Australian Opthalmic Supplies Pty Ltd v Lawton Pty Ltd

[1997] FCA 1250

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - misleading and deceptive conduct - no question of law.

CONTRACT - liability for rental and outgoings under a lease - liability for interest and expenditure on repairs - whether lease was surrendered by operation of law - whether contract was repudiated.

Trade Practices Act 1974, s 54
Fair Trading Act 1987 (NSW), s 42

Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687, referred to
Tasita Pty Ltd v Sovereign State of Papua New Guinea (1991) 34 NSWLR 691, referred to

AUSTRALIAN OPHTHALMIC SUPPLIES PTY LIMITED v LAWTON PTY LIMITED and JOHN RICHARD PICKFORD
NG 20 OF 1996

LEHANE J
SYDNEY
18 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 20 of 1996

BETWEEN:

AUSTRALIAN OPHTHALMIC SUPPLIES PTY LIMITED
APPLICANT

AND:

LAWTON PTY LIMITED
FIRST RESPONDENT

JOHN RICHARD PICKFORD
SECOND RESPONDENT

JUDGE(S):

LEHANE J

DATE OF ORDER:

18 NOVEMBER 1997

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. The application is dismissed with costs.

1. The cross-claim is to stand over to a date to be fixed.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 20 of 1996

BETWEEN:

AUSTRALIAN OPHTHALMIC SUPPLIES PTY LIMITED
APPLICANT

AND:

LAWTON PTY LIMITED
FIRST RESPONDENT

JOHN RICHARD PICKFORD
SECOND RESPONDENT

JUDGE(S):	LEHANE J
DATE:	18 NOVEMBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT

The applicant (AOS) leased from the first respondent (Lawton) a suite (to which I shall refer as the premises) in a building at Castle Hill, known as Lawton House, owned by Lawton. AOS conducted there a business of optical dispensing. It claims that it was induced to enter into the lease by representations made to it by the second respondent (Mr Pickford), the managing director of Lawton. Two representations were said to have been made and to have been relied on: one was that the turnover generated from conducting an optical outlet from the premises would be between $500,000 and $600,000 per annum; the other was that a group of ophthalmologists, who practised in adjacent premises in Lawton House, had requested that an optical dispenser “be present” in the building and had indicated that they would refer their patients in substantial numbers to an optical outlet conducted there. Each of the representations is said to have been false: the turnover achieved by AOS was substantially less than that said to have been represented and the ophthalmologists did not refer patients in substantial numbers. AOS claims to have incurred trading losses carrying on the business. It says that the alleged representations constituted conduct contravening s 52 of the Trade Practices Act 1974 and s 42 of the Fair Trading Act 1987 (NSW). It says that Mr Pickford was knowingly concerned in or a party to the conduct. It seeks to recover from both Lawton and Mr Pickford the amount of the trading losses, as loss resulting from the conduct, and to be relieved of its obligations under the lease. There was a claim for further damages representing the loss of an opportunity to commence and conduct the business elsewhere in Castle Hill, but that claim was not pressed. The statement of claim includes also a somewhat compendiously expressed claim in negligence, based upon the same circumstances, to which no separate submissions were directed.

Lawton and Mr Pickford deny that the representations were made as alleged.  They also deny that AOS entered into the lease in reliance on any representations made by Lawton or Mr Pickford; and they dispute the losses claimed to have been incurred by AOS.  Finally, there is a cross-claim by Lawton for money alleged to be payable by AOS under the lease, comprising unpaid rent and expenses said to have been incurred in cleaning and repairing the premises following AOS’s departure: an amended cross-claim was filed, by leave, during the trial.

The parties and their business activities

AOS is a member of a group of companies and, apparently, partnerships.  The group is based in Victoria and conducts business at a number of locations at most of which it conducts both an optometric practice and an optical dispensing service.  Of the organisations which carried on businesses of that kind in Victoria in 1993, the group of which AOS is a member was the second largest: the largest was the company then known as Optical Prescriptions Spectacle Makers Pty Ltd (OPSM).  During 1993 a decision was made that the group would extend its business activities into New South Wales and during the latter part of that year it established what were described as optical outlets at Miranda and Liverpool.  It also established the outlet with which this case is concerned, at Castle Hill.

The managing director of AOS is Mr Peter Merrington.  He is a qualified optometrist.  He graduated at the University of New South Wales in 1969.  Since 1975 he has practised in Melbourne and since 1976 has carried on what he described as “entrepreneurial businesses associated with optometry”, those businesses involving the establishment and expansion of the chain of practices and dispensaries which I have described.  Since about 1988, the general manager of AOS has been Mr Neil Purvis.  Mr Purvis is a qualified optical dispenser; he was employed by OPSM from 1970 to 1987; in that year he joined the group controlled by Mr Merrington.  The State Manager of AOS for New South Wales is Mr John Lewis; he was appointed to that position in 1993.  He also is a qualified optical dispenser.  From 1961 until 1993 he was employed by OPSM; during the latter part of his employment by that company he held positions including branch manager and area manager.

Lawton’s sole business activity is the leasing and management of Lawton House. The building is a substantial one; it incorporates a supermarket, a greengrocery and other shops.  It incorporates also rooms leased to a number of ophthalmologists and the premises which were leased to AOS in 1993.  Those premises had been leased, since 1983, to OPSM, as one of two outlets which OPSM had in Castle Hill.  In 1991 OPSM consolidated its two outlets in what was described as a “Super Store” and subleased the premises, for the balance of the term of OPSM’s lease, to a group of pathologists.  One of its purposes in subleasing to someone other than an optical dispenser was to eliminate any goodwill attaching to the premises as an optical dispensary.

The directors of Lawton are Mr Pickford and his wife, Mrs Marlene Pickford.  Mrs Pickford is also Lawton’s secretary.  Mr Pickford’s evidence shows that he conducts (and has always conducted) Lawton’s business activities: he negotiates with prospective tenants, deals with tenants and supervises the management of the building.

Events giving rise to the proceeding

Lawton’s lease to OPSM was for a term expiring on 11 December 1993.  The lease did not contain an option to renew, and in any event in mid 1993 OPSM notified Mr Pickford that it would not seek a further term.  Mr Pickford’s evidence - in this respect undisputed - was that he was not willing to offer a lease to the pathologists who were OPSM’s subtenants.  Mr Pickford formed the view that it would be appropriate to lease the premises to an optical dispenser.  He first made contact with a Mr McCorkell, who had at one time been the manager of OPSM’s dispensary in Lawton House; Mr McCorkell expressed interest, but when he mentioned that he would need to borrow in order to establish a business Mr Pickford became concerned about his financial capacity and decided to investigate other possibilities.  His evidence was that he looked up the Yellow Pages and proceeded to telephone some of the larger dispensers listed there.  He contacted two who expressed no interest; he then contacted a company called Budget Eyewear; that company expressed interest and negotiations with it continued until at least mid October (when they were terminated by Mr Pickford in circumstances which I shall describe shortly).  He then telephoned a firm described as Vision Specialists: this was a business name of Mr Merrington’s group and he was given Mr Merrington’s number.  It is common ground that he telephoned Mr Merrington during August 1993, that Mr Pickford at that time knew nothing of substance about Mr Merrington or his group and that Mr Merrington knew nothing of Mr Pickford or Lawton.  Nor is there any substantial dispute about what was said during that first conversation.  The version given by Mr Merrington in affidavit evidence is as follows:

He said:I have premises available in a complex of shops and medical suites which I manage at Castle Hill.  One of the shops with street frontage in the complex has become vacant, it used to be operated as a dispensary by OPSM, would you be interested in leasing it as an optical dispensary?”

I said:“I will think about it.  Give me your phone number, and I will let you know”.

Mr Pickford then gave me a Sydney telephone number and the conversation concluded.

It is common ground that some time later - Mr Merrington puts the interval at about two weeks - there was a further conversation between Mr Pickford and Mr Merrington.  Mr Pickford’s evidence was that he did not remember who initiated the call; Mr Merrington’s evidence was that Mr Pickford initiated it and, given its substance (on either version), it is probable that he did.  There are significant differences between the versions of the conversation given in evidence by Mr Merrington and Mr Pickford.  Mr Merrington’s account was:

He said:“I am ringing you back to find out if you are interested in taking up the lease at Castle Hill on that shop I discussed with you a week or two ago”.

I said:“I am thinking about it, but I will need some more information on it.  As an optical dispensary, what would it turnover?.

He said:“Between $500,000.00 and $600,000.00 per annum.  There are 6 Ophthalmologists at the centre who are keen to have an optical dispenser present in the centre to whom they can refer their patients”.

I said:“On that basis I am interested and I will get our company representatives to contact you to arrange an inspection, and a meeting to sort out details”.

He said:“Good.  I’ll wait to here (sic) from you”.

Mr Pickford, on the other hand, recorded it thus:

In the course of the conversation I said words to the effect, “Are you interested in what I said to you about taking a lease at Lawton House?”  He said, “I have been thinking about it.”  He continued to say, “What sort of turnover did OPSM have?”  I said, “The last figures that I was told were about $11,000 a week.”  Mr. Merrington then said, “I’ll get our Managing Director to speak to you about it.”  Mr. Merrington gave me his name telling me it was a Mr. Purvis and our conversation concluded.  The conversation was very short and we only discussed the matters to which I have referred.

Mr Pickford specifically denied making any statement as to what AOS’s turnover might be; he denied also mentioning an annual figure.  His evidence was that in a conversation with an executive of OPSM, Mr Brian Miller, which took place at about the time when OPSM moved out and subleased the premises, Mr Miller had told him that OPSM’s turnover was about $11,000 per week.

Mr Merrington then instructed Mr Purvis to make arrangements to inspect the premises with Mr Lewis.  Mr Purvis did so on 2 October 1993.  Mr Purvis and Mr Lewis met Mr and Mrs Pickford at Lawton House.  (There were initially, in the affidavit evidence, some differences between Mr Pickford on one hand and Messrs Purvis and Lewis on the other as to the date on which the meeting occurred and the manner in which it was arranged, but Mr Purvis and Mr Lewis were prepared, on reflection, to accept the correctness of Mr Pickford’s recollection on those matters).  Much of what was said and done at that meeting is common ground and is of no particular importance for present purposes.  Mr Purvis gave evidence that Mr Pickford said:

OPSM was turning over in excess of $500,000.00 per annum when they were in the shop and all that business is now leaving the centre.  You should do that.  You can talk to Dr Du Temple the senior Opthal there, to garner support for the shop when you get going.  Dr Du Temple may want to support Mr J Jackson as a dispenser but I don’t think Mr Jackson would move his business to Castle Hill.  I would prefer to have a major optical company as a tenant rather than a sole trader.

Mr Pickford denied referring to a turnover in excess of $500,000; his evidence was that he was asked by Mr Purvis, “How much business did OPSM do?” and replied, “The last figures they told me were about $11,000 per week.”  Mr Pickford said that Mr Purvis told him that Mr Lewis has been an area manager with OPSM and that he (Mr Pickford) then turned to Mr Lewis and said, “Well you will know better than I”.  Mr Purvis and Mr Lewis accept that Mr Pickford said that.  Mr Pickford then attributed to Mr Lewis the remark, “Yes, that’s right.  This was one of OPSM’s better stores.”  Mr Purvis denied that Mr Lewis said that; and Mr Lewis, while not dealing directly with the comment attributed to him, gave evidence that he had no precise knowledge of OPSM’s turnover at the shop.  It should be noted that Mr Pickford in his affidavit denied using the composite phrase attributed to him by Mr Purvis (“OPSM was turning over in excess of $500,000.00 per annum when they were in the shop and all that business is now leaving the centre”); he did not specifically deny the following sentence attributed to him, “You should do that”.  One other minor difference is that while it is agreed that Mr Purvis asked Mr Pickford a question about the number of patients the doctors saw per week, Mr Pickford (and Mrs Pickford) said that the question was put in terms of the number of “refractions” the doctors did per week whereas both Mr Purvis and Mr Lewis denied, Mr Purvis “strenuously”, that the word “refractions” was used.  Though this matter received some attention in cross-examination and submissions, I am unable to see that it is of any consequence.

Mr Merrington gave evidence that shortly afterwards he inspected the premises and that having done so he instructed Mr Purvis to contact Mr Pickford and “negotiate the best terms possible”.

Meantime, Mr Lewis met four ophthalmologists who practised at Lawton House: Dr Du Temple, Dr Benejee, Dr Fitzsimons and Dr Harding.  He says he put to Dr Du Temple the question:

...What would be your situation regarding patient referral, would you be in a position to refer your patients to our dispensary?

Dr Du Temple replied:

Ethically, I cannot guarantee you support and I will provide referrals whenever possible as a lot of my patients would benefit from a close optical outlet.  I will need to speak to the other ophthals regarding their attitude to refer their patients to you.

Mr Lewis could not recollect his conversations with the other doctors, “except they all stated they will support our optical dispensary whenever they could”.  Mr Lewis also discovered that the four doctors with whom he spoke practised not only at Castle Hill but elsewhere as well: in the case of Dr Du Temple at Parramatta.  Mr Lewis gave evidence that he reported to Mr Purvis on his conversations with the doctors; Mr Purvis in turn reported, at least in summary, to Mr Merrington.  All the reports were oral, and none of the three persons involved was able to give a precise account of what was reported.  However, Mr Merrington gave the following evidence in cross-examination:
T32, 33

And were you told that Mr Lewis had gone and spoken to each of the ophthalmologists? - It’s my recollection that Mr Lewis spoke to two of them, the two principal ophthalmologists.

And reported back to you, did he? - I don’t recall if he spoke to me or to Mr Purvis.

But in any event, your experienced state manager had not only examined the noticeboard but had spoken to the principals of the practice, had he not? - That’s correct, yes.  Well he said he’d spoken to the principals of the practice...

But what was the purpose of him speaking to the principal? - He said, I guess, to see what their view was of having an optical dispenser there and having us there.

And he reported back to you or to Mr Purvis, did he not? - To one of us, yes.

And do you remember what the terms of his report were?  Was it to the effect that they were not going to support you? - No, it was not, no.

He reported back that they were going to give you some level of support, did he not? - That’s correct, yes.

And, of course, he was in a position to report back about the level of the support that might be given, was he not? - Yes.

And how many ophthalmologists were practising there on a daily basis? - He wasn’t in a position to give that report, yes.

He was, was he not, and he reported back about those things, did he not? - I don’t remember the precise words of what he said about those things or whoever communicated with me about those things.

But in any event, what he reported back to you or which was communicated to you through Mr Purvis about his meetings with the ophthalmologists left you with the same opinion that you expressed before, that is that you would be able to do $500,000 turnover? - No, it was unclear from the report that I received back about the ophthalmologist’s report (sic) as to what degree of support we would receive from them, because obviously we would have some support but the degree was quite unclear to me.

So you are saying then that after his report your professional opinion that with that number of ophthalmologists you do $500,000 a year, had become one of uncertainty as to whether you would do that? - I was uncertain as to what turnover we would do, yes.

So you had become uncertain after your own state manager had been around and spoken to the very people that you were dependent upon to get the $500,000 worth of work, is that right? - To some extent that is true, yes.

On 11 October 1993 Mr Purvis wrote to Mr Pickford, enclosing “an outline of our company’s activities to date and our proposal for Castle Hill”.  That composite document was headed “VISION SPECIALISTS - PROFILE”.  It described the business of the group and its history and gave brief details of the qualifications and experience of a number of its executives including Messrs Merrington, Purvis and Lewis.  It concluded with the “proposal”, as follows:

We propose to operate the Castle Hill practice as a non optometric dispensing outlet from 9-5.30 Monday to Friday or as the clinics require and would support the new outlet with high standard of patient services and aftercare.  We will also support the new outlet with appropriate publicity as part of our overall marketing programme.

We hope you will look favourably on our application for this tenancy.

Mr Pickford’s evidence (which I accept) is that, having received that document, he decided to proceed no further with Budget Eyewear (who were still displaying considerable interest in taking a lease): he thought the name “Budget” had connotations which he regarded as inappropriate and ascertained that Budget Eyewear were not prepared to trade under a different name; on the other hand the profile sent by Mr Purvis indicated that AOS was an experienced and substantial organisation.  Nevertheless, he did not hasten to secure a binding agreement from AOS: Mr Purvis’ evidence was that he telephoned Mr Pickford in order to prompt him to send out a draft lease.  On 1 November Mr Pickford sent Mr Purvis a letter in the following terms:

We hereby offer you a lease on Suite 1, Lawton House.

The lease terms and conditions are identical to those that were effective during the lease to OPSM.  In brief the first year’s rental is $29,856, to be paid monthly in advance ($2,448 per month).  The lease begins on 12th December, 1993 for a period of 5 years, and includes an additional 5 year option (to run concurrently with the ophthalmologists’ lease.)

Rent reviews are 12 monthly to market with due regard to the CPI.  The fitout of the suite will be at your expense, and as the use of the suite will be similar to OPSM, some things will be cheaper and easier to re-install.

The carpets are new (less than 12 months old), and external signage can be organised.

Please read the lease for further details (lease included in mail.)

To accept this offer please notify us by phone or fax, and then please send a formal acceptance by post.  We require details of your solicitor etc in the formal acceptance.

AOS replied in a letter dated 4 November 1993 signed by Mr Purvis.  The essential paragraph of that letter was:

Upon the basis of having been advised that we should generate turnover in the vicinity of $500,000 together with the below-mentioned amendments AOS consents to the lease of Suite 1, Lawton House.

There were then set out four relatively minor amendments, which Lawton accepted.  No response was made on behalf of Lawton to the stated “basis” of the “consent”: Mr Pickford explained that circumstance in his affidavit as follows:

I did not attach any significance to that statement when I received the letter as I believed the Applicant had undertaken its own research and that it represented its assessment of what its turnover would be.  The only information that I had was that which I had been furnished in relation to the previous OPSM trading some time prior to its ceasing its activity and by reference to that I assumed the figure was an amount which an experienced and diligent operator would achieve.

The substance of Mr Merrington’s evidence in cross-examination was that the letter, though signed by Mr Purvis, was drawn by a solicitor employed by AOS and settled by Mr Merrington.  Mr Merrington also gave the following evidence:
T60

The response to the lease offer said nothing about guaranteeing support from the ophthalmologist, did not refer to ophthalmologists, did it? - Again if we had have had (sic) the support of the ophthalmologists - six ophthalmologists, your Honour, I have little doubt that we would have turned over the amount that Mr Pickford had suggested.

And you formed an opinion, as you said this morning, that with the support of sixth ophthalmologists you would be able to make gross receipts of $500,000 a year, did not you? - That’s correct, your Honour, yes.

When did you form that opinion, before [or] after your discussions with Mr Purvis? - It was when we responded to the lease offer, your Honour.

You said to his Honour this morning that after Mr Lewis reported back to you regarding his discussions with the ophthalmologists your opinion was not - you were not so sure, do you remember giving evidence to that effect? - Well, as I say, your Honour, I wasn’t sure - not that one can ever be entirely sure, but I wasn’t reasonably sure as to the turnover we can expect until after we responded to the lease offer.

What possible difference could the response to the lease offer make? - It was to confirm the representation that had been made, your Honour.

Then, after some inconclusive questions and answers about whether Mr Merrington regarded the words he attributed to Mr Pickford as a guarantee:
T62

Mr Merrington, are you seriously saying that Mr Pickford was promising you that he would ensure that in some way or other you would get $500,000 worth of business every year? - He represented that we could expect that type of turnover.  Your Honour, I’d have to say that if we’d turnover (sic) $450,000 I would have said well, okay, that’s a bit of puffery from a landlord but when you turnover $120,000 its a very long way from half a million.

At all events, AOS entered into a lease with Lawton for a term of five years commencing on 12 December 1993 (the lease is dated 25 January 1994), took possession of the premises and conducted business there.  There is little controversy about what followed.  Referrals from the ophthalmologists did not come up to expectations: they amounted, on average, to little more than one per day.  Turnover was modest, of the order of $203,000 for the period of approximately 22 months during which the business was conducted on the premises (accepting for this purpose, as I do, the evidence of Mr M W Waters, an accountant called by AOS).  There were sporadic exchanges, some of them acrimonious, between AOS and Lawton: as early as February 1994 there was an exchange of correspondence between AOS and Lawton’s solicitors from which it appears that the parties were already entrenched in their positions about the statements made by Mr Pickford concerning turnover.  In September 1995 Lawton briefly excluded AOS from the premises on the footing that a substantial amount of rent was unpaid; the rent was paid and AOS resumed possession.  On about 3 November 1995, however, AOS left: it commenced operations elsewhere in Castle Hill, combining an optometry practice with an optical dispensary.

Did Mr Pickford make the representations on which AOS relies?

There is a clear conflict between the evidence, particularly, of Mr Merrington and that of Mr Pickford.  Each was cross-examined at length and a good deal of attention was devoted, in submissions, to the credibility of the account given by each of them.  Mr Lewis and, particularly, Mr Purvis gave evidence as to what was said at the meeting on 2 October 1993 which differed significantly from Mr Pickford’s evidence.  Clearly, and unsurprisingly, the memory of neither was infallible as to the events in question: each gave affidavit evidence, for example, as to the way in which the 2 October meeting was arranged and the date on which it was held (recording conversations in some detail) which each, having read Mr Pickford’s evidence, readily conceded was probably incorrect.  No submission, however, was made, and certainly there can be no finding, adverse to the credit of either of them: the only issue is as to the accuracy of their recollection of certain crucial matters.  Mrs Pickford gave evidence supporting that of her husband that he passed on what he had been told about OPSM’s turnover in terms of a weekly amount rather than an annual one.  She specifically denied any collaboration with her husband in the preparation of affidavits; no submission was made adverse to her credit.

Mr Pickford’s evidence was strongly criticised by counsel for AOS.  It was submitted that Mr Pickford was evasive as to certain matters and that his evidence should be regarded as generally unreliable.  Counsel stressed particularly evidence given by Mr Pickford, in cross-examination, about a meeting which he had had in late 1996 with Mr Alan Smith, the general manager of OPSM.  Mr Pickford’s evidence was that his purpose in speaking to Mr Smith was to find out exactly what turnover OPSM had had; when asked was there any other purpose, he replied “No other purpose”.  The exchange continued:
T176

I think you said a moment ago, you used the word, major purpose.  Was there any other purpose? - No.

No other purpose? - No.

Are you quite certain about that? - Quite certain.

Mr Pickford, later in his cross-examination, gave this evidence:
T190

You recall, Mr Pickford, that when I was asking you questions earlier about your discussions with Mr Smith [you] indicated that the only matter that you raised with him was the question of turnover.  That is right is it not? - That’s what I recall.

That you indicated that the only matter that you discussed with him was the question of turnover? - As I recall, yes.

Indeed, you were quite certain about that before the break, were you not? - Yes.

You also raised with him, did you not, the question of who the applicant in these proceedings was? - No, that’s incorrect.

That is incorrect? - Yes.

It would be wrong to say that? - Absolutely.

Did you speak with him at all about John Lewis’ involvement with OPSM? - No.

Absolutely not? - Absolutely not.

You are quite sure about that? - Yes, I am sure of it.

Mr Pickford was then shown a memorandum to him from Mr Smith (which was in evidence) dealing with three topics, turnover, Mr Lewis’ employment with OPSM and his likely knowledge of the Castle Hill dispensary and Mr Smith’s knowledge of the AOS group.  Mr Pickford then accepted that his earlier evidence had been incorrect.  That must, I think, be taken as an indication at least that Mr Pickford’s preparedness to offer definite and confident evidence, and to maintain it when offered the opportunity to withdraw, does not necessarily reflect an accurate recollection; and it should be recalled, as counsel pointed out, that the meeting with Mr Smith took place considerably later than the events with which this case is principally concerned and in order to obtain information for the purpose of the case.  But I am not convinced that it should be taken to indicate more than that: it is, after all, obvious enough that whether Mr Pickford discussed with Mr Smith one matter or three is, in itself, entirely immaterial to the success or failure of the claims made by AOS.  There is no reason why he might have wished to conceal the fact that matters other than turnover were discussed. 

Counsel referred also to evidence about the means by which Mr Pickford discovered the existence of AOS: his evidence was that he found them in the Yellow Pages.  Counsel pointed out that, on Mr Merrington’s evidence, the first conversation between Mr Pickford and Mr Merrington almost coincided with the opening of the first of the group’s outlets in New South Wales, and the second was opened slightly later: it would follow that there could be no entry in the Sydney Yellow Pages.  But, if only because the Yellow Pages are not in evidence, I doubt that I should place too much weight on that; and, again, the source from which Mr Pickford discovered the existence of Mr Merrington and his group is of no moment in relation to any issue in the case.  Mr Pickford’s memory may have led him astray, but there is no reason to think that he was not giving a truthful account of his recollection.

My attention was drawn, then, to cross-examination of Mr Pickford about what was said during the meeting on 2 October.  In his affidavit, Mr Pickford denied making the composite statement attributed to him by Mr Purvis, that OPSM was turning over in excess of $500,000 per annum and all that business was leaving the centre.  As I have mentioned he did not, in his affidavit, specifically deny the following sentence attributed to him, “You should do that”.  In cross-examination Mr Pickford accepted - or at least came close to accepting ( the answers are not entirely clear) - that he might have said that the business was leaving the centre.  He maintained his denial that he referred to an annual turnover.  Mr Pickford also denied, in cross-examination, that he had said “You should do that”: he said “I refute that completely”.  There is an apparent inconsistency; but I do not think that any great significance should be attributed to it.  After all, if Mr Pickford’s denial that he uttered the sentence preceding “You should do that” were accepted, it would not be very sensible to find that he nevertheless said those words: and Mr Pickford’s own version of the relevant part of the conversation is given earlier in the affidavit and includes no such words.  In other words, I do not think it would be right to conclude that Mr Pickford’s evidence in cross-examination was, in this respect, inconsistent with his affidavit evidence.

Then it was suggested that I should be assisted in drawing a conclusion adverse to Mr Pickford’s credit by evidence he gave about his assessment of Lawton’s tenants and of their financial capacity to meet their obligations under their leases.  In brief, while Mr Pickford was prepared to concede that, during his regular visits to Lawton House, he observed how his tenants appeared to be fairing he did not make an “assessment” of their apparent success or profitability.  It is sufficient to say that I do not think it appropriate to draw any particular conclusion about Mr Pickford’s credit from that aspect of his evidence.  There were two other matters, one relating to a phrase used by Mr Pickford in explaining why he took no particular notice of the reference to predicted turnover in AOS’s letter of 4 November and the other relating to the way in which he understood the statement made to him by Mr Miller that OPSM had turned over about $11,000 per week.  Those matters are, I think, best considered in the context of the particular representations said to have been made.  My conclusion, however, as to Mr Pickford’s credit is that while the confidence with which he stated a recollection cannot be regarded as a reliable measure of its accuracy, nothing in his evidence or in the matters put to me leads me to think that Mr Pickford was endeavouring to do other than state accurately his recollection of the events about which he was asked.

Counsel for Lawton and Mr Pickford submitted, on the other hand, that in weighing the credit and reliability of Mr Pickford and of Mr Merrington, I should have regard to what counsel characterised as Mr Merrington’s uncertainty about dates, events and what was said to him by whom.  Certainly it became clear in cross-examination of Mr Merrington that to a very large extent business decisions within the group evolved in discussion, particularly between Mr Merrington and Mr Purvis, commonly without any written record being made.  Thus there was no record relating, for example, to the considerations leading to the decision to expand into New South Wales; instructions and reports in relation to the discussions and negotiations with Mr Pickford were given orally and, except to the extent that ultimately they resulted in correspondence between the parties, not reduced to writing.  Mr Merrington had no clear or precise recollection of what he was told about the meeting of 2 October or the enquiries which followed it.  His recollection appeared to amount to a general impression, summed up in the passages from his cross-examination which I have already quoted.  But it was not submitted that I should form any view that Mr Merrington should be regarded as an untruthful witness: and my view is that he also was endeavouring to state his recollection accurately: and, I think, carefully.  It follows that I cannot form a conclusion about what was said by Mr Pickford to Mr Merrington on the basis of any general view that one, but not the other, should be regarded as a credible witness.

To the question whether, in that state of affairs, it is more probable than not that Mr Pickford made representations substantially as alleged as AOS a number of matters are relevant.  One is the state of Mr Pickford’s knowledge.  His evidence was that it was not his practice to make close enquiry about the success or otherwise of the trading activities of Lawton’s tenants.  He was quite closely cross-examined on that topic, but I see no reason not to accept his evidence.  He had no experience as a landlord of business premises extending beyond Lawton House.  One of the Lawton’s tenants - OPSM - had conducted an ophthalmic dispensary on the premises.  At the relevant time, Mr Pickford’s sole source of information about its trading results was the conversation with Mr Miller: it became clear during Mr Pickford’s cross-examination that the statement by Mr Miller, to the effect that OPSM’s turnover was about $11,000 per week, was one made in general terms not, for instance, by reference to an average week, a good week, a week at any particular time of the year or with any specificity at all.  Again, there is nothing surprising about that; what is important about it, however, is that, for all that appears, Mr Pickford had no general knowledge of the economics of ophthalmic dispensaries and the only information he had about the likely turnover of one conducted on the premises was the general information given to him by Mr Miller about OPSM’s turnover in a period some two years before Mr Pickford’s conversation with Mr Merrington.  In those circumstances it would have been rash, and therefore odd, behaviour on Mr Pickford’s part to make the representation to Mr Merrington as Mr Merrington recalls it; and it may be added that it would be odd if Mr Merrington, who knew a good deal about optometric practices and ophthalmic dispensing, simply accepted such a prediction from Mr Pickford, of whom he then knew nothing, without enquiry as to its foundation.  On the other hand, there would be nothing at all odd about Mr Pickford responding to an enquiry about likely turnover by informing Mr Merrington of what he understood OPSM’s turnover to have been; and it would not be surprising if a response of that kind elicited no further probing from Mr Merrington.

The next relevant matter is the evidence about the conversation, in which Mr Purvis and Mr Lewis were involved, on 2 October 1993.  There is no dispute that during that conversation Mr Pickford made a representation about OPSM’s turnover.  It is also common ground that Mr Pickford suggested to AOS that it would need to see the ophthalmologists to garner support and that Dr Du Temple might wish to support a dispenser whom he knew, who practised in Parramatta.  The differences about the conversation relate principally to three matters: whether Mr Pickford referred to a turnover of $500,000 per annum or $11,000 per week; whether he remarked, in connection with his statement about OPSM’s turnover, that all that business was leaving the centre; and whether he said something to the effect of “you should do that” (that is, AOS should achieve a turnover comparable to OPSM’s).  In these respects Mr Purvis’ recollection is supported by a diary note which (on his evidence, which I accept) he made shortly after the conversation, probably the following day.  The note reads in part:

Mr & Mrs P spoke about OPSM and to (sic) Doc Du Temple (the senior ophthal).

Need to see Du Temple to garner support

Du T may wish to support Jackson Parra (old mates).

John Pickford feels ophthals want dispenser support and will send PX’s.  Suggested that there was 500K business to be done that was going to the centre.

That note supports Mr Purvis’ account in relation to all three contentious aspects of the conversation.  In cross-examination Mr Pickford accepted that he might well have mentioned (contrary to his recollection recorded in his affidavit) that the previous OPSM business was now going to the centre: that, after all, was simply to state the obvious.  He did, however, deny in cross-examination saying “you should do that”.  The contemporaneous note, however, supports Mr Purvis; I do not think there is anything improbable about such a statement in the context; and I find that a statement substantially in those terms was made.  As to the question whether a weekly or an annual figure was mentioned, Mr Pickford’s evidence is supported by that of Mrs Pickford, who gave evidence of hearing that part of the conversation.  On the other hand, Mr Purvis again is supported by his diary note; his evidence of what was said at the meeting is consistent also with Mr Merrington’s recollection that an annual figure was mentioned to him.  On the whole it seems to me more probable than not that Mr Pickford did the mathematics and referred to an annual figure, and accordingly I find that he did.

Having reached that point, it is appropriate to return to the second telephone conversation between Mr Pickford and Mr Merrington.  I think it is more likely than not, and I find, that Mr Pickford referred to an annual, rather than a weekly, turnover.  On the other hand, I do not think my finding that he said to Mr Purvis something like “you should do that” overcomes what I consider otherwise to be the improbability that Mr Pickford made a prediction of what AOS would achieve rather than state his understanding of what OPSM had achieved.  It was suggested that Mr Pickford was anxious to find a tenant and that he made the representation attributed to him as a result of that anxiety.  I do not think, however, that the evidence bears that that out.  Mr Pickford seems, rather, to have moved with some deliberation; a desire to proceed with expedition is more evident on the part of AOS.  Additionally, at the time of the conversation, AOS was not the only prospective tenant; and the evidence was that the Lawton House was otherwise fully tenanted, and the premises comprised a small part of quite a large whole.  Finally, it is relevant to note that Mr Merrington’s recollection of the detailed events was by no means otherwise precise.

In the end, therefore, my conclusion is that Mr Pickford did not make to Mr Merrington the representation alleged by AOS.

There remains a question whether the representation on which AOS relied was made by Mr Pickford during the conversation with Mr Purvis on 2 October and, if so, whether it constituted misleading or deceptive conduct.  I have found that Mr Pickford did use some such words as “you should do that” in association with his statement about OPSM’s turnover and that that business was now leaving the centre.  It may be that that remark, taken on its own, should be regarded as a representation as to a future matter and therefore to be taken as misleading unless Lawton established that it had reasonable grounds for making the statement (Trade Practices Act s 51A). The statement, if as to a future matter, nevertheless takes its meaning from its context, and the context includes the suggestion that AOS should talk to Dr Du Temple to garner support. There was no unqualified prediction: on Mr Purvis’ version it might reasonably be taken as little more than an expression of opinion that AOS ought to be able to do as well as OPSM had done; but in order to do so AOS would require and need to garner the support of the ophthalmologists. That falls well short of the representation, as to probable turnover, on which AOS relies.

It was not submitted that, if I reached that conclusion, I should nevertheless hold that AOS could succeed on the basis of the alleged representation that the ophthalmologists would refer patients to AOS in substantial numbers.  In the light of the conversation with Mr Purvis, AOS would have obvious difficulties on that front; and, even if such a representation were made to Mr Merrington, it could hardly be asserted, in view of the conversation with Mr Purvis and Mr Lewis’ subsequent enquiries, that AOS relied on it in entering into the lease.

Causation; reliance

Although my findings as to the alleged representations (and as to reliance on any representation as to likely referrals from the ophthalmologists) necessarily result in the failure of AOS’s claim the question of reliance, on the footing that Mr Pickford made the representation about turnover alleged by AOS, was the subject of evidence and argument and it is appropriate that I discuss it briefly.

On several separate occasions Mr Merrington was pressed in cross-examination on the question whether he relied on what, he asserted, Mr Pickford had said to him.  He maintained throughout that in deciding that AOS should enter into the lease he relied on the representation in the sense that it was one of the significant matters which he took into account in making the decision.  The cross-examination included the following passage:

Now, Mr Merrington the decision to enter into the lease was made on the basis of what you were told by Mr Lewis and by Mr Purvis and your inspection of the property and your own professional experience and not on the basis of anything you were told by Mr Pickford was it not?---That’s not true.

With all of your experience of puffery and the like are you seriously saying that you relied on what a gentleman whom you only ever spoke to twice on the telephone and knew nothing about, said rather than on your own experience, the experience of your executives, the experience of Mr Lewis and Mr Lewis’ report of what the ophthalmologist had said?---Mr Lewis didn’t suggest that we shouldn’t enter into the lease.

He did not suggest that you should not and I am asking you whether you are seriously saying that your decision to enter into this lease was based upon what you say you were told in one telephone conversation by a prospective landlord whom you had never met, whom you had conducted no research in relation to rather than on your own professional experience, what you were told by Mr Purvis and what you were told by Mr Lewis.  Is that what you are seriously saying?---I certainly relied on the representation from Mr Pickford.....

What I am putting to you is that for somebody with your considerable business experience and occupying the position that you did that there is simply no way in which you would have entered into a lease on the basis of something that you say you were told by a man trying to sell you something or lease you something about whom you knew nothing?---Again, your Honour, I did rely on what he said to me.

The difficulty is that, even on the assumption that Mr Pickford made the representation attributed to him by Mr Merrington, on any view a good deal that was relevant to reliance had happened between the telephone conversation and the making of the decision to take the lease.  Particularly, Mr Pickford’s conversation with Mr Purvis had made plain the basis on which he was suggesting that AOS ought to be able to turn over more than $500,000 per annum, Mr Lewis had made his enquiries and had reported on them and Mr Merrington, though of the view that with the support of six ophthalmologists AOS would be able to turn over $500,000 per annum, had also received the impression that:
T40

What the ophthalmologist communicated was unclear as to, you know, we would get some referrals, which was reasonably vague.

As a result, Mr Merrington’s evidence was that he was uncertain as to what level of support would be given by the ophthalmologists and, accordingly, as to what AOS’s turnover would be.  It was only “after we’d responded to the lease offer” that Mr Merrington was confident about the turnover AOS could expect.  Mr Merrington apparently thought that the letter of 4 November 1993, if not a guarantee, was likely to have some legal effect in imposing or reaffirming, in some sense, a legal responsibility on the part of Lawton for a prediction that AOS would turnover $500,000 per year.  In that context, Mr Merrington’s evidence that he regarded the representation as a significant matter and that he “relied” on it is understandable.  But in my view it does not follow that AOS has crossed the “ “causative threshold” beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss” Ricochet Pty Ltd v Equity Trustees and Agency Co Ltd (1993) 41 FCR 229 at 235. By 4 November Mr Merrington had received information from both Mr Purvis and Mr Lewis upon which he made a judgment, based on his own experience, that, although with appropriate support from the ophthalmologists AOS could turn over $500,000 per annum at Lawton House, he was not confident that it would in fact do so. In other words, he had formed the view that what he recollects being told by Mr Pickford was by no means necessarily right; he did not decide to enter into the lease believing in the truth of the representation. The letter, of course, could not convert disbelief into belief: its only effect, so far as Mr Merrington’s state of mind was concerned, was that it imposed a legal liability of some kind on Lawton. But the necessary conclusion from that, in my view, is that what relevantly induced AOS to enter into the lease was a belief about the effect of the letter, not a belief about the truth of the alleged representation.

For those reasons, even if my findings in relation to the representations were wrong, AOS’s claims in this proceeding would fail.

Cross-claim

By its cross-claim filed on 18 April 1996 Lawton sought to recover rental and outgoings payable by AOS under the lease of the premises in an amount, calculated up to and including April 1996, of $19,079.46.  Additionally, Lawton claimed interest said to have fallen due under the lease and reimbursement of certain expenditure which it claimed to have incurred by way of rectifying breaches by AOS of its obligation under the lease to keep the premises in good repair and condition.  The amended cross-claim filed on 15 October 1997 purported simply to bring the amount claimed up to date: by the amendment Lawton claims an additional $29,422.33 for rent and outgoings which fell due during the period from May 1996 to October 1997.

The cross-claim was not given a great deal of attention during the trial.  Although AOS, by its defence to the cross-claim, denied breach and any liability to pay the amounts claimed, there was no indication during the trial that there was in fact a dispute as to the amount of rent or outgoings payable, or as to the liability to pay interest.  There was some conflict, arising from evidence given by Mr Pickford on the one hand and Mr Lewis on the other, as to the necessity or propriety of the expenditure of some of the amounts claimed by way of reimbursement.  Indeed, it is fair to say that the expressed common understanding of counsel was that, subject to resolving minor matters in relation to the amounts claimed for reimbursement, the result of the cross-claim would depend simply on whether AOS succeeded in its claim against Lawton and Mr Pickford: if AOS succeeded in its claims, the cross-claim would be dismissed: if it failed, the cross-claim would succeed.

It has emerged, as a result of written submissions lodged since the trial, that matters are not quite so simple.  It is, however, common ground that Lawton is entitled under the cross-claim to $5,775.98 for rent and outgoings accrued up to and including November 1995 together with so much of the claims for reimbursement as I should hold to be justified on the evidence.  I take it also that, in relation to those two amounts, there is no issue as to the liability to pay interest under the lease.  That interest is provided for in Cl 21(b) of the lease: it accrues at the rate of 11% per annum on an amount unpaid from the date on which it became due until the date of actual payment.

Before turning to the matter which has given rise to difficulty, I should deal with the amounts claimed for reimbursement.  Lawton, by the amended cross-claim, claims amounts for carpet cleaning, rendering and repair of internal walls, re-keying and re-issuing security locks and keys, ceiling repairs, carpet replacement, replacement of electrical wiring, repair of window quartering and rubbers, replacement of ducted skirted board and replacement of built in work benches.  The matters as to which there was some conflict of evidence related to the ceiling (though in this respect Mr Lewis’ evidence appeared to relate to the situation at the commencement of the lease rather than that which arose when AOS left), the interior floor (Mr Lewis’ evidence was that the carpet was already in a relatively poor state when AOS took possession), the keys (Mr Lewis claimed to have returned the only keys he had and therefore disputed the necessity of changing the locks) and the work benches (Mr Lewis claimed that the particular work benches, claimed to have been removed, were in fact left).

I am satisfied, however, by the evidence of Mr Pickford that it is appropriate to allow what is claimed for re-keying.  I am persuaded by his evidence, supported by photographs which were tendered, that the amounts claimed for repairs and repainting of the ceiling should be allowed.  For similar reasons I reach the same conclusion in relation to the work benches.  As for the carpet, I am inclined (to some extent adopting the suggestion of Lawton’s counsel, to which counsel for AOS said nothing in opposition, that I should take a “broad brush approach”) to allow the amount claimed for cleaning but (taking account of its conditions? at the commencement of the lease) one half only of the amount claimed for replacement.  Subject to those matters, the appropriate course in my view is to allow those parts of the claim which are supported by Mr Pickford’s evidence.  Thus Lawton should recover the following:

(a)     carpet cleaning  $108.00

(b)     rendering and repair of internal walls  $580.00

(c)     re-keying and re-issuing security locks and keys         $623.00

(d)     ceiling repairs  $1,044.00

(e)     replacement of carpet  $825.00

(f)     repair of window quartering and rubbers  $765.00

(g)     replacement of electrical ducted skirting board           $139.00

(h)     replacement of built-in work benches  $3,500.00

$7,584.00

I should mention that I have not allowed an amount of $212.00 claimed in the cross-claim for rectification of internal electrical wiring because I cannot reconcile it with anything in Mr Pickford’s evidence; similarly the claim for replacement of the skirting board is for $338.22, but Mr Pickford’s evidence supports it to the extent only of $139.00.  There are some other items of expenditure to which Mr Pickford deposes, but they are not among those particularised in the cross-claim and, in the absence of any reconciliation, I think they should be ignored.

That brings me to the matter of substance.  In his submissions lodged since the trial, counsel for AOS contends that the lease to AOS was surrendered by operation of law on 3 November 1995, when AOS left the premises, or alternatively on 19 August 1996, when Lawton leased part (at least) of the premises to another tenant.  It is then submitted that AOS is liable only for those amounts of rent and outgoings which had accrued at the date of surrender.  Counsel for Lawton responds that AOS, in order to raise those matters, needs to amend its defence to the cross-claim and that leave to amend it, at this stage, should be refused; alternatively, Lawton submits that if the submissions of AOS were entertained it should be held that the lease has not been surrendered; and, thirdly, Lawton submits that if AOS’s submissions are entertained, then Lawton should be permitted further to amend its cross-claim to allege damages as on an accepted repudiation of the lease.  AOS, by way of reply, seeks leave to amend to plead a surrender by operation of law, submits that it would be prejudiced if leave were not given (on the footing that its liability under the lease would otherwise be assessed on an incorrect and disadvantageous basis) and consents to the amendment foreshadowed by Lawton; but AOS foreshadows, also, a submission that the allegation of repudiation would not succeed.

In the interests of avoiding, so far as possible, further prolongation of the matter and consequent expense, I think I should express my views on the substance of the matters raised to the extent that I properly can.  The first question raised by AOS’s submissions is whether there was a surrender by operation of law at the time when AOS abandoned possession of the premises.  There might be much to be said for the view that, if this were the only matter in issue, it would not be appropriate at this stage to grant leave to amend: the relevant circumstances have long been known to the parties and there is no good reason why the point should not have been raised earlier.  In any event, however, the question is whether Lawton on or about 4 November 1995 resumed possession of the premises or accepted AOS’s abandonment, and that is a question of fact: Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 at 693. The principle was stated by Young J in Tasita Pty Ltd v Sovereign State of Papua New Guinea (1991) 34 NSWLR 691 at 697 as follows (omitting citations of authority):

Whether the landlord has accepted possession is a question of fact to be determined upon all the facts and circumstances of a particular case.  Generally speaking, if all the landlord has done is what is necessary to protect its interests, there will be no surrender... .  The landlord may even re-let so long as it is made clear that this is on the tenant’s account: ... .  Other cases... again make it clear that the law throws onto the tenant the burden of showing that the landlord has gone beyond doing what was sensible to protect his own interests and has performed such acts as must be taken to amount to an unequivocal acceptance of possession.

It is suggested that I should infer such an equivocal acceptance from the following matters: the return and acceptance of some or all of the keys to the premises; the fact that Lawton “re-entered” and carried out certain works; and the fact that Lawton changed the security locks.  My view is that those acts do not unequivocally indicate an acceptance of the abandonment of the premises by AOS: those circumstances do not demonstrate, and AOS has not otherwise demonstrated, that Lawton, on or shortly after the abandonment, did more than was reasonably necessary (or “sensible” - Tasita at 697) to protect its own interests.

The suggestion that a surrender took place upon the re-letting of some or all of the premises raises, in my view, much more difficult questions.  The new lease is in evidence.  It is on terms which are somewhat different from those of the lease to AOS, and it is for a term expiring later than the expiry of AOS’s lease.  The matters to which I have referred may not, however, conclude the question which is undoubtedly at the heart of the matter, whether the new lease is to be regarded as having been given on account of AOS: Konica at 693-696, 698. It would not be appropriate, on the present state of the evidence and argument, to form a conclusion about that: one reason why it would be inappropriate to do so is that, although the calculations of outstanding rent in the amended cross-claim suggest that credit may have been given for amounts received under the new lease, there is no actual evidence whether, or to what extent, that is so. Nor is there any of other evidence going to the question whether the new lease should be regarded as entered into by Lawton on account of AOS.

Plainly, if leave is given to permit AOS to amend its defence to the cross-claim so as to plead surrender by operation of law, leave should be given to Lawton to amend its cross-claim to plead an accepted repudiation: it should be said, however, that there is an apparent difficulty in contending for acceptance of a repudiation where the repudiation is constituted by the abandonment in November 1995 and, in April 1996, Lawton lodged a cross-claim for moneys continuing to accrue due under the lease.  That is of course a first impression, not a conclusion.

I think it is appropriate to give AOS the leave it seeks.  The question arising from the grant of the new lease might have seemed likely to arise from the date on which Mr Pickford’s affidavit was served (Mr Pickford refers to the grant of the new lease) but in fact arose only when the amended cross-claim, with its amended particulars, was delivered.  More importantly, however, if leave is not given there is a prospect that AOS would be subjected to a liability which, it is at least seriously arguable, it should not bear.  Likewise Lawton should have leave to amend so as to plead repudiation and acceptance.  The amendments may additionally raise issues of fact in relation to which it may well be appropriate to permit the filing of further evidence.  There are also, of course, questions of costs that will need to be dealt with.

The appropriate course at this stage is that I should not make any orders on the cross-claim: the parties should have the opportunity to consider these reasons.  It may be that they will be able to resolve the matter in the light of what I have said.  If they cannot do so, then the matter should be listed before me for further directions.

Conclusion

The orders of the Court will therefore be as follows:

1. The application is dismissed with costs.

1. The cross-claim is to stand over to a date to be fixed.

I certify that this and the preceding twenty-five (25) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane

Associate:

Dated:            18 November 1997

Counsel for the Applicant:	Mr M K Meek
Solicitor for the Applicant:	Richard Paul Warren
Counsel for the Respondent:	Mr C M Simpson
Solicitor for the Respondent:	Cichero McLean & Menzies
Date of Hearing:	13-16 October 1997
Date of Judgment:	18 November 1997