Athanasiadis v Kakalis
[2001] VSC 324
•5 September 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 4053 of 2001
| Chris Athanasiadis | Appellant |
| v | |
| Jeff Kakalis | Respondent |
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JUDGE: | Eames J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 August 2001 | |
DATE OF JUDGMENT: | 5 September 2001 | |
CASE MAY BE CITED AS: | Athanasiadis v Kakalis | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 324 | |
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Appeals – Magistrate’s Court Act 1989, s.109 - Trade Practices (Vic) – misleading or deceptive conduct – Fair Trading Act 1985, s.11 - loss and damage – causation – whether tenant’s lost opportunity to sell business following landlord’s lawful re-entry was caused by misrepresentations of landlord – basis and quantum of tenant’s claim for damages varied during hearing but without amendment to pleadings – uncertainty as to basis on which counterclaim advanced - whether finding of causation as a question of fact was open to be reviewed on appeal – issue not adequately addressed before magistrate.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M Osborne | McGrath Carey Katz |
| For the Respondent | Mr WG Stark | Carey Van Rompaey |
HIS HONOUR:
This appeal on questions of law is brought pursuant to s.109 of the Magistrates’ Court Act 1989. The appeal arises out of proceedings heard before a Magistrate sitting at Melbourne Magistrates’ Court over four days in late 2000. Her Worship had before her a claim and counterclaim relating to disputes concerning a lease of a petrol station at 177A Mt Alexander Road, Flemington. The appellant (who I will hereafter refer to as “the landlord”) entered an agreement of lease with the respondent (hereafter referred to as “the tenant”) on 26th September 1996. The lease was for a three year term, commencing 1 March 1996, and provided options for renewal. In late 1998 disputes arose between the parties, the primary issue being the tenant’s complaint that there was water in the underground petrol storage tanks and his demand that the landlord attend to that problem.
The landlord eventually caused a contractor to effect repairs to the tanks, but the tenant considered that the time taken to effect those repairs was unreasonably long and caused him to suffer losses due to the interruption to his business. He demanded that the landlord compensate him for those losses. Whilst these negotiations were continuing the tenant was seeking to exercise a right of renewal of the lease. Whether the option had been exercised, and a new lease had come into effect, was disputed before the magistrate, but is no longer a question of any significance. The tenant contended that the renewal had been effected although negotiations as to the question of compensation prevented the execution of written documents to confirm that fact.
Whilst the dispute as to compensation was continuing the tenant received advice from his solicitor that he was under no obligation to pay rent from the time of the renewal of the lease, i.e. 1 March 1999. Acting on that advice, and with the intention of putting pressure on the landlord so as to have him agree to pay compensation, the tenant ceased making payments of rent to the landlord, but paid sums to his own solicitor with respect to the rental, to hold in trust until after the tenant’s claims for reimbursement for lost profits had been resolved. Additionally, the tenant commenced proceedings in Victorian Civil and Administrative Tribunal (VCAT) to recover compensation for losses suffered by reason of the delay in rectification of the tanks. However, on 2 November 1999, before those proceedings were heard, the landlord re-entered the property, exercising his right to do so for non-payment of rent.
The landlord issued proceedings in the Magistrates’ Court, claiming sums owing for rent under the lease, together with sums owing with respect to rates, and the cost of retaking possession. In addition, the landlord claimed sums by way of damages arising out of an agreement entered between the tenant and an advertising poster company in breach of the terms of the lease, and also claimed costs said to have been occasioned by reason of the removal of the tanks by the tenant.
In his written defence to the landlord’s claim the tenant pleaded that on 6 October 1999 the tenant had exercised his right of renewal of the lease for a further term of 3 years commencing 1 March 1999. The tenant then pleaded that the “new lease” was subject to the Retail Tenancies Reform Act 1998 (hereafter referred to as “the new Act’). Pursuant to s.17 of that Act, so it was pleaded, the tenant had been under no obligation to pay rent falling due since 1 March 1999, because that section made the liability to pay rent subject to the tenant having been provided with a disclosure statement setting out a range of details relating to the lease which were listed in a schedule to the Act. The tenant pleaded that the re-entry, therefore, was made in breach of the lease because the tenant had not failed to pay any rent which was due and payable.
The tenant issued his own cross proceedings, by way of counterclaim, once again pleading the terms of s.17 of the new Act and pleading that the landlord “wrongfully and in breach of the new lease” re-entered the premises, thereby causing him to suffer loss and damage. The questions raised by this appeal require detailed consideration of the terms of the counterclaim but for the moment I simply note that, for reasons that I will later discuss, I consider that the quantum of damages claimed for the wrongful re-entry was $50,000, those damages representing his lost opportunity to have sold the business.
In a separate paragraph of the counterclaim the tenant then pleaded “(f)urther and in the alternative” that in September 1998 the landlord had represented that he would rectify the problem of water in the petrol tanks “within a reasonable time”. A particular under that paragraph stated that it was implied that the work should only have taken a weekend. The tenant pleaded that it was in reliance on that representation that the tenant entered into the new lease. The representation was pleaded to have been false, misleading and deceptive conduct contrary to the Fair Trading Act[1], the falsity being that the repairs did not take a weekend but took several months to complete. (Despite the pleading being in those terms, the evidence in the hearing indicated that whilst there were months of delay before it commenced, the rectification work actually took approximately five weeks or so). The quantum of damages claimed under this Fair Trading Act heading was $8000, and, as I will later discuss, it was pleaded as a separate and distinct claim from the claim for $50,000 damages for wrongful re-entry.
[1]One of the many curiosities of this case relates to the question whether the counterclaim pleaded breach of the Fair Trading Act 1985, or the Fair Trading Act 1999, which came into effect on 18 May 1999. The counterclaim did not specify which Act or section was pleaded. The question of law in this case specifies the 1985 Act, but submissions made both to the magistrate and to me, on both sides, reflected uncertainty as to this. I will assume that it was the 1985 Act with which I am concerned, despite the fact that occasional references to sections of the 1999 Act by counsel for the respondent in his submissions to me tended to suggest otherwise at times.
As I have said, the tenant had received legal advice that he was not obliged to pay the outstanding rent owing since 1 March 1999 because of the effect of s.17 of the new Act. Unfortunately, for the tenant, that advice was proved to be wrong, because on 2 May 2000, at a time after the tenant had delivered his counterclaim, but before the hearing before the magistrate commenced, the Court of Appeal handed down its decision in Antonino Giuseppina Ensabella & Sons Pty Ltd v Players on Downunder Pty Ltd[2]. The practical effect of that decision was that, whether or not there had been a renewal of the lease, s.17 of the new Act did not apply in the present case; instead, the lease was governed by the provisions of the former Act, the Retail Tenancies Act 1986, which contained no equivalent provision. The defence to the claim and the basis on which the counterclaim had been pleaded, insofar as they relied on the operation of s.17 of the new Act, had collapsed.
[2]Antonino Giuseppina Ensabella & Sons Pty Ltd v Players on Downunder Pty Ltd [2000] VSCA 73.
When the case opened before the learned magistrate it was apparent that the Court of Appeal decision was known on both sides. However, whilst there was no contention on behalf of the tenant that s.17 had any application to the case, it does not appear that counsel for the tenant expressly conceded that to be so. The pleadings were not amended to reflect the impact of the recent decision, nor to indicate whether and how the tenant’s defence to the claim and the basis of his counterclaim were to be varied from that which had been pleaded.
The first task which arises in the present appeal is to determine just what was the basis of the tenant’s defence and counterclaim on which the hearing before the magistrate was conducted, given the fact that the previous reliance on s.17 could no longer be relevant to the tenant’s position. As will emerge, that is a question which is not capable of a clear answer.
The Findings of the Magistrate
Upon completion of evidence in the case counsel for the parties made detailed submissions, and on 20 December 2000 the learned magistrate gave her decision in the case, reading short reasons. As to the landlord’s claim, Her Worship held that since s.17 had no application the landlord had a right under the lease to re-enter the premises on account of non payment of rent. Accordingly, the tenant was liable to pay the outstanding rent and outgoings, and also the costs incurred in effecting re-entry. Her Worship rejected the landlord’s separate claim for sums incurred with respect to the removal of the tanks for testing. Her Worship ordered the tenant to pay $18,538 with interest of $3012.47. That principal sum combined the outstanding rent of $10,660.30 and the costs of re-entry of $7,860. There was a small additional sum for unpaid outgoings. The tenant was to pay taxed scale costs. No appeal has been lodged by the tenant against that decision on the landlord’s claim.
On the counterclaim, Her Worship, held that the landlord was guilty of false, misleading and deceptive conduct under the Fair Trading Act, finding that he had made the representation which the tenant had alleged, and held that the tenant had relied on the representation that the repair work would be performed within a reasonable time and had suffered loss and damage as a result of the falsity of the representation. Having noted that the pleaded claims exceeded the jurisdictional limit, Her Worship made an order on the counterclaim to the extent of that limit of $40,000 together with interest of $4,100, and scale costs.
I am satisfied that the magistrate’s award of $40,000 subsumed two separate claims, the first being a claim for $8,000 - being the claimed losses incurred by virtue of the interruption of business when the tanks were being repaired - and the second was a claim for $50,000, for the tenant’s lost opportunity to sell the business. Her Worship held that the tenant succeeded on the counterclaim in its totality but that the excess over $40,000 was to be taken to have been abandoned.
The landlord appeals against the decision on the counterclaim. Given that the claims as pleaded in the counterclaim had attributed the $50,000 damages for the lost opportunity to sell the business as being losses caused by virtue of the wrongful re-entry, then that claim should have failed, so counsel submitted, once Her Worship held that the re-entry was in fact lawful. Accordingly, the only claim which should have remained for consideration on the counterclaim was the separate claim for $8000 damages, which damages, counsel for the landlord submitted, were the only damages pleaded as having been caused by the deceptive conduct in breach of s.11 of the Fair Trading Act. As to that claim, it too should have been dismissed, so counsel for the landlord submitted, and a number of grounds of appeal identified what were said to be the factual and legal barriers which should have defeated the tenant’s claim. The primary area on which the decision of the magistrate was challenged on appeal, however, related to the award of damages of $40,000.
Counsel for the tenant submitted that the award of damages of $40,000 (reduced from $50,000) was made by Her Worship not by reference to a claim alleging unlawful re-entry, but as damages (in addition to the damages of $8000) which also flowed from the breach of s.11 of the Fair Trading Act. Counsel for the tenant submitted that on a proper reading of the pleadings, the claim as to $50,000 damages (representing the lost opportunity to sell the business) had always been pleaded in the alternative, as arising either because of unlawful breach of the lease, or else as damages caused by the misrepresentation made in breach of the fair Trading Act. However, even if I concluded that the pleadings did not make alternative claims in that way, then, so counsel for the tenant submitted, the case was conducted on the alternative basis, the magistrate understood that to be the case and counsel for the landlord had also conducted the case on that understanding. The Magistrates Court not being a court of pleading[3] Her Worship was entitled to deal with the claims as they were advanced in running, rather than as pleaded.
[3]See the cases cited in Intrac (Sales) Pty Ltd v Riverside Plumbing & Gas Fitting Pty Ltd, unreported, 2 July 1997, Eames J.
The fact that an award of damages on the counterclaim was made in the sum of $40,000 must mean that Her Worship had allowed damages for losses which were pleaded to have followed an unlawful re-entry under the lease, namely, the loss and damage which represented the tenant’s lost opportunity to sell the business. It was submitted by counsel for the respondent/tenant that the reasons for decision of the learned magistrate demonstrate that Her Worship had attributed the cause of the lost opportunity to sell the business as being not an unlawful re-entry under the lease (because Her Worship held that the re-entry was in fact lawful, having regard to the decision of the Court of Appeal) but as being damages arising under the Fair Trading Act claim by virtue of the false, misleading and deceptive conduct of the landlord in making the representations as to the completion of the repair work within a reasonable time. Counsel for the tenant submitted that it was entirely appropriate that Her Worship should have allowed those damages on that basis.
Counsel for the appellant landlord submitted to me that the claim as pleaded was never amended, and that at no time during the hearing was the defence and counterclaim advanced on the basis that the claimed loss and damage suffered by virtue of the misleading and deceptive conduct in misrepresenting how long the repair work would take was now to be taken as including not merely the $8000 losses incurred by virtue of the five week interruption to the business during the repair work to the tanks but also the $50,000 loss representing the tenant’s lost opportunity to re-sell the business because of the re-entry.
What claims for damages were pleaded and/or argued in the hearing?
When the counterclaim was issued there can be no doubt, in my opinion, that two quite distinct claims and distinct heads of damage were identified. The first was a claim for misleading and deceptive conduct under the Fair Trading Act (presumably by reference to s.11 of the 1985 Act). The second was a claim for damages for wrongful re-entry.
The two claims were pleaded as being “further and in the alternative” but within a single paragraph of the counterclaim - under the heading of “particulars of loss and damage” - two distinct, but unnumbered, sub-paragraphs appeared. In my opinion, a fair reading suggests that the first sub-paragraph, which specified that the repairs to the tank interrupted the business for five weeks and that “this loss” occasioned by that interruption was claimed at $8,000. The second sub-paragraph expressly referred to the re-entry and the lost opportunity to re-sell the business. It stated that the cost associated with “this” loss was $50,000.
It was contended before me that the particulars in the paragraph in the counterclaim dealing with loss and damage are capable of being read, as the first alternative, as attributing the two losses (i.e. $8000 and $50,000), respectively, to the Fair Trading Act claim, in the first place, and to the claim being made with respect to “unlawful” re-entry, in the second place, but also, as the second alternative, as being attributed jointly to the claim for breach of the Fair Trading Act.
Whether or not it is now possible to read the particulars of loss and damage so as to justify the counterclaim (without amendment of the particulars of counterclaim) having been argued with those alternative means of quantifying the claims for damages, I have no doubt that it was not drafted with that intention in mind. Given that at the time when the counterclaim was filed it was still thought that a failure to give the particulars required by s.17 of the new Act would defeat the claim for rent, it seems highly probable that the possibility that the re-entry was lawful had not been addressed.
However, on the appeal before me it was argued by counsel for the tenant that even if the pleadings did not advance the claim for damages on the alternative basis, as discussed above, then the parties had fought the case as though the pleadings had been amended. Therefore, whilst the defence based on s.17 was no longer open to the tenant the case was conducted on the basis that the claim for damages, both as to the $8000 losses caused by the disruption to the business and as to the claim for $50,000 damages relating to the lost opportunity to sell the business by virtue of the re-entry, attributed all losses to the misleading and deceptive conduct under the Fair Trading Act.
Thus, counsel for the tenant asserted that it was made clear by him in the court below that insofar as the defence and counterclaim pleaded that the re-entry was unlawful - by virtue of the s.17 defence – then that defence was now abandoned, and the claim with respect to both categories of damage was now related solely to the misrepresentations under the Fair Trading Act. Counsel for the landlord, however, denied that the case was contested on any basis other than that expressed in the pleadings.
Counsel for both parties referred me to passages in the transcript of their opening and final submissions to the magistrate. Counsel for the landlord had also handed written submissions to the magistrate as well as making oral submissions. Counsel for the tenant spoke to, but did not hand up written submissions. By consent, however, I have received the written submissions which counsel for the tenant made use of for that purpose.
Having read the transcript of submissions, a rather unsatisfactory conclusion is reached. In the first place, it is clear that in his opening address counsel for the landlord relied upon the pleadings as stating the basis of the tenant’s defence and counterclaim. Counsel for the landlord made detailed reference to the pleadings, and emphasised that they pleaded that the re-entry was unlawful, and that the tenant’s claim for damages for unlawful re-entry was the loss of value of the business. Furthermore, counsel for the landlord expressly observed that the counterclaim pleaded a separate cause of action, the Fair Trading Act claim, for which the loss and damage claimed was $8,000.
The transcript of the response made by counsel for the tenant to those opening remarks of counsel for the landlord is incomplete, but it appears that whilst he did not concede that the re-entry was lawful, he addressed the court on the fact that the rent had been paid to the tenant’s solicitors, who advised the landlord that the rent would be paid over “as soon as the repairs the plaintiff undertook to complete were completed”. Counsel then added that “it goes back to the representation point” and said that there were two reasons why the rent was not paid; first, because of a belief that s.17 applied, but also “the second basis was that the repairs weren’t complete and this was in effect a commercial pressure tactic to force the repairs to be completed”. Counsel added that while he conceded that the failure to pay rent was “on its face” a breach of the lease “in view of the representations . . .we were within our rights to withhold that rent until those repairs were undertaken, and the rent was always there ready to be paid.” Counsel added that: “As a matter of law, as a result of the representations that were made, we were entitled to bring some commercial pressure on the plaintiff”.
Counsel for the tenant submitted to the magistrate that while it was conceded that the lease was at an end “It’s just a question of who is at fault as a result of the lease being terminated . . .” He observed that the proceedings taken in VCAT, with respect to the ongoing dispute concerning repairs to the tank, had been met by “pre-emptive action of terminating the lease, we say wrongfully” (my emphasis).
In response, counsel for the landlord said that the remarks of his opponent showed that there was an admission that there was a lease which had expired and an admission that the rent was unpaid but that the answer to the claim being made by the tenant was that, first, there was a renewal of the lease and that “the second matter which is put in answer to the plaintiff’s admitted claim is that there was some sort of misrepresentation which has caused loss, not only caused loss but, somehow, not articulated in the pleadings, suspends the rental obligations, but the guts of the case are those two issues. Was there a representation by the plaintiff and was there an agreement to renew the lease?”
I can understand why those remarks might have been interpreted by counsel for the tenant, and by Her Worship, as reflecting a recognition by counsel for the landlord that the tenant was seeking to now also attribute the $50,000 losses to the Fair Trading Act claim. Counsel for the landlord, however, says that he did not appreciate that the basis of the claim had in fact been varied from that which was pleaded. At one point during the course of the hearing, for example, Mr Osborne, for the landlord, objected to some evidence being led in cross examination of his client as to damages said to have arisen from the interruption to the business, observing that the claim for loss and damage relating to the interruption to the business due to the repairs was for $8,000 over 5 weeks and “that’s the case that we have to meet . . .” Mr Stark, counsel for the tenant, did not directly address his opponent’s objection, but seemed to acknowledge that the pleadings were not complete.
In the final addresses to the magistrate by counsel, Mr Stark, for the tenant, submitted that the completion of the documentation of the renewal of the lease was prevented by two factors, the problems with the petrol tank and “the second intervening factor was the termination of the lease”. Once again, it was submitted that the withholding of the rent was done to put pressure on the landlord to pay compensation to the tenant for the losses suffered during the interruption to his business by reason of the tank repairs.
Mr Stark, for the tenant, observed to the magistrate that there seemed to be “an issue of the causal nexus between the representation and the loss” and submitted that the falsity of the representation as to the repair of the tanks led to the negotiations for compensation and the withholding of rent and then, whilst negotiations were continuing, “the landlord breached the lease by taking possession of the property and it’s that breach which has caused the tenants’ major loss, the loss of the business”. Counsel did not more precisely identify the causal nexus which was said to be in issue.
In reply to those submissions counsel for the landlord did not appear to address any issue of causal nexus which connected the misrepresentations to the lost opportunity to sell the business. As to the claim for $50,000 which had been pleaded, counsel for the landlord merely emphasised that the re-entry was not unlawful and, thus, the claim for $50,000 damages could not succeed. Counsel then observed that the only claim which was left to pursue was the claim based on misrepresentation and that the damage claimed for that conduct was that flowing from the disruption to business over five weeks. Mr Osborne finished his submission by stating that there was no evidence to support the contention that the deceptive and misleading conduct “caused the loss which the tenant complained about in his counterclaim which was the disruption to his business over that five week period . . .”
In his final, written, submission which supplemented his oral submissions to the magistrate, Mr Osborne, for the landlord, commented on the suggestion made by his opponent (in remarks at the outset of the case) that the tenant had withheld rent in order to put commercial pressure on the landlord. Mr Osborne submitted that that proposition had never been asserted in any correspondence between the parties during negotiations about the lease, nor was it pleaded. He submitted that the sole explanation for withholding of rent which had been advanced in the lead up to re-entry was the suggested effect of s.17. He noted the sworn answer to interrogatory 10 of the tenant to that effect, and the pleadings.
Mr Osborne addressed the magistrate on the basis that the particulars of loss and damage identified separate heads of damage and confined the damage for the suggested unlawful re-entry to the $50,000 figure, and the loss for the misrepresentation was said to be $8000. Because the re-entry had been shown to be lawful that meant, he submitted, that the tenant had to turn to the Fair Trading Act claim.
At no point in the submissions of counsel for the landlord did he address the question of causation which must have arisen if it was to be contended that the loss of opportunity to sell the business was caused by the representation - to repair the tank in a reasonable time - made a year before the re-entry. Had counsel appreciated that the $50,000 claim was now to be included under the Fair Trading Act heading it must have been apparent that questions arose as to whether the chain of causation was broken by reason of the separate decision to withhold rent, and whether the misrepresentation caused the lost opportunity to sell the business. Given the thoroughness of the submissions of counsel for the landlord to the magistrate, the omission to address the causation issue is only explicable by the fact that counsel did not appreciate that the claim was being made on the basis which is now asserted, but which was not then or now pleaded.
Having examined that material, it seems to me to be the case that counsel for the tenant did in fact seek to make a claim for damages under the Fair Trading Act which extended to a claim that the loss of the opportunity to sell the business was itself caused by the misrepresentation. Such a claim was a significant shift from the way the case had been pleaded, and inevitably would have raised significant issues of causation. It seems that her Worship did appreciate that the basis of the counterclaim had been shifted from that which had been pleaded, but it is equally clear that counsel for the landlord, if he understood, at all, that a new counterclaim was being sought to be made, did not appreciate that her Worship had accepted that the case was being fought on ground other than that pleaded, and certainly did not grasp the scope or significance of the new basis on which the tenant was claiming losses. Indeed, I see no reason to doubt Mr Osborne’s assertion that he did not, at all, understand that the tenant’s damages claim under the Fair Trading Act had been extended to incorporate a claim as to the $50,000 loss.
This is a very unsatisfactory situation to have arisen after four days of evidence, and, in my view, the manner in which the shift in position occurred was so obliquely articulated that it is understandable that Mr Osborne did not appreciate the shift in ground. Indeed, it is a tribute to Her Worship’s powers of concentration that she did appreciate that the basis of the counterclaim had shifted.
Assuming that I accept that it was open to the magistrate to treat the tenant’s counterclaim as having been modified in running, so that the tenant was now contending that the losses following re-entry were caused by the false and misleading conduct, rather than by virtue of unlawful re-entry, the question arises whether counsel for the landlord was misled as to that alternative basis for the claim and thereby denied the opportunity to make relevant submissions, and, if so, what consequence should follow. For reasons upon which I will expand, however, it becomes unnecessary that I address those discrete questions.
Whether or not counsel for the landlord was denied the opportunity to make submissions on this non-pleaded basis for the damages claim the starting point must be whether it is the case, as counsel for the landlord now contends, that the counterclaim could never, as a matter of law, have succeeded on that basis, so that the decision of the magistrate is indefensible and must be set aside.
Causation: Did the loss of opportunity to sell the business arise by reason of the breach of s.11 of the Fair Trading Act?
Counsel for the landlord submitted that having regard to a range of factual and legal considerations, a claim under the Fair Trading Act 1985 with respect to the sum of $50,000 should never have succeeded, even if such a claim was properly before the court. It is not necessary that I address all of those arguments which were advanced on the appeal, however, as the outcome of the appeal as to the $50,000 claim turns on a discrete issue. Furthermore, it becomes unnecessary for me to consider whether counsel was denied the opportunity to have made relevant submissions to the magistrate as to the “modified” claim, and the effect of such denial. The outcome of the appeal as to this claim turns on the question of causation.
The appropriate formulation of the tenant’s case, as argued before me (and as said to have been argued before the magistrate), was that there was an unbroken chain of events flowing from the misleading and deceptive conduct of the landlord in making the false representation as to the repair of the underground tank with a reasonable time. As a result of that representation, so counsel submitted to me, the tenant “was induced to breach the lease by withholding payment of the rent”, in order to convince the landlord to honour his promise, and that led to the issuing of proceedings at VCAT for compensation for the loss of business due to the interruption for repairs. Then, to use the words of the written submission of Mr Stark, “Whilst he was trying to negotiate compensation for that loss, the appellant “lawfully” re-enters the premises as a result of the non-payment of rent”. The re-entry meant that the tenant had no business to sell to anyone.
Counsel for the appellant/landlord submitted that that cannot be an unbroken chain of causation from the misrepresentation to the loss of opportunity to sell the business. The loss of that opportunity, he submitted, was caused by the failure to pay rent, thereby providing the landlord with the opportunity to lawfully re-enter.
The articulation of the amended claim as argued before me, and the discussion of relevant authority, was very different from and much more comprehensive than that addressed to her Worship, who, because of the unsatisfactory and vague way in which the “modified” claim was advanced, was denied the benefit of helpful argument as to the significant questions of law and evidence which needed to be addressed as to causation.
By s.37(1) of the Fair Trading Act 1985 a person “who suffers loss or damage by conduct of” a person guilty of misleading or deceptive conduct contrary to s.11 may recover “the amount of the loss or damage”. Counsel for the landlord submitted that the only loss and damage contended for during the hearing was that totalling $8000, being related to the losses suffered on account of the interruption to the business for five weeks. If, however, it was to be now contended that the loss and damage under s.37 included that suffered in the sum of $50,000 – the suggested lost opportunity to sell the business – then counsel submitted that whatever else may be said as to that claim (and counsel for the landlord submitted that it was untenable on a number of distinct grounds) the lost opportunity to sell the business had no causative link to the proven misrepresentation.
As I have noted, the submissions made to the magistrate by counsel for the tenant sought only in the vaguest of terms to conduct the case on the new basis – one not pleaded - that the lost business opportunity arose because of the breach of s.11 of the Fair Trading Act, rather than by virtue of an unlawful re-entry under the lease. Not only was the shift in position made obliquely, references to the re-entry being “in breach of the lease” continued to be made by counsel for the tenant, notwithstanding the fact that there was no right to withhold rent payments, and the lease gave the right of re-entry if that occurred. It could be that the continued suggestion that the re-entry was unlawful was related to the contention advanced in final submissions that by virtue of s.17 of the former Act, the Retail Tenancies Act 1986, the tenant was entitled to claim compensation for his access being inhibited. If that was what was intended then this too was a claim not pleaded and a shift in position made without clear announcement.
As I have observed, Her Worship seems to have understood that the shift in position, whereby the claim for $50,000 was now based on the Fair Trading Act, had been made by the tenant in the conduct of his case for damages. Her Worship obviously assumed that counsel for the landlord had the same understanding, and that he did not require that the pleadings be amended. Whilst I can understand why Her Worship might have come to that understanding, I do not believe that counsel for the landlord had appreciated that he was confronting a quite different case and defending a quite different counterclaim to that which was pleaded.
The misapprehension of counsel for the landlord as to the nature of the counterclaim for damages meant that her Worship did not receive any relevant submissions from counsel for the landlord on the question of causation. I am confident that had such submissions been made the tenant’s claim for damages of $50,000 for breach of s.11 would not have succeeded.
Causation – A question of fact and law
A claim for loss and damage said to have arisen under s.11 of the Fair Trading Act by reason of misleading or deceptive conduct constituted by misrepresentations raises questions of causation which are the same as those raised at common law. That being so “acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation[4]”. In the present case the act of the representee tenant - in withholding payment of rent - was done, in my opinion, not in reliance on the representations but in reliance on the advice of his solicitor that he could withhold payment of rent because s.17 of the new Act permitted him to do so when a notice had not been provided to him as required by that section. Alternatively, the withholding of rent was done not in reliance on the representations but as a bargaining weapon, to encourage the landlord to agree to compensate the tenant.
[4]Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, at 525, per Mason C.J., Dawson, Gaudron, and McHugh JJ.
The question of causation is by no means a simple one to resolve in many cases, and I accept that it was a question of fact to be resolved by the magistrate, but no express finding as to causation was made by the magistrate, nor was the question of causation addressed in her Worship’s reasons for decision, quite possibly because the silence of counsel for the landlord on the issue was taken to indicate that causation was not disputed, although the measure of damages was. The failure to mention this issue in the reasons is the foundation of some of the questions of law identified in the notice of appeal.
Question of law 4(a), in the notice of appeal, contends that Her Worship erred in failing to make a determination as to the loss and damage suffered in consequence of contravention of s.11, and ground 3(b)(iii) contended that there was no evidence on which it was open to find that the tenant suffered any loss and damage by reason of the breach of s.11. Although the issue of causation on which the outcome of the appeal turns is not the subject of express reference in any of the questions of law, I am satisfied that the question whether it was open, as a matter of law, for the magistrate to have concluded that causation was established between the misrepresentation and the lost opportunity to sell the business is raised by the existing grounds, and no contention to the contrary was advanced. In the circumstances it is appropriate that I address that issue notwithstanding the fact that it had not been argued before her Worship.
As I have said, the issue of causation is often a difficult one to resolve. In the leading decision of March v Stramare Pty Ltd[5], Mason J, with whom Toohey and Gaudron JJ agreed, held that what was the cause of a particular event was a question of fact to be determined by applying common sense to the facts of the case. His Honour held that the “but for” test, whilst still having relevance, was not the sole determinant of that question. His Honour held that an action may be considered a cause, in the “but for” sense, and yet the chain of causation would have been broken by virtue of a novus actus interveniens, in which case the first act of the defendant may have been an essential pre-condition for the happening of the damage but was not a cause of the damage. Thus, where an intervening act was being considered it may be seen on analysis that it alone was the true cause of the damage and that the initial act of the defendant was “no more than an antecedent condition not amounting to a cause”.
[5]March v E & M.H Stramare Pty Ltd (1991) 171 CLR 506, at 515-516.
Mason J held that the mere fact that an intervening action was foreseeable as following an initial action did not mean that the defendant was liable for damage which flowed from that intervening action. However, a defendant may be liable even when there was an intervening act when “the intervening action was in the ordinary course of things the very kind of thing likely to happen as a result of the defendant’s negligence”. Counsel for the respondent/tenant relied on that statement of the law in submissions to me.
Assuming that the decision of the tenant to refuse to pay rent may well have been a foreseeable reaction to the failure of the landlord to honour his promise to effect repairs in a reasonable time (although I doubt that was so), was it, in the ordinary course of things, the very thing likely to happen as a result of such a misrepresentation?
In the judgment of Deane J[6] (with whose reasons Gaudron J also agreed) his Honour held that causation posed the question whether the act of the defendant – in this case the misrepresentation – “was so connected” with the plaintiff’s loss and damage that “as a matter of ordinary common sense and experience it should be regarded as being the cause of it”. His Honour held that the mere fact that an act of the defendant was an “essential condition”, in the “but for” sense, to an the occurrence causing loss and damage does not mean that it should be regarded as a cause of the occurrence “as a matter of either ordinary language or common sense”.
[6]March v Stramare, at 521-523.
Applying those principles, counsel for the landlord submitted that even if the misrepresentation of the landlord could be regarded as being an “essential condition” for the decision of the tenant to decline to pay rent (which counsel disputed to be so) it was no more than an antecedent condition, not amounting to a cause of the loss and damage occasioned (if any was capable of being identified) by virtue of the lost opportunity to sell the business on account of the re-entry.
The Court of Appeal in Mallesons Stephen Jaques v Trenorth Ltd[7], in applying the statement in March v Stramare that the issue of causation was a question of fact, held that it was a question requiring “conscientious and detailed consideration of the facts in the case” and the application of “common sense and experience” to those facts in determining whether the initial act could truly be regarded as a cause of a later event, rather than the chain of causation having been broken by a supervening cause, that is, by the defendants “own deliberate and wrongful act”, the first act “being but an antecedent (though necessary) pre-condition.”
[7]Malleson Stephen Jaques v Trenorth Ltd [1999] 1 VR 727, at 734-737.
Counsel for the respondent/tenant submitted that the issue of causation was purely a question of fact, and, accordingly, no question of law arose to justify intervention by an appellate court under s.109 of the Magistrates’ Court Act. As counsel pointed out, there is a strong presumption on appeal that a decision on a question of fact is correct, and there is no doubt that an appellate court should be very slow to intervene unless it can be shown that a decision on fact was so clearly wrong as to be insupportable[8].
[8]See Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1, at 11, per Stephen J; Urban No 1 Co-op Society Ltd v Kilauus [1993] 2 VR 201; Young v Paddle Bros Pty Ltd [1956] VLR 38, at 41, per Herring C.J.
The classification of the issue of causation, by appellate courts, as a question of fact would suggest that an appellate court should not intervene unless an error of law is truly identified. However, as is clear from the decision of the Court of Appeal, the appellate court should do so if it concludes that it was not open to the court below to have held that causation was established, or else that error of law was otherwise demonstrated in the analysis of facts in consideration of the question of causation. I am persuaded that this is such a case for intervention.
Mason CJ spoke of a superseding cause, i.e. a novus actus interveniens, which broke the chain of causation “which would otherwise have resulted from an earlier wrongful act"[9]. In my view, the misrepresentation of the landlord would not have caused the loss of the opportunity to sell the business. That loss (if in fact there was any provable loss) was caused by the lawful re-entry of the landlord under the lease, which in turn was caused by the decision of the tenant to withhold rent.
[9]March v Stramare, at 517.
It is to be noted that insofar as counsel for the tenant sought to contend before Her Worship that the lost opportunity to sell the business was caused by the false representation, he accepted that the re-entry was occasioned directly - and, as her Worship held, lawfully - by reason of the non payment of rent. Furthermore, the tenant had sworn in answer to an interrogatory that the decision to withhold rent was taken because of advice that s.17 of the new Act applied, not because of the falsity of a representation made many months before he first withheld the rent. Additionally, in the correspondence between the solicitors for the parties the decision to withhold rent was never stated to be one taken as a result of the misrepresentation. And, as I have earlier noted, the counterclaim when pleaded, did not assert that connection either. However, even leaving to one side those facts which seemed to conflict with the claim that the withholding of rent and the re-entry resulted from the representation, in my opinion, the uncontested facts demonstrated that there was a clear novus actus interveniens, here, which broke the chain of causation. In my opinion, once the question of causation was highlighted and the relevant legal principles were addressed it would be seen that it was not open to conclude that the misrepresentation was a cause of the loss and damage comprised by the lost opportunity to sell the business.
As I have said, it was entirely understandable why her Worship might have reached the opposite conclusion, because she did not have the benefit of submissions that adequately addressed the question of causation. Counsel for the tenant, in his final address, mentioned that there was an issue of "causal nexus between the representation and the loss” but without citing the leading authority (or any at all) as to the question of causation, but citing instead two cases[10] which were concerned with the measure of damages, rather than the issue of causation. Counsel for the landlord did not address causation, at all, because, as was apparent, he did not appreciate that a new claim was now being pursued, one no longer attributing the loss and damage of the lost opportunity to sell the business to “unlawful re-entry” but to the misrepresentation. His impression may have been confirmed by the fact that his opponent continued to assert that the fact that the landlord “breached the lease” and “wrongfully took possession” was the cause of the substantial loss, that is, the lost opportunity to sell the business.
[10]Gates v CML Assurance Society Ltd (1986) 160 CLR 1; Marks v GIO Australia Holdings (1998) 196 CLR 494, at 512. In March v Stramare, at 509, Mason C.J. remarked on the potential for confusion when the question of causation was blurred with the issue of the measure of damages.
I conclude, therefore, that the counterclaim for damages with respect to the lost opportunity to sell the business should, as a matter of law, have failed. That leaves the question whether it was open for damages to have been awarded to the tenant for losses incurred by reason of the interruption to the business during the conduct of repairs to the underground tanks.
Damages for the interruption to business
As noted, counsel for the tenant argued his case for damages under the Fair Trading Act on the assumption that the lost opportunity claim of $50,000 was to now be treated as a claim under that Act. That meant that the claim for $8000 damages under the Act which had originally been made, and was still the only claim pleaded, was treated as having been subsumed by the larger claim, which already exceeded the court’s jurisdiction. The result was that no submissions were made in final address by counsel for the tenant, save in the most general terms, in support of that claim and its quantification. Counsel submitted to the magistrate, generally, that the evidence disclosed that between May and 15 July 1999 there had been major disruption to the business whilst the driveway of the petrol station was excavated.
In his final address to the magistrate, counsel for the landlord discussed the Fair Trading Act claim on the plain assumption that it was confined to the loss of $8000. As to that claim counsel submitted, on various grounds (most of which were repeated in argument before me, but do not need to be ruled upon), that there was no liability, at all, by reason of the claimed misrepresentation, but that even if there was liability, there was no evidence of any damage having been suffered over the five week period during which the work was performed.
As may be seen, because of the peculiarity of the way in which the claim was changed from that which was pleaded to that which was finally presented on behalf of the tenant, Her Worship also received little assistance on the question of the claim for $8000 damages under the Fair Trading Act.
The relevant grounds of appeal (as I will restate them) claim:
(a)that there was no evidence that the landlord had engaged in misleading or deceptive conduct contrary to the Act;
(b)that there was no evidence on which a finding could have been made that the tenant had suffered any loss and damage by reason of any breach of the Act;
(c)that the learned magistrate erred in failing to give any or any sufficient reasons, insofar as she failed to make any determination at all as to the loss and damage suffered by reason of the breach of the Act
As to the issue raised in the question of law (a), above, Mr Osborne submitted that there was no actionable misrepresentation because there was no obligation on the landlord to effect these repairs, in any event, and even if he had made the representation it could never have been any more than a representation that a competent workman would be used to do the job, and he had engaged such a workman. Furthermore, he submitted that there was no evidence that the job could have been done any faster than it was. All of those seem to me to be questions of fact.
Her Worship made findings that the landlord was under an obligation to fix the tanks and that he accepted that responsibility. She held that on the evidence she was satisfied that the landlord did make the representations pleaded, and that the tenant relied on their truth, to his detriment. Counsel for the landlord conceded in argument that although the ground of appeal (a) asserts that there was “no evidence” on which those findings could have been made, there was evidence, albeit limited. In reality, this ground makes complaint as to the weight which was attributed to the facts, not as to the total absence of evidence, and it does not constitute a proper ground of appeal, because it does not raise a question of law.
As to the question raised by question (b), above - whether there was evidence of any loss and damage being suffered by reason of the representation - once again, that seems to me to be a complaint as to the weight of evidence, and as to the quantification of the claim under that heading. I note that the claim under this heading, as pleaded, simply specified the sum of $8000 as being the losses caused by “a substantial drop in the number of customers”. The misrepresentation which had been pleaded was said in evidence to have been made on 6 October 1998. Having represented that the work would be performed within a reasonable time the work did not commence for six months, and then was performed over a period between May and 15 July 1999.
In his evidence the tenant claimed that over the whole of the time that the tanks were defective the fact that some pumps could not be operated was a discouragement to business, as customers expressed concern about the absence of available pumps. By inference, he was contending that for the whole period, not just for the five or so weeks of repairs, customers were choosing not to call into his service station. Although the particulars of loss and damage in the counterclaim specified the loss and damage as having been due to the “substantial drop in the number of customers” and to the interruption of the business ”for 5 weeks” it seems to me that the case was conducted on the basis that the losses were not confined to that period, and both counsel made submissions which assumed that to be so (although counsel for the landlord submitted that, at best, the tenant’s claim should be treated as a claim with respect to those five weeks). Whilst the margin on petrol sales was very low, and the absence of sales to customers meant a corresponding saving on his purchases of petrol, the tenant asserted that petrol was a “loss leader” which brought customers into the petrol station whereupon other services could be sold to them.
Counsel for the tenant, during his final submissions, accepted that “no detailed evidence” was given for the losses suffered for the whole period from September 1998 to May 1999, but claimed that there was evidence of major interruption during the period of the actual work on the driveway. The losses claimed in this way did not constitute a claim for “expectation losses”, as discussed in Marks v GIO Australia Holdings[11]. Counsel had not made any concession that any claim for losses before May 1999 had been abandoned. Her Worship held that there were significant delays in attending to test and repair the tanks, and expressly held that she accepted the evidence before her “which proves the obvious effect the testing had on the business”.
[11]Marks v GIO Australia Holdings (1998) 196 CLR 494, at 511 per McHugh, Hayne and Callinan JJ.
There may have been problems in quantification of the claim, but it was open to the magistrate to conclude that there had been losses suffered by virtue of the interruption to business. In the context in which she discussed the claim for $8000 it seems a reasonable inference that her Worship accepted that the claim as to $8000 had been made out, but that because she accepted that the claim for $50,000 was also made out (and of itself meant that the $40,000 jurisdictional limit was exceeded) it was unnecessary to deal with the smaller claim in any detail. In my view, therefore, there is no substance in the contention in ground of appeal (c), above, that her Worship failed to make any finding as to loss and damage suffered by virtue of the breach of s.11.
As to the complaint in (b) above, it seems to me that there was evidence on which her Worship could have concluded that the losses amounted to $8000. Her task was not made easy by virtue of the limited submissions made to her, but the fact that the evidence was vague did not mean that she was precluded from making, nor could chose not to make, an estimation of reasonable damages.
Given the confusion which had been introduced by the manner in which the claim had been changed in running (and the fact that counsel for the landlord did not appreciate that the change had taken place at all) I have considered whether it would be appropriate to refer the claim for damages back to the magistrate for further submissions and assessment of damages, but counsel for the landlord did not urge that I do so. That is a sensible approach given the small claim which now remains and the disproportionate costs which would be involved. I will therefore accept the invitation of counsel for the landlord that if I reached this position it was appropriate that I consider the quantum of that claim myself, and determine whether there was any apparent error in the magistrate having concluded, as I consider she did, that the claim as to $8000 for interruption to business had been made out.
Counsel submitted that I should not leave the order at $8000 because if that was the figure Her Worship assessed then she had not discounted the quantum of any losses suffered by the tenant by reference to the sums which the tenant actually saved by virtue of the fact that reduced sales also meant reduced expenses for the tenant. Furthermore, he submitted that had the tenant been able to expedite the repairs by himself arranging for them to be performed (and he submitted that the tenant would have engaged the same contractor) then the tenant would himself have had to meet the costs of the repairs. Thus, the sum of $8000 should be reduced by an appropriate sum to allow for the costs of the repairs. The landlord paid $4500 for the work to be performed and the tenant’s costs would have been in similar order, so it was submitted.
In my view, the assessment of damages at $8000, which I take Her Worship to have made, was not based on the losses of profits in sales of petrol, but on the loss of customers and the consequent loss of sales of other services and products by the station lessee. That being the case I am not persuaded that the sum should be discounted on account of savings in petrol purchases, and I decline to do so. Furthermore, it was the tenant’s contention that the landlord had accepted his liability to effect the repairs to the tanks (as Her Worship found to be the case), so even if the tenant had arranged for the work to be performed, he would have sought to recover those costs from the landlord. Thus, I see no reason on that account, either, why any sum should have been deducted from the claimed $8000.
The conclusion I reach is that the appeal should be allowed, in part. The order of the magistrate made on 20 December 2000, that there be judgment in the counterclaim in favour of plaintiff by counterclaim (the respondent to this appeal), should be varied by substituting the sum of $8000 for the sum of $40,000, and by substituting a reduced sum for interest in lieu of the sum of $4100 which Her Worship ordered. A proportional sum for interest would be $800, but I will hear counsel as to the appropriate sum for interest and also as to the appropriate orders as to costs.
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