alternatively, the representations were misleading and deceptive within the meaning of s 52 of the Act, and Oraka was liable accordingly and Mr Johnson was liable as a “person involved” within the meaning of s 75B of the Act.  Leda claimed damages under s 82 of the Act and a declaration that the lease agreement and the lease were valid and enforceable.

Alternatively, Leda claimed damages for breach of contract in an amount equal to the total of any verdict gained by Oraka and Mr Johnson, together with costs.

THE REASONS OF THE TRIAL JUDGE

It will be convenient to summarise the reasons for judgment, published on 4 April 1997, in three stages:  (1) findings and conclusions on the claims made by Oraka and Mr Johnson in their statement of claim;  (2) conclusions on the relief to be granted;  and (3) conclusions on Leda’s cross-claims.

(1)        His Honour’s findings and conclusions on the claims made by Oraka and Mr Johnson in their statement of claim

(a)        The trial Judge’s findings on liability

The idea for the shopping centre originated with Woolworths.  In November 1992, JLW, acting as agents for Woolworths, held a function to promote the project.  Mr Johnson attended the function.

Woolworths then sold the freehold of the site to Leda.

By July 1993, when Leda resolved to proceed to build the centre, “all was optimism at [JLW]”.  Ms Vale, who was responsible for the leasing of the centre “was, as she acknowledged, ‘confident’ because of the favourable response that had been elicited from prospective shopkeepers...”

Ms Vale got in touch with Mr Johnson by telephone before July 1993.  According to her evidence, after some discussion of the rent, Mr Johnson asked:  “How is the leasing at Rosemeadow going?”;  and she answered by taking him in detail through the position with respect to each of the proposed tenancies.  According to his evidence, she went through the proposed tenancies with him;  she told him, on this and on other occasions, that “things are going to plan”.

On this occasion, Ms Vale -

“elaborated by giving him an optimistic rendition of the position with respect to each of the individual tenancies proposed.”

On a subsequent occasion, which Mr Johnson thought “would have been very late September”, but which may have been earlier, Ms Vale told him that “but for the fruit and vegetable store and two other external tenancies, the premises would be full on opening”.  This was in a telephone conversation.  On some other occasion also, Ms Vale again took Mr Johnson through the position of the proposed tenancies as she perceived it at that time.  The evidence does not allow the fixing of the date of this conversation, nor its details, but nothing was said to suggest that the centre would be far from fully occupied at its opening.

On 1 November 1993, a meeting was called to finalise the lease.  Present were Mr Johnson, Mr Johnson’s solicitor, Mr Lamb, Mr Bruce Sedgwick of JLW, Mr Keast and his assistant, Mr Ell, and Leda’s solicitor, Mr D’Agostino.  On this occasion -

“A number of questions concerning the terms of the proposed lease were debated, but at the end of the meeting, and as it was breaking up, Mr Johnson turned to Mr Keast to ask, according to Mr Johnson’s account [which the trial Judge accepted]:

‘How is the leasing programme at Rosemeadow going?’ -

to which Mr Keast replied:

‘We are finding tenants slowly but they will all be there on the day.  There is nothing to worry about.’”  (Emphasis added).

The execution by Oraka of the lease and by Mr Johnson of the guarantee on 3 November 1993 was induced by Mr Keast’s representation.

At the time, Mr Keast knew that the prospects for the letting of the shops at the centre had turned out to be “extremely poor”.

At no time was Mr Johnson told enough to correct “the wrong impression which... Miss Vale conveyed in or about July”.

(b)        The trial Judge’s conclusions on liability

After observing that “silence, in circumstances calling for some clarification, may amount to misleading conduct”, his Honour concluded that in the present circumstances, Leda had contravened s 52.

The trial Judge then held that Leda could not rely upon the provisions of cl 9 of the lease agreement, in the following terms:

“9.1     The Tenant represents and warrants that:

(a)        the Tenant was not induced to enter into this deed by and has not relied on any statements, representations or warranties whether orally [sic] or in writing or contained in any brochure including, without limitation, statements, representations or warranties about the fitness or suitability for any purpose of the Premises or about any financial return or income to be derived from the Premises;  and

(b)        in entering into this deed the Tenant has relied entirely on enquiries relating to and inspection of the Premises made by or on behalf of the Tenant;  and

(c)        the Tenant has obtained independent legal advice on and is satisfied about the Tenant’s obligations and rights under this deed;  and

(d)        the Tenant has obtained independent expert advice on and is satisfied about the nature of the Premises and the purposes for which the Premises may be lawfully used.

9.2       The Tenant acknowledges that the Landlord has entered into this deed on the basis that the representations and warranties contained in clause 9.1 are true and not misleading.

9.3       The Tenant indemnifies the Landlord against any liability or loss arising from, and any costs, charges and expenses incurred in connection with any breach of the representations and warranties contained in clause 9.1 including, without limitation, legal expenses on a full indemnity basis or solicitor and own client basis whichever is the higher.

9.4       References to this deed set out in this clause include the Lease.”

His Honour said:

“But there is a difficulty in depending on such a provision according to its literal terms.  It cannot be thought that the very agreement that was obtained by a misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed.  The agreement that so seeks to sustain itself was obtained by a misrepresentation, and no verbal  magic of an added clause can change that.”

The trial Judge went on to say:

“Indeed, it is noteworthy, but unsurprising, that Leda was not prepared, by an appropriate cross-claim, to assert that its own execution of the documents was actually induced by the representation expressed to be made by Oraka, and to claim damages accordingly!  Nor was it prepared to sue for damages for beach of the warranty it had procured from Oraka.  [As has been noted, his Honour erred here.  Leda had, in fact, so cross-claimed.]  But if claims so divorced from the true circumstances of the transaction, and so directly contrary to the statute, were unthinkable, of what value is clause 9?  In my opinion, a clause of this kind could only assist [Leda] if, in reality, its terms formed part of a complex of circumstances leading to the conclusion that [Leda’s] conduct was not truly misleading, or did not truly induce the action it was alleged to induce.  If, on the other hand, the conduct really was misleading, and did induce [Oraka and Mr Johnson] to execute the document headed ‘AGREEMENT FOR LEASE’, the fact that this document happened to include clause 9 cannot enable [Leda] to evade the consequences of its conduct.”

His Honour, holding that this case fell into the second category, said:

“[Although] Mr Johnson made enquiries of his own... [i]n my opinion he distinguished between formal drafting, as to which he relied on his lawyers, and the representations actually made to him with a view to persuading him to enter into the transaction, which he accepted.  That is not to say he was not influenced by other factors as well, but the causation that seals the operation of section 52 in a particular case does not have to be sole and exclusive of other factors.”

(2)        The trial Judge’s conclusions on the relief to be granted

His Honour concluded that the agreement for lease and the lease would never have been entered into without Leda’s misleading conduct.  In many cases, this would lead the Court to set aside the lease.  However, the lease had been assigned to someone not a party to the action.  Accordingly, orders were made under s 87(1A) of the Act:  (1) setting aside any obligation of Oraka to pay rent or make any other payment under the lease during the period prior to the assignment;  (2) requiring Leda to indemnify Oraka and Mr Johnson thereafter;  and (3) setting aside the guarantee.  His Honour assessed damages at $4,245.86 for rent paid, and $81,394.70 for the net amount lost in fitting out the premises.

(3)        His Honour’s conclusions on Leda’s cross-claim

In his reasons for judgment, the trial Judge directed that the parties bring in short minutes of appropriate orders, which were to provide for, inter alia, the dismissal of the cross-claim.

THE ORDERS MADE AT FIRST INSTANCE

Having heard further submissions from the parties, on 9 April 1997 his Honour made orders as follows:  (1) Leda was ordered to pay Oraka damages in the sum of $116,172;  (2) as between Oraka and Leda, the agreement for lease and the lease were varied ab initio so as to eliminate Oraka’s obligation to make payments of rent or otherwise prior to the assignment;  (3) as between Mr Johnson and Leda, the guarantee was set aside ab initio;  (4) Leda was to indemnify Oraka and Mr Johnson against their liability to Permanent Trustee;  (5) the cross-claim was dismissed;  and (6) Leda was ordered to pay the costs of Oraka and Mr Johnson, including the costs of the cross-claim.

LEDA’S GROUNDS OF APPEAL

By its grounds of appeal, Leda challenges his Honour’s conclusions:  (1) that Leda’s conduct, including its silence, was misleading and deceptive;  (2) that Oraka and Mr Johnson executed the agreement for lease and the guarantee respectively in reliance upon Leda’s conduct, specifically the representation found to be made by Mr Keast on 1 November 1993;  and (3) that cl 9.1 of the agreement for lease did not operate as a defence.

Leda also contends that his Honour should have dealt with its cross-claim based on misrepresentation and breach of warranty.

Leda further challenges the indemnity ordered as made beyond power.

Leda now seeks orders:  (1) allowing the appeal and setting aside the orders made at first instance;  (2) judgment for Leda on the cross-claim;  (3) an order that Oraka and Mr Johnson indemnify Leda for any liability or loss arising from or in connection with a breach of cl 9.1 of the agreement for lease;  (4) an order that Oraka and Mr Johnson pay damages to Leda for contravention of s 52 of the Act;  and (5) costs at first instance and on the appeal.

In this aspect, Senior Counsel for Leda sought to challenge the trial Judge’s process of reasoning and conclusions in a number of fundamental respects.  In particular, he submitted that:

Representations which his Honour found to have been made, and which were critical, in his view, were made at a time which (a) did not accord with the evidence;  (b) was disputed by both sides;  and (c) controverted the express terms of Oraka’s and Mr Johnson’s pleadings as (as has been seen) they were amended during the hearing.

His Honour placed great store upon an assumption, now shown to be incorrect, that Leda was not prepared to propound a cross-claim based upon cl 9.1 of the agreement for lease.

The overwhelming inference to be drawn from the evidence was that Oraka and Mr Johnson were not induced to enter into the transaction by any conduct of Leda.

Clause 9 of the agreement for lease “militated” against a finding of liability against Leda.

Senior Counsel acknowledged that views as to credibility were expressed by his Honour, but contended that the appeal should turn substantially upon inferences to be drawn from the primary facts established by the evidence.  Reliance is placed upon the reasoning in Warren v Coombes (1979) 142 CLR 531 and Italiano v Barbaro (1993) 40 FCR 303 (at 326) to that effect.

CONCLUSIONS ON THE APPEAL

It will be convenient to deal with the several aspects of the appeal in turn.

(a)        The issue of liability

It is true, as has been seen, that in their amended statement of claim Oraka and Mr Johnson accepted that Ms Vale’s initial optimistic statements about occupancy rates were reasonably based.  But it was plain enough that the case they sought to make was grounded upon the express representation alleged to have been made orally by Mr Keast on 1 November 1993.  Whether Mr Keast made that statement, and whether Mr Johnson relied upon it, were not only questions of primary fact, they were credit issues in respect of which the trial Judge had the advantage of seeing and hearing the witnesses.  There was, clearly, evidence upon which his Honour could find that Mr Keast made the statement alleged on 1 November 1993.  There was also evidence upon which the trial Judge could find that Mr Johnson relied upon that representation.  We were taken to much of the detail of the evidence for and against the making of these findings.  I am not persuaded that any basis for disturbing the primary Judge’s findings has been made out.  That evidence includes the circumstance, already noted, that, in cl 9 of the agreement for lease, Oraka purported to warrant and represent that it had not been induced to enter into the lease by any representation made by Leda.  With one obvious qualification, and whilst I accept that the existence of cl 9 is a material consideration on the issue of inducement, I agree with his Honour’s reasons, previously mentioned, why such a provision cannot provide a conclusive defence.  The qualification is, of course, that the additional consideration relied on by the trial Judge that Leda was not prepared to cross-claim on cl 9, is not available.  Yet, this does not detract from his Honour’s other, independent, reasons for holding that cl 9 was not, of itself, an answer in law to Oraka’s claim that it had been misled by Mr Keast.  The provisions of cl 9 were no more than some of the surrounding circumstances.  (See, e.g. Lezam Pty Ltd v Seabridge Australia Pty Limited (1992) 35 FCR 535 at 544, 556-7).  Their weight was a matter for the trial Judge to assess.  Again, this was a credit question.  Having been taken to the evidence, there is no basis, in my opinion, for appellate intervention on the issue of liability.

On behalf of Leda, it was strongly argued that it was not open to Oraka and Mr Johnson to place reliance upon the conversation on 1 November.  Leda’s counsel sought to invoke policy considerations in this connection, submitting that s 52 should not be pressed this far, especially given the subsequent execution of the formal documentation after Oraka and Mr Johnson had had the benefit of professional legal advice.

But, in the light of the observations of Sheppard J (with the agreement of Hill J) in Lezam, above, (at 541-2), Leda’s argument must be rejected.  As Sheppard J said (at 541):

I do not think that one can lay down any general rule which determines the circumstances in which evidence of conversations had by parties in the course of their negotiations for a contract should be admitted or used by the court.  Every case will depend upon its own facts and circumstances.  Actions for breach of s 52 of the Act do not involve an applicant for relief in establishing that a person making representations made them knowing that they were false.  Innocent misrepresentation is actionable;  but, subject to that important distinction, there is a marked similarity between an action under s 52 of the Act and an action for deceit.  In actions for deceit the court has invariably admitted evidence of parties’ conversations about the subject matter at issue as well as of letters and other documents passing between them before the contract is signed.  If they contain statements which are found to be representations inducing the contract, they will be relevant.  Obviously the evidence needs to be looked at as a whole and put in context.”

(b)        Leda’s cross-claim on cl 9

As we have seen, although his Honour failed to address this issue in his reasons for judgment, and although he subsequently heard the parties on the form of the appropriate orders, the trial Judge ordered that the cross-claim be dismissed.  It is thus necessary for us to consider the question ourselves. 

In my opinion, once it is accepted that his Honour’s finding of inducement should stand, notwithstanding the existence of cl 9, it must follow that the cross-claim cannot succeed;  in other words, the position is the same, in point of principle, as in the case of the plea relying upon cl 9 by way of defence.  As has been said, although cl 9 was properly to be taken into account on the issue of liability, his Honour held, on the facts, that notwithstanding the terms of cl 9, Oraka and Mr Johnson were, in truth, induced to enter the agreement for lease by the misleading representation made by Mr Keast.  That being so, the purported representation contained within the language of cl 9 should, in the eyes of the law, be ignored as not, on the actual facts as found by the trial Judge, reflecting the real or true situation.  That is, the document sued on was, to this extent, a sham.  Even apart from s 52, any attempt to rely upon a provision such as cl 9.1 in the present circumstances is conduct which the common law should not accept (cf. RobertBradgate “Unreasonable Standard Terms” (1977) 60 MLR 582 at 593).  It must follow that no cause of action of the kind propounded in the cross-claim be grounded upon the wording of cl 9.  It must further follow that the cross-claim could not be upheld. 

I should add for completeness, that it may be that the cross-claim could, in any event, be defeated by the application of the principle of “circuity of action” (see Co-Operative Bulk Handling Ltd v Jennings Industries Limited, Scott J, Supreme Court of Western Australia, 1 September 1995, unreported, and “MacGillivray & Parkington on Insurance Law”, 8^th ed. at par 1244).

(c)        Relief

As has been mentioned, Leda also challenged the grant of the indemnity relief.  It is submitted for Leda that there was no power to make such an order in the absence of:  (a) evidence that the assignee of the least threatened to seek redress against Oraka or Mr Johnson;  or (b) a finding that Leda acted fraudulently.

I have difficulty accepting the submission.  The Court’s power to grant the indemnity relief under s 87(1A) of the Act was plainly discretionary.  In my opinion, whilst it may be accepted that this remedy should be proportionate to the circumstances of the case at hand, it cannot be contended that the indemnity granted here went beyond what was, in the exercise of that judicial discretion, proportionate.  Moreover, to suggest that Oraka and Mr Johnson needed to show fraud before s 87(1A) could be applied, is to travel beyond the language of the provision.

(d)        Orders on the appeal

I propose that the appeal be dismissed, with costs.

REASONS FOR JUDGMENT

BRANSON AND EMMETT JJ:

The appellant, Leda Holdings Pty Limited (“the Landlord”), was the respondent in proceedings bought by Oraka Pty Ltd (“the Tenant”) and Bryan Clifford Johnson (“Mr Johnson”) seeking damages pursuant to section 82 of the Trade Practices Act 1974(Cth) (“the Trade Practices Act”) and an order under section 87 of theTrade Practices Act. The claims arose out of an agreement (“the Agreement for Lease”) between the Landlord and the Tenant whereby the Landlord agreed to grant to the Tenant a lease of a shop in a shopping centre situated at Rosemeadow, NSW.  Mr Johnson guaranteed the payment to the Landlord of all amounts which might be or become payable by the Tenant to the Landlord in connection with the Agreement for Lease or any transaction contemplated by it.

It was alleged that the Tenant entered into the Agreement for Lease and incurred substantial expense in fitting out the shop in reliance upon a statement made on behalf of the Landlord concerning the level of occupancy of the shopping centre and in ignorance of the true position concerning the likely level of occupancy.  It was also alleged that Mr Johnson, relying upon the statement and believing it to be true, guaranteed the obligations of the Tenant.  Mr Johnson’s mind was relevantly the mind of the Tenant.

The trial judge held that the Landlord had contravened section 52 of the Trade Practices Actand ordered the Landlord to pay damages to the Tenant under section 82. His Honour also made orders under section 87 in respect of the Agreement for Lease, the lease granted pursuant to that agreement and the guarantees given by Mr Johnson.

THE RELEVANT FINDINGS

His Honour made findings concerning the credibility of witnesses. It was not suggested that the Full Court should interfere with those findings.  However, there was a challenge to the conclusions which his Honour reached concerning inducement and reliance in relation to Mr Johnson.  It is necessary, therefore, to set out the relevant primary findings made below, together with some other relevant facts.

The Tenant is the master franchisee for New South Wales of retail outlets which trade as Wendy’s and which sell ice cream, soft-serve, drinks and hotdogs. Mr Johnson is the managing director of the Tenant. He has managed the business of the Tenant since it was incorporated in 1983 and in that capacity, he had, by 1993, gained substantial experience and developed expertise in retail marketing. He had negotiated some 70 leases of shops in shopping centres.

The Rosemeadow shopping centre had its origin in a marketing idea developed by the major tenant in the shopping centre, Woolworths Limited (“Woolworths”). The idea was a “Marketplace” centred on a store conducted by Woolworths, with satellite specialty stores.  On 16 November 1992, a function was held at the offices of JLW (NSW) Pty Limited (“JLW”).  JLW acted as agents for Woolworths.  The object of the function was to promote the project involving the establishment of “Marketplace” shopping centres.  Mr Johnson attended that function and was enthusiastic about the prospect of establishing outlets for Wendy’s in “Marketplace” shopping centres.  However, Mr Johnson wanted exclusivity for the sale of ice cream and doughnuts, neither of which Woolworths was prepared to concede at that time.

Subsequently, Woolworths sold the freehold of the Rosemeadow shopping centre site to the Landlord.  That brought plans for construction to a temporary halt.  However, by July 1993, the Landlord had resolved to proceed to build the proposed shopping centre.  Ms Rosemary Vale, an employee of JLW, who was responsible for the leasing of the Rosemeadow shopping centre, got in touch with Mr Johnson by telephone. She told him that the Landlord had agreed that Wendy’s could sell both doughnuts and soft-serve ice cream exclusively.

In the course of the conversation which ensued, Mr Johnson asked how the leasing at Rosemeadow was going. Ms Vale went through the proposed tenancies with him.  Neither Ms Vale nor Mr Johnson was able to give anything like a verbatim account of the conversation.  However, his Honour concluded that what Ms Vale told Mr Johnson encouraged him to think that the shopping centre would be a success. Mr Johnson accepted that, at the time they were made, Ms Vale had reasonable grounds for making the statements which she then made to him.

On 28 July 1993, Mr Johnson, on behalf of the Tenant, signed a document entitled “LETTER OF INTENTION TO LEASE” addressed to JLW (“the Letter of Intention”). The Letter of Intention appears to be a printed form with blank spaces for completion of relevant particulars. Attached to it was a printed form of acknowledgment which relevantly provided as follows:

“I/We acknowledge that:

             ...

F. No representation, promise, warranty or undertaking (including, without limitation, representations as to the suitability of the Premises for any particular purpose or the profitability of any business conducted or to be conducted from the Premises) has been made to me/us by any person or entity in connection with the Premises or the Lease except those set out above or those confirmed below:

            ...

(Important Note: The Lessor and its agents and representatives shall not be responsible in any way for any loss, cost or damage resulting or arising from any alleged breach of promise or any suggested misrepresentation by the Lessor or its agent or representative unless the promise or representation upon which you wish to rely is incorporated in this Application to Lease.  If you wish to rely on a particular promise or any representation which is not already recorded in the Application to Lease it is essential that it be recorded in (F) above.)”

Mr Johnson’s signature appears immediately below that part of the printed form of acknowledgment.  In the blank space contained in the above extract, Mr Johnson inserted some additional material in his own handwriting as follows: 

            “Exclusivity on Ice Cream, Soft Serve and Donuts.

Lessor to provide at Lessors [sic] Cost all Services Associated with tenancy to include but not limited to the following; 3Ø 60AMP/phase power, water, drainage, Air Conditioning, Sprinklers

Set Plasterboard Ceiling to a prescribed height, level floor with no set down, Rendered Walls.”

Subsequently, there were further conversations between Ms Vale and Mr Johnson, in the course of which Ms Vale said “things are going to plan”.  In one such subsequent conversation Ms Vale told Mr Johnson words to the effect that, but for the fruit and vegetable store and two other external tenancies, the premises would be full on opening.  On some occasion also, Ms Vale again took Mr Johnson through the position of the proposed tenancies as she perceived it at that time.  No complaint was made about Ms Vale’s conduct in those conversations which appear to have occurred before the end of September, although there was some doubt as to precisely when they occurred.  Ms Vale had no conversation with Mr Johnson about tenancies after late September.

In mid September 1993, a draft formal agreement for lease was prepared by Messrs Mallesons Stephen Jaques, the Landlord’s solicitors, and forwarded to Messrs Gordon and Johnstone, the Tenant’s solicitors.  On 21 October 1993, Gordon and Johnstone wrote to Mallesons Stephen Jaques specifying detailed alterations sought to be made to the draft agreement for lease.  No mention was made in that letter of the state of lettings for the shopping centre.

On 1 November 1991, a meeting was held at the offices of Gordon and Johnstone.  Present were Mr Johnson’s solicitor, Mr Lamb; Mr Bruce Sedgwick of JLW; Mr Johnson; Mr A.E. Keast, a director of the Landlord; Mr Keast’s assistant; and Mr Keast’s solicitor, Mr D’Agostino.  The meeting had been called to finalise the proposed agreement for lease.  Various questions concerning the terms of the draft documents were debated and, it appears, resolved.  At the end of the meeting and as it was breaking up, Mr Johnson turned to Mr Keast to ask, according to Mr Johnson’s account which was accepted by his Honour:

“How is the leasing programme at Rosemeadow going?”

To that Mr Keast replied:

“We are finding tenants slowly but they will all be there on the day.  There is nothing to worry about.”

Mr Johnson gave evidence that the Agreement for Lease was executed on 2 November 1993.  It was executed under the common seal of the Tenant and executed by Mr Johnson as a deed, his signature being witnessed by his solicitor, Mr Lamb.

The Agreement for Lease  contained the following clause:

            “9        REPRESENTATIONS AND WARRANTIES

            9.1       The Tenant represents and warrants that:

                        (a)        the Tenant was not induced to enter into this deed by and has not relied on any statements, representations or warranties whether orally or in writing or contained in any brochure including, without limitation, statements, representations or warranties about the fitness or suitability for any purpose of the Premises or about any financial return or income to be derived from the Premises; and

                        (b)        in entering into this deed the Tenant has relied entirely on enquiries relating to and inspection of the Premises made by or on behalf of the Tenant; and

            (c)        the Tenant has obtained independent legal advice on and is satisfied about the Tenant’s obligations and rights under this deed; and

            (d)        the Tenant has obtained independent expert advice on and is satisfied about the nature of the Premises and the purposes for which the Premises may be lawfully used.

            9.2       The Tenant acknowledges that the Landlord has entered into this deed on the basis that the representations and warranties contained in clause 9.1 are true and not misleading.

            9.3       The Tenant indemnifies the Landlord against any liability or loss arising from, and any costs, charges and expenses incurred in connection with any breach of the representations and warranties contained in clause 9.1 including, without limitation, legal expenses on a full indemnity basis or solicitor and own client basis whichever is the higher.

            9.4       References to this deed set out in this clause include the Lease.”

At the same time as the Agreement for Lease was executed, the Tenant executed a lease.  Subsequently, that lease was assigned by the Landlord to Permanent Trustee Australia Limited (“Permanent”) which was not a party to the proceedings and which was not a party to any conduct on the part of the Landlord. 

His Honour found that, at the meeting on 1 November 1993, Mr Keast knew that the prospects for letting of the shops in the shopping centre had turned out to be extremely poor, yet there had been no correction, prior to execution of the Agreement for Lease, of what his Honour held were optimistic forecasts put to Mr Johnson in or about July 1993 by Ms Vale. His Honour concluded, therefore, that the Landlord had engaged in misleading and deceptive conduct in contravention of section 52.

Despite what his Honour referred to as some inconsistencies in the evidence, his Honour found that the execution of the lease and the Agreement for Lease by the Tenant and Mr Johnson was induced by the statement made by Mr Keast and by the Landlord’s failure to correct the wrong impression which his Honour found had been conveyed to Mr Johnson by Ms Vale. His Honour found that, but for that conduct of the Landlord, the Agreement for Lease would never have been executed. His Honour considered that, having regard to his impression of Mr Johnson, he should not accept the argument advanced by the Landlord that clause 9 of the Agreement for Lease and the provisions of the Letter of Intent were, when accumulated with other circumstances, the foundation for a finding that Mr Johnson was not induced to execute the instruments in question by the conduct alleged.

His Honour made orders that:

(1)        The Landlord pay to the Tenant damages in the sum of $116,172.

(2)        The lease granted pursuant to the Agreement for Lease be varied ab initio so as to eliminate all obligations on the part of the Tenant to make any payment to the Landlord in respect of the period prior to the assignment of that lease by the Landlord.

(3)        The guarantees contained in the Agreement for Lease and in the lease granted pursuant to the Agreement for Lease be set aside ab initio.

(4)        The Landlord indemnify the Tenant and Mr Johnson against any liability to Permanent arising out of or relating to the Agreement for Lease and the lease granted pursuant to the Agreement for Lease.

THE APPEAL

The Landlord challenged the conclusions reached by his Honour on two broad grounds.  First, it was said that the Landlord’s conduct, including its silence up to and including 2 November 1993, did not amount to misleading or deceptive conduct.  The starting point for that challenge was the acknowledgment in the amended statement of claim (“the statement of claim”) that the statements made by Ms Vale in July, which were the only statements by Ms Vale referred to in the statement of claim, were made on reasonable grounds in all the circumstances. No allegation was made in the statement of claim of any positive misrepresentation other than the statement made by Mr Keast on 1 November 1993. It was said that, in the circumstances, the failure to disclose that only 8 shops would be tenanted out of 17, was misleading. The Landlord contended that the conduct of the Landlord was not misleading or deceptive because the statement which created the impression in July was made reasonably and there was no duty of disclosure.

A challenge was also made by the Landlord to the finding which his Honour made that the execution of the Agreement for Lease and the lease by both the Tenant and Mr Johnson on 2 November 1993 was induced by Mr Keast’s statement at the meeting on 1 November 1993 and by Mr Johnson’s misapprehension as to the state of lettings for the shopping centre at the time of execution.  The thrust of the challenge was that, even if the conduct of the Landlord were misleading or deceptive in the circumstances, there was no causal connection between the conduct of the Landlord and the loss suffered by the Tenant, namely, entering into the Agreement for Lease.  That is to say, Mr Johnson and the Tenant were not induced to enter into the Agreement for Lease by any conduct of the Landlord.

CONTRAVENTION OF SECTION 52

The Legal Principles

In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, Gibbs CJ observed that section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead  or deceive.  Nevertheless, he said that it was clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Mason J considered that, while the general words of section 52 should be widely interpreted without being read down by reference to the heading of Part V “CONSUMER PROTECTION”, the section is nevertheless intended to protect members of the public in their capacity as consumers of goods and services.  While competitors may seek an injunction to restrain breaches of section 52, the remedy is available in order to prevent deception of the public. It is not enough that conduct damages a rival trader.  It must mislead or deceive or be likely to mislead or deceive members of the public in their capacity as consumers.  The object of Part V is to protect the consumer by eliminating unfair trade practices (per Mason J at 202-204).

More recently, however, the High Court has indicated that section 52 may well be applicable whether or not a victim who can be characterised as a consumer is able to be identified.   In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 604, Mason CJ, Deane, Dawson and Gaudron JJ stated:

“...the section was not intended to impose, by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities.  What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is acting to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character.   Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public.”

Emphasis has been added to some of the phrases employed by the High Court in the course of those observations. Such observations may suggest that section 52 was not intended to apply to statements made in the course of private negotiations between commercial entities. They suggest that the section was intended to apply only where it is necessary to protect members of the public in their capacity as actual or potential consumers of goods and services.  In some sense, a tenant of a shop in a shopping centre may be a consumer of services supplied by the owner of the shopping centre. Nevertheless, it would be fanciful to regard the Tenant and Mr Johnson as members of the public in their dealings with the Landlord.  However, it now seems clear that section 52 is not confined to statements directed to the public or some identifiable section of it (see Bevanere Pty Ltd v Lubidineuse (1984) 7 FCR 325 at 332).  Accordingly, notwithstanding that the Landlord and the Tenant were engaged in private negotiations, section 52 is capable of application to their relationship. 

In Demagogue Pty Ltd v Ramensky (1993) 39 FCR 31 at 40, Gummow J, with whom Black CJ and Cooper J agreed, said:

“‘Conduct’ within the meaning of s 52 includes refusal to do an act and refusal to do an act includes a reference to ‘refraining (otherwise than inadvertently) from doing that act’:  s 4(2).  But in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct.  The expanded meaning given by s 4(2) to ‘conduct’ should not distract attention from the fundamental issue in the case at hand.”

His Honour went on to express agreement with what was said by Samuels JA in Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88, namely:

“...silence is not misleading only where there is a duty to disclose at common law or in equity.  It may simply be the element in all of the circumstances of a case ... which renders the conduct in question misleading or deceptive.”

The Full Court of this Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 466, made it clear that section 52 of the Trade Practices Act “gives rise to no duty to provide information”.   In the same case, at 467, the Full Court pointed out that:

“Where the contravention of s 52 alleged involves a failure to make a full and fair disclosure of information, the applicant carries the onus of establishing how or in what manner that which was said involved error or how that which was left unsaid had the potential to mislead or deceive.”

The onus of establishing how, or in what manner, that which was left unsaid had the potential to mislead or deceive will involve the identification of circumstances “such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed” (per French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054 at53,195.  See also Demagogue Pty Ltd v Ramensky per Black CJ at 32).

The relationship between the Landlord and Tenant, being that of parties negotiating at arms’ length without any special disability, was not one which would normally be expected to give rise to any obligation of disclosure. When parties are dealing at arms’ length in a commercial situation, it may well be that one party will be aware of information which, if known to the other, would cause the other to take a different negotiating stance.  That, however, is not such as to require disclosure of that information (see Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475 per Gleeson CJ).

The Application of the Legal Principles

The case of the Tenant and Mr Johnson as pleaded was based on the one positive representation said to have been made by Mr Keast on 1 November 1993, and on a failure by the Landlord -

“...knowing the importance to a prospective tenant such as the First Applicant, of the occupancy and or likely occupancy level of a new centre such as Rosemeadow, ... to disclose to either of the Applicants that, as at 1 November 1993, and between that date and 30 November 1993, when Rosemeadow was scheduled to open, there would only be 8 shops tenanted and open for business out of a total of 17 shops at Rosemeadow.”

The alleged failure to make disclosure is to be considered against the background that Mr Johnson is an experienced business person who has negotiated some 70 shopping centre leases.  Mr Johnson was aware that JLW was the letting agent for the Landlord in respect of Rosemeadow.  Mr Johnson had had considerable previous experience of dealing with JLW in respect of new shopping centre leases.   It was to JLW that he looked for detailed information concerning the progress being made in respect of attracting tenants to Rosemeadow. 

Mr Johnson was aware that JLW would never agree to include in an agreement for lease a provision that a certain occupancy level in a shopping centre had to be achieved before the tenant incurred an obligation to pay rent or to open for business.  He was also aware that he could at any time obtain information from JLW as to the status of its negotiations with prospective tenants for Rosemeadow.  Mr Johnson agreed that it was Ms Vale’s practice to tell him what the state of the levels of occupancy of each of the premises was when he inquired.  He indicated that he prepared a tenancy schedule on the basis of the information given to him by Ms Vale, that he sought such information from her as a matter of course, and that such schedule was the most important thing from his point of view. Mr Johnson gave evidence that he was required to provide an updated tenancy schedule to the Wendy’s franchisor in Adelaide before signing a lease and that he did so in respect of Rosemeadow.

The only information provided to the Tenant by JLW which is expressly pleaded by the statement of claim is information provided to Mr Johnson by Ms Vale in or about July 1993 -

“...that the level of enquiries and the number of positive indications from prospective tenants of Rosemeadow  was such that as at the official opening date of Rosemeadow, only the Fruit and Vegetable store and two other shop premises would be vacant.”

It is to be remembered that the statement of claim was amended during the course of the hearing to place the provision of the above information at “in or about July 1993”.   There is no reason to conclude other than that the Landlord was entitled to conduct its defence of the claims on the basis that such information was provided by Ms Vale at about that time:  that is, at about the time that the Letter of Intention was signed, and some months ahead of the scheduled opening of Rosemeadow.  The representation made by Ms Vale as a consequence of the provision by her of the above information was expressly pleaded by the applicant to have been “made on reasonable grounds in all of the circumstances.”

The circumstances of this case are incompatible with any reasonable expectation that the Landlord would volunteer to disclose to the Tenant on 1 November 1993, or thereafter, the actual number of shops at Rosemeadow which would be occupied on 30 November 1993.   So far as the Landlord was concerned, all relevant communications on this issue were between the Tenant and JLW.  There was a considerable history of dealings between the Tenant, and particularly Mr Johnson, and JLW.  Mr Johnson is an experienced business person who was at all relevant times involved in a project which was at the heart of his expertise.  It was recognised by Mr Johnson, and inferentially by Ms Vale on behalf of JLW, that when Mr Johnson required information as to the state of negotiations with potential shopping centre tenants, Mr Johnson could obtain such information by a request to Ms Vale.  On his own evidence, he did make such inquiries of Ms Vale.

The Tenant and Mr Johnson did not contend that Ms Vale gave them any information other than information which was reasonable in the circumstances.  They knew that JLW would not, on behalf of their principals, guarantee occupancy levels.  No circumstances existed such as reasonably to suggest to the Landlord that the Tenant and Mr Johnson were looking to it, or to its agent JLW, to act in their interest or to protect their position.  The case, so far as it was framed on the failure of the Landlord to disclose the actual number of shops in Rosemeadow that would be tenanted or open for business as at 30 November 1993, was therefore bound to fail.  The silence of the Landlord in all of the circumstances did not amount to misleading or deceptive conduct.

The alternative basis upon which the Tenant’s case was put was that of the positive representation made by Mr Keast on 1 November 1993 which the trial judge found was, in the circumstances of earlier exchanges between Mr Johnson and Ms Vale, misleading and deceptive.  The issue on this appeal, so far as the positive representation found to have been made by Mr Keast is concerned, is that of whether it was reasonably open to the trial judge to find that the Tenant, and Mr Johnson, relied upon such representation in executing, in the one case as Tenant and in the other as guarantor, the Agreement for Lease.

RELIANCE AND INDUCEMENT

The Legal Principles

Section 82 of the Trade Practices Act  provides for the recovery of loss or damage suffered “by conduct of another person” done in contravention of section 52.  In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 241 Gummow J pointed out that:

“...s 52 is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests. ...  it would be wrong to select particular words or acts which, although misleading in isolation, do not have that character when viewed in context ...”.

By so pointing out, his Honour was, in our view,  saying little different from that which fell from the High Court in March v E & M H Stramare Pty Limited (1991) 171 CLR 506.  In that case, Mason CJ, with whom in this regard Toohey and Gaudron JJ agreed, at 515 observed that:

“The common law tradition is that what was the cause of a particular occurrence is a question of fact which ‘must be determined by applying common sense to the facts of each particular case’...”.

In order to found a claim based on contravention of section 52, the conduct of the Landlord, consisting of Mr Keast’s statement seen in the context of the earlier discussions between Mr Johnson and Ms Vale, must be “the sort of statement that was likely to have an inducing effect on the minds of business people” such as Mr Johnson (see Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048 (at 53,148) and HW Thompson Building Pty Ltd v Allen Property Services Pty Ltd (1983) 48 ALR 667 (at 673-674)).

Of course, the conduct complained of need not be the sole inducement before it may be concluded that the loss and damage was suffered “by” that conduct (Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950 at 50,378;  Argy v Blunts Lane Cove Real Estate Pty Limited (1990) 26 FCR 112 at 135).

The conclusions of the trial judge that Mr Johnson actually relied on the statement made by Mr Keast, and that that reliance was reasonable, depend as much upon the objective facts as found by his Honour as upon any assessment of Mr Johnson.  We accept without reservation his Honour’s assessment of Mr Johnson.  However, this Court is in as good a position as the trial judge to determine the proper inferences to be drawn from the facts not in dispute or as found by his Honour (Warren v Coombes (1979) 142 CLR 531;  Italiano v Barbaro (1993) 40 FCR 303 at 326).

The Application of the Legal Principles

It was common ground that the extent of the letting of the other shops in the shopping centre was of crucial commercial significance to an intending tenant such as the Tenant. Nevertheless, Mr Johnson made no mention of that matter in the additional material which he inserted in the Letter of Intention for the purpose of limiting the acknowledgement contained therein that no representation, promise or undertaking had been made to him. If Mr Johnson was intending to rely on anything said by the Landlord or JLW concerning that matter, it is curious that he did not mention it along with the other matters that he did mention. Further, if Mr Johnson was intending to rely on the statement made by Mr Keast which failed to correct an impression he had gained from his discussions with Ms Vale, it would be nothing less than extraordinary for him to execute the Agreement for Lease knowing it contained a provision such as clause 9.

Mr Johnson said that he left the formal parts of the Agreement for Lease to his solicitor. No evidence was given of the advice which Mr Johnson’s solicitor gave him concerning clause 9. However, there is every reason to assume that a competent solicitor would have drawn to Mr Johnson’s attention to the existence of a clause such as clause 9. While Mr Johnson said that he did not read clause 9, he did not say that he was not aware of its existence or that he had received no advice about it.   Indeed, he agreed that he was familiar with the form of Agreement for Lease sent to him in relation to Rosemeadow.  Mr Johnson was certainly aware of the acknowledgment which he had signed in July.  In the circumstances, it would be reasonable to conclude that Mr Johnson was aware of the existence of a clause in the Agreement for Lease to the effect of clause 9 and of the impact of such clause. 

Yet the day after the making by Mr Keast of the statement said to have induced the Tenant and Mr Johnson to execute the Agreement for Lease, Mr Johnson, by executing the Agreement for Lease which included clause 9, solemnly acknowledged, on his own behalf and that of the Tenant, that no representation had been made to him to induce its execution.

In this regard, it is to be remembered that Mr Johnson had available to him, as he acknowledged,  ample means for obtaining specific information concerning the letting of the other shops in the shopping centre.    In particular, he was aware that such information was readily available from Ms Vale.  There would be nothing surprising in his not placing reliance, in the circumstances, on the statement made in informal circumstances by Mr Keast.

There are, in our view, additional facts which tell against a finding that the Agreement for Lease was executed by the Landlord and Mr Johnson in reliance on the statement made by Mr Keast.

Before executing the Agreement for Lease, the Tenant had already taken steps towards fitting out the shop, involving the expenditure of money which would have been wasted if it had not taken a lease. Mr Johnson himself had undertaken a feasibility study to determine the viability of the business intended to be conducted from the shop which was to be the subject of the proposed lease.

Further, the meeting at which the statement was made by Mr Keast was called to finalise the terms of the proposed lease from the Landlord to the Tenant. It does not appear that there was any question of whether or not the Tenant would take a lease. That is to say, the commercial terms appear to have been resolved. The only matters left for negotiation were the formalities of the proposed lease itself. The various points raised by earlier correspondence were resolved and all terms of the proposed lease were agreed before any question concerning the state of lettings was raised.   Mr Johnson’s question was asked at the conclusion of the meeting, as it was breaking up and not in the presence of the legal advisers. The statement by Mr Keast that “we are finding tenants slowly” carries implicitly the notion that, at that stage, tenants had not been found for all of the shops in the shopping centre.  The statement was, in its terms, a prediction rather than a statement of fact.  Yet Mr Johnson did not speak to Ms Vale or anyone else from JLW about the state of lettings, even though, as he agreed, it was the practice of Ms Vale to tell him what the state of the levels of occupancy of each of the premises was when he enquired.

Moreover, the general nature of Mr Johnson’s query of Mr Keast, and the general nature of the response, is to be contrasted with the detailed information which Mr Johnson sought “as a matter of course” from Ms Vale in respect of all tenancies, including the Rosemeadow tenancy.  Indeed, it is appropriate to draw attention to the following question and answer in Mr Johnson’s cross examination:

“When did you become satisfied of the occupancies [sic] levels so as to cause you to commit yourself to the shop at Rosemeadow?---  I believe when it got to the fruit and vegetable tenancy and two other tenancies being left.  I thought that will not take JLW long to sort that one out, let’s go.”

Mr Johnson’s evidence in chief was given by means of a written statement. In relation to the issue of reliance and inducement, Mr Johnson’s statement contained the following:

“Had I been made aware on 1 November 1993 that the occupancy level of Rosemeadow Marketplace was as low as it in fact was, I would not have agreed on behalf of the [Tenant]  to enter into a Lease of shop No. T10 in the shopping centre except on terms which were sufficiently favourable to the [Tenant] to enable it to trade from opening day without loss.  I say that I relied on the assurance given by Mr Keast...  His assurance reinforced what I had already been told of the occupancy levels at Rosemeadow Marketplace by Rosemary Vale...”. (emphasis added)

The above evidence is, in our view, significant for two reasons.  The first is that it does not assert that if Mr Johnson had been aware of the true letting position on 1 November 1993, he would not have agreed on behalf of the Tenant to enter into the lease of the shop;  it suggests that he would have sought to negotiate more favourable terms.  Yet, as discussed above, the meeting of 1 November 1993 had been set up to allow the finalisation of negotiations on the terms of the Agreement for Lease.  The Agreement for Lease was apparently executed the next day;  ie. on 2 November 1993.  If, on 1 November 1993, Mr Johnson was looking to Mr Keast for information concerning the state of lettings at Rosemeadows, he could  be expected to have raised the issue of such lettings whilst the meeting was still in session, and not informally as the meeting was breaking up.

The second reason why the above evidence is significant relates to the issue of the loss, if any, allegedly suffered by the Tenant and Mr Johnson.

There was no evidence as to the extent to which the Landlord would have been prepared to negotiate further on the terms of the proposed lease. Nor was there evidence as to what terms would have resulted in the Tenant being in a position to trade without loss from the opening day. That position was complicated by the fact that the Tenant did not in fact trade in the shop. That was because of “the interposition of another company as operating company”, as his Honour found.

In our view, the evidence as a whole fails to establish that the Tenant and Mr Johnson, or either of them, suffered loss by conduct of the Landlord. This is not to deny that Mr Johnson may, in the circumstances, have derived some comfort from Mr Keast’s statement.   However, such derivation of comfort is, in our view, insufficient to ground a finding that, as a matter of common sense, the losses, if any, suffered by the Tenant and Mr Johnson as a consequence of their respective executions of the Agreement for Lease and the lease were caused by Mr Keast’s statement.

CROSS-CLAIM

The Landlord filed a cross-claim in which it sought payments allegedly due under the Agreement for Lease and the lease, damages for breach of the representation and warranty contained in clause 9.1 of the Agreement for Lease, and indemnity under clause 9.3 of the Agreement for Lease. His Honour properly concluded, as a matter of logic, that no reliance could be placed upon clause 9 if the Agreement for Lease were set aside. In other words, a party to an agreement cannot rely upon an exculpatory term of the agreement if entry into the agreement itself was induced by misleading or deceptive conduct (see Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371).

In his reasons for judgment, in dealing with the extent to which clause 9 of the Agreement for Lease should be taken into account in determining whether Mr Johnson in fact relied upon any representation, his Honour made the following observation (at 19):

“Indeed, it is noteworthy, but unsurprising, that the [Landlord] was not prepared, by an appropriate cross-claim, to assert that its own execution of the documents was actually induced by the representation expressed to be made by the [Tenant], and to claim damages accordingly!  Nor was it prepared to sue for damages for breach of the warranty it had procured from the [Tenant].”

In fact, the Landlord by a cross-claim had made such an assertion and had claimed damages for the breach of warranty which it had procured from the Tenant.  In so far as his Honour gave any weight to his finding that there was no reliance placed by the Landlord on the representation and warranty contained in the Agreement for Lease, it appears that his Honour’s reasoning may have miscarried.

On the view which the trial judge took of the case of the Tenant and Mr Johnson, it was not necessary for him otherwise to consider the cross-claim.  Appropriate findings of fact have thus not been made so as to enable this Court to deal with the cross-claim.  It will be necessary for the cross-claim to be remitted to the trial judge for consideration.

CONCLUSION

The appeal should be allowed, the orders made below should be set aside and, in lieu thereof, there should be orders that the application be dismissed and that the Tenant and Mr Johnson pay the Landlord’s costs of the application.  The cross-claim should be remitted to the trial judge for consideration.  The Tenant and Mr Johnson  should pay the Landlord’s costs of the appeal.

Associate:

Dated: