Cafdawn Pty Ltd v Waltons Stores (Interstate) Ltd

Re: CAFDAWN PTY LTD and RICHARD JOHN VANHOFF
And: WALTONS STORES (INTERSTATE) LTD and D. AND G. BOSANQUET INSURANCE
SERVICES (BROKERS) PTY LTD
No. G229 of 1989
FED No. 124
Contract - Estoppel - Negligence

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Contract - Alleged collateral contract - whether promissory.

Estoppel - Whether conduct was "unconscientious".

Negligence - Economic loss - whether duty of care.

Negligence - Physical damage to goods on premises - independent contractor - whether proprietor of premises liable.

HEARING

SYDNEY

#DATE 28:3:1991

Counsel and Solicitors C.A. Ying instructed by Schrader for
Applicant: and Associates

Counsel and Solicitors S. Robb instructed by Blake
for First respondent: Dawson Waldron

ORDER

DECLARE that the first respondent is liable to the first applicant in respect of the damage alleged in paras.26A, 26B and 26C of the further amended statement of claim.

ORDER that the hearing of the issue of damages stand over to a date to be fixed.

ORDER that the other claims made against the first respondent be dismissed.

ORDER that the costs of the proceedings against the first respondent be reserved.

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

JUDGE1

By its application and statement of claim, Cafdawn Pty. Ltd. ("Cafdawn"), the first applicant, and Richard John Vanhoff, the second applicant, the controller of Cafdawn, sued Waltons Stores (Interstate) Ltd. ("Waltons"), the first respondent, and D. and G. Bosanquet Insurance Services (Brokers) Pty. Ltd. ("Bosanquet"), the second respondent, claiming, inter alia, damages for (1) alleged contraventions of ss.52 and 53 of the Trade Practices Act 1974; (2) breach of contract, including a collateral contract; (3) negligence, including negligence as a bailee of goods. It has been agreed that, at this stage of the proceedings, only the issue of liability on the applicants' claims against the first respondent will be dealt with.

The applicants' claims against the first respondent

By their further amended statement of claim, the applicants make the following claims: (1) For some years prior to 1983, the applicants carried on business as fast photo processing outlets known as "Mini Labs" at the Westfield Centre, Parramatta and the K-Mart complex, Forster. (2) In March 1983 and subsequently, negotiations took place between Mr Vanhoff and representatives of Waltons with a view to the applicants' setting up Mini Labs in several of the stores conducted by Waltons. (3) In the course of these negotiations, the representatives of Waltons made certain representations to the applicants. (4) Relying on these representations, the applicants entered into a concession agreement with Waltons and incurred expenditure in that connection. (5) The representations were not accurate, or not given effect to, in certain respects and also constituted breaches of a collateral contract made between the parties. (6) Some of the representations were made in breach of a duty of care owed by Waltons to the applicants. (7) The concession agreement was to operate for an initial period of five years from 22 August 1983, with an option for a further five years. It was a term of the agreement that the parties were to agree on any changes in the location or size of the concession areas. (8) In March 1986, Waltons unlawfully repudiated the agreement. (9) In March 1986, Waltons informed the applicants that it proposed to redevelop one of its stores. At about this time, the applicants delivered its plant and equipment in this store to Waltons for safekeeping. In breach of its duty to keep these goods safe, Waltons allowed them to be damaged.
The history of the dealings between the applicants and the first respondent
An outline of the history of the dealings between the applicants and the first respondent is as follows.
In March 1983, Mr Vanhoff discussed with Robert Clive Witting, operating assistant to the General Manager of Waltons' retail stores, the possibility that the parties might enter into a concession agreement in respect of the several Waltons' stores. The details of such an arrangement were discussed. The negotiations continued over several months. A draft agreement was discussed. By June 1983, an agreement in principle was arrived at in respect of several stores, including Waltons' Park Street, Sydney, store.
On 15 June 1983, Mr C.M. Sproule, the General Manager of Waltons' retail stores, wrote to Mr Vanhoff as follows:

"Re: Park Street Camera Concession

It is planned in the future that the Park Street site will be redeveloped and in the Concession Agreement under Termination of Licence this would automatically terminate your concession within Park Street Store. However, should Waltons move to a new location whilst the redevelopment is in progress, we will relocate your operation if there is...sufficient floor space available. If this is not possible, one of our metropolitan/country stores will be available to accommodate you until the Park Street site is completed at which time we will negotiate an area within the new store, again depending on floor space available."

On 30 June 1983, Waltons and Cafdawn, as licensee, executed under common seal the "Concession Agreement" ("the agreement"). Mr Vanhoff was also a party to the agreement; he was described as "trading as Cafdawn Pty. Ltd." Under the agreement, Waltons agreed to grant to Cafdawn a licence of parts of certain of its stores. The licence, or "concession" was defined as "Waltons One Hour Photo Service". The "concession area" was defined as "as agreed between Waltons and the Licensee from time to time". The licence was deemed to have commenced on 22 August 1983 and to have been for an initial period of five years with an option for a further five years. Either party could terminate the licence by giving three months' notice in writing - "however should (Cafdawn) not be providing a satisfactory sales performance then one month's notice shall suffice and the Licence shall automatically terminate in respect of any in-store concession should Waltons sell the property or decide to re-develop it or (sic) such other date as may be agreed upon between the parties." It was further provided that Waltons might change "the location and or (sic) the size" of any or all of the concession areas by giving 30 days' notice in writing to Cafdawn of the proposed change "as agreed between the two parties".
In September 1983, the Mini-Lab in Waltons' Blacktown store commenced its operations. The Mini-Lab in the Park Street, Sydney, store began to operate in January or February 1984. The Mini-Lab in the Parramatta store was installed by April 1985.
In October 1985, Thomas Hall, Waltons' Director of Sales, informed Mr Vanhoff that Waltons proposed to re-develop the Park Street store and that it would be necessary to move Cafdawn's concession from the ground floor. Negotiations for an alternative site commenced but were not successful. The store was closed for approximately three weeks.
In February 1986, Gerd Pech, Waltons' Director of Design, informed Mr Vanhoff that the Park Street store would shortly be closing permanently as it was proposed to demolish the building. Cafdawn sought, and obtained, Waltons' permission to leave its plant and equipment on the site until Waltons was ready to commence work. In February 1986, Cafdawn closed the Mini-Lab in Park Street. In December 1986, the plant and equipment used in the Mini-Lab operation was damaged by a bulldozer in the course of the demolition work.
The issues on liability arising on the pleadings
It is convenient to consider the several issues which arise on the pleadings separately. They will be considered in the order in which they appear in the further amended statement of claim. (Some of the claims originally made, e.g., the claims under s.52 of the Trade Practices Act, are no longer pressed.) The references are to paragraphs in the further amended statement of claim filed on 19 March 1991.
(1) (Para. 8(iv)) That, in the course of the negotiations for the agreement, Waltons represented that "if any of the (Waltons') store sites were redeveloped, the applicants would be moved without cost to an alternative location of equal opportunity"
Before going to the consequential allegations, I propose to consider whether a statement was made by Waltons as alleged.
The facts
The applicants rely on two pieces of evidence to support this allegation. First, they rely on the letter dated 15 June 1983 written by Mr Sproule and quoted above. Then they rely on some generally expressed evidence in Mr Vanhoff's affidavit to the effect that, at some time during the course of the negotiations for the agreement, he said words to Mr Sproule to the following effect:

"I need the assurance that I would be moved without cost to alternative locations of equal opportunity in that a site was redeveloped."

In his affidavit, Mr Vanhoff said, not surprisingly, that he could not specifically recall Mr Sproule's response to his request. He added, in his affidavit:

"However, to the best of my recollection he (Mr Sproule) said words to the effect 'yes, that is correct'."

Although Mr Sproule was not called, even if I were to take Mr Vanhoff's affidavit evidence at its face value, I am not satisfied that a representation was made in the terms alleged in para.8(iv). I accept that, in the course of negotiations, Mr Vanhoff mentioned his understandable concern about what was to happen in the event of the redevelopment of the Park Street site. But the proper inference that, I think, should be drawn in this connection is that both parties intended that the letter dated 15 June 1983 should stand as the record of their agreement in this area. In other words, in my view, the proper inference from the evidence as a whole is that the parties intended that their discussion on the point should be treated as reduced to a definitive form in the terms of the letter. (It is true that the letter dated 15 June 1983 is extrinsic to the agreement. But, in my view, it is proper to infer from the conduct of the parties first, an intention that the letter evidenced obligations which were intended to be legally enforceable; and, secondly, an intention that the terms of the letter could operate along with and, consistently with, the provisions of the agreement itself (cf Banque Brussels Lambert S.A v. Australian National Industries Ltd. (Supreme Court of New South Wales, Commercial Division, Rogers C.J., 12 December 1989, unreported at pp 35 et seq.).
The questions of law which arise
(a) The collateral warranty claim
On behalf of the applicant, a collateral warranty is alleged in the terms of para.8(iv). In order to establish a collateral warranty, it must be shown that the representation relied upon was intended to be promissory (see J.J. Savage and Sons Pty. Ltd. v. Blakney (1970) 119 CLR 435 at pp 442-3); Ross v. Allis-Chalmers Australia Pty. Ltd. (1980) 32 ALR 561). In my opinion of what passed between the parties during the course of their negotiations, only the letter dated 15 June 1983 was of that character. In its terms, that letter specifically contemplated redevelopment. But the only promise given by Waltons was that, if Waltons moved to a new location, certain steps would be taken. This condition precedent was never satisfied, so that the conditional promise, including the alternative in the last sentence of the letter, never became operative.
The claim for breach of the collateral warranty alleged in para.8(iv) is rejected.
(b) The estoppel claim
An alternative claim of estoppel is made on behalf of the applicants.
It may be accepted that the representations made in the letter dated 15 June 1983 could be relied on as a cause of action in the form of an estoppel. However, in the events which happened, no relevant representation was made by Waltons in its letter: Waltons did not, in fact, move to a new location.
With respect to the oral statements made in the course of negotiations relied on as an estoppel, I am not satisfied that the ingredients of this cause of action exist. In Johnson Matthey Ltd. v. AC Rochester Overseas Corp. (Supreme Court of New South Wales, McLelland J., 13 December 1990, unreported), McLelland J. said:

"It would be a serious threat to the stability of commercial relationships and dealings if parties who, after lengthy and intricate negotiations, deliberately recorded their agreement in permanent written form, were subject to the risk of having that permanent written record yield to the inherently less reliable evidence of oral statements made during the course of negotiation, given possibly many years after the event when witnesses may have become unavailable, and when memories may have faded or become distorted by subsequent occurrences and changing perceptions of self- interest...In my view, reasons of principle and policy combine to exclude evidence of alleged estoppels by convention or any other agreements or understandings arising in the course of pre-contract negotiations which culminate in a written contract, except in proceedings for the rectification of the written contract, when the established requirement, as a condition of obtaining relief, of clear and convincing proof of a common intention of the parties not reflected in the written document, provides the necessary degree of security of the written contract. I would therefore exclude on general principles the evidence of pre-contract negotiations for the purpose of proving an alleged estoppel by convention."

I agree.
In The Commonwealth v. Verwayen (1990) 170 CLR 394, Deane J. said, of the doctrine of estoppel by conduct (at p 444) that its central principle is that -

"the law will not permit an unconscionable - or, more accurately, unconscientious - departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation."

Where, as here, businessmen in an arms' length commercial transaction conduct lengthy and complex negotiations and, as a result of those negotiations reduce their agreement to a formal document or documents, (in this case the 15 June 1983 letter and the agreement itself), and there is no claim made for rectification of the written agreement, it is difficult to see how it can be said to be "unconscionable" or "unconscientious" on the part of Waltons to do anything other than to comply with the terms, express and implied, of the letter and of the agreement.
The claim of estoppel made in para.8(iv) is rejected.
(2) (Para.8(v)) That, in the course of the negotiations for the agreement, Waltons represented that "the applicants could enter into the (agreement) with (Waltons) comforted by the knowledge before committing themselves to the project and purchasing expensive equipment that the (agreement) would only be terminated in the case of the applicants' inability to perform, disregard of company policy or bankruptcy."
The facts
It is common ground that the termination clause in the agreement was frequently discussed in the course of negotiations. Mr Vanhoff asked for it to be taken out of a draft of the agreement. Waltons refused. Mr Vanhoff said he had a general recollection of saying to Mr Sproule that he wanted assurances as to the circumstances in which his licence might be terminated and that Waltons would only terminate if Mr Vanhoff "was not performing". As has been said, Mr Sproule was not called. However, the letter dated 15 June 1983 suggests that its terms were the only matter, apart, of course, from the agreement itself, that was intended to survive from the negotiations.
The questions of law which arise
(a) The collateral warranty claim
For the reasons given in report of para.8(iv), I am not satisfied that the statements relied on were promissory. The claim is rejected.
(b) The estoppel claim
For the reasons given in respect of para.8(iv), this claim is rejected.
(3) (Para.8(vi)) That, in the course of the negotiations for the agreement, Waltons represented that "(Waltons) would only invoke the right which it purported to retain in the (agreement) under the heading "Termination of Licence" to terminate the licence by giving three months notice in writing if the applicants disregarded company policy, were not performing financially or became bankrupt."
The facts
See para.8(v), above.
The legal questions which arise
See para.8(v), above.
(4) (Para.8(vii)) That, in the course of the negotiations for the agreement, Waltons represented that "should the licence terminate as a result of the sale by (Waltons) of any particular property or as a result of any decision by (Waltons), if the applicants' machine was already in place at any such site, (Waltons) would immediately make another site of similar opportunity available to the applicant at (Waltons') expense."
The claims of breach of collateral warranty and estoppel are rejected for the reasons already given.
(5) (Para.8(ix) That, in the course of the negotiations for the agreement, Waltons represented that "should any concession operated by the applicants in (Waltons') Park Street Store automatically terminate on redevelopment of that store, (Waltons') would relocate the applicants' Mini Lab if there were sufficient floor space available, and in the meantime would make one of its metropolitan or country stores available to accommodate the applicants."
The claims of breach of collateral warranty and estoppel are rejected for the reasons already given.
(6) (Para.8(xi)) That, in the course of the negotiations for the agreement, Waltons represented that "the proposed new location for a Mini Lab in the Town Hall tunnel in substitution for the Park Street Store location would be available for occupation by the applicants in about March, 1986."
This matter was discussed, but is of no legal significance. I reject any claims in this connection.
(7) (Para.8(xv)) That, in the course of the negotiations for the agreement, Waltons represented that "the applicants would be given access to the Park Street site for the purpose of establishing the Mini Lab in early December 1983 so that the applicants could have the benefit of profitable trading over the Christmas period."
If established on the facts, this could amount to a breach of the agreement. Otherwise, it has no legal significance.
(8) (Para.8(xva)) That, in the course of the negotiations for the agreement, Waltons represented that "the applicants would be given access to the Parramatta store site for the purpose of establishing a Mini Lab in November, 1984."
If established on the facts, this could amount to a breach of the agreement. Otherwise, it has no legal significance.
(9) (Para.8(xvi)) That, in the course of the negotiations for the agreement, Waltons represented that "if the applicants established a Mini Lab in (Waltons') Parramatta Store, the applicants would be permitted to establish the Mini Lab in a prime position adjacent to the entrance to that store, as previously occupied by Milversons (a former operator), and as appeared in certain plans prepared by Havens, Kirkwood and Meertens, Architects."
If established on the facts, this could amount to a breach of the agreement. Otherwise, it has no legal significance.
(10) (Para.8(xvii)) That, in the course of the negotiations for the agreement, Waltons represented that "the turnover figures of $3,987,433 for the year ended July 1982 and $1,393,662 for the half year ended January 1983 achieved by Milversons, as indicated in a document prepared by (Waltons') dated 15 June, 1983 was a good indicator of potential sales if the applicants were to establish Mini Labs on a concession basis in the (Waltons') stores, and that if the applicants bore in mind that only one-third of the gross sales mentioned in the turnover figures was for film processing, there was a substantial scope for expansion of film processing sales."

It is common ground that Waltons made Milversons' figures available as information which might assist the applicants. However, it is not suggested that the figures were inaccurate. In my opinion, none of the statements made by Waltons' staff in this connection were intended to be promissory. Nor, for the reasons already given, is there any basis for concluding that an estoppel arose.
In respect of this matter, the applicants also make a Hedley Byrne claim in negligence. In Hawkins v. Clayton (1988) 164 CLR 539, at p 576, Deane J. said that where (as here) the plaintiff's claim is for pure economic loss -

"...the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterised by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or a combination of the two."

In my opinion, the applicants have failed to establish that these elements were present here. Waltons' business was that of general retail store, whereas the applicants had considerable experience in the conduct of a film processing operation. In these circumstances, it is not appropriate to conclude that there was known reliance or dependence by the applicants upon Waltons, or an assumption of responsibility by Waltons, except perhaps in respect of the figures. As has been said, the accurancy of the figures is accepted.
11. Para.8(xviii)) That, in the course of the negotiations for the agreement, Waltons represented that "the (Waltons) would so conduct itself in relation to the establishment that the applicants of Mini Labs in its stores in relation to locations, in-store positions, advertising support and assistance, marketing, merchandising and duration of tenure as to give the applicants a fair opportunity to achieve gross sales similar to those achieved by Milversons as noted in (Waltons) letter dated 15 June, 1983."
It is common ground that, on several occasions, representatives of Waltons stated to Mr Vanhoff that Milversons' operations were profitable. As has been said, Milversons' figures were provided to the applicants. This was done under cover of a certificate on Waltons' letterhead dated 15 June 1983 signed by "D.R. Wilkins, Internal Auditor" as follows:

"TO WHOM IT MAY CONCERN MILVERSONS CAMERA SALES WE HEREBY CERTIFY AUDITED NATIONAL SALES FOR THE YEAR ENDED JULY 1982 AS $3,987,433 AND CONCESSION STORE SALES FOR THE HALF YEAR ENDED JANUARY 1983 AS $1,393,662."

For the reasons given in respect of para.8(xvii), in my opinion, no collateral warranty and no estoppel has been established. (12) (Para.17(i)) Waltons refused to grant any licences in its stores after 1985.
This is a claim for breach of contract. It is necessary to consider the stores in question separately.
In respect of the Park Street store, the possibility of its redevelopment was foreshadowed in the letter dated 15 June 1983. The termination clause in the agreement provided that the licence "shall automatically terminate...should Waltons decide to re-develop (the property)." It is common ground that Waltons decided to redevelop the property. It follows that the licence automatically terminated.
In respect of the Parramatta store, it is common ground that the applicants themselves decided to surrender their licence.
In respect of the Blacktown store, by letter dated 2 December 1986, Waltons wrote to Mr Vanhoff as follows:

"RE: BLACKTOWN 1 HOUR PHOTOGRAPHIC SERVICE

1. Regarding our many discussions about the 1 Hour Photographic Service at Blacktown, I am now formally giving you notice to move out of the above store before the 1st of February, 1987.

2. As you know, we have had discussions for over one year now regarding the closure and termination of your operation within the Waltons Department Stores.

3. Should you need any help regarding the above, please do not hesitate to contact me."

It is common ground that the time allowed was less than the three months' notice required under the termination clause in the agreement. However, Waltons relies on the provision in that clause to the effect that the licence should automatically terminate if Waltons should sell the property. By an agreement in writing dated 18 February 1987, Waltons Bond Limited and Waltons agreed to sell to Venture Stores Pty. Limited certain assets including the Blacktown premises. The applicants continued to trade at these premises until May 1987. Under the contract with Venture Stores (cl.1.1.(f)) completion was to take place on 26 March 1987 or such later date as Waltons may nominate. It is reasonable to infer that completion of the sale took place at about the time the applicants ceased trading at Blacktown. It follows that the licence automatically terminated on completion of the sale. This claim is also rejected.
(13) (Para.17(ii)) Waltons, arbitrarily and without the applicants' agreement, changed the location and size of the Mini Labs at the Park Street and Parramatta stores
It will be recalled that it was provided in the agreement that the concession area was to be agreed between the parties from time to time. Even if it be accepted that this provision imposed upon Waltons an obligation to negotiate in good faith (cf. Amann Aviation Pty. Ltd. v. Commonwealth of Australia (1988) 80 ALR 35), there is nothing in the evidence to justify a finding that Waltons acted dishonestly in this respect. This claim is rejected.
(14) (Paras.26A, 26B and 26C) By reason of Waltons' negligence, the applicants' plant and equipment was damaged in the course of the demolition of the Park Street store.
It is common ground that the applicants' plant and equipment was damaged, apparently by a bulldozer. Waltons raises two defences.
First, Waltons relies upon a rather mysterious document, apparently signed by Mr Vanhoff's brother, dated 3 December 1986 in these terms:

"I have removed and take responsiblity for the photographic equipment from Waltons Park Street... On behalf of owner, Richard Vanhoff"

In my opinion, this document could not operate as a release of the claim now made.
Waltons' other defence is to say that the damage was done by an independent contractor for which it was not vicariously liable and that, at best, Waltons was a gratuitous bailee of the goods and could only be liable for "gross negligence".
It is common ground that an independent contractor, Multiplex Contractors Pty. Ltd., was retained to do the work.
In my opinion, the present question is not whether Waltons are liable, vicariously or otherwise, for the acts of an independent contractor, even if the activities of Multiplex could be described as "extra-hazardous" (see Stevens v. Brodribb Sawmilling Co. Pty. Ltd. (1986) 160 CLR 16). The question is whether Waltons was under "a general common law duty of care, and if so, whether, it was a personal (non-delegable) duty" (per Mason J. in Brodribb's Case at p 30). As Mason J. there pointed out (at p 30), the first question is to be determined by reference to the elements of reasonable foreseeability and proximity. In my view, Waltons could reasonably foresee that there was a real risk that the demolition of its premises would cause damage to the applicants' goods. It is also clear, I think, that a relationship of proximity existed between Waltons and the applicants sufficient to ground a common law duty of care and that it was "non-delegable." As Mason J. said in Kondis v. State Transport Authority (1984) 154 CLR 672 at p 687:

"the special duty arises because the person on whom it is imposed has undertaken the care, supervision or control of the person or property of another or is so placed in relation to that person or his property as to assume a particular responsibility for his or its safety, in circumstances where the person affected might reasonably expect that due care will be exercised."

Those observations are apt in the present case.
There remains the issue whether negligence, or a breach of duty, should be inferred. In my opinion, this is a case of res ipsa loquitur.
It follows, in my view, that Waltons are liable to Cafdawn, as the proprietor of the goods, in this respect.
Result of proceedings to date
In the result, it will be declared that the first respondent is liable to the first applicant in respect of the damage alleged in paras. 26A, 26B and 26C of the further amended statement of claim. The other claims made against the first respondent will be dismissed. Costs will be reserved.

[1991] FCA 124

28 MARCH 1991