FEDERAL COURT OF AUSTRALIA

 

Bluehive Pty Ltd v Dukemaster Pty Ltd [2000] FCA 1307

 

 

TRADE PRACTICES – misleading or deceptive conduct in contravention of s 52 of Trade Practices Act 1974 (Cth) – first applicant leased premises in food court in retail complex – whether particular representations made by respondent – whether representations misleading or deceptive – whether first applicant relied upon representations – assessment of damages under s 82 of Act – whether first applicant responsible for loss or damage sustained – whether representations resulted in loss of a commercial opportunity – whether sale of different business owned by first applicant at loss compensable.

CONTRACT – “understanding” reached between parties – terms of understanding reduced to writing – incorporation of earlier document – whether constitutes legally binding contract.

Trade Practices Act 1974 (Cth) ss 52, 82

Ting v Blanche (1993) 118 ALR 543 at 552 referred to

Sykes v Reserve Bank of Australia (1999) 21 ATPR 41-699 at 42,902-42,903 referred to

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 223 referred to

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 referred to

Yorke v Lucas (1985) 158 CLR 661 at 666 referred to

Gould v Vaggelas (1985) 157 CLR 215 referred to

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 referred to

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 referred to

Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 referred to

Trentham (G Percy) Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 at 27 referred to

Foxtel Management Pty Ltd v Seven Cable Television Pty Ltd [2000] FCA 1159 at pars 130-131 and 143-146 referred to

Masters v Cameron (1954) 91 CLR 353 referred to

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355-6 applied

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 referred to

Browne v Dunn (1893) 6 R 67 referred to

BLUEHIVE PTY LTD (ACN 073 073 300) and GAN HOLDINGS PTY LTD (ACN 080 258 635) v DUKEMASTER PTY LTD (ACN 050 275 226)

 

VG731 of 1998

WEINBERG J

15 SEPTEMBER 2000

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 731  OF 1998

 

BETWEEN:	BLUEHIVE PTY LTD (ACN 073 073 300) FIRST APPLICANT   GAN HOLDINGS PTY LTD (ACN 080 258 635) SECOND APPLICANT
AND:	DUKEMASTER PTY LTD (ACN 050 275 226) RESPONDENT
JUDGE:	WEINBERG J
DATE OF ORDER:	15 SEPTEMBER 2000
WHERE MADE:	MELBOURNE

 

THE COURT ORDERS THAT:

 

1.                  There be judgment for the first applicant in the sum of $315,095.94.

2.                  There be judgment for the second applicant in the sum of $32,685.13.

3.                  Interest on the sums awarded pursuant to orders 1 and 2 be allowed pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) to be calculated in accordance with the provisions of the Penalty Interest Rates Act 1983 (Vic), such interest to be calculated from 23 December 1998.

4.                  The respondent’s cross-claim be dismissed.

5.                  The respondent pay the applicants’ costs of and incidental to this application, and the first applicant’s costs of the cross-claim.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 731 OF 1998

 

BETWEEN:	BLUEHIVE PTY LTD (ACN 073 073 300) FIRST APPLICANT   GAN HOLDINGS PTY LTD (ACN 080 258 635) SECOND APPLICANT
AND:	DUKEMASTER PTY LTD (ACN 050 275 226) RESPONDENT

 

JUDGE:	WEINBERG J
DATE:	15 SEPTEMBER 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

Introduction

1                     The Paramount Shopping Centre (“the Centre”) is a retail apartment complex located at the corner of Bourke and Exhibition Streets in Melbourne.  It consists of 230 apartments above multi-level retail arcades which provide access between Bourke Street and Little Bourke Street.  From Little Bourke Street customers enter an area containing a food court and a supermarket.  Above the food court are two levels offering space for a number of retail shops and offices.

2                     In May 1996, while the Centre was still under construction, the respondent, Dukemaster Pty Ltd (“Dukemaster”), engaged Jones Lang Wootton real estate agents as its agent for the purpose of securing retail tenants.  The first applicant, Bluehive Pty Ltd (“Bluehive”), acting in its capacity as trustee of the Bluehive Unit Trust, expressed an interest in leasing a shop in the food court.  Its directors at that time were Mr Jonathan Gan and Mr Darren Sayers.  Bluehive, at that stage, already operated a takeaway food business known as “Spudnik”.  That business was located in a shopping arcade in Australia on Collins, several city blocks from the Centre.

3                     On 6 May 1996 a representative of Jones Lang Wootton wrote to Mr Gan offering a lease of Shop 1 on the Little Bourke Street level at the Centre.  The base rent for Shop 1 was to be $57,075 per annum.  On 15 May 1996 Mr Gan wrote rejecting that offer, but offering instead to lease Shop 8, which was somewhat smaller than Shop 1, at a rental of $28,600 per annum.  Mr Gan’s counter offer was rejected.  It seems that nothing further came of these negotiations.

4                     Throughout July and August 1996 Mr Gan was engaged in negotiations with the owners of the Southgate Arts and Leisure Precinct (“Southgate”) regarding the possible lease of certain premises.  Those negotiations proved successful and an Indian/Thai takeaway food outlet known as “Chapatis” was established.  Mr Gan engaged a firm of architects, McGauran Soon Pty Ltd, to carry out the fit-out of that business.  A principal of that firm, Mr Mun Soon, was also involved in the fit-out of a number of the shops in the food court at the Centre.  In about August 1996 he told Mr Gan that there were now excellent leasing opportunities available at the Centre, and offered to introduce him to the owners.

5                     That offer by Mr Soon was taken up by Mr Gan.  It led to a meeting which took place at the Centre on 21 August 1996.  That meeting was of critical importance.  The events which took place during the course of that meeting lie at the heart of the present proceeding. 

6                     Bluehive has brought this application against Dukemaster pursuant to s 52 of the Trade Practices Act 1974 (Cth) (“the Act”).  Bluehive alleges that it was induced by various misrepresentations made by Dukemaster to take up the tenancy of a particular shop at the Centre.  That tenancy was of Shop 5 in the food court.  It was conducted as an Italian takeaway food outlet known as “Azzurro”.  That business proved to be a financial disaster.  Bluehive now seeks to recover damages for the losses which it sustained in operating that business.

The representations

7                     Bluehive has identified eleven separate misrepresentations by which it claims to have been induced to enter into occupation of Shop 5.  These misrepresentations are said to be written and oral.  Insofar as they are oral, they are said to have been made during the course of the meeting on 21 August 1996 by Mr A Singh Hii, a director of Dukemaster, and by Mr Peter Cook, a consultant retained by that company to procure retail tenants for the Centre. 

8                     The eleven representations relied upon by Bluehive are as follows:

(a)                that the shopping centre would offer a three level retail arcade;

(b)               that the shopping centre would have a tenant mix including a supermarket and 55 specialty shops;

(c)                that the 55 specialty shops were rapidly being leased and the shopping centre would be fully tenanted when it opened;

(d)               that there would be a bistro/gaming venue located on the Upper Bourke Street level of the shopping centre which would be open to 1.00 am every night of the week;

(e)                that there would be a food court with 8 shops having access to Little Bourke Street, in which Bluehive’s business would have exclusivity in the sale of Italian cuisine;

(f)                 that Bluehive’s business would be one of only two tenants permitted to sell all types of coffee;

(g)                that the grand opening date of the shopping centre would be December 1996;

(h)                that Bluehive could easily meet its rental of $50,000 per annum;

(i)                  that Bluehive would have a turnover of about $8,000 per week;

(j)                 that there would be 450 seats for patrons in the food court and each seat would generate about $14,000 per annum.  This would make a total annual income of about $6,300,000 for the 8 shops in the food court; and

(k)               that the figure for turnover rent of $780,000 per shop was quite easily achievable.

9                     Each of these representations is said by Bluehive to relate to a “future matter” within the meaning of that expression in s 51A of the Act.  Section 51A facilitates proof in cases which are brought under s 52.  It imposes upon a respondent corporation the burden of proving that in making any representation as to a future matter it had reasonable grounds for doing so – Ting v Blanche (1993) 118 ALR 543 at 552 per Hill J; and Sykes v Reserve Bank of Australia (1999) 21 ATPR 41-699 at 42,902 - 42,903 per Heerey J.

10                  Bluehive contends that at the time that each of these eleven representations was made, it was false, or at least misleading.  It says:

(a)                It was never contemplated that there would be a three level retail arcade.  The Upper Bourke Street level, when eventually leased, was used principally as office space.  Dukemaster must have been aware that this would be the case.

(b)               The Centre was never expected to have a tenant mix with 55 specialty shops.

(c)                The retail shops in the Centre were not being rapidly leased.  Dukemaster never at any stage believed that it would be fully tenanted when opened.

(d)               There was no basis for the statement that there would be a bistro/gaming venue located on the Upper Bourke Street level of the Centre.

(e)                Within days of Azzurro commencing to trade on 28 July 1997 Mr Gan discovered that a business conducted under the name of “Boxcar” was being permitted to sell Italian cuisine in direct violation of Azzurro’s rights.

(f)                 Also in direct violation of Azzurro’s rights, it was not one of only two tenants permitted to sell all types of coffee.  Within days of commencing to trade Mr Gan discovered that “Reef Fish & Chips” (“Reef”), a business conducted by the sons of certain directors of Dukemaster, had been given at least tacit permission by Dukemaster to sell espresso coffee.

(g)                Contrary to the representations made on 21 August 1996 the Centre did not open in December 1996, but rather on 28 July 1997.  Even then it was the food court alone, and not the rest of the Centre, which opened on that date.

(h)                Bluehive could never have been expected to easily meet its rental of $50,000 per annum.  Contrary to what was said to Mr Gan on 21 August 1996, the weekly turnover of Azzurro averaged only about $2,500, and not $8,000.

(i)                  Azzurro never achieved a turnover of about $8,000 per week, or anything like that figure.  It averaged about $2,500 per week.

(j)                 Although there were about 450 seats for patrons in the food court, these seats did not generate about $14,000 per annum, but far less than that.  None of the eight shops in the food court ever at any relevant time traded successfully.  The total annual income of those shops never approached $6,300,000.

(k)               The projected turnover rent of $780,000 was not easily achievable.  That figure derived from an estimate of weekly turnover of $15,000.  Azzurro never achieved takings of more than about $2,500 per week.

Representations (a) and (b)

11                  Bluehive claims that representations (a) and (b) were made in writing, and are contained in a large, glossy brochure (“the Brochure”) provided to Mr Gan during the course of the meeting at the Centre on 21 August 1996.  These same representations are said to have been repeated in a book of Tenancy Fit Out Guidelines shown to Mr Gan on that day, and subsequently provided to Bluehive.  Dukemaster concedes that these representations were made.  However, it denies that they were false or misleading.

Representation (c)

12                  Representation (c) is claimed to have been made by both Mr Hii and Mr Cook during the course of the meeting on 21 August 1996.  Dukemaster denies having made this representation.

Representation (d)

13                  Bluehive claims that representation (d) was made in writing.  It is alleged to be implicit in statements which appear in both the Brochure and in the Tenancy Fit Out Guidelines.  Bluehive contends that a representation to similar effect was made orally, by Mr Cook, during the course of the meeting on 21 August 1996.  Dukemaster denies having made this representation.

Representation (e)

14                  Bluehive claims that representation (e) was made by Mr Cook during the course of the meeting on 21 August 1996.  The same representation is said to have been repeated in an undated letter of offer concerning the possible lease of Shop 5 which was later sent by Dukemaster to Bluehive.  Dukemaster concedes that this representation was made.  However it denies that it was false or misleading.

Representation (f)

15                  Bluehive says that representation (f) was made in writing.  It is alleged to have been contained in a letter dated 10 September 1996 which was sent by Dukemaster to Bluehive.  The same representation is said to have been contained in a draft lease dated 23 September 1996 prepared by Dukemaster.  Dukemaster concedes that this representation was made.  However, it denies that it was false or misleading.

Representations (g), (h), (i), (j) and (k)

16                  Bluehive says that each of representations (g), (h), (i), (j) and (k) were made orally during the course of the meeting on 21 August 1996.  It also says that the substance of representation (j) was made in writing, and is to be found in the Brochure.  Dukemaster denies having made any of these representations.

Events prior to the opening of the food court

17                  At the same time as Bluehive was negotiating with Dukemaster concerning the possible lease of Shop 5, it was also negotiating with the owners of Southgate regarding the possible lease of much larger premises.  Those premises consisted of an area of 163 square metres, designed to accommodate a substantial restaurant.  It appears that Mr Gan was considering leasing those premises in order to operate a licensed Malaysian/Indian restaurant there if the deal for Shop 5 at the Centre fell through.  The premises at Southgate were described as “Tenancy MR1”, and will be referred to by that name hereafter.

18                  On 26 September 1996 the retail manager of Southgate, Mr Brian Boardman, wrote to Mr Gan offering to lease Tenancy MR1 for a term of ten years at an annual rental of $162,000.  The letter also made provision for a percentage rent of 8 per cent on sales exceeding $1.8 million.  There was no mention of who would bear the cost of any fit-out of the proposed restaurant. 

19                  On 29 September 1996 Mr Gan replied to the letter of 26 September 1996.  He offered to lease Tenancy MR1 at an annual rental of $120,00 together with a percentage rent of 8 per cent on sales exceeding $2,080,000.  In addition, he offered to pay for the fit-out of the restaurant, save for a contribution of $40,000 to be made by the lessor. 

20                  On 11 October 1996 Mr Boardman wrote to Mr Gan rejecting that offer.  He suggested that unless Bluehive was prepared to go substantially higher there would be no point in discussing the matter further.  On 18 October 1996 Mr Gan wrote back with a revised offer.  That offer was for a term of ten years at an annual rental of $130,000, with a percentage rent of 8 per cent on sales exceeding $2,340,000.  The lessee would pay for the fit-out of the restaurant, save for a contribution of $80,000 to be made by the lessor. 

21                  On 17 December 1996 Mr Boardman replied to Mr Gan’s letter of 18 October 1996.  Mr Gan was informed that his last offer had been rejected, and that Tenancy MR1 would be taken by a Japanese restaurant which would commence trading in March 1997.

22                  Bluehive contends that by reason of having been induced to take up the tenancy at Shop 5 rather than the tenancy at Southgate it has suffered loss or damage.  It says that it was misled into believing that Shop 5 would be a viable business proposition, and that it therefore abandoned its attempts to secure the tenancy at Southgate.  It says that Tenancy MR1 would, in all likelihood, have generated substantial profits, rather than the losses which were sustained at the Centre.  Bluehive claims that it is entitled to recover damages for the opportunity loss which it claims to have suffered by reason of Dukemaster’s misleading or deceptive conduct. 

23                  Several other salient facts should be noted:

·                    In about December 1996 Bluehive entered into contractual arrangements with its architects, McGauran Soon Pty Ltd, to carry out the fit-out of Shop 5. 

·                    In March 1997 Bluehive arranged for finance from the Commonwealth Bank in order to enable that fit-out to proceed.  That work was carried out in May and June of 1997. 

·                    The food court was opened on 28 July 1997.  At that stage, only two retail shops, a business known as “House”, and a small flower shop, had been leased. 

·                    No lease for Shop 5 was ever executed.

·                    Although there was an issue in this proceeding as to whether or not Bluehive entered into an agreement to lease, or whether it was merely a tenant at will, it is plain from the correspondence and Bluehive’s actions that there was an agreement to lease Shop 5 on terms which were clear and definite.  Bluehive was not a mere tenant at will.

Events subsequent to the opening of the food court

24                  It became obvious within days of the opening of the food court that Azzurro would not generate anything like the income necessary if Bluehive were to meet its rental obligations. 

25                  By letter dated 28 July 1997, written on the very day of the opening, Mr Gan complained to Mr Cook that Shop 3, Reef, had installed a cappuccino machine and was selling coffee.  Mr Gan pointed out that this was in breach of Bluehive’s entitlements under the terms of its agreement to lease.  He demanded that the matter be attended to immediately.

26                  Several days later, by letter dated 4 July 1997, but obviously written on 4 August 1997, Mr Gan wrote to Mr Hii in the following terms:

“Dear Mr Hii,

RE:  AZZURRO – SHOP No. 5, THE PARAMOUNT CENTRE, MELBOURNE.

I write to advise of my concerns with two very important issues.

Prior to entering heads of agreement to lease shop No. 5 at The Paramount Centre back in September 1996, I was advised that The Paramount Centre was entering into several leases on the Bourke Street and 1^st floor level  and that I should gear up to be ready to open for trade in early December 1996.  During these early discussions with Mr. Peter Cook, I was told that a Post Officer, Pharmacy and other general retail stores would be opening up in The Paramount Centre.  At no stage was I told that the Centre would be opening up in stages, and that the Food Court tenancies would be the first to commence trade.

Communication from management of The Paramount Centre since September 1996 through to early June 1997 was inadequate, and I relied heavily on information passed on to me by my architect Mr. Soon, from McGauran Soon Architects.  I believe that many things have been said to encourage and influence me to take up a lease in the Centre, and as a result I have been given misleading information.  If I had known that the Centre would not be completely leased by the time I was to commence trading, I probably would not have decided to take up a lease.  In May 1997, it became obvious that the Bourke Street and 1^st floor level was not going to be ready by the time I was to start trading.  However, I had already committed to finance, paid a deposit to the shopfitter, engaged the work of my architect and purchased many equipment for the shop.  It was too late to turn back.

Further to this, having started trading on 28^th July 1997, I noticed that the Reef Fish & Chips was selling coffee.  Management and the Landlord are aware that this is a breach of the terms & conditions of my lease.  To date, nothing has been done by Management to resolve the matter and enforce the removal of the coffee machine.  As a result I have lost coffee sales which is the core of my business at the moment.

You may be aware that I will be looking to the Landlords for compensation over the breach of my lease conditions.  Further, I am prepared to cancel my lease and vacate the premises if the Landlord covers all my costs associated with establishing Azzurro.  I have calculated this cost to be $210,000, to date.

Yours faithfully,

JONATHAN GAN

DIRECTOR”

27                  From that moment relations between Bluehive and Dukemaster deteriorated rapidly.  Mr Gan repeatedly threatened to walk away from Azzurro, and to sue Dukemaster for damages.  Throughout August and September 1997 Bluehive’s solicitors, Best Hooper, wrote to Dukemaster’s solicitors, Kliger Partners, complaining that Bluehive had been misled by Dukemaster into taking up the lease of Shop 5.  For example, on 28 August 1997, Best Hooper wrote in the following terms:

“Dear Sirs,

re:       Bluehive and Dukemaster

            Shop 5, Paramount Retail Centre

We refer to previous correspondence.  For reasons which appear below, our client is not prepared to enter into a lease of the premises on the terms offered by your client, and no longer prepared to continue to occupy the subject premises pending negotiations.  We are instructed to request that your client’s directors contact Mr Gan to discuss:-

(a)               a smooth handover of the possession;

(b)               which of the stock and fittings the landlord wishes to retain; and

(c)                arrangements to reimburse Bluehive for the expenses it has incurred.

Our client and its director were induced to offer to lease the shop by representations from the directors of your, and from its agents, that:-

(i)                 the Food Court would be opening for trade in December 1996, to catch the Christmas business;

(ii)               the whole centre, including the retail shops, would all be opening at about the same time;

(iii)             Shop 5 would have exclusivity in the sale of coffee beverages on the Food Court level.

All of these representations have proved incorrect.

(i)                 The shops in the Food Court were not ready for occupation until late last month.

(ii)               Only one or two retail shops are open for trading.  They attract nothing like the customers which Mr Gan expected when he offered to take a lease.

(iii)             Shop 5’s exclusivity in coffee has been eroded.  First it was to one other outlet, and then 2; but now Reef Fish & Chips, a third outlet (and one run by a representative of your client) is also selling coffee.  This additional competition was never agreed to, and severely reduces Shop 5’s sales.

We further note that your client refuses to deliver a disclosure statement.  In all the circumstances, our client is not prepared to enter into a lease of the premises.

The representations outlined above also induced our client to incur the expenses of:-

-                      fitting out the shop;

-                      stocking the shop;

-                      engaging staff for the shop;

-                      other incidental expenses; and

-                     legal costs and disbursements of our engagement in relation to the draft least, and this communication.

Mr Gan is compiling a list of these expenses, against which will be offset the receipts from sales.  He estimates the nett losses at $210,000.

Yours faithfully

BEST HOOPER

Per: 

J.W. ROBINSON”

28                  Dukemaster responded to this facsimile by rejecting any suggestion that Bluehive would be permitted to walk away from Azzurro, and be compensated for expenses which it had incurred in the fit-out of that business.  Dukemaster did suggest, however, that the dispute with Bluehive might be able to be resolved through negotiations.  Dukemaster suggested that Mr Gan might be prepared to take a lease, on very favourable terms, of a particular retail shop on the Bourke Street level which at that stage was still untenanted.  That retail shop, Shop 11, was in a premium location with a Bourke Street frontage and was approximately 100 square metres in area.

29                  It appears that Mr Gan was interested in this proposal.  He had discussions about the proposal with Mr Joseph Haddad, the proprietor of “Ice”, a takeaway ice cream store in the food court, who expressed an interest in going into business with  Mr Gan.  Mr Haddad had come to Australia several years earlier from Lebanon, where he had been involved in the retail clothing business.

30                  On 13 September 1997 Mr Gan wrote to Mr David Monahan, the Centre manager, offering to lease Shop 11 for a term of two years at a rental of ten per cent of turnover in the first year and $45,000 per annum in the second year.  The letter described the proposed lessee as “Mr Joseph Haddad/Mr Jonathan Gan and/or nominee”.  It proposed six months free rental.  It also proposed that the lessor pay for the cost of the fit-out of the shop which was said to include, inter alia:

“1)      Architect fees & Charges.

2)                 Plasterboard Ceiling.

3)                 Walls, partitions and enclosures within the tenancy and all fixed shelving.

4)                 Flooring (Timber veneer wood) with specified mosaic tiling.  Floor to be raised to level above existing structural slab as approved by Lessee.

5)                 Shopfront and Signage.

6)                 Air Conditioning, ducting and registers.

7)                 Sprinkler Heads and connections.

8)                 All Electrical works and connections.

9)                 Painting – allow 3 coats.

10)             All Lighting.

11)             All plumbing works incl. one wash basin and one restroom.

12)             Fixed Mirrors on wall.”

31                  It is noteworthy that Mr Gan’s letter stipulated that in the event that the lease of Shop 11 went ahead, the landlord’s architect would consult with the lessee regarding shop design, layout, materials and finishings.  It also provided that the final drawings were to be approved by the lessee.

32                  Notwithstanding Mr Gan’s offer, there was a further exchange of correspondence, in somewhat acrimonious terms, between the solicitors acting on behalf of each of the parties.  On 18 September 1997, in a final attempt to stave off possible litigation, a meeting was organised between Mr Gan and Mr Hii.  That meeting took place at the premises of Dukemaster.  Mr Hii recalled Mr Cook as having been present at that meeting, though Mr Cook maintained that he had not attended. 

33                  At the conclusion of the meeting Mr Hii produced a handwritten note of an understanding said to have been reached between the parties.  Both Mr Hii and Mr Gan signed the document.  That handwritten note reads as follows:

“Party A:        Dukemaster P/L

Party B:          Bluehive P/L

Date:  18.9.1997         6.00 pm

Understanding reached as follows.

1.                  Party A will provide a mutually acceptable agreement to lease Shop 11 in line with an offer dated 13^th  Sept. 1997 by Party B.

2.                  Party B will allow Shop 3 – ie. Reef Fish & Chips to continue selling espresso coffee for the term of Party B’s lease with a compensation of $20,000 from Party A.

3.                  Rental for Party B will commence as per lease agreement but rental is to be proportionate to the area leased in respect to the Bourke Street level leasable area only.

4.                  Both parties to keep absolute confidentiality on above agreement.”

34                  The reference to the offer dated 13 September 1997 in paragraph 1 of the note was plainly a reference to the letter of offer which had been sent to Dukemaster by Mr Gan several days earlier.  Although that letter of offer had not named Gan Holdings Pty Ltd (“Gan Holdings”), the second applicant in this proceeding, in terms, as the proposed lessee, it seems clear that Gan Holdings was the “and/or nominee” to which reference was made in that document. 

35                  The reference to “compensation of $20,000” in paragraph 2 of the note related to Bluehive’s complaint that Reef was being permitted to sell espresso coffee in direct violation of Azzurro’s rights under its tenancy agreement.

36                  The reference to rental being “proportionate” to “the area leased in respect to the Bourke Street level leasable area only” in paragraph 3 of the note was intended to compensate Bluehive for the fact that the Bourke Street level was almost entirely untenanted, leaving the food court bare of passing trade.  The idea was that the rental paid by Bluehive for Shop 5 would be reduced, proportionately, to reflect that fact.  In a sense the issue of Bluehive’s rental obligations was largely academic at that stage because it still had available to it, under the terms of the agreement to lease, several months of rent-free occupation.

37                  It seems that Mr Gan assumed that, having arrived at this understanding with Mr Hii on 18 September 1997, the dispute between Bluehive and Dukemaster had been settled.  In October 1997 Mr Gan and Mr Haddad flew to Europe in order to purchase stock for what they believed to be their new retail clothing outlet.  It was Mr Gan’s understanding that in their absence the fit-out of Shop 11 would be carried out.  They were in Europe for several weeks and whilst there they purchased a large quantity of clothing which they intended to sell in the period leading up to Christmas 1997.  Upon their return to Australia they discovered, to their consternation, that no work had been carried out upon Shop 11’s fit-out. 

38                  Gan Holdings contends that it was a party to what was a binding agreement reached on 18 September 1997 which was reflected in the handwritten note which Mr Gan and Mr Hii signed on that date.  It says that it sustained loss and damage by reason of Dukemaster’s failure to carry out its obligations under that agreement.  Gan Holdings was left with a large quantity of clothing which had been imported and which could not be sold through Shop 11.  That clothing later had to be sold at a substantial loss.  Gan Holdings claims, further and in the alternative, that Dukemaster contravened s 52 of the Act by misrepresenting falsely that the fit-out of Shop 11 would be competed prior to Christmas 1997.

39                  Dukemaster rejects these contentions.  It says that whatever understanding may have been reached between Mr Hii and Mr Gan on 18 September 1997, that understanding did not constitute a legally binding contract.  It says that Mr Gan should not have rushed off to Europe to purchase stock before final agreement had been reached regarding the terms upon which Shop 11 would be leased.  It denies that Gan Holdings is entitled to any compensation for any losses sustained. 

40                  Dukemaster also contends, in the alternative, that the only reason that the fit-out of Shop 11 was not completed in accordance with the terms of the understanding was that Mr Gan had insisted, wholly unreasonably, that it be carried out to a standard which was far above anything which could reasonably have been contemplated.  Dukemaster submits that it was well within its rights in refusing to allow itself to be held to ransom. 

41                  After Mr Gan returned from overseas relations between Bluehive and Dukemaster continued to deteriorate.  Although Azzurro traded throughout most of 1998, it never achieved anything more than modest takings.  As indicated earlier, its weekly turnover averaged about $2,500.  Under the terms of its agreement to lease, rent finally became payable as from 1 April 1998.  However, Bluehive never paid any rent.  Finally, on 26 November 1998 Bluehive was forcibly evicted from the premises.  Mr Gan was told to remove all fixtures and other equipment.  He did so, and was ultimately unable to recoup any more than a derisory price for these items. 

42                  It is Bluehive’s case that it sustained significant losses in relation to fit-out costs, costs of plant and equipment, trading losses, proprietors’ wages and entitlements forgone, and breach of the agreement of 18 September 1997 regarding compensation of $20,000 for the sale of coffee by Reef.  Bluehive also claims that it suffered an opportunity loss in respect of the alternative business at Tenancy MR1, and a loss on the sale of Chapatis. 

43                  Gan Holdings claims that it sustained losses in respect of the purchase of clothing in anticipation of taking up the tenancy of Shop 11. 

44                  It is obvious from this brief summary of the background facts that paramount among the many issues in dispute between the parties is what occurred during the course of the meeting of 21 August 1996.  It is necessary to resolve that question before turning to the other matters in contention.

The meeting of 21 August 1996

Mr Gan’s evidence

45                  Mr Gan’s recollection of the events leading up to the meeting of 21 August 1996 was that Mr Soon had arranged for him to meet representatives of Dukemaster with a view to possibly leasing a shop in the food court.  The meeting took place in the early afternoon at Dukemaster’s office in the Centre.  Mr Soon introduced Mr Gan to Mr Hii and Mr Cook.  Mr Cook said that Dukemaster was looking for a tenant to operate an Italian style food outlet in the food court.  He said that there was one tenancy left which was available for that purpose.  He told Mr Gan that the Centre would have its grand opening later that year, and that it would be fully tenanted by that date.  Mr Gan was then shown the Brochure, and the Tenancy Fit Out Guidelines.  He quickly perused these documents.  Mr Cook pointed out, on the floor plan, Shop 5, the location of the proposed Italian food outlet. 

46                  Mr Gan told Mr Cook that he would be interested in being given a tour of the Centre.  He telephoned Mr Sayers and arranged for him to meet both Mr Gan and Mr Cook at the Bourke Street entrance to the retail complex.  Mr Sayers arrived shortly afterwards, and he and Mr Gan were escorted through the Centre by Mr Cook.  At one point Mr Cook mentioned that the Brashs Superstore in Elizabeth Street was closing down, and that negotiations were being finalised for Brashs to take up a large retail tenancy in the Centre.  Mr Cook also told Mr Gan that the retail area would have a pharmacy, a newsagency, an Australia Post outlet, and a number of clothing shops.  At one stage Mr Cook pointed to the Upper Bourke Street level on the western side of the Centre saying that it would be a bistro/gaming area where “pokies” would be open until 1.00 am.  Mr Cook suggested that tenants in the food court would benefit from the presence of the bistro/gaming area.

47                  Mr Gan said that he went with Mr Cook and Mr Sayers down into the area of the food court.  Mr Cook spoke about the various food outlets which would operate from that area, and about the supermarket which would occupy Shop 7.  Mr Cook said that the supermarket would be the only one in the city and that it would attract a large volume of patrons through the Centre.  He spoke of how the grand opening of the Centre would take place in December 1996, and how it would be heavily promoted.  He said nothing to suggest that the food court would be opened before the rest of the retail outlets.

48                  Mr Gan said that the tour of the Centre took about twenty minutes, after which  Mr Sayers departed.  Mr Gan said that he returned with Mr Cook to Mr Hii’s office.

49                  Mr Gan said that when he saw Mr Hii again he intimated that Bluehive might be interested in leasing Shop 5 though this was subject to agreement being reached regarding an acceptable rental.  Mr Gan said that Mr Hii told him that there would be 450 seats in the food court.  By Mr Hii’s calculations, he expected each seat to generate $14,000 per annum.  He expected the food court to be very busy. 

50                  Mr Gan said that Mr Cook then mentioned that Bluehive should “do between $8,000 and $15,000 per week in turnover”.  Mr Hii suggested that on these figures he would expect a rental of about $75,000 per annum.  Mr Hii also said that if the actual turnover were to exceed $15,000 per week, he would want an additional percentage of turnover for rental.

51                  Mr Gan said that the meeting then ended.  He left the offices of Dukemaster with a copy of the Brochure.  Later that day he arranged to meet Mr Sayers in order to discuss what, if anything, should be done regarding the proposed lease.  That evening, Mr Gan and Mr Sayers met at Mr Gan’s home.  Mr Gan prepared a letter of offer in relation to the lease of Shop 5.  He said that the terms set out in that letter reflected the discussion which had taken place earlier that day.  The letter of offer was signed by Mr Gan on behalf of Bluehive.  It is dated 22 August 1996, and was faxed to Mr Hii on that date.

52                  As will become apparent, I consider that the terms of Mr Gan’s letter of offer are critical to the resolution of what took place during the course of the meeting.  For present purposes it is sufficient to note merely that it begins by referring to the previous day’s meeting, and contemplates a lease of seven years commencing at “Centre Opening – Estimated December 1996”.  It proposes a rent-free period, which, at that stage, was for four months, and a gross rent of $55,000 per annum.  It offers what is described as “Percentage Rent”, fixed at “10% of Annual Turnover in excess of $780,000”.  It provides that the lessee will be responsible for the fit-out of the premises. 

Mr Sayers’ evidence

53                  Mr Sayers’ account of what occurred at the meeting accorded generally with that given by Mr Gan.  Mr Sayers said that shortly after lunchtime on 21 August 1996 he was telephoned by Mr Gan and asked to come at once to the Centre.  He left Spudnik at Australia on Collins, and walked to the Bourke Street entrance of the Centre.  He was there introduced by Mr Gan to Mr Cook.  Mr Cook then discussed plans for the Centre.  He emphasised that it was to be a retail complex with 55 retail businesses.  He mentioned specifically that Brashs was closing its city store and that it would take one of the large tenancies facing onto Bourke Street.  He said the Brashs lease “was basically a done deal”.

54                  Mr Sayers said that he then accompanied Mr Cook and Mr Gan on a tour of the Centre.  Mr Cook explained the mix of tenants.  He said there would be a chemist, a newsagent, a branch of Australia Post and fashion shops.  He also pointed out a tenancy on the Upper Bourke Street level which he said would be a bistro and gaming area which would be open till 1.00 am.  Mr Cook said that the leasing programme was proceeding satisfactorily, and that the Centre would be opened in December 1996.  He said that the Centre would be fully let when the opening took place.

55                  Mr Sayers said that the tour then continued into the food court.  Mr Cook told him that Shop 5 was the only tenancy in the food court still available for lease.  Mr Cook said that there would be 450 seats in the food court, and that Dukemaster had done a calculation on the turnover that the food court would generate.  He said that Shop 5 “would have a minimum turnover of $8,000 per week and that we would expect to do $15,000 a week”.  Mr Sayers said the tour of the Centre then ended, and he departed.

56                  One matter which should be noted is that Mr Sayers said that Mr Gan had with him throughout the tour a copy of the Brochure which Mr Sayers later read.

57                  Mr Sayers said that later that evening he went to Mr Gan’s home and discussed with him the events of that day.  They jointly prepared the letter of offer to lease Shop 5 which was sent to Mr Hii the next day.  He said that the terms of that letter reflected the discussion which had taken place during the tour of the Centre.  He said that the offer of $55,000 gross rent per annum which was contained in the letter was calculated upon a base figure of $8,000 turnover per week.  He said that this base figure had been suggested by Mr Cook.  He said that the offer of “Percentage Rent” of 10% of annual turnover above $780,000 was based on Mr Cook’s estimate that the business could expect to generate a turnover of $15,000 per week.

Mr Hii’s evidence

58                  Mr Hii agreed that the meeting of 21 August 1996 had been arranged by Mr Soon.  He said that those present were Mr Gan, Mr Soon and Mr Cook.  Mr Soon had introduced Mr Gan as the son of Mr Barry Gan who owned a number of food outlets in Melbourne.  Mr Soon said that he had suggested that Mr Gan might be interested in leasing a shop in the food court.  Mr Cook then asked Mr Gan what sort of food outlet he had in mind.  Mr Hii said there was then some other discussion between Mr Gan and Mr Cook which he could not recall.  He said that the entire meeting took no more than ten to fifteen minutes.

59                  Mr Hii recalled that when the meeting was over, immediately before Mr Gan and Mr Soon left his office, there was mention made of arranging for Mr Gan’s partner to come up to the Centre.  Mr Hii said that at no stage did he participate in any discussion about the likely turnover of any business in the food court.  He said that nothing was said about the number of seats that would be available, or how much money those seats would generate.  He emphatically denied that there had been any discussion of the rent to be paid for Shop 5.  He also denied that there had been any mention of $780,000, or any other sum, as an annual turnover figure on which turnover rent could be based. 

60                  Mr Hii said that Mr Gan had been in his office only once on 21 August 1996.  He strongly rejected Mr Gan’s claim that he had subsequently returned to Mr Hii’s office for further discussions.  He said that he had not seen Mr Gan again, after 21 August 1996, until about March or April 1997.

Mr Cook’s evidence

61                  Mr Cook said that he met Mr Gan at the offices of Dukemaster on 21 August 1996.  He could not remember when the meeting took place, but he did recall that it had been organised by Mr Soon.  The meeting had gone for about 35-40 minutes.  Mr Cook said that Mr Soon began by indicating that, in his view, the space which Shop 5 would occupy would be well suited to Italian cuisine.  Mr Gan had then spoken of his own background, and of his father’s fourteen food outlets in various food courts throughout Melbourne.

62                  Mr Cook said that after listening to Mr Gan for some time, he had asked him “Well, if you’re going to do this, what sort of turnover would you expect?”.  Mr Gan had replied that he would expect, in the early days, to generate at least $8,000 per week, rising to $10,000 per week in a reasonably short period of time.  Mr Cook said that the meeting had then ended, and Mr Gan and Mr Soon had departed.  Mr Cook said he spoke to Mr Hii for a time and then turned his attention to other matters.

63                  Mr Cook emphatically denied having accompanied Mr Gan or Mr Sayers on a tour of the Centre on that day.  Indeed, he denied having met or spoken to Mr Sayers on that day.  He said that he could not recall have mentioned a bistro or gaming area.  He denied having discussed the types of shops that would occupy the retail section of the Centre.  He denied having mentioned Brashs as a prospective tenant.  He denied having discussed with anyone the likely turnover of Shop 5.  He said that the only time turnover was mentioned was when Mr Gan predicted, in answer to Mr Cook’s question, that the shop would generate $8,000 to $10,000 per week.  Mr Cook denied having said anything about the number of seats in the food court or what income each seat would generate.

64                  In cross-examination Mr Cook’s attention was drawn to Mr Gan’s letter of offer dated 22 August 1996.  He was reminded that Mr Gan had offered a gross rental of $55,000 per annum in that letter.  He was asked if he could explain how that figure had been arrived at if the matter of rent had not been mentioned during the course of the meeting.  He agreed that the figure of $55,000 per annum offered by Mr Gan happened to coincide with the figure which had been recommended as the appropriate rental for Shop 5 by the real estate agents advising Dukemaster.  He then acknowledged that, logically, this figure must have been mentioned during the course of the meeting.  He maintained, however, that he could not recall that having happened.  Importantly, Mr Cook could provide no explanation as to how the “Percentage Rent” of “10% of Annual Turnover above $780,000”, offered by Mr Gan, had been arrived at, and incorporated into that letter of offer.

Factual findings regarding the meeting of 21 August 1996

65                  There is a stark conflict in the evidence concerning what took place during the course of the meeting of 21 August 1996.  It is necessary, as I indicated earlier, that I resolve that conflict before moving to deal with other issues in dispute between the parties.

66                  Experience suggests that in any dispute concerning what was said during the course of a meeting which may have taken place many years ago the most reliable evidence will be a contemporaneous note of that meeting.  Human memory is notoriously frail, and prone to error.  There is an understandable tendency to confuse reconstruction with genuine recollection. 

67                  In the present case Mr Gan’s letter of offer dated 22 August 1996 is analogous, in many respects, to a contemporaneous note of what was said at the meeting.  The contents of that letter of offer warrant close scrutiny. 

68                  The letter of offer referred specifically, and in terms, to a “Percentage Rent” which was nominated to be “10% of Annual Turnover in excess of $780,000”.  The figure of $780,000 equates precisely to $15,000 per week.  That figure of $15,000 per week, equates in turn, with what both Mr Gan and Mr Sayers say they were told was either the upper range of, or expected weekly turnover of, Shop 5.  As noted earlier, Mr Cook could provide no explanation as to how that figure of $780,000 had found its way into Mr Gan’s letter of offer.  There was no reason for Mr Gan to volunteer to pay a rental figure in excess of the required base rent.  His offer to do so had to be in response to something said about that subject during the course of the meeting.  It seems obvious therefore that at some stage a weekly turnover figure of $15,000 had been mentioned.  The figure could only have been mentioned by Mr Hii, or by Mr Cook. 

69                  It is inherently improbable that Mr Cook would have asked Mr Gan what turnover he expected Shop 5 to be able to do.  It is even less likely that Mr Gan would have proffered turnover figures of $8,000 to $10,000 per week.  There was no reason for Mr Gan to have had the slightest idea of what the weekly turnover of a takeaway food shop selling Italian food in this particular food court might be.  His past experience certainly did not qualify him to give any such estimate.  It is reasonable, on the other hand, to assume that Dukemaster had conducted some research into the likely turnover of shops in the food court.  Both Mr Hii and Mr Cook are likely to have had access to that information.

70                  Mr Cook’s recollection of what occurred at the meeting struck me as having been at best somewhat hazy.  For example, he originally denied having accompanied Mr Gan and Mr Sayers on a tour of the Centre.  Indeed, he said that he could specifically recall having remained behind to speak with Mr Hii after Mr Gan and Mr Soon had left the office.  When pressed by me on this matter, however, Mr Cook acknowledged that it was just possible that he had accompanied Mr Gan on a tour of the Centre on that day. 

71                  Mr Hii’s recollection was that when Mr Gan and Mr Soon left his office they were accompanied by Mr Cook.  Mr Hii also recalled mention being made of Mr Gan’s partner being asked to come up to the Centre.  Mr Hii’s evidence supports that of Mr Gan in that regard.  It is fundamentally at odds with the evidence of Mr Cook.

72                  Mr Cook was adamant that he had not mentioned Brashs taking up a lease at the Centre.  His evidence in that regard is difficult to accept.  It is not easy to see how both Mr Gan and Mr Sayers would have known the details of Brashs’ proposed tenancy unless Mr Cook had mentioned it on that day.

73                  Moreover, Mr Cook had a powerful incentive to “sell” the virtues of the Centre as an attractive leasing opportunity.  In August 1996 Dukemaster’s plans for the Centre were in virtual disarray.  With the possible exception of House, and the flower shop, none of the shops on the Bourke Street level had been let.  The Centre was competing with other retail complexes which were offering far more attractive leasing arrangements.  The entire project was shaping up to be a financial disaster.  The probabilities are that Mr Cook would have tried to present the food court as an attractive and viable business opportunity.  It is difficult to accept that throughout the entire meeting on 21 August 1996 neither he nor Mr Hii said nothing at all about either turnover or rent. 

74                  At the same time it must be accepted that there are some factors which may cast doubt upon the credibility of both Mr Gan and Mr Sayers.  For example, there are discrepancies between Mr Gan’s account of what occurred on 21 August 1996, and that given by Mr Sayers.  Mr Gan said that the discussion concerning the weekly turnover figures of between $8,000 and $15,000 took place after the tour of the Centre had been completed.  He also said that both Mr Cook and Mr Hii had participated in that discussion.  Mr Sayers said that Mr Cook had mentioned these figures during the course of the tour.  Mr Sayers was not present at any discussion with Mr Hii after the tour was over.  It is possible, of course, that both Mr Gan and Mr Sayers were correct in their recollections, and that these figures were mentioned separately, both during the tour and subsequently. 

75                  Mr Gan said that he had not collected the Brochure until after the tour had been completed.  Mr Sayers said that Mr Gan had the Brochure with him throughout the tour.  A discrepancy of this type is entirely understandable.  Whether or not the Brochure was in Mr Gan’s physical possession during the tour was scarcely likely to have imprinted itself upon his mind. 

76                  Of far greater significance is the fact that Mr Gan did not mention any of the representations concerning the projected turnover of the business which he now claims were made during the course of the meeting on 21 August 1996, until this application was brought in this Court in December 1998.  Mr Gan made no mention of the representations relating to turnover when, on 4 August 1997, he wrote to Dukemaster complaining of having been misled.  These same representations relating to turnover were not mentioned by Best Hooper when they wrote to Kliger Partners on 28 August 1997 setting out in detail the misrepresentations allegedly made to Mr Gan which had induced him to take up the lease of Shop 5.  Nor were these representations mentioned in 1998 when Mr Gan instituted proceedings against Dukemaster in the Victorian Civil and Administrative Tribunal. 

77                  Mr Gan explained that he had not mentioned the representations as to turnover at an earlier stage because he had assumed (correctly, as it turned out) that both Mr Hii and Mr Cook would deny having made those representations.  In order to avoid getting into a pointless slanging match with Mr Hii and Mr Cook, Mr Gan had confined his complaints to those representations which could not be the subject of any dispute, including in particular those which had been made in writing.

78                  It must be said that Mr Gan’s explanation for not having previously mentioned the representations as to turnover is not wholly convincing.  However, when balanced against the considerable weight which must be given to his letter of offer dated 22 August 1996, the only conclusion which is available on the evidence is that Mr Gan’s account of what occurred during the course of the meeting on 21 August 1996 is substantially accurate.  Where that account conflicts with the account of that meeting given by Mr Hii or by Mr Cook, I prefer the evidence of Mr Gan.  It follows that I am satisfied that representations (g), (h), (i), (j) and (k) were all made.

Were the representations which were made during the course of the meeting misleading?

79                  It is clear that the applicant in a claim under s 52 of the Act has the onus of proving not just that the representations which are relied upon were made, but also that they were false or misleading.  The applicant may discharge that onus in relation to that second issue by reliance upon s 51A of the Act.

80                  Section 51A provides that where, as in the present case, a corporation makes a representation with respect to any future matter, and the corporation does not have reasonable grounds for doing so, the representation should be taken to be misleading.  Section 51A(2) provides that the corporation making the representation must, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for doing so.

81                  The representations which were made during the course of the meeting of 21 August 1996 all relate to future matters.  So too do the other representations most of which were made in writing.  It follows that s 51A of the Act applies to each and every representation made.

82                  It is trite law, of course, that the applicant in a case under s 52 of the Act is not required to prove that the respondent knew, or ought to have known that the representations made by it were misleading – Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 223; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197; and Yorke v Lucas (1985) 158 CLR 661 at 666.  Liability under s 52 is, in that sense, strict.  At the same time, however, there is a difference between mere non-performance of a promise, and proof that a statement is false or misleading.  That distinction must constantly be borne in mind.

83                  Dukemaster’s case is that none of the oral representations attributed to Mr Hii and Mr Cook were made by either of those men.  It is scarcely surprising, therefore, that it led no evidence to show that it had reasonable grounds for making these representations.  Dukemaster must therefore be deemed not to have had any such reasonable grounds.  It follows that these representations must be taken to be misleading.

84                  The same conclusion may be applied to a number of the other representations relied upon by Bluehive.  Having regard to my findings regarding the oral representations, however, it is unnecessary for me to pursue that issue further.

Reliance on the representations

85                  The next issue to be determined is whether Bluehive has proved that it acted to its detriment in reliance upon one or more of these false or misleading representations.  The misleading conduct need not be the only inducement.  It is sufficient if it plays a part in the applicant’s loss or damage, even if only a minor part – Gould v Vaggelas  (1985) 157 CLR 215.

86                  It was not suggested on behalf of Dukemaster that were I to find that the representations concerning the projected weekly turnover of Shop 5 had been made, I should not then find that Bluehive had relied upon these representations. 

87                  It is clear that in or about December 1996 Bluehive entered into contractual arrangements with its architects in relation to the fit-out of Azzurro.  In March 1997 it organised finance with the Commonwealth Bank for that fit-out.  Bluehive entered into occupation of the premises on 28 July 1997.  Mr Gan said that the representations as to projected weekly turnover were an important factor in his decision.  It is scarcely likely that Bluehive would have done any of these things had Mr Gan not been led to believe that Azzurro would generate the kind of weekly turnover that either Mr Hii or Mr Cook had discussed during the course of the meeting on 21 August 1996. 

88                  It may be that the same finding would not be made in relation to some of the other representations relied upon by Bluehive.  It seems clear, for example, that the representation regarding the opening date of the Centre was no longer operating upon Mr Gan’s mind when he committed Bluehive to taking up the lease of Shop 5.  It was clear by that date that the Centre would not be operational for a very considerable period of time.  Dukemaster can take little solace from this finding.  It is plain that Bluehive was induced to enter into occupation of Shop 5, or was influenced to do so, by the conduct contravening s 52, or at least by some of the representations made to Mr Gan during the course of the meeting.

Causation of loss or damage

89                  Bluehive is also required to prove that the loss or damage which it claims to have sustained was brought about “by” the contravening conduct of Dukemaster.

90                  In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 Mason CJ said:

“The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person.  “By” is a curious word to use.  One might have expected “by means of”, “by reason of”, “in consequence of” or “as a result of”.  But the word clearly expresses the notion of causation without defining or elucidating it.  In this situation, s. 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E. & M. H.) Pty Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act.  Had Parliament intended to say something else, it would have been natural and easy to have said so.”

91                  It has been recently held that damages under s 82 of the Act are not to be confined by analogy with actions in contract or tort – see Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.  The award of damages is a discrete statutory remedy, to be assessed in accordance with principles which have developed over time.

Bluehive’s claims

92                  Bluehive originally claimed that it had suffered loss and damage as follows:

(a)                loss of fit-out costs, costs of plant and equipment after allowing

            for depreciation, and sale of certain equipment:                                        $107,365.95

(b)               trading losses from 28 July 1997 to 28 November 1998:                          $42,221.89

(c)                proprietor’s wages and entitlements forgone – Mr Gan:                             $46,143.00

(d)               proprietor’s wages entitlements forgone – Mrs Gan:                                  $21,067.00

(e)                breach of compensation agreement by Dukemaster re

            sale of coffee by Reef:                                                                               $20,000.00

(f)                 opportunity loss in respect of alternative business:                                    $237,436.00

(g)                loss on sale of Chapatti’s:                                                                          $39,000.00

The total sum originally claimed by Bluehive was:                                                 $510,233.84.

93                  During the course of the trial Bluehive amended its claim by reducing the amount of trading losses from $42,221.89 to $38,402.49.  The sum of $3,819.40 was incurred on behalf of Gan Holdings as travel expenses in order to enable Mr Gan and Mr Haddad to travel to Europe to purchase clothing, and was not properly a trading loss compensable in favour of Bluehive.  On the other hand, that sum of $3,819.40 was to be added to the claim for damages brought by Gan Holdings.

94                  Bluehive also amended its claim in respect of opportunity loss.  Ultimately, that claim was put forward on two hypotheses.  The first of these would have resulted in an opportunity loss of $123,361, and the second an opportunity loss of $109,490. 

95                  I shall deal with each of Bluehive’s claims separately.

Cost of fit-out of plant and equipment

96                  I am satisfied that by late 1996 Bluehive had committed itself irrevocably to the fit-out of Shop 5.  It engaged the services of architects for that purpose.  In March 1997 it arranged finance with the Commonwealth Bank in order to meet the cost of that fit-out.  The fit-out itself took place in May and June 1997. 

97                  In my opinion Bluehive is entitled to recover the amount of $107,365.95, in accordance with its claim, as the cost of fit-out, plant and equipment, as losses incurred by reason of Dukemaster’s contravention of s 52 of the Act.

Trading losses

98                  Dukemaster did not deny that trading losses in the amount claimed had been incurred.  It submitted, however, that these losses were not brought about as a result of any of the representations made by Mr Hii or Mr Cook.  It submitted that they resulted from the fact that Azzurro had been badly run.

99                  I accept that there may be circumstances in which a chain of causation may be severed by the conduct of the party claiming to have suffered loss or damage.  In Argy v Blunts and Lane Cove Real Estate Pty Ltd  (1990) 26 FCR 112, a case involving a solicitor who was found to have relied on a misleading zoning certificate attached to a sale contract, the Court said (at 191):

“A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract.  In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.”

100               There is nothing, however, to suggest that any such circumstances apply in the present case.  The evidence before me strongly suggests that none of the shops in the food court operated profitably throughout the period 1997/1998.  Given Dukemaster’s failure to attract retail tenants to the Bourke Street level of the Centre that is scarcely surprising.

101               In my opinion Bluehive is entitled to recover the sum of $38,402.49 as trading losses incurred in the period 28 July 1997 to 28 November 1998.

Wages forgone by Mr and Mrs Gan

102               Bluehive claims that it is entitled to recover the proprietor’s wages and entitlements forgone for each of Mr and Mrs Gan.  The basis for that claim needs to be understood.  Neither Mr Gan nor his wife are parties to this proceeding.  The figure of $38,402.49 which is claimed as the trading losses suffered by Bluehive does not include any component for salary paid to Mr and Mrs Gan.  The evidence is that they were not paid a salary by Bluehive out of any takings generated by Azzurro, but rather out of the takings generated by Bluehive’s other food outlets.

103               To the extent that Mr and Mrs Gan were paid a salary out of the takings generated by those other businesses, Bluehive’s takings from those businesses were reduced.  Moreover, the extent of the loss sustained by Azzurro was understated.  It seems clear that the salaries paid to Mr and Mrs Gan should be added to the trading losses sustained by Azzurro in order to reflect the true magnitude of that loss.

104               Bluehive relied, in support of this claim, upon expert evidence given by Mr Kenneth Wood, a Director of the Corporate Finance Division of Ernst & Young, and a principal of that firm.  Mr Wood prepared a detailed report which dealt with the issue of wages forgone by Mr and Mrs Gan.  It is not necessary to set out in this judgment the detailed calculations made by him.  It is sufficient to say that his report proceeded upon the assumption that Mr Gan acted as manager and operator of Azzurro, while Mrs Gan acted as a “service hand”.  Throughout the period that Azzurro traded, being 28 July 1997 to 26 November 1998, Mr Gan worked full-time for 54 hours per week during the first ten weeks and 45 hours per week thereafter.  Prior to the opening of the Centre, he worked full-time for one week in setting up Azzurro. Mrs Gan worked part-time for 35 hours per week for the first ten weeks and 25 hours per week thereafter.

105               In addition to the hours worked in the shop Mr Gan spent approximately three to four hours per week on bookkeeping, banking and general management and administration of Azzurro outside working hours.  Mr Wood took into account the fact that Mr Gan was away from the business between 12 October 1997 and 31 October 1997. 

106               In order to determine an appropriate minimum wage for Mr and Mrs Gan Mr Wood referred to Sector G of the Industrial Relations Commission’s Retail Trade Industry Award.  Based on Mr Gan being characterised as a retail trade employee level 10, Mr Wood calculated reasonable wages owing at $41,105.  Based on Mrs Gan being characterised a retail employee level 4 he calculated reasonable wages owing at $18,722.  Mr Wood added to these amounts superannuation of $1,983.62 for Mr Gan, and $891.42 for Mrs Gan, and annual leave of $3,055.09 for Mr Gan and $1,453.90 for Mrs Gan.  Wages and entitlements for Mr Gan came to a total of $46,143, and wages and entitlements for Mrs Gan came to a total of $21,067. 

107               Dukemaster relied upon the evidence of Mr Michael Smith, a Director of Horwaths, to rebut the evidence concerning wages forgone by Mr and Mrs Gan given by Mr Wood.  In my view the cross-examination of Mr Smith demonstrated that in so far as his opinions were in conflict with those of Mr Wood, the opinions expressed by Mr Wood should be accepted.

108               In my opinion Bluehive clearly incurred an obligation to Mr and Mrs Gan to remunerate them for the work which they had carried out at Azzurro.  Bluehive is entitled to be compensated by Dukemaster to recompense it for the salary which Mr and Mrs Gan were paid, or to which they were entitled, for that work.

109               In my opinion Bluehive is entitled to recover the sum of $67,210 from Dukemaster as wages and other entitlements forgone by Mr and Mrs Gan.

The compensation agreement relating to the sale of coffee by Reef

110               As noted earlier it was submitted on behalf of Dukemaster that the understanding reached between Mr Gan and Mr Hii on 18 September 1997, whereby Dukemaster agreed to pay Bluehive the sum of $20,000 in return for Azzurro forgoing its right to be one of no more than two food shops that would sell all types of coffee, was not contractually binding.  It was said that the written note which recorded that understanding was expressed in terms which were too vague and uncertain to give rise to any legally binding obligation.  It was contended that the note merely recorded an agreement “in principle” to a number of matters, each of which would have to be fleshed out in much greater detail, before it could be said that an enforceable bargain had been struck. 

111               The question to be determined is whether, in arriving at their understanding, the parties had reached an appropriate degree of finality. This is relevant to the question whether the parties intended to reach, and did reach, an agreement capable of forming a binding and enforceable contract.  It is clear that the parties’ intention to make a concluded agreement does not necessarily mean that they have actually reached agreement on such terms as are legally necessary to constitute a contract.  Where a substantial number of significant issues remain open and undetermined, a court may conclude that the parties have not agreed on all the important terms sufficient to establish a binding contract.

112               In my opinion Dukemaster’s contention that the understanding reached between Mr Hii and Mr Gan on 18 September 1997 was too uncertain to constitute a binding agreement must be rejected.  I approach this issue on the basis that there is a general unwillingness on the part of courts to hold commercial agreements void for uncertainty – Trentham (G Percy) Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 (at 27); and Foxtel Management Pty Ltd v Seven Cable Television Pty Ltd [2000] FCA 1159 at pars 130-131 and 143-146 per Beaumont J.  It is open to parties to be taken as bound by an informal agreement on the main matters, expecting to make a further contract which, by consent, might contain additional terms.  See generally Masters v Cameron (1954) 91 CLR 353.

113               Other parts of the understanding which were reduced to writing were far from vague or uncertain.  For example, the note referred specifically to Mr Gan’s letter of offer dated 13 September 1997 and incorporated that letter of offer by reference.  That letter of offer contained detailed proposals for the lease of Shop 11.  There was nothing vague or uncertain about the terms upon which the lessee offered to lease that shop. 

114               I am satisfied that there was nothing vague or uncertain about Dukemaster’s offer to compensate Bluehive for its conduct in having condoned a violation of Bluehive’s entitlements under its tenancy agreement in relation to the exclusivity of the sale of all types of coffee.  The sum of $20,000 was agreed between Mr Gan and Mr Hii as being the amount which was necessary and appropriate to compensate Bluehive.  There were no preconditions to the payment of that sum, other than Bluehive forgoing its rights to enforce its tenancy agreement.  I can see no reason why Bluehive should not now recover that sum from Dukemaster.

Opportunity loss in respect of alternative business

115               Bluehive submitted it had suffered loss or damage as a result of having taken up the lease of Shop 5 rather than negotiating for, and possibly securing, the lease for Tenancy MR1 at Southgate.  It submitted that this opportunity loss, sometimes colloquially described as “the loss of a chance”, should be the subject of compensation under s 82 of the Act.

116               Mr Wood concluded in his report that Bluehive had indeed suffered a loss of commercial opportunity as a result of not taking up the lease for Tenancy MR1.  He originally calculated that loss as being $384,172.  That calculation was based upon an estimate of forgone profits of $157,436 to which was added $390,000 which Mr Wood assessed as being the value of the alternative business as at November 1998.  From that total he deducted $163,264 for the additional set-up costs required to establish that alternative business. 

117               In calculating the opportunity loss Mr Wood reviewed:

·               Mr Gan’s offer dated 29 September 1996 to lease Tenancy MR1 and other related correspondence;

·               average weekly and monthly takings for several periods during 1993 and 1994 of various restaurants located at Southgate; and

·               a budget forecast of sales and expenses for the alternative business which had been prepared by Mr Gan.

118               Mr Wood was instructed that had Bluehive not agreed to lease Azzurro it would have continued ongoing negotiations for the lease of Tenancy MR1.  Had that lease been procured, Bluehive would have operated a licensed restaurant specialising in Malaysian and Indian food.  Mr Wood was asked to assume that the alternative business would have generated an annual turnover of $1,450,000, a figure based upon information provided by Southgate management regarding the performance of other comparable restaurants operating at Southgate.

119               Acting on these instructions, Mr Wood assumed that the alternative business would have returned a net profit, before owner’s benefit, of 7.99 per cent of sales income.  That figure was based on the FMRC Business Benchmarks for Restaurants (1997 and 1998).  Mr Wood calculated the value of the alternative business upon the basis of the future profits that it would have been expected to earn.  He analysed the sale of restaurants and cafes in Melbourne in order to ascertain the appropriate multiple of the weekly takings of businesses of this type.  He ultimately adopted a multiple of 14.5.  That was a discount of approximately 10 per cent of the weighted average of 16 which typically applied in relation to restaurants and cafes.  Applying that multiple to the weekly turnover of the alternative business (calculated as $1.45 million divided by 52, equalling $27,885) led to a value being given to that business of $404,332. 

120               Mr Wood said that an alternative method of valuing the business would be to assess the earnings multiple of comparable businesses.  That technique would lead to a valuation of $380,000.  Mr Wood took a mid point between $380,000 and $404,332 and fixed a valuation for the alternative business of $390,000.  It was upon the basis of this methodology that he initially came to value the total opportunity loss at a figure of $384,172.

121               After preparing his initial report Mr Wood gave further consideration to the issue of the quantum of opportunity loss.  He concluded that some of his earlier assumptions had been unwarranted.  He acknowledged that he had arrived at a figure for opportunity loss which was not sustainable.  He produced a revised set of calculations which resulted in valuations which were significantly lower than those originally contained in his report.  These revised calculations were based upon three alternative hypotheses.

Hypothesis 1

122               An original opportunity loss based on $120,000 rent and fit-out assistance of $40,000 as per the original report would produce:

·        forgone profits of alternative business:  $157,436

·        value of alternative business :  $390,000

·        less set up costs:  ($310,000)

Opportunity loss = $237,436.

Hypothesis 2

123               An amended opportunity loss based on $162,000 rent and fit-out assistance of $50,000:

·        forgone profits of alternative business:  $100,361

·        value of alternative business:  $323,000

·        less set up costs: ($300,000)

Opportunity loss = $123,361.

Hypothesis 3

124               An amended opportunity loss based on $170,000 rent and fit-out assistance of $60,000:

·        forgone profits of alternative business:  $89,490

·        value of alternative business:  $310,000

·        less set up costs:  ($290,000)

Opportunity loss = $109,490.

125               It is clear that Bluehive had absolutely no chance of obtaining the lease of Tenancy MR1 on the basis of the assumptions contained in hypothesis 1.  A rental of $120,000, and fit-out assistance of $40,000, was never going to be accepted by the lessor who had, after all, already rejected an offer of $130,000 rental as insufficient.  Hypothesis 1 may therefore be disregarded when considering the value of any opportunity loss.

126               Bluehive’s prospects of securing Tenancy MR1 would plainly have been greater if the assumptions contained in hypothesis 3, rather than those contained in hypothesis 2, were to be adopted.  Even so Mr Gan’s insistence upon the lessor contributing to fit-out an amount of either $50,000, as per hypothesis 2, or $60,000 as per hypothesis 3, renders it far from certain that had Bluehive made an offer in those terms, it would have succeeded in securing that lease.  It must be remembered that the lessor’s initial offer to Bluehive of $162,000 per annum rental did not suggest any preparedness on its part to make any contribution to the cost of fit-out.

127               In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 the High Court explained the principles which govern the award of damages for loss of an opportunity to obtain a commercial advantage or benefit in the context of s 82(1) of the Act.  In the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ it was held that loss of an opportunity to obtain a commercial advantage is “loss or damage” within s 82(1).  It was further held that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contact, tort or contravention of s 52(1) of the Act, should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity if it had been pursued.  Their Honours observed at 355-6:

“…the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage.  Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage.  However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.  It is no answer to that way of viewing an applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

The conclusion which we have reached on this question finds support in other considerations.  The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over-compensation or under-compensation to an applicant who has been deprived of a commercial opportunity.  Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages.

On the findings made by the trial judge, the Pagini contract would have been entered into but for the contraventions of s. 52(1).  Although, on the probabilities, it would not have been completed, there was a significant chance that it would be completed.”

128               When one applies these principles to the facts of the present case it becomes clear that Bluehive has sustained some loss or damage as a result of Dukemaster’s contravening conduct.  There was “a significant chance” that Bluehive would have acquired the lease of Tenancy MR1 had it not been induced by that contravening conduct to abandon its negotiations for that tenancy, and to take up instead the tenancy at the Centre. 

129               I am satisfied that the loss or damage sustained by Bluehive consists of the loss of a commercial opportunity which had “some value” which was not “negligible”.  I am unable to accept the evidence of Mr Smith to the contrary.

130               The value to be attributed to that lost opportunity is to be ascertained by reference to the probability that the lease of Tenancy MR1 would have been secured, had the contravening conduct not occurred.  The value of that lost commercial opportunity is also, of course, to be ascertained by reference to the likelihood that the restaurant business at Southgate would have been operated successfully.

131               I consider that it is appropriate to assess Bluehive’s loss on the basis of the assumptions contained in hypothesis 3, as formulated by Mr Wood.  That hypothesis seems to me to have had the greatest chance of success in terms of securing Tenancy MR1 for Bluehive.  According to Mr Wood the value of the lost opportunity of not establishing an alternative business at Southgate on the basis of that hypothesis was $109,490.  In my view, that figure should be adjusted by deducting from it an amount which reflects the very real chance that even if an offer in the terms of hypothesis 3 had been made (a proposition which itself is far from self-evident given Mr Gan’s reluctance to move above $130,000 in earlier negotiations), that offer would not have been successful.  Mr Wood’s figure should also be discounted to reflect what I consider to be the uncertainty associated with the assumption that the restaurant would have turned over $1.45 million per annum.

132               Doing the best that I can, in accordance with the principles stated in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, and recognising the uncertainty associated with this method, the amount arrived at by Mr Wood should be reduced by twenty-five per cent to reflect the additional vagaries associated with this method of calculating Bluehive’s opportunity loss.  It follows that Bluehive is entitled to recover the amount of $82,117.50 as the opportunity loss of not establishing an alternative business at Southgate.

Loss on the sale of Chapatis

133               Mr Gan gave evidence before me that Bluehive had sold Chapatis in December 1998 in order to repay funds which it had borrowed from the Commonwealth Bank in order to finance the fit-out of Azzurro.  Mr Gan regarded the sale as one which had been “forced” upon him.  He claimed that Bluehive had received significantly less than the true value of Chapatis from the proceeds of that sale.  In fact, Chapatis was sold for $115,000.  Mr Wood valued Chapatis as having an unforced sale value (that is, a willing but not anxious seller and a willing but not anxious purchaser) of $154,000.  Bluehive therefore claimed to have suffered a loss of $39,000 by reason of Dukemaster’s contravening conduct. 

134               In my view this particular claim is devoid of any substance.  The evidence before me did not support the conclusion that the sale of Chapatis was in any sense “forced”.  Mr Gan may have felt that he was under some sort of moral obligation to the bank to pay out the loan forthwith.  However, there was nothing to suggest that he was being pressured by the bank to do so.  Moreover, I am not satisfied that the price for which Chapatis was sold did not reflect its true value.  The evidence was that Mr Gan did not advertise the business.  He sold it to an acquaintance for the sum which was first offered.  In my opinion it would be entirely unjust to expect Dukemaster to compensate Bluehive in respect of any loss said to have been incurred in these circumstances. 

135               It follows that Bluehive is not entitled to any damages arising out of the sale of Chapatis. 

Gan Holdings’ claim

136               Mr Gan gave evidence of having travelled with Mr Haddad to Europe in order to purchase stock for Shop 11.  He said that he had been led to believe that Shop 11 was to be fitted out, in accordance with the terms of the agreement of 18 September 1997, while they were overseas.  That fit-out did not occur.  The reason given by Mr Hii was that Mr Gan had demanded that the fit-out be on a scale which was wholly unreasonable. 

137               As indicated earlier, I am satisfied that there was a contractually binding obligation resting upon Dukemaster to carry out the fit-out of Shop 11 in time to ensure that trading could commence shortly after Mr Gan had returned from Europe.  Mr Gan had negotiated this agreement with Mr Hii on behalf of Gan Holdings which was therefore a party to the contract. 

138               There is nothing in Mr Gan’s offer to lease Shop 11 dated 13 September 1997 which suggests that specific monetary limits upon aspects of the fit-out of the type which Dukemaster subsequently sought to impose were the subject of any agreement between the parties.  What seems to have happened is that Mr Hii agreed on 18 September 1997 to the fit-out of Shop 11 in accordance with Mr Gan’s specifications.  Mr Hii subsequently discovered that the costs of that fit-out were significantly greater than he had expected.  That led him to seek to attempt to resile from the agreement.

139               It was Mr Hii’s responsibility to ensure that any monetary limits upon the fit-out which he considered appropriate were specified, and recorded when the agreement of 18 September 1997 was negotiated.  I accept, of course, that Mr Hii did not agree to give Mr Gan a blank cheque when it came to the cost of the fit-out.  He did, however, agree to meet the cost of that fit-out without regard being had to any specific monetary limits.  The only limitation upon costs was that they be, in general terms, reasonable. 

140               There was no evidence or other material before me to suggest that the fit-out of Shop 11 which was specified by Mr Gan was in any way unreasonable.  No expert was called on behalf of Dukemaster to support that proposition.  Mr Hii’s evidence regarding this matter emerged in an unsatisfactory manner and, in certain respects, almost as an afterthought.

141               It was not suggested to Mr Gan in cross-examination, as it should have been, that his demands regarding the fit-out of Shop 11 had been unreasonable.  See generally Browne v Dunn (1893) 6 R 67.  I consider that it would be wrong to permit Dukemaster to rely upon this contention in these circumstances. 

142               In my opinion Gan Holdings is entitled to recover the sum of $32,685.13 (which includes the sum of $3,819.40 for travelling expenses previously included in Bluehive’s claim for trading losses) as damages for Dukemaster’s failure to meet its obligations under the compromise agreement of 18 September 1997.  Alternatively, that same amount is recoverable as loss or damages sustained by Gan Holdings by reason of Dukemaster’s contravening conduct under s 52 of the Act.  That sum is the amount expended by Mr Gan and Mr Haddad in travelling to Europe and purchasing stock for Shop 11, less the relatively modest sum recovered as a result of the sale of that stock. 

Dukemaster’s cross-claim

143               Dukemaster has cross-claimed for unpaid rent owed by Bluehive for Shop 5 during the period 1 April 1998 to 26 November 1998.  Any amount payable for rent would be added to Bluehive’s losses, and could be claimed by it.  In addition, any rent payable would be “proportionate” rent under the compromise agreement.  Dukemaster has produced no evidence to enable any proportionate figure to be calculated. 

144               The cross-claim should be dismissed.

I certify that the preceding one hundred and forty-four (144) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate:

Dated:              15 September 2000

Counsel for the Applicant:	Mr J.G. Larkins QC, with Mr R. Miller
Solicitors for the Applicant:	Taylor Splatt & Partners
Counsel for the Respondent:	Mr R.B. Phillips
Solicitors for the Respondent:	Kliger Partners
Date of Hearing:	17, 18, 19, 20, 21, 24, 25 and 26 July 2000
Date of Judgment:	15 September 2000