Brown, David Arthur v Forest Hill Shopping Centre Pty Ltd

[1996] FCA 196

CATCHWORDS

PRACTICE AND PROCEDURE - whether tenable case raised by pleadings or by foreshadowed amendments - whether pleadings should be struck out.

TORT - whether duty of care owed by lessor to assignee of lease where lease specifically addresses scope of lessor's obligations.

Bryan v Maloney (1995) 182 CLR 609
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125

DAVID ARTHUR BROWN & ORS v FOREST HILL SHOPPING CENTRE PTY LTD & ORS
VG 797 of 1995

Ryan, Heerey, Sackville JJ.
Melbourne
25 March 1996

IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIAN DISTRICT REGISTRY      )    No. VG 797 of 1995
GENERAL DIVISION                 )

BETWEEN:

DAVID ARTHUR BROWN, ELIZABETH JOHN BROWN, STEVEN BRIAN MURPHY, ANNE FRASER MURPHY

Appellants

AND:

FOREST HILL SHOPPING CENTRE PTY LTD, L.C. STEVENSON ESTATES PTY LTD, HUGH McMASTER, DIANE McMASTER

Respondents

Coram:    Ryan, Heerey, Sackville JJ.
Place:    Melbourne
Date:     25 March 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed, with costs.

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

IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIAN DISTRICT REGISTRY       )    No. VG 797 of 1995
GENERAL DIVISION                 )

BETWEEN:

DAVID ARTHUR BROWN, ELIZABETH JOHN BROWN, STEVEN BRIAN MURPHY, ANNE FRASER MURPHY

Appellants

AND:

FOREST HILL SHOPPING CENTRE PTY LTD, L.C. STEVENSON ESTATES PTY LTD, HUGH McMASTER, DIANE McMASTER

Respondents

Coram:    Ryan, Heerey, Sackville JJ.
Place:    Melbourne
Date:     25 March 1996

REASONS FOR JUDGMENT

The Appeal
This is an appeal, by leave, from orders made by Sundberg J. striking out certain paragraphs in the appellants' Fourth Amended Statement of Claim.   The appellants are the assignees of a lease of a shop in the Forest Hill Shopping Centre ("the Centre").  The respondent is the proprietor of the Centre, while the remaining respondents are the assignors of the lease.  The paragraphs struck out by his Honour pleaded a cause of action founded on a breach by the first respondent ("Forest Hill") of what was said to be a duty of care owed by it to the appellants.

The Background Facts
The following allegations are pleaded by the appellants in the Fourth Amended Statement of Claim and, for the purposes of this appeal, may be taken as accepted.  At all material times, Forest Hill has been the proprietor of the Centre.  On 26 February 1990, Forest Hill leased shop 118 in the Centre to the second, third and fourth respondents ("the original lessees") for a term of six years commencing on 12 September 1989, together with an option for a further term of six years.  The original lessees covenanted (cl.4.2) to use the premises solely for the purpose of conducting the business of manufacturing and selling doughnut products, ice cream, beverages and confectionary. 

Clause 19.0 of the lease provided as follows:

"EXCLUSIVITY

The Lessor hereby covenants with the Lessee that the Lessor will not during the continuance of the Lease lease any part or parts of the Centre (other than the demised premises) to a Lessee where such lease provides that the main business activity to be carried on in such part or parts of the Centre is to be that of the on-site manufacture and retail sale of donuts PROVIDED FIRSTLY that this covenant shall not apply to a Lease to a supermarket department store or other major tenancy (having an area of not less than 1000 square metres) or operate so as to restrict any activity carried on therein AND SECONDLY that this covenant shall not apply to the sale of goods or supply of services in any premises where such sale or supply is incidental to the carrying on of some other business AND THIRDLY that this clause shall not be reproduced in any extension or renewal of this Lease."

In about August 1991, the original lessees agreed to sell the business conducted at shop 118 to the appellants.  The contract of sale was conditional upon Forest Hill consenting to an assignment of the lease of shop 118 to the appellants.  Forest Hill did grant its consent and, on 24 September 1991, the appellants paid the original lessees the purchase price and took possession of the premises.  On 17 October 1991, a deed of assignment was executed.

By a lease dated 18 October 1991, Forest Hill leased shop 154 in the centre to Keatsville Pty Ltd ("Keatsville") for a term of eight years commencing on 29 April 1991.  The lease provided that Keatsville would use the premises for the following purposes:

"Primarily the retail sale of croissants, muffins, cookies and crepes and as a subordinate and ancillary use only also the retail sale (not manufacture) EXCEPT FOR MANUFACTURE OF CAKE DONUTS THROUGH A ROBOT DONUT MACHINE of donuts, hot and cold beverages, soft serve (i.e. not hard frozen) icecream dispensed from one machine only with dips and/or sweet toppings."  (The words in capital letters were added to the typed clauses by handwriting.)

Keatsville proceeded to conduct a business, the principal activity of which was the manufacture and sale of doughnuts.

The Proceedings
The appellants sought relief against Forest Hill and the original lessees.  In their Third Amended Statement of Claim the appellants pleaded a term of the lease, in language following that of cl.19.0.  The Third Amended Statement of Claim also pleaded that it was a term of the lease, partly express and partly implied, that Forest Hill would not, during the continuance of the lease, permit any other person to carry on, in any part of the Centre, any business the main activity of which was that of on-site manufacture and retail sale of doughnuts.  The appellants alleged that Forest Hill had breached the terms pleaded in two ways.  It did so, first, by granting the lease to Keatsville and, secondly, by permitting Keatsville to conduct a business, the main activity of which was the on-site manufacture and retail sale of doughnuts.

In May 1994, the appellants, who had fallen behind in their rental payments, applied for interlocutory relief to restrain Forest Hill from terminating the lease of shop 118 and re-entering the premises.  This application was dismissed by a judge of this Court, Heerey J.  His Honour held that cl.19.0, on its proper construction, was confined to a covenant by the lessor not to lease any other part of the Centre by means of a lease which contained specific provisions relating to the conduct of a business of manufacturing and selling doughnuts.  Since the lease to Keatsville contained no such provisions, Forest Hill was not in breach of cl.19.0.  His Honour also held that there was no triable issue as to the existence of the implied term pleaded by the appellants.  Such a term was, inter alia, inconsistent with cl.19.0 and did not satisfy the tests laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, at 283.

No application was filed for leave to appeal against this ruling.  However, the appellants subsequently filed the Fourth Amended Statement of Claim.  This pleaded an amended version of an implied term (para.5A).  It also pleaded a cause of action based on a breach of a duty of care allegedly owed by Forest Hill to the appellants. 

Paragraphs 5B to 5E of the Fourth Amended Statement of Claim are as follows:

"5B.Further or in the alternative, the First Respondent as landlord and registered proprietor of the Shopping Centre owed to the Applicants a duty of care to monitor and take reasonable steps to:

(a)ensure that the Applicants enjoyed the benefits of the exclusivity in the conduct of their business as contemplated by the term of the Lease referred to in paragraph 5(c) above and/or alternatively the Lease as purportedly varied as referred to in paragraph 15 below;

(b)prevent other shop premises in the Shopping Centre being used by other persons in contravention of the exclusivity contemplated by the term of the Lease referred to in paragraph 5(c) above and/or alternatively the Lease as purportedly varied as referred to in paragraph 15 below.

5C.The First Respondent owed the duty of care referred to in 5B above by reason of, inter alia, the following matters which created a relationship of proximity between the Applicants and the First Respondent:

(a)the First Respondent was proprietor of the Shopping Centre;

(b)it was fundamental to ensure the commercial viability of the Shopping Centre that there be an appropriate mix of tenants and associated permitted use requirements in leases of premises in the Shopping Centre;

(c)all of the leases in respect of premises in the Shipping Centre contained permitted use provisions designed to achieve an appropriate mix of tenants and permitted uses;

(d)the Lease contained the express term referred to in paragraph 5(c) above and the implied term referred to in paragraph 5A above;

(e)if the First Respondent failed to enforce the permitted use provisions of the leases of other tenants in the Shopping Centre, the Applicants would have no remedy to protect their interests and ensure the benefit of their exclusivity of the permitted use under the Lease;

(f)the Applicants were induced to enter into the Lease because of the matters referred to in (a) and (e) above which matters were of considerable financial benefit to the Applicants.

5D.The First Respondent breached the duty of care which it owed to the Applicants in that it failed to monitor and/or take reasonable steps to:

(a)ensure that the Applicants enjoyed the benefit of the exclusivity in the conduct of their businesses as contemplated by the term of the Lease referred to in paragraph 5(c) above and/or alternatively the Lease as purportedly varied as referred to in paragraph 15 below;

(b)prevent other shop premises in the Shopping Centre being used in contravention of the exclusivity contemplated by the term of the Lease referred to in paragraph 5(c) above and/or alternatively the Lease as purportedly varied as referred to in paragraph 15 below.

5E.As a consequence of the breaches referred to in paragraph 5D above the Applicants have suffered loss and damage."

Sundberg J. struck out para.5A and there is no appeal from
that aspect of his Honour's decision.  His Honour also struck out paras. 5B to 5E.  His Honour's reasoning on this issue is as follows:

"Paragraph 5B alleges a duty in tort to take reasonable steps to ensure that the applicants enjoyed "the benefits of the exclusivity in the conduct of their business as contemplated by...paragraph 5(c)", and clause 5D alleges a breach of duty, presumably constituted by the grant of the Keatsville lease.  As I have said, Heerey J. held that the grant of the lease to Keatsville was not a breach of clause 19.  It was thus not a breach of the term alleged in paragraph 5(c), which reproduces clause 19.  If the grant of the lease to Keatsville was not a breach of clause 19 (paragraph 5(c)), the first respondent cannot, by granting the lease, be in breach of a duty to ensure that the applicants enjoyed the benefits contemplated by clause 19.  Those "benefits" did not include the "exclusivity" asserted.  The same applies to the alleged duty to take reasonable steps to prevent other shops being used in contravention of the exclusivity contemplated by clause 19 (paragraph 5(c)).  Clause 19 does not "contemplate" exclusivity of the type asserted.  In my view the allegations made in paragraphs 5B and 5D do not raise an arguable casse and are clearly untenable.  If these clauses fall, clauses 5C and 5E fall with them."

The Submissions
Dr Pannam QC, who appeared for the appellants, accepted that, if paras. 5B to 5E of the Fourth Amended Statement of Claim are to be read in the manner adopted by Sundberg J., the appeal must fail, unless the appellants are given leave to amend further.  Dr Pannam made the concession because, as Sundberg J. said, if the grant of the lease to Keatsville did not breach cl.19.0, and if the duty owed by Forest Hill to the appellants was co-extensive with cl.19.0, the grant of the lease to Keatsville could not breach the duty.
Dr Pannam sought to overcome this difficulty by contending that paras. 5B to 5E should not be read literally.  Rather, they should (so he submitted) be read as alleging that Forest Hill owed the appellants a duty to ensure that, subject to the provisos contained in cl.19.0, no other business in the Centre would be conducted in a manner such that its main business comprised the on-site manufacture and sale of doughnuts.  If the pleading could be so construed, so Dr Pannam argued, the Fourth Amended Statement of Claim raised a triable, albeit uncertain, issue for determination at trial.

In the alternative, Dr Pannam sought to amend the appellants' pleadings to correspond with the construction he sought to place on paras. 5B to 5E.

Reasoning
In our opinion paras. 5B to 5E of the Fourth Amended Statement of Claim simply cannot bear the meaning attributed to them by Dr Pannam.  Paragraph 5B, which is the key allegation, pleads a duty of care to monitor and take reasonable steps to ensure that the appellants enjoyed "the benefits of the exclusivity in the conduct of their business as contemplated by [cl.19.0 of the lease]".  As a matter of ordinary English usage, that "exclusivity" is confined to the appellants being secure against the grant of a lease to another tenant in the Centre, where the lease provides, in terms, that the main business to be carried on by the tenant is the on-site manufacture and sale of doughnuts.  The appellants do not challenge the finding that Forest Hill did not infringe this form of "exclusivity". Paragraphs 5B to 5E would require rewriting to convey the meaning suggested by Dr Pannam.

Nor do we think that the appellants should be given leave to amend in the manner referred to by Dr Pannam.  Such an amendment would be clearly futile, because the foreshadowed amendment would not raise a tenable case.  In our opinion, a cause of action based on the foreshadowed amendment could not succeed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 129-130, per Barwick CJ.

The law recognises that there can be concurrent duties in contract and tort.  However, the existence of a contractual relationship may be relevant to either the existence of a relationship of proximity or the content of a duty of care: Bryan v Maloney (1995) 182 CLR 609, at 620-621, per Mason CJ, Deane and Gaudron JJ. Their Honours in that case (at 621-622) quoted from the judgment of Le Dain J. of the Supreme Court of Canada, in Central Trust Co v Rafuse (1986) 31 DLR (4th) 481, at 521-522, as a correct exposition of the relevant principles:

"1.The common law duty of care that is created by a relationship of sufficient proximity...is not confined to relationships that arise apart from contract.  Although the relationships in Donoghue v Stevenson, Hedley Byrne [and] Anns v Merton London Borough Council, were all of a non-contractual nature and there was necessarily reference in the judgments to a duty of care that exists apart from or independently of contract, I find nothing in the statements of general principle in those cases to suggest that the principle was intended to be confined to relationships that arise apart from contract.  Indeed, the dictum of Lord Macmillan in Donoghue v Stevenson concerning concurrent liability...would clearly suggest the contrary...Junior Books Ltd v Veitchi Co Ltd, in which an owner sued flooring subcontractors directly in tort, is authority for the proposition that a common law duty of care may be created by a relationship of proximity that would not have arisen but for a contract.

1. What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract.  It is in that sense that the common law duty of care must be independent of the contract.  The distinction, in so far as the terms of the contract are concerned, is, broadly speaking, between what is to be done and how it is to be done.  A claim  cannot be said to be in tort if it depends for the nature and scope of the asserted duty of care on the manner in which an obligation or duty has been expressly and specifically defined by a contract.  Where the common law duty of care is co-extensive with that which arises as an implied term of the contract it obviously does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort.  The same is also true of reliance on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract.

1. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort.  Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence."

Their Honours went on to hold in Bryan v Maloney (at 622) that:

"in the circumstances of this case where the contract between Mrs Bryan and Ms Manion was non-detailed and contained no exclusion or limitation of liability, neither the existence nor the content of the contract precluded the existence of liability to Ms Manion or Mrs Maloney under the ordinary law of negligence".

It followed that the professional builder of a home owed a duty of care to a subsequent owner (not the builder's client) not to cause the building to be damaged by installing inadequate footings.

The present case is starkly different from Bryan v Maloney.  Clause 19.0 addressed precisely, and in terms, the circumstances in which Forest Hill, as lessor, would be inhibited, as against the lessees from time to time of shop 118, from leasing other portions of the Centre for purposes which allowed the on-site manufacture and sale of doughnuts.  The appellants do not now challenge the finding that no term can be implied into the lease that would extend the scope of the restriction agreed between Forest Hill and the original lessees.  Nor do they challenge the finding that Forest Hill has not breached the terms of cl.19.0.  There is nothing in the pleadings to suggest that the appellants were not fully aware of the terms of cl.19.0 prior to taking the assignment of the lease from the original lessees.  Indeed, the pleadings allege that the appellants relied on the terms cl.19.0, when taking the assignment from the original lessees. 
Furthermore, the first proviso to cl.19.0 specifically contemplated that there could be circumstances in which the principal business of another store in the Centre could be that of manufacturing and selling doughnuts.

In these circumstances, the appellants are plainly seeking to circumvent or escape the carefully circumscribed scope of the restrictions or obligations imposed on Forest Hill by cl.19.0 of the lease.  There is no tenable basis for suggesting that the duty alleged in the foreshadowed amendments can subsist consistently with cl.19.0.  Particularly is this so when the loss said to have flowed from the alleged breach of duty is purely economic: Bryan v Maloney, at 623-624.

Dr Pannam submitted that, even if this conclusion were reached, no particular harm would be caused by allowing the allegations to be made in the foreshadowed amendments determined at trial.  He relied on the observations of Kirby P. in Wickstead v Browne (1992) 30 NSWLR 1, at 5-7. But the learned President's judgment in that case was a dissenting one. In any event, the circumstances were different to the present case, which rests upon the terms of the contractual arrangement embodied in the lease. Furthermore, as Mr North, who appeared for Forest Hill, pointed out, there is practical utility in striking out the challenged paragraphs at this stage of the proceedings. The appellants have sought extensive discovery based on those paragraphs. The expense and delay associated with that

discovery can be avoided if the appellants are refused leave to make the foreshadowed amendments.  Accordingly, we do not think it appropriate to grant the leave sought by the appellants.

Conclusion
The appeal should be dismissed, with costs.

I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Court.

Associate:

Dated:25 March, 1996

Heard:8 March, 1996

Place:            Sydney

Decision:25 March, 1996

Appearances:      Dr C.L. Pannam QC, instructed by GWP Aarons & Co, Solicitors, appeared for the appellants.

MrNorth, instructed by Pyles & Defteros, Solicitors, appeared for the

first respondent.

There was no appearance for the secod,
                  third and fourth respondents.