FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES – misleading and deceptive conduct – shopping centre in course of construction – alleged representations as to tenant mix, turnover and prospective nearby competition – whether representation made – whether representations as to ‘future matter’ – whether non-disclosure amounted to misrepresentation – whether representations relied upon – claim to set-off stock taken on re-entry by landlord against arrears of rent

TRADE PRACTICES – damages – calculation of – inclusion of compensation for time and labour expended

Trade Practices Act 1974 (Cth) s 51A, 82

Ting v Blanche (1993) 118 ALR 543, Applied

Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525, Applied

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Distinguished

Jaldiver Pty Ltd v Nelumbo Pty Ltd (Heerey J, unreported, 2 December 1992), Mentioned

PHILEMON ALBAN LOBENDHAn & ORS v WEST PERTH INVESTMENTS PTY LTD & ORS

NO. VG 586 of 1995

judge:          heerey j

date:            2 october 1998

place:          melbourne

THE COURT ORDERS THAT:

1.         The application and cross-claim be dismissed.

2.         The applicants pay the respondents’ costs of the application and cross-claim, including reserved costs.

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

REASONS FOR JUDGMENT

I           INTRODUCTION

In 1994 the first and second applicants Mr Philemon Lobendhan and his wife Mrs Louise Lobendhan were carrying on a small independent supermarket business in Yarraville in partnership with a Mr and Mrs Joe Perera.  The Lobendhans sold their share in the business to the Pereras and took on the lease of a similar supermarket, together with an adjacent liquor store,  in a new development in Epping called Dalton Village Shopping Centre. 

The new venture proved disastrous and in July 1995 their leases were terminated for non payment of rent.

Together with their company the third applicant, Sanlow Pty Ltd, Mr and Mrs Lobendhan claim that they were induced to enter into the leases at Dalton Village by reason of the misleading and deceptive conduct of the respondents.  The first respondent West Perth Investments Pty Ltd was their landlord and the second respondent Lancia Holdings Pty Ltd (Lancia) was the developer and promoter of Dalton Village.  The conduct complained of consisted of alleged misrepresentations by Mr Brian Jennings, the principal of Lancia, who is the third respondent.  At the beginning of the trial the alleged misrepresentations were:

(i)         Tenant mix – that Dalton Village would include a bank, a chemist, and a TAB and Tattslotto agency;

(ii)        Turnover – that the turnover of the supermarket and liquor shop would be around $50,000 to $55,000 per week.  At a late stage in the case an allegation of a separate representation of a turnover of about $75,000 per week was made;

(iii)       Quix turnover – that the nearby Quix store had a turnover of $35,000 per week, excluding petrol and oil;

(iv)       Nearby development – that no plans had been approved for the development of a large shopping centre at Cooper and High Streets, Epping (Epping Plaza) and that such complex would not be developed for about five years;

(v)        Non disclosure of adverse opinions by Composite Buyers Limited - the respondents did not disclose the contents of a letter dated 16 December 1993 from Composite Buyers Limited which said that Epping Plaza would be built during 1995, that it would be big and that the supermarket at Dalton Village would have to achieve sales of $100,000 per week to be viable and could not achieve that level.

There is also a claim as to the value of stock taken by West Perth Investments on re-entry.  The question arises whether this amount can be set-off against the landlord’s claim for arrears of rent.

II         THE APPLICANTS’ CASE

Mr and Mrs Lobendhan were born in Sri Lanka.  They are both aged 54.  They migrated to Australia in 1967.  Both had a number of jobs of a clerical nature.  In 1992 together with Mr and Mrs Perera they purchased a  Foodtown SSW Supermarket business operating from leased premises at 6 Anderson Street, Yarraville.  The business was purchased for $360,000 plus stock.  Most of the money was borrowed from the National Australia Bank.  They commenced trading on 9 November 1992.  The business traded on a turnover of about $50,000 to $55,000 per week and gave the Lobendhans a “comfortable living”.

In about February or March 1994, although happy with the Yarraville business, Mr and Mrs Lobendhan were on the lookout for a better business opportunity.  In the course of enquiring about a new supermarket in Reservoir Mr Lobendhan spoke to Mr Vic Doer of Davids Limited, a major grocery wholesaler.  Mr Doer mentioned Dalton Village which was then nearing completion.  Mr Lobendhan said he was interested in learning more about it and Mr Doer said he would get a Mr Brian Jennings to contact him.

A short time later Mr Jennings telephoned Mr Lobendhan.  He said that Mr Doer had spoken to him and that he had a new shopping centre in Epping which would open in about May.  Mr Lobendhan said he would be interested in looking at the details and Mr Jennings promised to contact him.  A short time later Mr Jennings sent a letter to Mr Lobendhan dated 25 March 1994 (CB 145).  The letter quoted a rental for the supermarket of $57,000 per annum plus two per cent over gross sales of $55,000 per week and for the liquor store a rental of $22,000 per annum.  The letter went on to discuss different alternatives as to paying for fitout.

About the time the letter was received Mr Jennings visited Mr Lobendhan at the Yarraville supermarket.  He there spoke to Mr and Mrs Lobendhan.  He produced a plan of the centre (Ex A).  He told the Lobendhans that the liquor store shown on the plan would be split in two with the second part to be used for a children’s wear shop.  He said he was negotiating with a bank to occupy one of the shops and that there would be a bank.  He also said that there would be a chemist, a Tattslotto agency, a hot bread shop, a butcher, a delicatessen, a children’s wear shop, a florist and a couple of take-away food stores.  The plan had the businesses of the various shops marked in handwriting.  Circles were drawn around the supermarket, liquor store, building society, chemist and TAB.  The words “Bank or Building Society” were written on the top of the plan with a line drawn to that shop (shop 10).  The evidence of the Lobendhans was that these circles were either on the plan when it was shown to them or were drawn on the plan by Mr Jennings in their presence.

Mr Jennings said that the turnover of the supermarket and liquor store would be around $50,000 to $55,000 per week.  If the turnover exceeded $55,000 per week there would be an additional two per cent of turnover rent on sales above that figure.  Mr Lobendhan asked Mr Jennings how he arrived at that turnover.  Mr Jennings said it was based on statistical information, the surrounding businesses and the size of the supermarket.  Mr Jennings said the developer had carried out in-depth studies and that he would fax Mr Lobendhan a copy of the minutes of the meeting at which the decision was made to acquire the site.  He also said that the Quix convenience store attached to a service station two doors away from the shopping centre was trading on a turnover of $35,000 per week excluding petrol and oil.  Mr Jennings also provided the Lobendhans with a demographic report (CB 148) either at the meeting or together with the letter of 25 March.

Mr Lobendhan then went to Dalton Village and inspected the site which was then under construction.  After that visit he told Mr Jennings he was interested in taking a lease of the supermarket and the liquor store.

On 14 April the Lobendhans sold their share of the Yarraville business to the Pereras for $20,000.

In evidence in chief, Mr Lobendhan spoke of a further representation as to turnover.  This had not appeared in his written witness statement.  In late April or early May Mr Lobendhan was about to put in an application to his bank for finance.  At his request Mr Jennings came to the Yarraville supermarket.  They discussed trading figures and Mr Jennings said that the supermarket could obtain seventy per cent of the turnover from the Quix store and also ten per cent of the trading of the other two supermarkets in the area, namely the Festival Store and Tuckerbag.  Those figures worked out to a turnover of about $65,000. Mr Lobendhan and Mr Jennings discussed the matter further and “it seemed likely that we could get some passing traffic as well, which bumped the turnover up to about 70,000” (T28).  (This was the figure in Mr Lobendhan’s evidence, although the representation alleged in the further amended statement of claim was $75,000.)

About the middle of April Mr Jennings came to the Yarraville supermarket and left with Mr Lobendhan a number of documents including a draft of the lease and agreement for lease. 

Mr Lobendhan spoke to Mr Colin Da Costa of the National Australia Bank’s Mount Waverley branch and applied for a loan.  The Bank wanted more information and on 26 April Mr Jennings sent him a fax containing details of fitout cost and rental (CB 167).  Mr Jennings also forwarded on 28 April minutes of a project meeting held on 1 July the previous year attended by Mr Jennings, his partner Mr Stallard of West Perth Investments and their architect.  The minutes discussed the current zoning of the site, demographs, location and competition from existing businesses.  The minutes give estimates of potential sales per capita for food and non food within two and three kilometres, based on Australian Bureau of Statistics Retail Census.  Under the heading “Concept” estimates of turnover for different types of businesses were given including supermarket $3.9 million per annum (i.e. $75,000 per week) and liquor store $1.04 million ($20,000 per week).  Under the heading “Tenant Profitability” it is stated

“Our research indicates that the total market is grossly underserviced and a centre correctly structured in terms of retail mix and facilities will be extremely successful.”  (Emphasis in original)

Mr Lobendhan sent copies of the letter of 26 April and the project meeting minutes to the Bank. 

During one of the conversations in about May or June Mr Lobendhan asked Mr Jennings whether there was a shopping complex being developed at the corner of Cooper and High Street, Epping.  Mr Jennings said that no plans had been approved as yet and that the shopping centre would not be developed for about five years. 

The Bank initially refused the Lobendhans’ application.  Mr Lobendhan told Mr Jennings this.  Mr Jennings said he should keep trying and that if he could not arrange the loan “we will finance you”. 

In late May Mr Jennings took Mr Lobendhan to see his accountant Mr Lou Guzzardi.  In Mr Jennings’ presence Mr Lobendhan told Mr Guzzardi that he estimated the turnover of the supermarket at $55,000 based on what Mr Jennings had told him.  Borrowings and cash flows were discussed, along with proposed equipment.  Mr Guzzardi sent projections and other documents to the Bank.  Mr Guzzardi suggested that the Lobendhans set up a company as trustee of the family trust.  Mr Lobendhan accepted this advice and acquired a shelf company which became Sanlow Pty Ltd.  The Lobendhan Family Trust was established with Sanlow as trustee.

The Bank agreed to provide a loan of $200,000 to Sanlow and to lease price scanning equipment.

The opening of Dalton Village was put off from time to time but finally took place on 18 June 1994.  The Lobendhans signed the lease on that day but had been in possession of the supermarket for about two weeks previously getting it ready for opening.

The Bank advanced a bridging loan of $80,000 which was used to purchase opening stock from Davids.  In September the Bank provided a loan of $200,000 to Sanlow in the form of a fully drawn advance secured by a registered first mortgage debenture over that company’s assets, guarantees and indemnities given by Mr and Mrs Lobendhan and their son Trevine Lobendhan and his wife Caterina supported by a first mortgage over the Lobendhans’ home and their son and daughter-in-law’s home.  The funds were used to discharge the bridging loan of $80,000 and the balance credited to Sanlow’s cheque account.  The Bank also provided leasing finance of $39,700 for the acquisition of scanning equipment.  There was a delay in the obtaining of a licence and the liquor store did not open until 20 October 1994.

There was never a bank or building society in the shopping centre, nor a chemist shop, nor was there a Tattslotto agency.  The construction of Epping Plaza at the corner of Cooper and High Streets commenced in early 1995.  It opened late that year and included two large supermarkets.

The takings of the business were only about $12,000 per week and after the liquor store opened about $18,000.  The Lobendhans quickly fell into arrears of rent and payments for the fitout cost.

On 31 May 1995 West Perth Investments gave notice to quit.  There was default in payment of rent, equipment rent, operating expenses and statutory outgoings as follows:

Supermarket                                         $60,423.74

Liquor store                                           13,692.55

The applicants filed the present application on 13 June 1995.  They sought an interlocutory injunction restraining the re-entry.  On 27 July 1995 Sundberg J refused to grant an injunction.  On the same day West Perth Investments through Mr Jennings effected a re-entry.  One of the issues in this case is an agreement alleged by the applicants to have been made as to the disposal of stock then on the premises.  It will be convenient to postpone discussion of those issues until a later stage of these reasons.

The applicants also rely on a letter dated 16 December 1993 (CB 187) sent by Mr Ian Sutherland, the New Business Manager of Composite Buyers Limited to Mr Jennings.  (Composite Buyers is a grocery wholesaler and a competitor to Davids.)  Mr Jennings had written on 3 December 1993 (CB 191) to Mr Sutherland giving details about Dalton Village. Construction had commenced on 10 November.  The letter referred to a recent telephone conversation and enclosed “the material you requested to assist in your evaluation” of the location. In relation to the supermarket at Dalton Village, the letter stated that Mr Jennings thought “a direct approach may be advisable in order to gauge your interest.” In other words, Mr Jennings hoped Composite Buyers might put him in touch with a potential operator of the supermarket. In his reply of 16 December Mr Sutherland (now deceased) stated amongst other things:

“Our Retail Development Team has appraised the information you supplied, and our initial comments are thus:-

1.         We understand the Epping Shopping Centre will be built on the corner of Cooper Street and High Street, during 1995.  While we do not know the major tenants at this stage – it will be big!

2.         If a Liquor Licence is granted for your development, and assuming shops one and two are used together: then using a nominal rental of say $12 per square foot, this supermarket would have to achieve average sales close to $100,000 per week.  Despite the excellent support shops listed, we can not anticipate sales to this order to bear the rental cost on a medium term basis.

Currently, we do not have an operator available to take on such a project.  However, should you have such a client with the necessary resources, we as Wholesale Grocery Distributors, would be pleased to assist and accommodate with our trade knowledge and expertise.

Should you decide to proceed to fit out the two sites, we would recommend you contact Ian Williamson on 018 375030, who is part of our Retail Development Team and specialises in Supermarket equipment//layout and design.”

III        THE RESPONDENTS’ CASE

Mr Jennings is now aged 58.  He worked for a bank for a few years after leaving school and then had 23 years with Mobil Oil in Western Australia and Victoria.  Much of his work there was involved in the retail side of the business and advertising.  When he left Mobil he was responsible for all Mobil retail business in Western Australia, South Australia, Victoria and Tasmania.  After a few years with another retail organisation he established Lancia in 1991 with a former Mobil colleague with the intention of developing service stations and other retail outlets as well as acting as consultants.  Since then Lancia has been involved in about twenty-one projects, a number of which involved land purchase and development.  Mr Jennings first became interested in the Dalton Village site in May 1993.  The land was being sold by a bank with an existing planning permit for a shopping centre.  Mr Jennings attended an auction of the property on 27 May 1993.  He did not bid and the property was passed in.

He discussed the existing planning permit with Mrs Blackney, a planning officer of the Shire of Whittlesea and told her that he would wish to redesign the centre and in particular the car parking.  The site was zoned for neighbourhood shopping centre which meant no shop could be more than 500 m².  On Mrs Blackney’s recommendation Mr Jennings consulted a local real estate agent, Mr Peter Ongarello of Stott Real Estate.  At an early stage Mr Jennings learned that there had been for some time talk of the development of a large shopping centre (which subsequently became Epping Plaza) at about 2 km from the Dalton Village site.  His enquiries led him to understand that the proposal had an “off again on again” history and that although there had been rumours about the development there was no certainty it would ever go ahead.  He did not regard the possible development as a significant factor because if it were ever to occur it would be a full scale shopping centre whereas Dalton Village would be a neighbourhood convenience centre.  He did not feel there would be direct competition between the two developments.  He prepared a number of draft feasibilities and discussed his ideas with his architects, Messrs Clarke Hopkins & Clarke.  Mr Jennings spoke to his friend Mr Bob Stallard of West Perth Investments Pty Ltd who ultimately agreed to join in the project with his company being the owner/financier.  Mr Jennings continued to negotiate with the owner and lodged an application for a planning permit.  The permit was issued in August and on 1 October 1993 the final plans were approved.  The purchase was then settled and construction of the centre commenced shortly thereafter.  The building was completed in May 1994 at a total cost of about $2.3 million.

The Dalton Village centre comprises 2,594 m² of retail space divided into a supermarket of 487 m² and sixteen smaller speciality shops together with a small first floor area which ultimately became a dance studio.  The centre was intended to service the convenience of those within a two to three kilometre radius.  It was not a regional shopping centre with a full range supermarket.  Mr Jennings sought the assistance of Davids in the layout of the supermarket.  He requested Davids to design and equip a supermarket capable of sales of the magnitude of $75,000 per week.  Mr Jennings had arrived at that figure by taking census statistics which showed the sales potential for food within a two kilometre radius was about $45 million and within three kilometres about $89 million.  He estimated the supermarket could reasonably expect to attract about nine per cent of this market after taking into account other factors such as the secondary market and inherent uncertainty. 

After unsuccessful negotiations with two different prospective supermarket operators Mr Jennings went to the initial meeting with Mr Lobendhan on 30 March 1994.  The meeting took place in a small office on the first floor of the Yarraville supermarket.  Mrs Lobendhan was not present.  Mr Lobendhan told him about his family and their background in the supermarket industry and that he was involved with a partner in the Yarraville supermarket.  Mr Jennings opened a black leather folder and turned to a plan which showed the general layout of Dalton Village.  This plan was regarded by Mr Jennings as his “bible”.  It had noted on it the important details of the leasing of the centre including, for each shop, figures designated P (the projected rental figures as stipulated in the final feasibility study), O (the objective which he had set himself) and A (actual rental agreed).  He did not give Mr Lobendhan a plan at the meeting.  The plan which Mr Jennings had (Ex 1, CB 447) is quite different from the plan sworn to by Mr Lobendhan (Ex A, CB 147). 

Mr Jennings showed his plan to Mr Lobendhan and worked through each of the shops starting at shop 15, telling him the status of leasing in respect to each shop.  If the shop had been leased there was a figure beside the letters P, O and A.  The plan had been marked in handwriting to show the use for each of the shops which had been leased.  The plan showed shops 13 and 2 had been divided.  Shop 13 had the printed word “Chemist” but was divided into two, one marked in handwriting “Optometrist” and the other “Fashion”.  While Mr Jennings referred to all of the shops, the following are relevant to the present case:

·          As to shop 15 Mr Jennings said it had been leased and the lessee intended to run a Tattslotto agency and had applied to Tattslotto for a licence.  Later (in June 1994) he learned that the licence application was rejected

·          As to shop 10 Mr Jennings said that the agent had approached a number of banks and financial institutions, but the major banks were not interested.  They were currently in negotiation with the Bendigo Building Society

After the discussing the shops that had been leased Mr Jennings then returned to his fax and talked about the rental and increment to be paid if sales exceeded $55,000 per week.  In his witness statement Mr Jennings says:

“71.     I told Mr Lobendhan that I had carried out an assessment of the market and believed that the store should do very well.  I pointed out that the base rental was based on sales averaging $55,000 per week and said that I expected it would do better than that.  I said that he should make his own assessment and that I was not an expert in the supermarket business.

72.       In the course of our discussion generally, I told him:

            (a)        that I had been informed by Mobil that the Quix store next door was its best one in Victoria and was trading at $35,000 per week;

            (b)        that I understood that the Festival Supermarket in McDonalds Road was doing between $180,000 and $240,000 per week, Goldeys at Lalor Plaza was doing between $450,000 to $500,000 per week and the Mill Park Safeway $500,000 to $600,000 per week.  I also said that the Goodfellows in Lalor was a successful operation and was similar to his proposed operation although we did not have figures on this operation; and

            (c)        that we had made a demographic study of the of [sic] consumers in the local area and would give him a copy if he liked.”

Mr Jennings then discussed briefly the competition in the area and showed Mr Lobendhan a chart (CB 411) which detailed the nature of the shops available at four existing shopping centres.  Mr Jennings mentioned that there had been talk of the development of a shopping centre in High Street, Epping.  He said that this development had been on the books for some time but that nothing had happened and that he was not aware when, if at all, the shopping centre would be developed.  He said there had been some newspaper articles about the centre.  Mr Lobendhan did not appear very interested in this.

About a week later Mr Lobendhan rang Mr Jennings and said he had visited the centre and that he wanted to proceed.  He said the centre was a “nice development” and would be “quality” in comparison to his current one.

Mr Jennings went to Yarraville and gave Mr Lobendhan a copy of the standard form of lease.  The meeting took place in the same small office and on this occasion Mrs Lobendhan did come in at some stage.  Mr Lobendhan said he would put an application for a loan into his bank, the National Australia Bank.  Mr Lobendhan said that his son and daughter-in-law lived near Epping and that it was a young market in comparison to Yarraville where there was a large number of pensioners and he therefore felt the purchases per customer in Epping would be higher than in Yarraville.  He also said that the direct competition in Epping would be less than Yarraville as he had a Payless supermarket virtually next door.  Mr Jennings asked Mr Lobendhan what sort of sales they were doing at Yarraville.  He said “about the same figure”.

On 26 April Mr Jennings sent a fax to Mr Lobendhan (CB 475A) giving details of fitout costs and confirming the rental for the two shops as well as equipment rental.  Mr Lobendhan asked Mr Jennings if he could help him with any material to give to his bank and on 28 April Mr Jennings faxed a copy of the minutes of the project meeting held on 1 July 1993 (CB 485).  After some further minor adjustments draft leases for the supermarket liquor store were sent by Mr Ongarello to Mr Lobendhan on 5 May (CB 492).  At some stage in May Mr Lobendhan rang Mr Jennings and said the Bank had rejected his loan application.  He said he wanted to continue but did not have the money.  Mr Jennings said that he might consider lending him some funds but that he should first see Lancia’s accountant.  Mr Jennings then arranged a meeting with Mr Guzzardi at which Mr Jennings himself also attended.  Mr Lobendhan did not have a copy of his application to the Bank and it was agreed that Mr Guzzardi would contact Mr Da Costa and get a copy.  Another meeting was held about two weeks later at which projections were discussed and Lancia agreed at Mr Lobendhan’s request to guarantee his loan up to $50,000.  Subsequently the loan was approved and Mr Jennings signed a guarantee.

Mr Jennings agreed to let Mr Lobendhan into possession two weeks prior to opening of the centre (18 June).  On the day of opening Mr and Mrs Lobendhan signed the lease.  Two days later Mr Lobendhan telephoned and said he would be changing to a company and asked him not to have the lease stamped yet.  Mr Jennings agreed.  Early on 1 July Mr Lobendhan telephoned and told Mr Jennings that the loan had been approved.  Mr Jennings sent the leases to Mr Ongarello but warned him not to have them stamped as they were to be changed.  The rent for the supermarket was to commence from 18 July but outgoings were to run from the beginning of the lease. 

IV        CREDIBILITY

Generally I preferred the evidence of Mr Jennings to that of Mr and Mrs Lobendhan.  Mr Lobendhan’s evidence was often explicitly stated in terms of reconstruction.  On the issue of which plan was used at the initial meeting and on the alleged misrepresentation as to a proposed chemist shop, Mr and Mrs Lobendhan’s evidence was demonstrably wrong.  Their claims in this regard were abandoned by their counsel in final submissions.  I find this damaging to their credibility on other issues. 

V         THE REPRESENTATIONS ALLEGED

1.         Tenant Mix

            (a)        Chemist

The prospective tenant of the chemist shop was unable to obtain the necessary approval because there was an existing pharmacy within five kilometres.  He wrote to Mr Ongarello on 9 January 1994 (CB 468) advising of this.  Thus it was then clear that there would be no chemist and part of the shop in question (shop 13) was leased in February for use by an optometrist (Ex 8).  There would be no point in Mr Jennings on 30 March representing to Mr Lobendhan something which was subject to easy disproof with the consequence that Mr Lobendhan might well abandon any interest in the supermarket.  This in turn makes it unlikely that Mr Jennings would have had in his possession, as his main working document, the plan (Ex A) alleged by Mr Lobendhan, which shows shop 13 undivided and marked “Chemist”.

As  already mentioned, the Lobendhans took possession about two weeks before the opening and only signed the lease on the day of the opening.  Plainly there was not a chemist shop there.  At about this time Mr Ongarello sent them a plan showing car parking.  The plan included some of the adjacent shops, including shop 13 divided into two, one marked “Optometrist” and the other “Boutique”.  If Mr Lobendhan had been promised there would be a chemist shop, and had relied on that promise to enter into the lease, one might have thought he would have noticed the obvious absence of such a shop.  His cross examination on this point was as follows (T 163):

“Q.      So when you say that you learned that there was not to be a chemist, it was before the day when you signed the lease, wasn’t it?

A.         No, I did not go around looking and checking out the other shops.  I accepted and I trusted Mr Jennings at the time.

Q.        Mr Lobendhan, you are saying that you were at the shop, at the supermarket, for two weeks before the day on which you signed the lease and you did not during that time notice that instead of a big chemist sign, there was a sign for an optometrist?  Are you seriously giving that evidence to the Court?

A.         Well, there were some signs there.  I did notice some signs there, yes.  Yes, quite honestly I did not notice a chemist sign, yes.

Q.        You are telling this Court that on the day when you signed the lease you believed that there was a chemist in the centre.  Is that the case?

A.         Well I thought at least there would be one coming in.”

I find this evidence unimpressive.

(b)        Bank

I do not accept Mr Lobendhan’s evidence as to this.  There was in evidence a letter from Mr Ongarello to the Bendigo Building Society dated 10 May 1994 (CB 493) which on its face rather suggests that discussions with the Society had only commenced recently.  The letter commences:

“Further to our recent telephone conversation, we enclose demographs and full plan of the centre.”

It is conceivable that Mr Jennings’ recollection may be at fault in that the negotiations with the Bendigo Building Society were not on foot until after 30 March.  Nevertheless I am not prepared to find that Mr Jennings told Mr Lobendhan there would be a bank.  Notwithstanding a leasing campaign that had been under way since the previous October the evidence discloses not the slightest suggestion that there was any indication of interest by any bank.  I might make the observation here that, while Mr Jennings was undoubtedly keen to get an operator for the anchor tenancy of the supermarket, Mr Lobendhan displayed enthusiasm from the outset.  As will become apparent when I discuss the evidence on reliance, Mr Lobendhan needed little persuasion.  In the context of such a negotiating climate, I find it unlikely that an experienced businessman like Mr Jennings would make a promise about a bank tenancy which was totally without foundation and which was not necessary to clinch the deal.

(c)        Tattslotto

I have some doubt as to whether Mr Jennings specifically said that the tenant of the Tattslotto agency had applied to Tattslotto for a licence.  I think it more likely that he simply said that the shop in question would be a Tattslotto agency.  This would be a “future matter” within the meaning of s 51A.  But there were reasonable grounds for that prediction in that the shop had already been leased for that purpose.

2.         Quix turnover

This representation was made but it is now conceded that it was true. 

3.         Epping Centre

Mr Jennings admitted saying at the first meeting with Mr Lobendhan that no plans had been approved for Epping Plaza.  This was true, as was confirmed by the evidence of Mrs Blackney.  She was the officer with whom Mr Jennings dealt in relation to Dalton Village.  Epping Plaza was handled by a more senior planning officer at the Shire Office.  It was a much more complex operation, involving an amendment to the planning scheme and the sale of council land to the developer. 

The amendment to the planning scheme was made sometime in the early 1990s.  Plans were submitted by the developer, Bevandale Pty Ltd, in the early part of 1994.  There were negotiations and numerous amendments in relation to roads, layouts, car parking and landscaping and plans were finally approved on 20 December 1994.  Mrs Blackney confirmed that as at March 1994 nothing had been approved by the council in relation to Epping Plaza.  She had frequent contact with Mr Jennings about Dalton Village and cannot specifically recall any conversations with him about Epping Plaza.  Had he made any enquiry prior to mid 1994 she would have told him that no plans had been approved.  She would not have told him that development would not take place for at least five years.

On the evidence I find it was true to say in March 1994 that no plans had been approved for Epping Plaza and that remained true up until the time the Lobendhans signed the lease and indeed until the end of the year.  Mr Jennings denied the further limb of this alleged representation, that the development of Epping Plaza was at least five years away.  I am not prepared to find that it was made.

4.         Turnover

Turning first to the allegation of a turnover of $70,000 per week, I note that there is no mention of this in a solicitor’s letter of demand written on behalf of the Lobendhans and other tenants on 3 January 1995 (CB 663), or in Mr Lobendhan’s affidavit sworn on 13 June 1995 in support of his interlocutory injunction application (Ex 7), or in a number of versions of the statement of claim subsequently filed, or in his witness statement dated 6 July 1998.  It emerges for the first time in Mr Lobendhan’s evidence-in-chief on 14 September 1998 (T 28), that is some four and a half years after the event.  Also Mr Lobendhan imputes to Mr Jennings the statement that the supermarket could obtain seventy per cent of the turnover of the Quik store.  The Quik store was a convenience store associated with a service station which operated 24 hours a day, seven days a week.  The proposition that the supermarket which was only open during the day, with late night shopping on some evenings and was physically separate from the service station by at least 100 metres could take seventy per cent of Quik’s turnover is inherently incredible.  I find this alleged representation was not made. 

Turning to the $55,000 representation, I accept the evidence of Mr Jennings contained in par 71 and 72 of his witness statement quoted above.  The question arises whether this was a representation as a future matter so as to cast the burden on the respondents of showing reasonable grounds: s 51A. 

When a representation is made with respect to an event or conduct in the future, the fact that representation implies a representation as to the maker’s present state of mind, does not necessarily prevent it from being a statement with respect to a future matter:  Ting v Blanche (1993) 118 ALR 543 at 553 per Hill J.  In Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 at 536 Merkel J, after agreeing with what was said by Hill J in Ting, went on to say (at 536):

“However, it is still necessary to characterise the representation made.  In the present case it is my view that it is properly characterised as a statement as to a present belief based on the grounds set out.  In that context is relates to the capacity of the proposed outlet to achieve the sales projection.  Although the sales projection necessarily has a future element in it that element does not transform the characterisation of the representation into one which is with respect to a future matter.  In my view the applicability of s 51A is to be ascertained by a proper characterisation of the representation made in each case.  It is difficult to see how s 51A can operate in a case such as the present where the grounds for the sales projection are expressly stipulated and an assessment of their reasonableness is left for evaluation by the representee.  In these circumstances a representation that the grounds are reasonable, rather than that the representor believes that they are reasonable, is inconsistent with the representation made.”

I respectfully agree with Merkel J.  I think such an analysis applies in the present case, particularly in the light of Mr Jennings’ qualification, which I find was made, that he told Mr Lobendhan that he should make his own assessment and that he (Mr Jennings) was not an expert in the supermarket business.  The applicants accept that Mr Jennings provided the information referred to in par 72 of his witness statement.  It was no part of the applicants’ case that any of that information was incorrect.

It is important to bear in mind the context in which the meeting on 13 March 1994 took place.  Mr Jennings was the developer of a greenfields shopping centre, still in the course of construction.  The future turnover of any shop in it could only be a matter of inherently inexact estimate.  Many factors were involved, the demographic makeup of the local population, the attraction of existing and future competitors, traffic movement, shopping patterns, the general health of the Victorian and national economies, to name but a few.  Mr Lobendhan was experienced in the conduct of a similar sort of business.  However Mr Jennings, although having had considerable experience in retail business generally and development, had no experience in the operation of supermarkets.  Mr Jennings was saying that he held a present belief, he was providing information (relevant and accurate in itself) which supported that belief, but he was making it clear that Mr Lobendhan should make his own assessment.  Mr Lobendhan was able to rely on the information provided by Mr Jennings and seek any other advice himself, as in fact he did.  I find the representation was not as to a future matter.  I find that Mr Jennings in fact held the belief he said he did.

5.         Non-disclosure of Composite Buyers’ views

In par 12F of their further amended statement of claim the applicants plead that at the time the respondents made the representations they knew that Composite Buyers held the views set out in the letter of 16 December 1993.  The statement of claim continues:

“12G   In the circumstances aforesaid, at all material times there was a reasonable expectation that if the respondents or any of them were aware of matters such as those set out in paragraph 12F, the respondents would disclose the same to the applicants, or on making a representation to induce or with the effect of inducing a prospective tenant to take a lease of the shop premises, the respondents would qualify such representation by reference to that opinion or the substance of that advice and opinion.

12H.    The respondents maintained silence to the applicants as to the matters referred to in the preceding two paragraphs.”

One can infer that these paragraphs have been drafted with an eye on the decision of the Full Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31.  Mr Ramensky purchased a home unit to be built in accordance with a plan.  The only practical vehicular access to the land would be from a street.  Prior to the contract the vendor had been negotiating for the grant of a right to construct a driveway over public land to provide such access.  Such access would require the grant of a Road Licence under the relevant Queensland legislation.  There was an express representation that “the developer will build a driveway up to the road”.  Nothing was said to the purchaser to indicate that the driveway was other than within the boundaries of the property, or that there was anything differing from the usual situation where vehicular access to a road from a block of home units is over a driveway located on the common property of the site of the development.  The trial judge (Spender J) said (39 FCR at 35):

“Whether silence constitutes conduct which is misleading or deceptive of course depends upon the circumstances.  Here the circumstances were special and out of the ordinary.  Moreover, the express representations by Demagogue were such as to indicate there was nothing at all unusual about this aspect of the development.  In this case there was both a positive misrepresentation, and a misrepresentation conveyed by a failure to say anything about a Road Licence. 

…

The vendor was silent as to conditions which might affect the continued existence of the licence and as to the fact that a small but not trivial financial contribution would be required.”

The Full Court upheld Spender J’s finding.  Black CJ said (at 31):

“Silence is to be assessed as a circumstance like any other.  To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.  To speak of ‘mere silence’ or of a duty of disclosure can divert attention from that primary question.  Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs.  The context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particulars matters exist they will be disclosed.”

 See also per Gummow J at 41. 

In my opinion the present case is quite a different factual situation from Demagogue.  There are two aspects of the Composite Buyers letter.  The first, as to Epping Plaza being built during 1995, was not predictable as a matter of objective fact as at March 1994, having regard to the evidence of Mrs Blackney.  In any case the view that it would not necessarily be a direct competitor of a neighbourhood centre like Dalton Village was a matter of opinion and one which might honestly and  reasonably be held.  The second limb, as to the supposed lack of viability with supermarket sales of less than $100,000 per week was regarded by Mr Jennings as not making sense.  Counsel for the respondents, validly in my view, supported the reasonableness of that view by pointing one of Mr Guzzardi’s projections, which was based on a turnover as low as $37,500 per week, nevertheless produced a respectable net profit of $78,429 per annum.

Given the circumstances already mentioned, namely that Mr Lobendhan was an operator of some experience in this type of business, that other relevant information provided by Mr Jennings was undoubtedly correct, and that Mr Lobendhan was free to, and in fact did, make his own enquiries, I do not think there could be said to be objectively a reasonable expectation that somebody in the position of Mr Jennings would disclose the Composite Buyers letter.  This was an arm’s length commercial transaction.  There could be no reasonable expectation that Mr Jennings would inform Mr Lobendhan of every possible adverse circumstance which might be relevant to an estimate of future profitability of the business or of different opinions held by others.  And, moreover, Mr Lobendhan did not give evidence that he held any such expectation. 

VI        RELIANCE

In any event, I am not satisfied that the applicants, in entering into the lease and establishing the business at Dalton Village, relied on anything that Mr Jennings said to them.  Mr Jennings’ observation that Mr Lobendhan did not seem to be paying much attention to the prospective tenancies at the meeting of 30 March is confirmed by the speed with which the Lobendhans moved.  On 14 April they entered into a formal agreement with the Pereras to sell their share in the Yarraville business (CB 630).  This was only a day or two after Mr Lobendhan made his first application to the Bank (10 or 11 April) and before his first meeting with Mr Guzzardi (26 May).

Further, Mr and Mrs Lobendhan supplied detailed business plans to their bank (none of which were disclosed in discovery) which contained detailed and highly optimistic projections for the business.  None of the material in these was sourced from Mr Jennings.  The first application (CB 670) commences with a summary of details.  These include “Business activities” with various percentages of total turnover attributed to grocery, variety, deli and liquor, all of which was Mr Lobendhan’s own assessment.  There was a proposed payroll figure of $166,000 including partners’ wages, again his own figure, as is a gross margins figure of twenty two per cent.  The purchase price of stock and incidentals of $275,000 are his own figures.  The document then continues:

“STRENGTHS OF THE BUSINESS

------------------------------------------

-           Central Location – Caters for a large population base.

-           Only direct competition is Festival store which is away from the new shopping area and only has a small carpark.

-           Ample car parking facilities with good public access to Shopping Village.

-           Negotiable but minimum ten year lease with a option for further five years.

-           Centre provides full Shopping Village facilites.

-           Shop well laid out and will be managed with low but sufficient staff.  All plant and equipment brand new.

-           Under the banner of Foodtown/SSW.  Foodtown/SSW promote stores.  Foodtown/SSW promote good weekly specials.

-           Prices Competitive – SSW prices are competitive with festival on major items.

-           Good stock control in the store.

-           Building has room for future improvements and expansion.

-           Only one public entrance in the front of store providing good security.

OPPORUNITIES OFFERED BY THE BUSINESS

-----------------------------------------------------------

-           Opportunity to improve turnover through extended opening hours and Foodtown/SSW advertising.

-           Direct involvement of the owner operators will provide better customer service.

-           Scanning will be installed to further improve margins and reduce costs of wages.”

There is then a cashflow and loan payback calculation said to be budgeted to commence with a turnover at $70,000 per week and to improve turnover at 3 per cent per annum through Foodtown/SSW advertising and promotion and extended opening hours on Sundays. I have rejected Mr Lobendhan’s evidence of Mr Jennings giving a turnover figure of $70,000, but even on Mr Lobendhan’s version of events that figure was not given until after the Bank had first rejected his application (T 162) so the figure of $70,000 and the detailed budgeted profit and loss account which follows, owe nothing to Mr Jennings.

The second document for the Bank (CB 678) was prepared before Mr Lobendhan saw Mr Guzzardi.  It commences by stating that the potential for the supermarket to be successful “is enormous”.  It continues:

“Location – Centrally located in fast developing residential area. 

Exposure to 4 lane arterial road with 18,000 vehicles per day.

The general road pattern surrounding the site allows ease of access to and from the supermarket.

Currently, a population of 26,000 within a 2 kilometer radius are being serviced by only one other supermarket in Epping. 

Survey suggests high middle income group predominantly in the non professional trades, with young families.” (Emphasis in original.)

After referring to the existing supermarkets and the Quix store it is stated

“Information obtained from Davids V.G.D states that generally an SSW store the size of the Epping store trade between $50,000 to $90,000 without liquor and between $60,000 to $120,000 with liquor. This is dependent on the competition in the area. 

I and my family have personally spoken to friends and friends of people who live in the Epping area and their comments have all been favourable regarding the proposed supermarket as there is no shop within close proximity to service their requirements.”

Then comes the only reference to Mr Jennings or his company.

“I have spoken to Lancia Holdings to ascertain what sort of help they would provide just in case the business takes longer than anticipated to pick up.  They have advised that they are prepared to waive the rent during this period of time however, they feel that this would never eventuate as they are very confident that the shopping village and in particular the supermarket will be extremely successful.”

Then follows a cashflow forecast which is based on a “very conservative start up turnover of $60,000 per week and improving from there on”.  The forecast is said to be based on obtaining seventy per cent of the turnover from Quix store, ten per cent of the turnover from the Festival store and ten per cent of the turnover from Tuckerbag in Lalor.  The application concludes with a copy of the planned activities for the first three days for the then planned opening on 26, 27 and 28 May 1994.  Since Mr Lobendhan did not see Mr Guzzardi until 26 May this document was obviously prepared before visit.

Apart from the general expression of confidence in the future of Dalton Village (which was undoubtedly expressed by Mr Jennings but of which no complaint is made) these detailed plans are entirely the work of Mr Lobendhan and came from sources other than the respondents.

VII      QUANTUM

Should my findings as to liability be set aside on appeal I shall make findings as to quantum.

The applicants’ case is that but for the alleged misleading and deceptive conduct of the respondents they would not have gone into the Dalton Village business and incurred liabilities to their bank, the Australian Tax Office and trade creditors.  Together with interest, and after allowing credit for private expenses and certain trade credits, the net business losses are $439,661.89.  The Lobendhans also claim compensation for their own time and labour expended in the business:  Jaldiver Pty Ltd v Nelumbo Pty Ltd (Heerey J, unreported, 2 December 1992).  Under this head they claim $500 per week each totalling $30,126.72 for Mr Lobendhan and $29,826.32 for Mrs Lobendhan.

Put this way, the applicants’ case is an acceptable way of making a claim for damages under s 82.   Had the applicants succeeded on liability the appropriate award would have been the amount claimed viz $499,614.93. 

VIII     AGREEMENT AND SET-OFF RE STOCK

On 27 July 1995, the day the injunction application was dismissed, Mr Jennings arrived in the early evening at the supermarket with Mr Paul Ritchie who was to manage it on behalf of West Perth Investments.  Shortly afterwards a locksmith arrived and the locks were changed. Stocktakers from George Loton & Co Pty Ltd also arrived at the premises.  Mr Lobendhan’s evidence was that upon Mr Jennings’ arrival Mr Lobendhan asked him whether he was going to buy the stock and Mr Jennings said “Yes.  Stocktakers will be here at 7.00 pm”.  According to Mr Lobendhan, Mr Jennings also agreed to purchase the ancillary equipment and take over the lease from the National Bank on the scanning equipment, for which he agreed to pay at valuation. 

Mr Jennings’ version is that he simply told Mr Lobendhan that he was not prepared to discuss any further aspects until he had completed the task of taking control of the business and the stocktaking.  Mr Lobendhan left the site at about 11.00 pm and at that time he did have a rough idea of the final stock, although this was not formalised until late the following day.  Mr Lobendhan prepared staff wages and cleared out his office.  Mr Jennings told him that they were having problems finding a valuer for the ancillary equipment (that not being within Loton’s field of work) but they would get somebody by Monday.  Mr Lobendhan removed obsolete stock and left.  Mr Jennings denies any agreement to purchase the stock and ancillary equipment or any agreement in relation thereto. 

I find that no such agreement was made.  Mr Jennings firmly asserted (T387) that he had in mind today to seize the stock.  Although distress for rent has been abolished by s 12 of the Landlord and Tenant Act 1958 (Vic) I have no doubt that was in fact Mr Jennings’ state of mind.  I think it highly unlikely that he would have agreed to paying Mr Lobendhan about $100,000 for Mr Lobendhan to use for his own purposes (including payment of his trade creditors) leaving large arrears of rent unpaid. 

The question then arises as to set-off.  It is accepted as a matter of arithmetic that arrears of rent and other liabilities under the lease exceeds the value of the stock.  For a set-off to apply of course the rental and other lease payments would have to be owed by the same person or entity who owned the stock.  In my opinion that requirement has been satisfied here.  Mr and Mrs Lobendhan were the lessees and although they foreshadowed a possible assignment to or substitution of Sanlow, that never took place.  Likewise, although they may have intended that Sanlow would conduct the business, the evidence is that Davids, who was by far the major trade creditor, invoiced the Lobendhans in the name of their registered business name.  The fact that a number of payments were made by Sanlow cheques does not affect my conclusion that Davids intended to sell the stock to Mr and Mrs Lobendhan and they became the owners.

IX        ORDERS

The respondents did not expect any practical recovery on their cross-claim.  They only required a set-off.   There will simply be an order that the application and cross-claim be dismissed and that the applicants pay the respondents’ costs of the application and cross-claim, including reserved costs.

Associate:

Dated:              2 October 1998