F & G Nominees Pty Ltd v Verdell Pty Ltd
[2003] WASCA 290
•27 NOVEMBER 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION: F & G NOMINEES PTY LTD -v- VERDELL PTY LTD [2003] WASCA 290
CORAM: ANDERSON J
PARKER J
MCKECHNIE J
HEARD: 7 MAY 2003
DELIVERED : 26 NOVEMBER 2003
PUBLISHED : 27 NOVEMBER 2003
FILE NO/S: FUL 76 of 2002
BETWEEN: F & G NOMINEES PTY LTD (ACN 008 834 517)
Appellant (Defendant)
AND
VERDELL PTY LTD
Respondent (Plaintiff)AND
F & G NOMINEES PTY LTD (ACN 008 834 517)
Appellant (Plaintiff)AND
CORSER & CORSER
Respondent (Defendant)
Catchwords:
Leases - Provision for key money - Whether payment of a premium is key money - Whether provision void - Whether payment to third party constitutes key money
Contracts - Constriction of terms of agreement - Whether extrinsic evidence admissible to establish payment of key money
Solicitors - Liability for damages for negligence - Whether loss of chance properly pleaded - Whether liable to indemnify an illegal payment
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985
Result:
Appeals dismissed
Category: A
Representation:
Counsel:
Appellant (Defendant) : Mr D H Solomon & Mr M A R Blundell
Respondent (Plaintiff) : Mr J Gilmour QC & Mr C D Belyea
Appellant (Plaintiff) : Mr D H Solomon & Mr M A R Blundell
Respondent (Defendant) : Mr K J Martin QC & Ms F C E Davis
Solicitors:
Appellant (Defendant) : Solomon Brothers
Respondent (Plaintiff) : Clayton Utz
Appellant (Plaintiff) : Solomon Brothers
Respondent (Defendant) : Phillips Fox
Case(s) referred to in judgment(s):
Clever Management Pty Ltd & Anor v Van den Bergh & Anor, unreported; SCt of WA; Library No 960593; 11 October 1996
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337
Elmdene Estates Ltd v White [1960] AC 528
J K Corporation Pty Ltd v Dileum Pty Ltd, unreported; SCt of WA; Library No 8901159; 5 April 1989
March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506
Metcalf & Kerr v Permanent Building Society (In Liq) (1993) 10 WAR 145
O F Gamble Pty Ltd v Whitemore Pty Ltd (1989) 2 WAR 327
O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327
Palser v Grinling [1948] AC 291
Pao On v Lau Yiu Long [1980] AC 614
Van den Bergh v Clever Management Pty Ltd & Anor, unreported; FCt SCt of WA; Library No 970319; 20 June 1997
Verdell Pty Ltd v F & G Nominees Pty Ltd & Anor [2002] WASC 58
Verdell Pty Ltd v F & G Nominees Pty Ltd [2002] WASC 58(S)
Warwick Entertainment Centre Pty Ltd v McKenzie [2000] WASCA 283
Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110
Case(s) also cited:
A Chip & Pulp Co Pty Ltd v Arthur Young & Co (1987) 12 ACLR 25; (1987) 5 ACLC 1002
Ablos v Australian Postal Commission (1990) 171 CLR 167
Amadio Pty Ltd v Henderson (1998) 81 FCR 149
Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1
Babcock International Ltd v Babcock Australia Ltd & Anor [2003] NSWCA 6
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191
Brittania Hygienic Laundry Co Ltd v John I Thornycroft & Co Ltd (1925) 41 TLR 667
Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187
C W Dixey & Sons Ltd v Parson (1964) 192 EG 197
Cliffs International Inc v The Commissioner of Taxation (1979) 142 CLR 140
Cotic v Cuscuna Nominees Pty Ltd [2000] WASCA 92
Dalleagles Pty Ltd v Australian Securities Commission & Ors (1991) 4 WAR 325
Dare v Pulham (1982) 148 CLR 658
Demagogue Pty Ltd v Ramensky & Anor (1992) 39 FCR 31
Devries v Australian National Railways Commission (1993) 177 CLR 472
Drayton v Martin (1996) 67 FCR 1
Egerton-Warburton v Deputy Federal Commissioner of Taxation (1934) 51 CLR 568
Expectation Pty Ltd v Pinnacle VRB Ltd [2002] WASCA 160
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in Liq) [2002] FCAFC 285
Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588
Forsayth NL v Northern Gold NL, unreported; SCt of WA; Library No 940012; 20 January 1994
Fox v Percy [2003] HCA 22; (2003) 197 ALR 201
Gould & Ors v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490
Henville v Walker [2001] HCA 52; 206 CLR 459
Holcombe v Coulton (1988) 17 NSWLR 71
Holzmann v Meacham Nominees Pty Ltd (1995) 13 SR(WA) 35
Hoyts Pty Ltd v Spencer (1919) 27 CLR 133
Introvigne v Commonwealth (1980) 48 FLR 161
Jenkin R Lewis & Son Ltd v Kerman [1971] Ch 477
Jones v Dunkel [1959] 101 CLR 298
Jones v Hyde (1989) 85 ALR 23
Jones v Sutherland Shire Council [1979] 2 NSWLR 206
Leedal Pty Ltd & Anor v Buick [2002] WASC 72
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74
Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; 202 CLR 351
Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556
Nixon v Doney [1960] NSWR 2
Roddan & Anor v Shore [2001] WASCA 373
Sanders v Snell (1988) 196 CLR 329
Sellars v Adelaide Petroleum (1994) 179 CLR 332
Shark Fin Burwood Pty Ltd v Ducgo Pty Ltd [2003] VSCA 20
Shevill v The Builders Licensing Board (1982) 149 CLR 620
Take Harvest Ltd v Liu [1993] AC 552
Tana v Baxter (1986) 160 CLR 572
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253
Titan Corporation v Kirby, unreported; SCt of Vic; BC 9703881; 25 August 1997
Trust Co of Australia v Perpetual Trustees WA (1997) 42 NSWLR 237
Tynan & Ors v Newcastle City Council [2002] NSWCA 142
Vulic v Bilinsky [1983] 2 NSWLR 472
Wakim v McNally [2002] FCAFC 208
Warwick Entertainment Centre Pty Ltd v McKenzie & Anor [2000] WASCA 280
Wilson v Anderson (2002) 190 ALR 313
ANDERSON J: This is an appeal from judgments entered in this Court on 24 April 2002 in two separate actions. The actions had been heard together by Wheeler J in November 2001 and February 2002 and her Honour published a single set of reasons on 28 March 2002. Separate formal judgments were extracted in each action and this appeal is against each of those two judgments. There is only one notice of appeal and in point of form we heard only one appeal although in substance there are two appeals.
The lead action concerned a claim by the respondent, Verdell Pty Ltd, against the appellant, F&G Nominees Pty Ltd, for the recovery of moneys paid by Verdell Pty Ltd to F&G Nominees Pty Ltd between December 1988 and June 1990. Verdell Pty Ltd claimed that this money amounting in all to $200,000 was key money within the definition of "key money" in s 3(1) of the Commercial Tenancy (Retail Shops) Agreements Act 1985. The transactions pursuant to which the payments were made were said to be void and the payments recoverable pursuant to the provisions of that Act.
In the second action F&G Nominees Pty Ltd is plaintiff and a firm of solicitors, Corser & Corser, is the defendant. In that action F&G Nominees Pty Ltd claim to be indemnified by the solicitors with respect to Verdell Pty Ltd's claim on the ground that the solicitors advised F&G Nominees Pty Ltd that it would be "quite safe" to charge key money in connection with the tenancy in question.
At the relevant time "Key money" was defined in the Act to mean:
"(a)Money that is to be paid to, or at the direction of, a landlord or his agent, by way of a premium, non‑repayable bond or otherwise; or
(b)any benefit that is to be conferred on, or at the direction of, a landlord or his agent,
in connection with the granting, renewal or assignment of a lease or the sub‑leasing of the premises the subject of the lease."
By s 9 it was provided that:
"9(1)Subject to subsection (2) a provision in a retail shop lease to the effect that the landlord or a person claiming through him is entitled to, or may require from the tenant ‑
(a)Any key money in connection with the entering into or assignment of that lease or any further lease or a sub‑lease of the premises; or
(b)any consideration in respect of the goodwill of the business
is void.
(2)…
(3)Any amount paid or the value of any benefit conferred by a person under a provision of a lease that is void by reason of subsection (1) may be recovered by that person from the person to whom the amount was paid or on whom the benefit was conferred in a court of competent jurisdiction as a debt due."
By s 3(2) it was provided that:
"3(2)Where the parties to a retail shop lease enter into, or have entered into, an agreement or arrangement, whether in writing or not, containing a provision that, if made in the retail shop lease, would be void, that provision is for the purposes of this Act deemed to be contained in the retail shop lease and this Act applies to and in relation to that provision as if it were so contained."
The background is set out in the judgment of McKechnie J and need not be repeated.
By cl 3 of the 1989 deed of extension it was provided that:
"3.The lease shall from and including the 1st June 1989 be deemed to be amended in the manner hereinafter provided:
(a)The lessee shall pay to the lessor a once only payment of $120,000 on 1st June 1989
(b)The annual rental to be paid from and including the 1st June 1989 shall be
$70,000$78,500 per annum to be paid and payable in the manner specified in clause 1 of the first extension."Wheeler J found that the circumstances leading to the insertion of cl 3(a) into the deed of extension were as follows. On 5 July 1988 Mr Hardie and Mr Oddy met Mr Conti at the latter's offices in North Perth. This was after F&G Nominees Pty Ltd had completed the structural repairs made necessary by the fire which had severely damaged the premises but before Verdell Pty Ltd had commenced the renovations which for its part it was obliged to do. Mr Hardie told Mr Conti that Verdell Pty Ltd could not justify incurring the costs of the extensive renovations, including certain structural extensions to the mezzanine floor which it was considering doing, unless it had a lease which extended to 31 May 1999. Mr Conti said that if Verdell Pty Ltd carried out these works the deed of extension to 31 May 1994, which was then thought to be void, would be "reinstated"; but so far as an additional 5 years to 1999 was concerned he said words to the effect that there would have to be "some value" to the landlord for such an extension to be granted. There is evidence that the sum of $200,000 was mentioned by Mr Conti in subsequent meetings in July and there is evidence that Mr Conti indicated that if this sum was paid F&G Nominees Pty Ltd would be prepared to contribute $80,000 of it towards the cost of the structural extensions proposed to be carried out by Verdell Pty Ltd at the mezzanine level. $80,000 was the estimate of the cost of that work, which would produce extra lettable floor space at the mezzanine level. Her Honour found that thereafter negotiations as to precisely what was required in order to obtain an extension to 1999 "remained fluid for a very considerable period" to use her Honour's words. However, she found that knowing that Mr Conti was prepared to commit to at least a 5 year extension to 1994 if the works were done Verdell Pty Ltd did proceed with the works and they were completed by December 1988. The works included structural alterations which added to the net lettable space of the premises. There is evidence that included in the amount paid to the builder, Co‑Struct Pty Ltd, was the sum of $80,000 agreed to be paid by F&G Nominees Pty Ltd from the additional payment of $200,000. The evidence is that the payment was made by a company called Exega Pty Ltd in late December 1988. Her Honour found that it was a payment made on behalf of Verdell Pty Ltd pursuant to the arrangement between Verdell Pty Ltd and F&G Nominees Pty Ltd as to the manner of payment of the $200,000.
Wheeler J found that the payments of the $120,000 provided for in the lease itself and the $80,000 referred to above were payments of a premium in connection with the extension of the lease until 31 May 1999 and that they fell within the definition of key money and were recoverable under the Act.
As to the action against Corser & Corser her Honour held that it could not succeed once it was established that the payment of $200,000 by Verdell Pty Ltd was key money and void. There was no entitlement in law to be indemnified against a claim for repayment of moneys unlawfully exacted in the first place. With respect, this is obviously correct. Whilst it is true that Corser & Corser advised F&G Nominees Pty Ltd incorrectly that it was "quite safe" to demand the additional payment, F&G Nominees Pty Ltd is no worse off than if it had received correct advice. Had it received correct advice and acted accordingly it would never have exacted the payment.
F&G Nominees Pty Ltd also claimed as damages against Corser & Corser the cost of defending the proceedings brought by Verdell Pty Ltd, that is, the proceedings for recovery of the key money. Her Honour did not consider that any causal connection had been established between the advice which had been given by Corser & Corser and the defence of the recovery proceedings. In my respectful opinion, this decision is also correct. It is quite clear that F&G Nominees Pty Ltd's defence to Verdell Pty Ltd's claim for the recovery of the $200,000 paid as key money was not based upon an acceptance of the correctness of Corser & Corser's opinion. F&G Nominees Pty Ltd did not resist Verdell Pty Ltd's claim on the ground that it was entitled to charge a premium. Verdell Pty Ltd's claim was defended on the basis that the $200,000 was not a premium at all but was agreed "compensation" for Verdell Pty Ltd's failure to carry out the remediation and refitting works which it had promised to carry out in the first deed of extension or, alternatively, compensation for the use of the premises fully licensed as a cabaret.
In my opinion, accepting that the $200,000 was recoverable as key money, F&G Nominees Pty Ltd has failed to establish any entitlement to recover damages from Corser & Corser.
For completeness I would add that an attempt was made during argument at trial to substantiate an entitlement to damages on the basis that the solicitors' wrong advice that it was safe to provide for the payment of a premium caused F&G Nominees Pty Ltd to forego the opportunity to demand an increased rent. This head of claim was rejected by Wheeler J for the reason that no such case had been pleaded. I am not persuaded that her Honour erred in this respect.
The question therefore is whether Wheeler J's conclusion that the $200,000 was key money in connection with the extension to 31 May 1999 is correct. The nature of the payment is to be determined as a matter of substance having regard for the real arrangement between the parties. The enquiry is as to the substance of the transaction not to the terminology which the parties may have used in any document including the lease. Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110 at 115, 117, 118.
In my opinion, there was ample evidence upon which her Honour could find, as she did, that the capital sum which was sought and which was agreed to be paid, ie the $120,000 paid in cash and the $80,000 paid to Co‑Struct Pty Ltd was payable in connection with the granting of the extension of lease until 1999 and was payable by way of a premium. The evidence is set out in the judgment of McKechnie J and I need not repeat it in this judgment.
On behalf of F&G Nominees Pty Ltd it was sought to characterise the payment as in reality a payment of compensation for damages sustained by F&G Nominees Pty Ltd in respect to the failure on the part of Verdell Pty Ltd to carry out the renovations agreed in the 1986 extension deed. Her Honour found that there was no compensation agreement between the parties and that neither Mr Hardie nor Mr Conti ever intended that Verdell Pty Ltd should pay a sum by way of damages for failure to carry out those works. This finding is fully supported by Mr Conti's own evidence. It is sufficient to refer to Mr Conti's cross‑examination at Appeal Book 427 to 432. It emerges quite clearly that there was no discussion about compensation as such and Mr Conti had made no attempt to estimate or quantify any damages. When pressed (AB 427) to state the substance of what he said to Mr Hardie and/or Mr Oddy about the payment he answered:
"I wanted $200,000 for the extension of the lease until 1999."
The other basis upon which the payment was sought to be justified as being a payment other than of a premium was that it was in the nature of capitalised rental or, as it is pleaded in par 7 of the defence "compensation to [F&G] for [Verdell's] use of premises fitted out and licensed as a night club cabaret for the period of the extended lease without further improvement being required of [Verdell]…". Her Honour found that the parties had reached agreement on a rental of $78,500 per annum in the belief that that was the market rental. That being so and as that was the rental reserved for the period of the extension it was not possible to regard the arrangement for payment of the additional $200,000 as a bona fide arrangement for the payment of rental.
The grounds of appeal take up many pages of the appeal book. For the most part they are not proper grounds of appeal but are mere argument and it is therefore not possible to deal with them in the ordinary way. For example, ground numbered 1.5.5 reads:
"1.5.5The agreement between Verdell and F&G made prior to 30 November 1988 for the grant of a 10 year term did not dissect either the $120,000 Payment or the $80,000 Payment so as to be partly with respect to either the (legally unnecessary) first 5 years from 1 June 1989 or the later 5 years from 1 July 1994, in the same way that the 1989 deed did not dissect the $120,000 Payment between the variation of the 5 year term from 1 June 1989 granted by the 1986 deed and the renewed term from 1 June 1994. Accordingly, it could not be found that any part of the $120,000 Payment or the $80,000 Payment was paid in connection with the grant of a 5 year term from 1 June 1994. That result could not be changed by holding, as her Honour did, that the 10 year term was negotiated in two stages prior to the 30 November 1988 letter of instructions because an agreement in 1988 and payment under it could never be a 'lease' (as defined in the Act) made in 1986 providing for occupation of premises: occupancy for 5 years from 1 June 1989 was granted by the 1986 deed and not by the 1989 deed or 1988 agreement."
I would dispose of the appeal in the following way. The finding that the deed of extension from 1 June 1994 to 31 May 1999 was the relevant lease for the purposes of the application of the Commercial Tenancy (Retail Shops) Agreements Act is correct. It is that document which conferred the right of occupancy for the extended period and that is sufficient to satisfy the definition of "lease" in the Act. J K Corporation Pty Ltd v Dileum Pty Ltd, unreported; SCt of WA; Library No 8901159; 5 April 1989; O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327; Whitemore (supra). This was a lease which was entered into subsequent to 1 September 1985 and hence it was a lease to which the Act applied. I agree that the lease was a retail shop lease as defined in the Act. I would not interfere with the finding that the deed of extension was executed "on or about" 17 July 1989 by which time Entertainment Enterprises Limited had converted to a proprietary company. This it had done on 7 November 1988. The finding that the lease therefore does not fall within the exception contained in the definition of "retail shop lease", which in effect excludes leases held by a corporation which is a subsidiary of a public company, was correct. The finding that there was an arrangement containing a provision for the payment of a premium of $200,000 in connection with the deed of extension giving a right of occupancy of the premises until 31 May 1999 was correct. It follows that the provision contained in that arrangement was deemed to be included in the deed of extension (the retail shop lease) executed on or about 17 July 1989 and is void and any moneys payable under it are recoverable. The provision in cl 3(a) of the lease to the effect that the landlord was entitled to $120,000 was a provision entitling the landlord to key money in connection with the entering into that lease. That provision is therefore also void and any money paid pursuant to it is recoverable. On this analysis both the $80,000 and the $120,000 are recoverable.
These conclusions do not depend on a proper construction of the deed but on her Honour's findings as to the true substance of the arrangement between the parties. They do not depend on any detailed analysis as to whether the premium was paid in connection with a 10 year lease or a 5 year lease.
A good deal of time was spent by counsel for F&G Nominees Pty Ltd in an endeavour to persuade us that it was not open to Verdell Pty Ltd to rely on evidence extrinsic to the deed itself to prove the true nature of the payment of $120,000 referred to in the deed. As I understood his argument, counsel for F&G Nominees Pty Ltd contended that Verdell Pty Ltd's claim in respect to the nature of the payment of $120,000 must stand or fall on a proper construction of the deed itself without resort to extrinsic evidence. I am not prepared to accept that submission. Verdell Pty Ltd's claim is for enforcement of a statutory right. It is not an action on the deed and does not depend for its success on a construction of the deed. It is not a case in which Verdell Pty Ltd is seeking to enforce the deed according to its proper construction. Verdell Pty Ltd comes to Court to say that whatever may be the words of the deed the true nature of the payment was key money. We heard much argument about the pleadings but I can see nothing in the manner in which the claim is pleaded which would preclude Verdell Pty Ltd from putting its claim in that way.
I should say that it seems to me to be quite clear on the evidence that the $200,000 was exacted in connection with the entering into the 1989 deed. The pleadings are quite wide enough to accommodate such a case. It is clear from the statement of claim and in particular par 2A that Verdell Pty Ltd's case was put upon the basis that the plaintiff would pay a premium of $200,000 in connection with a lease providing for the occupancy of the premises until 31 May 1999.
It is true that the Act contemplates two situations in which a payment may be recovered as key money. First, by s 9(1)(a) where the key money is the subject of an express provision in a retail shop lease. Second, by s 3(2) and s 9(1)(a) where the key money is the subject of an agreement or arrangement made between parties to a retail shop lease, containing a provision that, if made in a retail shop lease, would be void. In the latter case the provision is deemed to be contained in the lease and is in that way rendered void. I would accept that the pleadings should make clear on which of these two basis the claim for recovery is put. It must also be accepted that there are some difficulties with the statement of claim in this case, in that regard. However, looking at the statement of claim as a whole I think it is tolerably clear and should have been clear to the appellant that the case for Verdell Pty Ltd was that there was an arrangement antecedent to the deed for the payment of key money and a provision in the deed itself expressing one part of that arrangement; and that in so far as the antecedent arrangement contained a provision for the payment of key money and in so far as the deed itself contained a provision for the payment of key money both provisions were void and all moneys actually paid either pursuant to the arrangement or pursuant to the deed were recoverable. In my opinion, that is how her Honour's judgment is to be understood and I would respectfully agree with it.
It is also true that in one sense a claim which is based on a contention that the key money is the subject of an express provision in the lease involves proof of that fact and that this in turn involves or may involve a construction of the lease. But this is not to say that the claim for recovery of the money is an action on the lease. It is not a claim to enforce the lease at all, but to avoid a provision in it. In the enquiry as to the true nature of the payment provided for in the lease the terms of the lease will be important, but there is nothing in the Act to suggest that the terms of the lease should be conclusive.
On behalf of F&G Nominees Pty Ltd it was submitted that there was no basis in fact for a finding that the $200,000 was exclusively key money in connection with the entering into of the lease in question because there were other considerations in the background including the fact that F&G Nominees Pty Ltd were aggrieved by Verdell Pty Ltd's breach of covenant in failing to carry out the renovations under the 1986 deed and that there was evidence that the market rental might have been substantially in excess of the agreed rental. In my opinion, this is beside
the point. In the end there was a finding, amply justified by the evidence, that the sum of $200,000 was exacted as a premium. That the exaction of it might be capable of being justified in the mind of the landlord by reference to past breaches and to doubts about the true market rental is neither here nor there.
In all other respects I agree with the judgment of McKechnie J.
PARKER J: Essentially for the reasons given by Anderson J, I agree that this appeal should be dismissed.
MCKECHNIE J:
Introduction
After a trial lasting 10 days, during which two actions were heard together, Wheeler J found against F & G Nominees Pty Ltd in each case: Verdell Pty Ltd v F & G Nominees Pty Ltd & Anor [2002] WASC 58. Subsequently, following further hearings, the Judge published two supplementary judgments, one on interest and one concerning costs orders. Separate judgments were extracted.
F & G Nominees has filed a single appeal. The grounds of appeal run to 13 closely typed pages and are, in many places, argumentative and prolix. Despite the volume of the grounds of appeal, the principal proceedings concern two payments made in connection with a lease and whether they are properly characterised as "key money", and therefore are void and liable to be repaid under the Commercial Tenancy (Retail Shops) Agreements Act 1985. The other proceedings concern the liability of a firm of solicitors who advised F & G Nominees Pty Ltd by letter dated 21 October 1986 that it would be quite safe to charge a premium for a further extension of a lease.
For ease of expression, I shall now refer to F & G Nominees Pty Ltd as the appellant. The appellant's principal witness at trial and a director of the appellant was Mr Paul Conti. I shall refer to the respondent in the principal action as Verdell. The principal witnesses at trial for Verdell were Mr Graham John Hardie and Mr William John Oddy.
I will refer to the other respondent as Corser & Corser, the name by which the firm of solicitors was known in 1986.
The background to the actions in the trial Court
The principal action concerned a claim by Verdell against the appellant for the recovery of two sums of money totalling $200,000 paid by Verdell to the appellant in December 1988 and June 1990. Verdell claimed that this money was key money within the definition of "key money" in s 3(1) of the Commercial Tenancy (Retail Shops) Agreements Act 1985. The transactions pursuant to which the payments were made were said to be void and the payments recoverable pursuant to the provisions of that Act.
In that action the appellant claimed to be indemnified by Corser & Corser with respect to Verdell's claim on the ground that Corser & Corser negligently advised the appellant as I have set out.
The tenancy was one of three tenancies located in a building situated at the corner of James and Lake Streets, Northbridge. The appellant had developed and owned the building. A night‑club or cabaret which was known as Eagle One was conducted on the premises. A wine bar called Novaks Wine Bar was conducted from the adjoining tenancy and there was a restaurant known as Botticelli's in the third set of premises.
The night‑club comprised part of the ground floor and extended to the first floor. The original lessees of the night‑club were the Todaro family and their interests. The original lessees of the wine bar were the Di Dio and Muscara families. On 8 June 1979 Verdell took an assignment of the night‑club tenancy and in August 1986 Entertainment Enterprises Limited, then a public company, took an assignment of the wine bar tenancy. Mr Hardie and Mr Oddy controlled Entertainment Enterprises Limited, which was the parent company of Verdell Pty Ltd.
The original lease of each of the night‑club and the wine bar premises was for 10 years from 1 June 1979. Both leases were therefore due to expire on 31 May 1989.
In September 1986 the appellant agreed to extend the term of both leases by 5 years from 1 June 1989 to 31 May 1994. Deeds were executed extending the terms accordingly. In the Deed of Extension of Lease of the night‑club Verdell covenanted that it would renovate the interior of the premises and do certain structural work at its cost within 6 months of the deed ie, by 5 March 1987. Verdell decided to defer those works indefinitely but sought approval to undertake facelift work to the exterior of the night‑club instead. The appellant would not agree to the substitution of those works for the agreed interior refurbishing and there was something of a stalemate. At the time, it was accepted on both sides that the failure on the part of Verdell to renovate in accordance with the covenant in the Deed of Extension rendered the Deed of Extension void. This was not correct. However, the belief that the Deed of Extension was void influenced future events. The parties believed that the lease would expire on 31 May 1989. In negotiations which continued about this, Mr Conti took the position that the appellant would not execute a fresh deed of extension unless and until the renovations and structural extensions agreed to in the "void" deed were actually carried out.
It is here convenient to go back a little in time. In October 1986, not long after both leases had been extended for a further 5 years to 1994, Mr Oddy approached Mr Conti to see whether the appellant would be prepared to grant further extensions of both leases for a further period of 5 years to 31 May 1999, if Mr Oddy (or Entertainment Enterprises Limited) was successful in securing a conversion of the wine house licence attaching to the wine‑bar premises into a tavern licence. There was evidence that this was likely to be an expensive exercise but that if it was successful the value of the building as a whole would be substantially increased.
The appellant sought advice from it solicitors, Corser & Corser, as to whether it was possible to grant further extensions of lease and whether it would be lawful for it to charge a premium for the proposed extensions. Corser & Corser's advice, given by a letter dated 21 October 1986, was to the effect that there was no legal impediment to granting further extensions of lease and it would be "quite safe" to charge a premium in respect of the further extensions. The basis of this advice was that the Commercial Tenancy (Retail Shops) Agreements Act prohibiting the charging of premiums did not apply to a lease which pre‑dated the Act and that the courts were unlikely to hold that a premium in respect of a post‑Act extension of such a lease was prohibited by the Act. The appellant agreed to extend the wine bar lease for a further 5 years and a Deed of Extension was executed between it and Entertainment Enterprises Limited extending that lease until May 1999, on the basis that Entertainment Enterprises Limited would take the requisite steps to convert the wine bar licence to a tavern licence. There were discussions as to whether the appellant would also "reinstate" the 1986 extension of lease in respect to the night‑club premises but this Mr Conti refused to do unless and until the renovations provided for in the Deed of Extension were completed.
In October 1987, the night‑club premises were severely damaged by fire. This obliged both parties to undertake reinstatement works according to their respective covenants in the lease. It was the responsibility of the appellant to undertake necessary structural repairs and until that work was completed Verdell's obligation to pay rent was suspended. Non‑structural refitting was the responsibility of Verdell to the limit of its fire insurance cover. The structural repairs were completed by the appellant by 31 March 1988. The appellant then required resumption of rental payments. Verdell took the opportunity to plan an extensive renovation of the premises, including structural additions. It entered into negotiations with the appellant to see whether, if it did this work, it could get a 10 year extension of the original lease to 31 May 1999 rather than a 5 year extension to 31 May 1994.
Mr Hardie and Mr Oddy negotiated on this basis with Mr Conti. An extension of lease to 31 May 1999 was eventually agreed and this was the subject of a deed dated 17 July 1989 which the Judge found was executed "on or about" that date [19]. By this time the parties had received legal advice that the 1986 deed granting the first extension for 5 years to 1994 was not rendered void by the failure of Verdell to do the refurbishing which it had covenanted to do in that deed. The deed remained effective to extend the lease to 31 May 1994. Hence the 1989 deed was drawn as a Deed of Extension for a further 5 years from the expiration of the first extension and not as an extension for a total of 10 years. It was a term of the Deed of Extension that the lessee shall pay to the lessor a once only payment of $120,000 on 1 June 1989. It was also agreed that Verdell would pay $80,000 direct to a builder who had been engaged to carry out the refitting works following the fire. These payments were found by the Judge to be "key money".
The Judge held in the second action that Corser & Corser was not liable to the appellant because the finding that the sum of $200,000 was "key money" was fatal to the claim of the appellant as pleaded. If it were necessary to so find the Judge would also have found that Corser & Corser was not negligent.
Commercial Tenancy (Retail Shops) Agreements Act 1985
It is common cause that the Act applied to the arrangements between the parties.
By s 3 "key money" was at the relevant time defined as follows:
" 'key money' means –
(a)money that is to be paid to, or at the direction of, a landlord or his agent, by way of premium, non‑repayable bond or otherwise; or
(b)any benefit that is to be conferred on, or at the direction of, a landlord or his agent,
in connection with the granting, renewal or assignment of a lease or the sub‑leasing of the premises the subject of a lease;"
Since that time the definition has been amended to include reference to "by way of premium or something of a like nature ... "
Section 3(2) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 provided:
" (2) Where the parties to a retail shop lease enter into, or have entered into, an agreement or arrangement, whether in writing or not, containing a provision that, if made in the retail shop lease, would be void, that provision is for the purposes of this Act deemed to be contained in the retail shop lease and this Act applies to and in relation to that provision as if it were so contained."
The Commercial Tenancy (Retail Shops) Agreements Act 1985 provided by s 9:
" 9. (1) Subject to subsection (2), a provision in a retail shop lease to the effect that the landlord or a person claiming through him is entitled to, or may require from the tenant‑
(a)any key‑money in connection with the entering into or assignment of that lease or any further lease or a sub‑lease of the premises; or
...
is void."
Section 9 further provided that the amount paid may be recovered in a court of competent jurisdiction as a debt due.
The grounds of appeal
There are five principal grounds of appeal entitled as follows:
• AThe $120,000 payment
• BThe $80,000 payment
• CCorsers (Corser & Corser)
• DMisleading and Deceptive Conduct
• EInterest
It would unnecessarily inflate these reasons to set out the detail of the grounds which in many instances are not properly pleaded and are difficult to follow.
The firm of Corser & Corser has lodged a notice of contention relevant to the grounds of appeal which assert that it was negligent.
Ground A The $120,000 Payment
In summary, ground 1 asserts that the Judge erred in fact and law because the amount of $120,000 was an undissected amount and was not key money. Furthermore, none of the circumstances enabling the use of extrinsic evidence were present and in any event were not pleaded.
This ground is particularised by no less than 40 paragraphs and subordinate paragraphs.
As I distil the ground, however, it devolves into two main contentions. The first contention is whether the Judge erred in allowing extrinsic evidence as to the construction of the agreement between the parties. The second contention asserts that if extrinsic evidence was to be permitted, then the Judge should have found on the facts that the amount of $120,000 was justified and was not key money.
As one argument of the appellant contends that judgment was given on an unpleaded issue so it is to the pleadings that I first turn.
Verdell's statement of claim
Verdell as plaintiff pleaded the circumstances under which the appellant's liability was said to arise as follows:
"2A(i) On or about 13 July 1989, the Plaintiff and Defendant concluded an agreement ('the Agreement') which Agreement reflected an arrangement within the meaning of section 3(2) of the Commercial Tenancy (Retail Shops) Agreements Act 1995 ('the Arrangement') which was made between the parties during the period July 1988 to 13 July 1989.
(ii)The Arrangement pleaded in (i) above was made in two parts the first part of which was made during July and August 1988. The material terms of the first part of the Arrangement were:
(a)the Defendant would grant to the Plaintiff an extension of an existing lease, at a rental to be finalised, in respect of certain premises situated at the corner of James and Lake Street, Perth and known as Scene 3 so that the term thereof which was due to expire on 31 May 1994 was extended for a further term of 5 years from and including 1 June 1994;
(b)the Plaintiff would pay a premium of $200,000.00 in consideration for the grant of an extension of the lease;
(c)the premium of $200,000.00 would be payable:
(aa)as to $120,000.00 direct to the Defendant;
(bb)as to the balance of $80,000.00 to Co‑Struct Pty Ltd ('Co‑Struct') for and on behalf of the Defendant as a contribution towards the cost of certain work in relation to the mezzanine floor of the leased premises;
(d)the Defendant acknowledged that it would be conferred a benefit by the carrying out of the said mezzanine work in that the effect would be to increase the net lettable area and because the reasonable cost of such works was accepted by the Defendant to be $81,995.
Particulars
(1)The Plaintiff by Mr G Hardie, and on occasions by both Messrs G Hardie and W Oddy, and the Defendant, by Mr P Conti, negotiated the terms upon which the Defendant was prepared to grant an extension of the lease during the course of which the Defendant stipulated for payment of a premium of $200,000.00 payable as set out above in consideration for the grant of an extension of the leased term;
(2)The Plaintiff will rely upon copies of correspondence between Co‑Struct and Entertainment Enterprises on behalf of the Plaintiff, and between Co‑Struct and Conti Sheffield Estate Agency Pty Ltd ('Conti Sheffield') on behalf of the Defendant, which were provided to the plaintiff during the negotiation process, as evidencing the first part of the Arrangement. The correspondence comprises:
(aa)letter Co‑Struct to Entertainment Enterprises dated 19 August 1988;
(bb)letter Conti Sheffield to Co‑Struct dated 23 August 1988;
(cc)letter Co‑Struct to Conti Sheffield undated but in reply to the letter referred to in (bb) above.
(iii)The second part of the Arrangement was finalised on or about 13 July 1989 when agreement was reached as to the rental to be paid at the commencement of the extended term of the lease namely that the rental payable from 1 July 1989 be the sum of $78,500 per annum.
Particulars
On or about 13 July 1989 the Plaintiff accepted the Defendant's stipulation, conveyed by letter dated 28 June 1989 with annexed executed Deed of Variation of the lease, in effect that the rental payable from 1 July 1989 be amended from $70,000.00 per annum to $78,500.00 per annum and that the Plaintiff should initial an alteration to the Deed of Variation reflecting the amendment. The acceptance was effected by the Plaintiff duly initialling the alteration and returning the Deed of Variation to the Defendant under cover of a letter dated 13 July 1989."
Verdell pleaded by par 3 that on or about 13 July 1989 the plaintiff and the defendant entered into a Deed of Variation of the lease an express term of which was that the plaintiff covenanted to pay the defendant a provision of $120,000 ("the Provision"). Verdell pleaded by par 7 that the Provision constituted the payment of money to the defendant, as landlord, in respect of the lease, by way of a premium in connection with the granting of a further lease of the said premises for a term of 5 years commencing on 1 June 1994. By par 8, Verdell pleaded that by virtue of s 9 of the Act the Provision is void and the plaintiff is entitled to recover the amount of $120,000 paid to the defendant.
By par 11 the Verdell pleaded that pursuant to the Arrangement in par 2A(ii)(c)(bb) Verdell paid the sum of $80,000 to Co‑Struct on 22 December 1988 which payment constituted the conferring of a benefit to the value of $80,000 on the defendant.
By par 12, Verdell pleaded that the deemed provision is void and Verdell is entitled to recover from the defendant the amount of $80,000 paid to Co‑Struct.
The terms of the agreement
From the pleadings and summary just set out it is apparent that Verdell was pleading one arrangement for payment of the sum of $200,000, the entire sum of which constituted key money. It relied on a provision in the Deed of Variation of Lease to establish payment of $120,000 and upon the arrangements detailed in the statement of claim to establish the payment of $80,000 as key money by the operation of Commercial Tenancy (Retail Shops) Agreements Act, s 3(2).
The Deed of Variation
There is an issue as to the dating of the Deed of Variation which I will deal with later.
The typescript date reads: "THIS DEED made the 5th day of September 1988".
On the Deed, as executed, those words are struck through and with the handwritten annotations the relevant sentence reads: "THIS DEED made the 17th day of July 1989".
The Deed bears State Taxation stamps of 23 August 1989 and 12 September 1989. The recitals to the Deed of Variation set out succinctly the history of the matter, as follows:
"WHEREAS
(A)By a lease (hereinafter called 'the Lease') dated the 24th day of May 1979 the Lessor leased to Carlo Antonio Todaro, Vincenzo Salvatore Todaro and Superior Developments Pty Ltd (hereinafter together called 'the Original Lessee') the premises (hereinafter together called 'the premises') described in Item 1 of the Schedule hereto for a term of 10 years from and including the 1st day of June 1979 at the rental and upon and subject to the terms and conditions contained in the Lease
(B)By a Deed dated the 8th day of June 1979 (hereinafter called 'the assignment of lease') and made between the Lessor as lessor the Original Lessee as assignor the Lessee as assignee and Andrew John Lenton as guarantor the Original Lessee with the consent of the Lessor assigned the term of the Lease and the premises to the Lessee for the balance of the term of the Lease
(C)By a Deed dated the 5th September 1986 (hereinafter called the '1st Extension') the Lessor granted a further lease of the premises for a term of 5 years from and including the 1st June 1989 on the terms and conditions therein contained
(D)The Lease, the assignment of Lease and the 1st Extension are hereinafter together called 'the lease')
(E)The lessee has applied to the Lessor to vary the lease and to grant to the Lessee a further lease of the premises for a term of five (5) years from and including the 1st day of June 1994 which the Lessor has agreed to do on the terms and conditions hereinafter contained"
Clause 3 of the Deed provided:
"3.The lease shall from and including the 1st June 1989 be deemed to be amended in the manner hereinafter provided
(a)The Lessee shall pay to the Lessor a once only payment of $120,000 on the 1st June 1989
(b)The Annual Rental to be paid from and including the 1st June 1989 shall be $78,500 per annum to be paid and payable in the manner specified in Clause 1 of the 1st Extension
(c)The annual rental shall be reviewed in the manner specified in Clause 4 hereof and for that purpose unless the context otherwise requires; ...
'Termination Date' means the 31st May 1999."
Extrinsic evidence is permitted to establish whether a payment is key money
In summary, the appellant's submissions are that it is necessary to answer the question whether a payment is key money by construing the deed and that Verdell is limited to its pleadings.
It is said that Verdell did not sue under any provision in an arrangement within the meaning of s 3(2) of the Act. So, it is argued, if an agreement or an arrangement made prior to a deed is relied on to establish an agreement to pay key money there is no legislative intention that the rules of construction of written instruments should be changed to allow for a special construction of the written instrument based on a prior agreement.
The appellant relies on the well‑known authorities of Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337 and Metcalf & Kerr v Permanent Building Society (In Liq) (1993) 10 WAR 145 as setting out the principles for the admissibility of extrinsic evidence as an aid to construction.
I am unable to accept the appellant's general contentions which seem to fly in the face of both the Commercial Tenancy (Retail Shops) Agreements Act and the principles to be extracted from cases which have considered the same or similar provisions.
The object and purpose of the Commercial Tenancy (Retail Shops) Agreements Act 1985 is to regulate commercial tenancy agreements.
A clearly expressed purpose of the Act is to outlaw the practice of requiring payment of key money as consideration for entering into a lease when that payment is unconnected with the normal terms and conditions of a commercial lease. The method by which Parliament seeks to accomplish that purpose is to deem all such arrangements as void – with a consequent right of recovery.
The entitlement to key money must be found in a provision in a retail shop lease including the expansion given under s 3(2) of the Act. Whether an identified provision in a lease is or is not key money must be determined by reference to all the facts and cannot be decided solely on the words used. To do otherwise would be to render the application of the Commercial Tenancy (Retail Shops) Agreements Act subject to the ingenuity of the drafter of a lease. It would also leave out of account oral arrangements for key money carefully excluded from a written agreement.
There is a direct analogy with rent control legislation. In Palser v Grinling [1948] AC 291, Viscount Simon at 310:
"The [Rent Restriction] Act is not to be evaded ... by a merely colourable use of words which do not correspond with what is really provided."
In Elmdene Estates Ltd v White [1960] AC 528 Viscount Simonds at 538:
" ... it has been said before, and it must be said again, that in the consideration of questions arising under the Rent Acts the court must look at the substance and reality of a transaction, not to form ... ."
Examining the substance and reality of the transaction, not its form, was the approach taken by Anderson C in O F Gamble Pty Ltd v Whitemore Pty Ltd (1989) 2 WAR 327 and confirmed by the Full Court (Malcolm CJ, Pidgeon J – Rowland J dissenting) in Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110 at 119.
The issue arose even more directly in the case which guided the Judge, that of Van den Bergh v Clever Management Pty Ltd & Anor, unreported; FCt SCt of WA; Library No 970319; 20 June 1997. At issue was the evidence admissible to establish the consideration under a lease. Pidgeon J held:
" ... The question which arose in the trial and which was alluded to in the arguments relating to this appeal is what evidence is admissible in order to determine the true consideration or to show that the consideration was different to that expressed in the document.
The answer to this question lies in the fact that this is an action for recovery of money which Parliament says is repayable in certain circumstances. This is distinct from an action on the deed. If it were an action on the deed, there is a presumption that, as the parties have deliberately put their agreement into writing, it is presumed between themselves and their privies that they intend the writing to form a full and final statement of their intentions. This presumption would not be applicable if the Court were enquiring whether the parties have incorporated key money in contravention of the provisions of the Act to which I have referred."
White J, with whom Parker J agreed, said:
" ... There was evidence indicating that the true consideration for the Base Rent was not set out in the Lease and the learned Commissioner was entitled, therefore, to receive evidence as to the true consideration ... "
White J also relied on Pao On v Lau Yiu Long [1980] AC 614 per Lord Scarman at 631. Lord Scarman noted that extrinsic evidence is admissible to prove the illegality of the consideration: see also Warwick Entertainment Centre Pty Ltd v McKenzie [2000] WASCA 283.
These authorities are an answer to one of the appellant's principal contentions, namely that extrinsic evidence was inadmissible and that the pleaded case did not allow for extrinsic evidence.
The appellant argued that Verdell's case at trial was that the provision in the Deed itself constituted the entitlement to payment of a premium and it did not sue on any provision in an arrangement (as opposed to the Deed) within the meaning of s 3(2) of the Act to recover the $120,000.
Verdell did plead a provision in the Deed, namely the covenant to pay $120,000 (par 3(b)) and that that provision constituted key money (par 7), and that by virtue of s 9 of the Act the provision is void (par 8).
In the course of oral submissions the appellant's counsel said (transcript 24):
"We're sued on the instrument in this matter. That's a matter I make a lot about. I made a lot about it before her Honour and I make a lot about it here. We are sued on the instrument of 120,000. We are not sued on an arrangement or a provision of an arrangement included in an instrument. We are sued on the – capital P – provision, but I will come to pleading, and that is the provision 3(a). Then we have the annual rental in 3(b) is to be 70,000 per annum."
Verdell's statement of claim particularised, within par 2A, those matters within which it was contended that the whole of the circumstances gave rise to a conclusion that the provision in the Deed of Variation of Lease was key money. Verdell was entitled to rely on the Commercial Tenancy (Retail Shops) Agreements Act s 3(2) and on evidence to show the true purpose of the provision within the Deed of Variation.
Nothing further was required to be pleaded.
What was the true basis of the $120,000 payment?
Grounds 1.5 and following assert:
"1.5.11by reason of the foregoing matters in this ground 1.5, her Honour erred in:-
1.5.11.1failing to hold that the $200,000 was, in substance, additional annual rent for a 10 year term paid in advance which, because the relevant events preceded the introduction of s 9(1a) to the Act, was not key money;
1.5.11.2not holding that paragraph 7 of F&G's defence was made out because the $200,000 was not paid solely or only in connection with the grant of a retail shop lease in that:
1.5.11.2.1the annual rental value of the liquor licence was accepted by both parties as having been expressly the subject of negotiations culminating in the agreement concerning $200,000; and
1.5.11.2.2Verdell's breach of the 1986 deed was material and also the subject of express negotiations culminating in the agreement concerning $200,000;"
There is no direct challenge in the grounds of appeal to the finding of her Honour under the heading in her judgment entitled "Was the $200,000 compensation or key money?", concluding at [52]:
"(v) Conclusion – key money
In summary, there is no evidence of any actual damage suffered; there is no evidence of any attempt by Mr Conti to calculate damages; and there is no evidence of any conversation in which Mr Conti either sought a sum by way of compensation for failure to carry out the 1986 works, or alluded in any intelligible way to the concept of compensation. The capital sum which was sought and which was agreed to be paid ($120,000 in cash and $80,000 as a contribution on behalf of Mr Conti towards the proposed refurbishment) was payable only, therefore, for (or, to use the statutory term in force at the time 'in connection with') the granting of an extension of lease until 1999. It was payable by way of premium, since a market rent (on Mr Conti's view) or a rent somewhat in excess of market rent (on Mr Hardie's view) was already provided for in the 1989 deed, and in my view it therefore satisfies the definition of 'key money'."
The ground of appeal puts forward an explanation for the payment of $200,000 on a different basis from that pleaded by the appellant in the Defence and Counterclaim at trial:
"6.The Defendant says that in or about the months of October and November 1986, the Plaintiff and the Defendant agreed that the Plaintiff would carry out certain improvements to the interior of the leased premises ('the works') in return for an extension of the Lease for 5 years to the 31st of May 1994. The Plaintiff failed to carry out the works as agreed and the agreement to pay $200,000.00 was to compensate the Defendant for breach of the agreement by the Plaintiff to carry out the works. The agreement for payment was accordingly not a premium in consideration of the granting of an extension of the Lease.
6A.If the Defendant is precluded from proving, in construction of the Lease, the true consideration for the Plaintiff's agreement to pay $200,000.00, the Defendant has at all times had an equity to rectify the Lease as claimed in the counterclaim herein.
7.Further or alternatively, the Defendant says that the agreement to pay $200,000.00 was compensation to the Defendant for the Plaintiff's use of premises fitted out and licensed as a nightclub cabaret for the period of the extended Lease without further improvements being required of the Plaintiff and was not an agreement for payment in connection with the extension of the Lease and did not constitute key money within the meaning of Section 9 of the Act."
This plea is in substance repeated in the counterclaim, by par 11, where it is pleaded:
" ... that the Defendant would enter into the Deed of Variation only if the Plaintiff paid $200,000.00 to or for the benefit of the Defendant in compensation for the Plaintiff's failure to complete the works, by payment of $120,000.00 to the Defendant and by payment of $80,000.00 to Co‑Struct for the later works pleaded in paragraph 2A(ii)(c)(bb) of the Statement of Claim."
At trial the defence in substance was that the $200,000 was compensation, not key money. On appeal the case was advanced that the $200,000 was additional annual rent.
Further, there is an inherent inconsistency between par 6 and par 7 of the defence. Either the agreement was one thing or the other. It is difficult to see how an agreement in the circumstances of this case could be expressed in the alternative.
The length of the Lease
The Judge held that the length of the lease was not a material element of Verdell's claim. Although Verdell had to prove a retail shop lease and a provision for key money, most of the other terms of the lease were irrelevant to that issue. The length of the lease, as pleaded, merely assisted the appellant to identify the subject matter of Verdell's claims. The Judge declined Verdell's application to amend the statement of claim in order to plead a term of lease relating to its length.
[28]I did not permit the amendment, but I should perhaps record my reasons for doing so. In my view, the question of the term of the lease was not a material element of Verdell's claim. Verdell had to prove a retail shop lease, and a provision for key money; most of the terms of the lease were irrelevant to that issue. The term of the lease, as pleaded, merely assisted the defendant to identify the subject matter of Verdell's claim. Since that was well understood by all parties in any event, an amendment of the kind sought by Verdell seemed to me unnecessary."
In my opinion, the Judge was correct. The situation was unusual because the parties had a lease between 1 June 1979 and 31 May 1989. Things became complicated when, in October 1987, the fire broke out, and what followed thereafter. Repairs were not complete until March 1988. Because of the fire, the premises were extensively refitted, including extensions to the mezzanine area, thus increasing the lettable area.
The issue identified was whether the proposed extension was for a period of five years (that is from 1994 to 1999), or 10 years (from 1989 to 1999). For the reasons expressed, the Judge did not regard the issue as material. In my opinion, any relevance as to the length of the term is confined to questions of the credibility of the principal witnesses, Mr Hardie and Mr Oddy, on the one hand, and Mr Conti, on the other. The Judge took the view that the matter was discussed in terms of two distinct stages; that is the question of a 1989 to 1994 extension, and of a 1995 to 1999 extension. This view, she said, was consistent with the evidence of Mr Hardie rather than that of Mr Conti. The Judge gave reasons why she preferred this view. The Judge found that the negotiations remained fluid and it was not until January 1989 that the lease, which had been prepared by Mallesons for Verdell, was forwarded to the appellant for execution. It was not returned until June 1989, after Mr Conti had amended the amount to be paid for the annual rent. I am of opinion that the Judge did not err, for the reasons she gave at [28].
The evidence of Mr Conti as to the payment of $120,000 and $80,000
Mr Conti was the principal witness for the appellant. His evidence is relevant to the grounds of appeal about both payments of $120,000 and $80,000. The case advanced on appeal for the appellant appeared at times to overlook or minimize the evidence of Mr Conti. The contention behind ground 1.5 appears to be contrary in substance to the evidence of Mr Conti, relevant portions of which I shall now set out.
In referring to a meeting with Mr Hardie and Mr Oddy at his office on 28 July 1988, Mr Conti said that it was Mr Hardie who adopted and used the expression "premium". Mr Hardie used that expression "with respect to my comments to the effect that any proposition by Verdell had to have some value for F & G Nominees if it was to grant a 10 year period". Mr Hardie made a proposal of a payment of $100,000 payable over a 10 year period. In relation to the $80,000, Mr Hardie proposed that F & G Nominees pay the sum of $80,000 as the cost of capital works to the premises.
At material parts of his witness statement Mr Conti said:
"58.I don't recall exactly when I said this to Hardie or Oddy, but it was about July or August 1988: I told them that Verdell should pay F&G Nominees $200,000 if Verdell was to get the second extension and keep the first extension.
59.I told Hardie how I had worked out the $200,000. I told him that I had obtained advice from a valuer or the like (I can't remember if I was specific, or gave him a name) that the liquor licence was worth $20,000 per annum. Because we were discussing the 10 year period 1989‑99 (and not just the second extension period 1994‑99), I told him therefore that Verdell should pay $200,000 being 10 years at $20,000 per annum. I don't recall whether or not I adopted the expression 'premium' when I spoke of the $200,000.
...
62.... I said that F&G Nominees would only contribute $80,000 to the capital works if it would increase the net lettable area and if it was economically feasible and commercial to so i.e. that F&G Nominees would get a rental return out of it."
...
64.When I had received the Co‑Struct and Montague Grant information regarding the estimated $80,000 of capital works, I discussed with Hardie the appropriate way in which Verdell should pay the $200,000. My starting point had been that the $200,000 for the 10 years period should be paid as a lump sum up‑front, then, in light of the matter of the contribution by F&G Nominees of $80,000, I agreed with Hardie that $80,000 would be paid by Verdell in the sense that F&G Nominees would contribute $80,000 to Co‑Struct but Verdell would actually pay it as part of the overall costs – and Verdell would pay the $120,000 as a separate up‑front payment."
In his statement in respect of the Corsers' proceeding, Mr Conti said:
"12.Accordingly, when I entered into the 1988 negotiations with Hardie which are detailed in my other statement, pursuant to his request for the second extension, I relied upon Corsers' written advice in the 21 October 1986 letter, believing that F&G Nominees was lawfully entitled to charge the $200,000 whether or not there was any valuable consideration or lawful basis for it."
I observe that the witness statement does not seem to support an agreement to pay $200,000 to compensate the appellant for breach of the agreement by Verdell to carry out improvements to the interior of the leased premises because at the time of the negotiations the fire had occurred. The negotiations were against a background that further and extensive works were going to take place in return for an extension of the lease. Mr Conti did not in terms give evidence in his witness statement supporting par 6 of the defence, although his evidence does support par 7.
Mr Conti gave oral evidence and both of his witness statements were tendered as exhibits. He was aware of the provisions relating to key money (AB 353). Between 1986 and the trial Mr Conti had no reason to know the extended area of the mezzanine section (AB 356). In 1988 he did not enquire as to what area was in the 1986 plans because in 1988 he was looking at the 1988 plans. He agreed that in the case of the premises you could only carry on a cabaret business and to carry on a cabaret business the premises had to have a licence and that the existence of the licence was a fundamental criteria (sic) to the assessment of the rent (AB 365). A primary, but not the only, consideration of negotiations was by reference to the market rent (AB 366). Mr Conti took the advice from the letter of Corsers that it was okay to charge a premium (AB 385). He took the letter of Corsers as a position of fact that (Verdell) should not extend the lease from 1994 to 1999 unless he got a premium: "It was not worth our while to extend the lease unless we got a return ... a premium, what I was asking for". In the discussions of July 1988 Mr Conti mentioned $200,000 as a payment up‑front which could be taken as a premium, although he did not actually recall using the word "premium" (AB 393).
"I said to Mr Hardie and Mr Oddy that if they wanted the extension for 10 years from 1989 through to 1999, they would have to pay $200,000, and that was to reinstate the one that we had shelved and the 5 years. We were talking in terms of 10 years because we thought we had shelved - - - " (AB 394)
Mr Conti agreed that he had advice that he could charge a premium and the chances are he would have had it in mind (AB 395):
" ... I did say to them that if we were to grant the extension there would have to be some value to the landlord, and then what I did was that I did my research. I had the advice from Corser. I then found out from the marketplace, or from a valuer actually, how much per annum a licence would be worth, so I did some homework on that. Then I believe Mr Hardie rang me later on and asked me what my decision was, and that's when I told him – I'm not sure whether it was at a meeting or on a phone conversation – that's then when I broke the news that if he wanted the extension until 1999, I would want $200,000 paid."
In 1988 when Mr Conti was having negotiations with Mr Hardie and Mr Oddy:
"What I had in my mind when I had the negotiations with Mr Hardie and Mr Oddy was that I could charge a premium, it was legal to do so." (AB 396)
Mr Conti was taken to the further and better particulars of the Defence and Counterclaim and agreed that the phrase he proposed, because of the plaintiff's failure to attend to the work supplied should compensate the defendants in the sum of $200,000, was the truth.
"I would only give the extension [from 1989 to 1994] if they carried out the renovations." (AB 416).
"In my mind, it was from 1989 right through to 1999 and it included bringing back the 1986 deed; in other words, activating that; reinstating it, if you like." (AB 419)
At a meeting in July 1988:
"You say that was, what, compensation for Verdell not carrying out the 1986 works?---That's correct. They didn't do the works of 1986 and I had given them an extension on Novaks and I'd asked them for $200,000 if they wanted an extension till 1999.
...
I did not use the word 'compensation'.
... I said I had an issue with the Eagle One document or the Eagle One lease, the 1986 document, that they had not done the works.
Did you say anything to them that connected that issue with the payment of the 200,000?---Yes, because that's what – the 200,000 was all in the - - -
What did you say?---I said I wanted $200,000 and I have - - -
What did you say, Mr Conti, to connect a $200,000 payment to this issue you say you mentioned concerning the works not having been done?---They had not done the works on Eagle One and they want an extension until 1999.
What did you say about the 200,000? As best you can recall what is the substance of what you said to Mr Hardie and/or Mr Oddy about the 200,000?---I wanted $200,000 for the extension of the lease until 1999.
Is that all you said?---And I had an issue that they had not done the works on Eagle One under the 1986 deed and they had got the benefit of a 5‑year lease on Novaks.
You didn't use the word 'compensation'?---No, I did not use the word compensation.
I just want to be quite clear about this. Tell her Honour again what was the substance of what you said concerning the $200,000?---Your Honour, I'd asked for $200,000 for the extension of the lease till 1999 and in those conversations I mentioned the issues that I have with the document of 1986, the works there not being done. (AB 427)
...
So you told them that you wanted $200,000 to extend the lease?---Correct.
... I only stated that the works hadn't been done.
... There was no agreement between Mr Hardie and I that there was compensation in that sense. We didn't have a separate agreement other than what we had." (AB 429)
Mr Conti confirmed that he did not use the word "calculation" in negotiations:
"Did you miss out on some area of the mezzanine floor? Is that your view?---No, no. I calculated the $200,000 over a period of 10 years at $20,000 a year, and that payment of $200,000 was to give them back the lease of the 89 to 94 and extend it through to 1999, give them a 10‑year lease." (AB 431)
Mr Conti (AB 432) considered they had suffered damages but never calculated them because they got onto other negotiations:
"Was the added value the renovations to the extent that it was structural or added net lettable area, plus the $200,000?---Correct.
On top of the rent?---The rent would be based on the area.
You are getting the rent?---Yes.
The additional value you were getting was any structural improvements, for example, which included the net lettable area of the premises and $200,000?---Correct." (AB 438)
Mr Conti was taken to par 6 and par 7 of the defence. He agreed par 6 was correct. He was then taken to par 7, agreeing that the defence was filed on his instructions. When asked to explain:
"It does not mean that we fitted out the lessee's fittings in the cabaret, that we had the building prepared and its shell fitted out and it had a cabaret licence with it, so our building was finished but I'm not claiming here that we had it all ready to go for a nightclub. The actual tenants fitted out the fittings in there." (AB 453)
Mr Conti was asked what the difference was between the compensation agreement as pleaded in par 7 and the compensation agreement as pleaded in par 6:
"As I understand it now, that number 7 was that we had the premises available and a liquor licence with the premises.
Do you say that there were any discussions between you and Mr Hardie about paying $200,000 for the shell of the premises, with no further improvements being required?---No, the agreement there was to extend the lease from 1989.
Mr Conti, did you or did you not have any discussion with Mr Hardie about $200,000 being paid in relation to the premises as compensation even although there was to be no further renovations carried out?---No."
Mr Conti was asked about the liquor licence (AB 456):
"The only time I discussed the liquor licence with Mr Hardie was in working out the calculation of the $20,000. Otherwise I didn't discuss it with Mr Hardie.
What did you say to Mr Hardie about that?---That I had received the valuation advice that a liquor licence is worth $20,000 per annum. That's how we arrived at the 200,000 or how I arrived at the 200,000.
So did you say to Mr Hardie words to the effect that the $200,000 had been calculated by reference to the value of the liquor licence?---No, what I told Mr Hardie, how I arrived at the $200,000 as a figure, see, what I wanted to do was to have a figure that was, let's say, reasonable or acceptable in the marketplace. I didn't want to come up with a silly figure. So when it came to those negotiations, I actually got information from a valuer who told me that the value of a liquor licence is $20,000 per annum.
What, charged by way of a premium?---If it's paid up‑front, it's a premium." (AB 455)
Mr Conti agreed that the lease always had a liquor licence attached to it from 1979 and that this was calculated in the rental and reverted back to the owner at the end of the lease.
Mr Conti was cross‑examined about compensation in respect of the 1986 works:
"Rather than me put words into your mouth, tell your Honour what you were to be compensated for?---Right. Verdell did not carry out the 1986 works and I had given them a 5‑year extension on that basis on two premises. Had they carried out the 1986 works, I would have had an increased floor area as far as the mezzanine is concerned. After the fire, that would have been replaced, and also it seems that was done before 1 June 1987. There would have been a rent review for that area, so I would have got some rent for the period from 1 June 1987 over that area of premises. That's what I saw.
All right. I will take you to the first part of that. The compensation was to compensate you for the fact that you did not get an extension to the mezzanine floor at Verdell's cost?---Correct.
So you wanted to be compensated for that?---I wanted to be compensated for what they promised to do and didn't do.
So why did you agree in 1988 that you would pay for the extra mezzanine area?---Because Mr Hardie put that to me as part of the $200,000. He said, 'Would you consider paying $80,000 towards the capital works?' and I said I would if I get extra rental for that.
But you wanted to be compensated for the fact that you were going to get the extra mezzanine floor at no cost, and so in 1988 you say that under the new renovations you were going to get the extra mezzanine floor, but you were going to pay for that. How is that compensation?---That proposition came after (indistinct)
But that was money you were going to get as a premium, but now you're being asked to give part of it back to pay for something that you say you were going to get for nothing in 1986. It doesn't sound like compensation to me, Mr Conti?---Sorry.
It doesn't sound like compensation to me, that you pay for something in 1988 that you were going to get for nothing in 1986?---The compensation was the $200,000.
But you give back $80,000 of it in effect to pay for the extra mezzanine floor?---I reinvested 80,000 to get a return out of it.
Do you understand what I am saying, Mr Conti? How can that be compensation for not getting the extra mezzanine area for nothing under the 1986 deed, for you to pay for it in 1988?---Because I didn't get the benefits of the 1986 addition.
I have asked you several times. Is there anything else you want to say in relation to that question, as to why you say it's compensation?---No, nothing more than I have added." (AB 464 – 466)
This explanation is, with respect, incomprehensible. It does not support a reasonable conclusion that the payment of $200,000 was compensation.
Mr Conti (AB 473) understood cl 3(a) of the Lease to be a reference to the compensation agreement, although it did not use the word nor did it refer to the 1986 deed at that point, nor does it say it is payment for the breach of the agreement (AB 474):
"The reason that you had no problem with it is because it had nothing to do with compensation. It was just a premium. It was just a premium, wasn't it?---It was part of the $200,000.
Which was a premium?---A premium.
That's how you viewed it?---Yes." (AB 474)
In cross‑examination to Mr Martin QC:
"What I'm suggesting to you is that in these negotiations, you were always going to be constrained in terms of the rent that you can get by whatever the market rent is?---Correct.
You can't push it much higher than market rent?---No." (AB 535)
Ground B - The payment of $80,000 by Verdell
In his witness statement, Mr Hardie said that he arranged for all the work to be done by Co‑Struct Pty Ltd and funded by a facility by way of lease agreement on behalf of Verdell with Allied Westralia Finance Ltd. The works, goods, services and materials contained in the lease were all provided and carried out by Co‑Struct and the funding provided by Allied included the costs of extending the mezzanine floor area. In December 1988 Co‑Struct submitted its final account to Allied Westralia Finance which paid it. The appellant did not put forward an affirmative case of non‑payment. It put Verdell to proof of the issue. It was open to the Judge to be satisfied, as she was at [26], that the payments were made by Verdell.
Conclusion on Grounds A and B
The evidence of Mr Conti provides strong support for the Judge's finding that the payment of $200,000 was key money. When the whole of Mr Conti's evidence is considered, especially his answers during the course of cross‑examination, the appellant's evidence does not support the pleaded defence in pars 6 and 7. Instead it compels the conclusion that payment of $200,000 was demanded as a condition for entry into a further lease period.
That conclusion, in effect, disposes of ground 1 and also ground 2 which relates to the $80,000 payment because, in the passages as set out, the $80,000 payment was part and parcel of the demand for $200,000. In these circumstances any evidence from Mr Tait as to rental value falls away and it is unnecessary to further consider the grounds of appeal which deal with his evidence. At most, his evidence might have provided a justification for the method by which Mr Conti calculated the sum of $200,000 but could not support the reasons why $200,000 was demanded and paid.
Ground D – Misleading and Deceptive Conduct
This ground in essence asserts that the Judge ought to have found in favour of the appellant on the counterclaim.
The terms of par 11 of the counterclaim have been previously set out. For the reasons I have already expressed, the Judge correctly dismissed this aspect of the claim.
By par 17 of the counterclaim:
"Notwithstanding the agreement between the Plaintiff and the Defendant that the $200,000.00 payment was to be in compensation for the Plaintiff's failure to complete the works, the Plaintiff instructed the Third Party to draft the Deed of Variation in such terms that the provision for the $120,000.00 payment would be construed as the provision for payment of key money in breach of s 9 of the Act ('Key Money') and did not instruct the Third Party [Mallesons] concerning the $80,000.00 payment."
This claim fails for two reasons. First, the Judge's findings rejected the appellant's case that the money was paid as compensation. Secondly, there is no evidence that Mallesons was instructed to draft the deed in such terms as asserted.
To deal with a submission advanced on behalf of the appellant I return to the significance of the date of the Deed of Variation. The inference that the Judge drew was that the date of 5 September 1988 was a mistake. I consider this is an inference fairly open, supported as it was by the letter of instruction for preparation of the deed from Mr Hardie to Mallesons in November 1988. The alternative inference advanced by the appellant in argument, that the document was deliberately backdated to take advantage of the change from public to private status of Verdell is, I consider in the circumstances, far‑fetched.
The Judge's finding on the date is supported by the timing of the payment of $80,000. At [20] the Judge found that complete agreement on all issues relating to the extension of the lease was not reached until the amended rental figure of $78,500 was accepted in July 1989. The sum of $80,000 was part of the $200,000 premium. Letters between Co‑Struct and Mr Conti in August 1988 indicate the issue was live at that point.
The ground of appeal and the submissions made by counsel for the appellant about the alleged backdating of the Deed of Variation are framed in support of a generalised assertion that somehow Verdell agreed to the payment of the premium because it was necessary to do so in order to obtain a lease until 1999. Verdell's officers knew that it would successfully reclaim the $200,000 in due course as key money. Shortly after the execution of the lease Verdell assigned the lease to others and then commenced action against the appellant.
There is no direct evidence that would justify such a conclusion. Nor, in my opinion, are there sufficient facts which would enable the inference to be drawn.
Furthermore, I would not draw such an inference in the circumstances. Mallesons were joined in the counterclaim by the appellant but the claim was dismissed. Mallesons are not joined in this appeal. It is argued by the appellant that it is unnecessary to join Mallesons because Verdell would be responsible for the actions of its agent solicitors in any event. However, I would be slow to draw an adverse inference against Mallesons in proceedings where it is not a party. I say this, by way of aside, because the principal reason why the ground of appeal must fail is the failure of the appellant to prove that the reality of the transaction was compensation, not a premium.
Ground E - Interest
Ground 5 of the appeal concerns the Judge's decision to award interest and reads:
"Interest
5.Her Honour erred in fact and law in:
5.1not finding that the sale of the business by Verdell for $800,000 in 1990 resulted in a substantial profit to Verdell resulting from F&G entering into the 1989 deed;
5.2not refusing to award interest on account of one or more of the following grounds:-
5.2.1the windfall profit referred to in ground 5.1;
5.2.2Verdell's conduct in not seeking repayment of the $120,000 until after F&G had consented to the assignment in 1990 to complete the sale for $800,000;
5.2.3Verdell's conduct in not by itself or by its solicitors informing F&G of the risk to it in executing the 1989 deed in the amended form submitted for execution on 5 January 1989; and
5.2.4Verdell's delay in prosecution of the proceedings;
5.3awarding interest in the absence of a proper plea complying with O. 20/9(4)(c), particularly in light of her Honour's refusal of an application during the trial to amend the applicable prayer for relief;
5.4alternatively, with respect to each of the sums $120,000 and $80,000, awarding interest for the period prior to the respective dates of demand."
It should be noted in respect of 5.3 that in fact the amendment was permitted.
I do not consider there is any substance in the pleading point.
The Statement of claim, as amended, reads:
WHEREFORE THE PLAINTIFF CLAIMS AN ORDER FOR
1.payment by the Defendant to the Plaintiff of the sum of $200,000.00;
2.interest on:
(a)the sum of $80,000.00 from 22 December 1988;
(b)the sum of $113,416.11 from 17 July 1989; and
(c)the sum of $6,583.89 from 5 June 1990.
to date of payment or judgment at the rate prescribed from time to time pursuant to section 32 of the Supreme Court Act 1935.
... "
I do not consider that the failure to plead the precise rate of interest led to any prejudice. In any event, the rate of interest is not prescribed but determined as such a rate as a Judge thinks fit: Supreme Court Act s 32.
In supplementary reasons, Verdell Pty Ltd v F & G Nominees Pty Ltd [2002] WASC 58(S), the Judge said at [3]:
"Pursuant to s 32 of the Supreme Court Act, interest arises from the time of entitlement to the cause of action. The purpose of the rule is generally understood to be the compensation of a party held out of the profitable use of money to which the party was entitled. ... "
It is submitted that the Judge erred holding that interest arises from the time of entitlement because Supreme Court Act s 32 provides a complete discretion as to an award of interest. I do not consider that there has been any error. It is clear from both the initial and supplementary judgments the Judge was well aware that the award of interest is discretionary. Her conclusion that, as the provision requiring the payment of key money was void, the plaintiff is entitled to the money from the moment of payment at [4] is compelling.
Within a year of signing the Deed of Variation, Verdell sold the business which had been conducted on the premises, and on 5 June 1990 assigned its lease to Salmon Point Holdings Pty Ltd. The sale appears to be part of a wider transaction which also involved Verdell purchasing a block of land with a special facility licence attached to it.
The Judge did not think it necessary to consider whether or not Verdell made a profit or loss on the sale of the business. There was some evidence that the business was sold for $800,000 but that this resulted in a capital loss on the sale of non‑current assets of $93,644.
Although the award of interest is discretionary, the cases in which interest would not be awarded are rare. In O F Gamble Pty Ltd v Whitmore Pty Ltd Anderson C declined to award interest in favour of the plaintiff, in part, because the plaintiff desired the renewal of the lease only for the purpose of selling the business at a higher price than it would otherwise bring. This exercise of discretion was confirmed on appeal: Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110 at 121. In awarding interest the Judge followed the approach she had expressed in Clever Management Pty Ltd & Anor v Van den Bergh & Anor, unreported; SCt of WA; Library No 960593; 11 October 1996:
"As a matter of public policy ... it would generally be consistent with the intention of the legislature to compensate ... plaintiffs for their lack of use of those sums since the dates at which the respective 'key money' payments were made, regardless of whether the payments had resulted in some practical benefit. I would not consider it appropriate to refuse to award interest unless there was clear evidence of substantial benefit to the plaintiffs or detriment to the defendants sufficient to outweigh both the general rule that interest is rarely refused, and the need to ensure that full effect is given to the legislative policy reflected by s 9 of the [Act]."
The weight to be attributed to any windfall profit derived from the extension of the lease and to any delays in conducting the proceedings were matters of discretion for the trial Judge. I am unable to conclude that the discretion miscarried in relation to either matter. The Judge adverted to each but nevertheless concluded that it was appropriate for interest to be awarded.
Conclusion on the appeal in relation to Verdell
The finding at [52] was clearly open on the evidence. There is no direct attack on those findings. The conclusion therein stated is supported in large measure by the evidence of Mr Conti.
It has not been shown that the Judge made any material error and I would dismiss the appeal.
Ground C - The appeal relating to Corser & Corser
As referred to at the beginning of this judgment, the claim against Corser & Corser relied principally upon a letter of advice dated 21 October 1986, the salient portion of which has been reproduced earlier.
The Judge considered the finding that the payment was in fact key money was fatal to the appellant's claim for reasons she set out at [63]:
"The claim against Corsers in this respect rests upon the proposition that damage is suffered when a person, who has received a payment to which he is not entitled, is required to refund that payment. No authority was cited for such proposition. It appears to me to be wrong in principle. It is certainly possible for other losses to flow as a result of reliance upon such advice; in some circumstances, for example, the cost of defending proceedings might be a relevant loss. However, it is my view that in principle, the bare fact that a person is required to repay money to which he was not, as a matter of law, entitled does not amount to damage for which compensation is payable. This not only precludes the recovery of the $200,000 from Corser and Corser, but would be a further reason for finding against F & G in relation to its counterclaim and third party claim.
The force of this reasoning is formidable and constitutes a very considerable obstacle in the way of the appellant.
Failure to plead a loss of chance
The grounds of appeal are contained in eight paragraphs. Paragraphs 3.1 and 3.2 assert that the Judge erred in holding that it would have been necessary for the appellant to plead a loss of a chance of negotiating a higher rental payment and it did not do so.
Again, it is necessary to return to the pleadings.
After pleading the letter of 21 October 1986 and requirement for diligence, the statement of claim in the action against Corser & Corser continued:
"6.In reliance on the advice pleaded in paragraph 4 given in the Letter, the Plaintiff entered into an extension of lease of the Premises with Verdell Pty Ltd providing for the Plaintiff to receive, and thereafter received, payment of $120,000.00 from Verdell Pty Ltd and a benefit of an additional $80,000.00 paid to its builder by Verdell Pty Ltd in addition to rental payable under the Lease."
Paragraph 6 was subject to a request for further and better particulars as follows:
"1.2Provide full particulars of every act, fact, matter, circumstance or thing pursuant to which it is alleged that the Plaintiff entered into in the extension in reliance on the advice of the Defendant."
That was answered as follows:
"1.2(a) The Plaintiff negotiated the extension of lease in terms providing for payment of a premium by the lessee because the Defendant had, by the letter of 21 October 1986 ('the Letter') advised the Plaintiff that it be 'quite safe' to do so.
(b)But for the Defendant having advised the Plaintiff in the terms contained in the Letter, the Plaintiff would not have negotiated the extension of lease in terms providing for payment of a premium; rather, the Plaintiff would have negotiated a higher rental throughout the extended term.
(c)The Plaintiff knew of no matter or thing which had, since the Letter was written and before the extension of lease was entered into, rendered the advice contained in the Letter no longer applicable."
To return to the statement of claim the appellant pleaded the following by way of the breach of contract and its claim for damages:
"9.By reason of the Defendant's breach of contract and/or breach of duty, the Plaintiff has suffered, and continues to suffer, loss and damage.
PARTICULARS
A.Costs and disbursements on a solicitor/client basis of and incidental to the defence of the Proceedings and prosecution of this action.
B.The amount of any judgment which may be awarded to Verdell Pty Ltd in the proceedings.
AND the Plaintiff claims:-
A.An order that the Defendant indemnify the Plaintiff with respect to the claim of Verdell Pty Ltd in the Proceedings and with respect to any judgment (including costs) awarded to Verdell Pty Ltd in the Proceedings.
B.Damages.
C.Interest on damages pursuant to section 32 of the Supreme Court Act at the rate of 8% p.a. from the date of payment of each amount by the Plaintiff to payment or judgment.
D.Costs."
The Judge dealt with the issue [72] to [78] of her reasons, her decision being encapsulated at [74], [75] and [76]:
"[74]An essential ingredient in such a claim would be establishing that, but for the conduct complained of (which is somewhat different in each case), F & G could have obtained the amount of $200,000 or some similar sum in a lawful manner. That is, as I have noted, a 'loss of a chance' or loss of opportunity case. The essential ingredients of a loss of opportunity case are, it seems to me, that:
•There would have been an opportunity to obtain the benefit lost.
•The plaintiff would have pursued that opportunity.
•Either that the benefit would have been obtained, or that there was a non‑trivial possibility that it would have been obtained.
[75]I accept that as a general rule it is not necessary for a party to plead causation of its damages. However, it is necessary for it to plead the material facts which entitle it to the relief which it claims, and to plead every matter which might take an opposing party by surprise. The claim by F & G in each case here refers not to damages for lost opportunity but rather to an entitlement to an 'indemnity' in respect of a sum which falls to be refunded because it is key money. There is no pleading which identifies the nature of the opportunity (that is, to obtain a higher rental throughout a term), let alone pleads that the opportunity would have been pursued and might have been obtained. There is therefore no foundation in any of F & G's pleadings for a loss of opportunity claim as a matter of fact.
[76]Pleadings are concerned at bottom with the 'basic requirement of procedural fairness' (Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ, Gaudron J). It is in my view essential, as a matter of fairness, to hold F & G to its pleaded case in this respect. This is not a case of some mere formal omission from pleadings which ought to be remedied by way of amendment. Rather, one can readily see that, had the various parties been on notice of a claim of this kind, many courses of enquiry would have been open to them. In particular, the question as to whether it was possible to establish a market rent over a particular period of time, and the question of the elasticity or otherwise of rental for cabaret premises were matters upon which one might well have expected expert valuation evidence."
In my opinion her Honour was correct. The statement of claim and the further and better particulars did not open up the issue of damages generally for a loss of a chance to negotiate a higher rent. It is difficult to read "indemnity" as equating to "loss of a chance".
Counsel for the appellant referred to many cases where a person who has acted in reliance on negligent advice, given by a solicitor, has lost an opportunity and thereby suffered damage. I do not understand that general principle to be an issue in this case. The appellant fails because, as the Judge correctly found, the case was not pleaded and issue was not joined on loss of opportunity. Furthermore, the evidence did not, on analysis, support the proposition that there was in fact a lost opportunity to obtain a greater rent in circumstances which would not of themselves amount to obtaining key money.
Finally, there can be no compensable damage for having to disgorge that to which you were never entitled.
Causation
The Judge dealt with causation in this way:
"64So far as the cost of defending the proceedings brought by Verdell are concerned, there are two reasons why, in the circumstances of this case, it is my view that no causal connection between the Corser and Corser advice and the defence of those proceedings has been established. The first is that the other proceedings were defended not on the basis suggested by the Corser's advice, but on the entirely different basis that the payment was by way of compensation. The second reason, is that by letter dated 2 November 2001 the solicitors for F & G recorded that the plaintiff in the Corser's action 'accepts that in defending [the Verdell action] it has not relied on the advice of Corser and Corser in the letter of 21 October 1986 ... and has relied on separate legal advice given after receipt of the demand from Verdell Pty Ltd in July 1990'."
Ground 3.3 of the appeal relating to Corser & Corser asserts that this was an error and that the Judge should have found that, whilst the appellant's reliance on Corser & Corser's advice finished at the point of entering into the 1989 deed, all of its losses, including losses resulting from having to defend Verdell's claim, were caused by the negligent advice.
On 3 November 1999 the appellant's solicitors (Solomon Bros) wrote to Corser & Corser's solicitors (Phillips Fox). Her Honour reproduced a sentence of that letter. The full paragraph reads as follows:
"With respect, your comments now and in your earlier correspondence appear to indicate that you may have lost sight of just what our client claims. It claims only an indemnity (plus costs incurred in the litigation). It does not plead a claim for $200,000 for rent or anything of the like. It does not claim anything over and above what it already has (but stands to lose). It claims that it made a bargain with Verdell for payment of $200,000 and, because of your client's negligence, it may lose the benefit of that bargain (which at present it retains) to Verdell. To reply specifically to your bluntly worded statement, our client does not pursue alternative loss and damage possibly represented by a higher rental.
Accordingly, nothing further with respect to the loss and damage pleaded and particularised under paragraph 9 is required. Appropriately, in answer to your client's request for particulars of our client's plea of reliance, our client states that but for the negligent advice, our client would have negotiated a higher rent. It may therefore lead evidence on that point. But expert evidence is not required."
The "higher rent" referred to needs some analysis. In the proceedings against Corser & Corser, Mr Conti's witness statement was admitted as an exhibit. His evidence (AB 1384) was that, on the basis of the letter of advice of 21 October 1986, he thought it was virtually free of risk for the appellant to charge a premium with respect to the Novaks or Eagle One premises (or indeed both).
Mr Conti relied upon Corsers' advice in that letter, believing "that F & G Nominees was lawfully entitled to charge the $200,000 whether or not there was any valuable consideration or lawful basis for it":
"13.Had the advice from Corsers been to the contrary, or at least more qualified, indicating some degree of risk in F&G Nominees charging anything that could likely be construed as an unlawful premium or key money, I would have acted differently. I would not have asked for the payment to be made up front."
14.I am confident that I could have negotiated a higher annual rental which achieved the same commercial result as the second extension of lease without any reference in the document or earlier negotiations to a premium or key money on the basis of the following:
...
Accordingly, I am confident that I could and would have negotiated for the $120,000 payment, or the full $200,000 if necessary, to be payable by way of annual rent increased over 10 years, instead of by lump sum in advance."
The Deed of Variation of Lease included provision for review and market rent review in certain circumstances.
The effect of Mr Conti's evidence is that he would still have charged a premium for agreeing to grant the lease. This would be key money. However, instead of a one‑off payment, the key money would be disguised as an increase in rent with the provision of the Deed of Variation of Lease.
The Judge posited two reasons why there was no causal connection. The first reason that the action was defended on the basis that the payment was by way of compensation is clear from Mr Conti's evidence.
On 28 June 1995 Mr Conti swore an affidavit in opposition to the plaintiff's application for summary judgment. In the course of that affidavit Mr Conti confirmed par 6 of the defence (AB 1106):
"19....
'the payment of $120,000 was to compensate [F & G Nominees] for breach of the agreement by [Verdell] to carry out the work. The payment was accordingly not a premium in consideration of the granting of an extension of the lease.'
20.To the $120,000 may be added such part of the $80,000 as benefited F & G Nominees and did not coincide with the work required under the 1986 deed. In my view, those amounts were required from Verdell as compensation for its failure to carry out the works required by the 1986 deed. ... "
In the course of cross‑examination (AB 487) Mr Conti confirmed that this was still the defence. The letter of 2 November 2001 from the appellant's solicitors to solicitors for Corser & Corser read as follows (AB 1307):
"Further to the conference that took place at Ken Martin QC's chambers earlier today, we confirm as follows.
The plaintiff in action CIV 2294 of 1992 ('F & G Nominees') accepts that in defending action CIV 2726 of 1991 (the 'Verdell Action'), it has not relied on the advice of Corser & Corser in the letter of 21 October 1986 (the 'Advice') and has relied on separate legal advice given after receipt of the demand from Verdell Pty Ltd in July 1990. However, F & G Nominees claims (but the defendant Corser & Corser disputes) that F & G Nominees' exposure to the relief claimed in the Verdell Action was caused by F & G Nominees having relied on the Advice by entering into the deed of variation dated 17 July 1989 relied upon by Verdell Pty Ltd in the Verdell Action."
The paragraph is in two parts. The first is a statement of fact that the appellant has not relied on the advice of Corser & Corser but has relied on separate legal advice. The second is an assertion of law. The Judge used the factual admission in her reasons.
Where negligence is an issue, causation is essentially a question of fact into which considerations of policy and value judgments necessarily enter: March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506. In truth, policy and value judgments do not play a part in the issue of causation raised in this appeal. The chain of causation was broken in July 1990 for the two factual reasons set out by the Judge.
Negligence
The statement of claim against Corsers pleaded negligence as follows:
"E.In the circumstances, it was negligent and a breach of the Defendant's retainer agreement for the Defendant to advise the Plaintiff that it would be quite safe to charge a premium in respect of a further extension of the lease of the Premises."
In view of her Honour's findings and particularly the lack of causal connection just referred to, the Judge did not find it necessary to determine the issue of negligence. The Judge nevertheless concluded that no negligence was established in relation to the Corser & Corser letter. She noted that if in error in relation to the question of negligence she would have found in favour of the appellant on reliance. The finding of reliance is challenged by a notice of contention on behalf of Corser & Corser asserting that any reliance by Mr Conti on the letter of advice was not reasonable reliance.
Conclusion on Ground C - Corser & Corser
As the case was decided and as the appeal was developed in argument, the question of negligence of Corser & Corser and the reliance by the appellant only assume importance if any action of Corser & Corser was causative of any loss and damage suffered by the appellant. For the reasons I have expressed, the appellant failed to establish a causal link at trial and I remain unpersuaded that the trial Judge made any error in this regard. The appellant was not entitled to be reimbursed $200,000 by Corser & Corser because it was not entitled to receive that sum originally. The appellant did not plead a case that it had suffered a loss of opportunity to negotiate a higher rent, nor in any event did it establish that a negotiation would have been successful. The fact that Mr Hardie may have wished to pay the $120,000 premium in consecutive annual payments rather than as an up‑front payment did not make the essential character of the payment that of rent. Because the appellant did not defend the action brought against it by Verdell on any basis connected with the advice contained in the letter of Corser & Corser, it suffered no damages in defending the action. The Judge did not consider it necessary to decide the issue of negligence even though she then did so. Her conclusions on negligence are obiter dicta in that they do not form part of the essential reasons given for dismissing the appellant's claim against Corser & Corser. In all these circumstances it is unnecessary to determine whether or not the trial Judge's reasons for finding that the appellant had failed to establish negligence on the part of Corser & Corser were correct.
Orders
I would propose that in FUL 76 of 2002 (from CIV 2726 of 1991):
F & G Nominees Pty Ltd (ACN 008 834 517)
and
Verdell Pty Ltd
the appeal be dismissed.
In FUL 76 of 2002 (from CIV 2294 of 1992):
F & G Nominees Pty Ltd (ACN 008 834 517)
and
Corser & Corser
the appeal be dismissed.
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