Gemini Property Inv P/L v Woodards Inv P/L & Ors No. Scciv-99-1346

GEMINI PROPERTY INVESTMENTS PTY LTD v WOODARDS INVESTMENTS PTY LTD; WAKEFIELD INTERNATIONAL PTY LTD; STORAGE ONE SYSTEMS PTY LTD & CALLEGHER
[2001] SASC 228
Civil

DOYLE CJ This action has come before me for assessment of the damages recoverable by the plaintiff. The defendants failed to file a Defence to the plaintiff’s Statement of Claim. Judgment was entered on 13 April 2000 for damages to be assessed.
The plaintiff claims damages for loss suffered by it as a consequence of the plaintiff purchasing a commercial building in the Adelaide CBD. The plaintiff purchased the building relying on representations made by certain of the defendants about the existence and genuineness of two leases in respect of a substantial part of the building. Those representations were false. The lessees under the leases repudiated the leases shortly after the plaintiff purchased the building. The plaintiff claims damages based on the difference between the price it paid and the value of the building, and damages for the loss it has sustained as a result of the tenants repudiating their leases.
Facts
The following matters are either admitted, because the defendants have not filed a Defence, or are matters proved in evidence and about which there was or could be no real dispute. To the extent that they are matters proved in evidence, what follows are findings made by me. I will not trouble to record findings about formal matters, such as the incorporation of relevant parties, or about minor details.
The plaintiff is Gemini Property Investments Pty Ltd (“Gemini”).
The owner of the property was Woodards Investments Pty Ltd (“Woodards”). Woodards is the first defendant. Wakefield International Pty Ltd (“Wakefield”) is the second defendant. As will appear, Wakefield leased part of the property from Woodards. Wakefield International Pty Ltd has subsequently changed its name to 16 Bentham Street Pty Ltd. I will use the name Wakefield in the judgment since it was Wakefield that was engaged in the subject transactions and is named in the leasing documentation. Storage One Systems Pty Ltd (“Storage One”) is the third defendant. Storage One also leased part of the property from Woodards. Mr Callegher is the fourth defendant. At all material times he was a director of Woodards, Wakefield and Storage One.
At the hearing I granted leave under r 36(11) of the Supreme Court Rules for each of the defendant companies to act in person in the action, and to appear by Mr Callegher. I did so after Mr Callegher tendered documents apparently recording a resolution by each of the defendant companies to the effect that Mr Callegher was authorised by the company to appear for it. Mr Strawbridge, counsel for Gemini, did not oppose the making of this order.
In November 1998 Woodards was the owner of a property, which consisted of premises in Currie Street, Adelaide. A building was erected on the land. It was described by Mr Hickin, a valuer, as a “1960’s style office building, comprising basement, ground floor and two upper levels”. He also described the location as a “somewhat secondary commercial location” and the office accommodation which it provided as being in category “C”, according to a scale in which property is graded in five categories from premium, then “A” to “D”. The broad distinction that Mr Hickin drew was between category “A” accommodation, which is new or recently refurbished, and other accommodation. I accept that evidence.
In November 1998 the property was for sale. The agent handling the sale for Woodards was a firm known as Knight Frank. The employee of that firm handling the sale was Mr Taplin.
Gemini was interested in buying the property. In November 1998 Mr Dixon, on behalf of Gemini, spoke to Mr Taplin. Mr Taplin also gave him an “information memorandum”. Mr Taplin made certain representations which, it is admitted, were made on behalf of Woodards and on behalf of Mr Callegher.
The first representation was that the property was fully tenanted, and that the lessees of the property included Wakefield and Storage One. The representations included details relating to the terms of the leases to Wakefield and to Storage One. Secondly, and importantly for the purposes of assessment of damages, Mr Taplin represented that while the leases to Wakefield and to Storage One were not yet registered or in registrable form, the leases were bona fide.
The meaning of this representation is not as clear as it might be. However, in the context of a representation to a purchaser, relating to leases of a property to be purchased, leases which were still being finalised, I consider that the representation would reasonably have been taken to mean that there was no reason to doubt the genuineness of the intention of the tenants to enter into the leases, and no reason to think that the leases would not be taken up or that the premises would not be occupied. The fact that when the representation was made the leases were not yet registered, and the tenants were not yet in occupation, would obviously be a matter of concern to a purchaser, if the tenants were to occupy a substantial part of the building to be purchased. A prospective purchaser would want to be reassured that the proposed leases would come to fruition, and that the proposed tenants genuinely intended to proceed with their leases, especially as a director of the vendor company was a director of the tenants. Thirdly, there was a representation that Mr Callegher “was guaranteeing” the performance by Wakefield and by Storage One of their obligations under the leases.
The property did not sell at auction on 11 November 1998. The highest bid was $1,680,000.
Later that day, Mr Taplin spoke to Mr Dixon. He repeated the representations referred to, and offered on behalf of Woodards to sell the property to Gemini for $1,681,000.
On the same day, relying on the representations referred to, Gemini signed an agreement to purchase the property for $1,681,000. Gemini would not have purchased the property but for the representations.
Mr Callegher executed a written guarantee by which he guaranteed to Woodards the performance of the obligations of Wakefield under its lease of the property. The lease from Woodards to Wakefield, executed on 3 November 1998, includes the guarantee. No guarantee of the performance of the obligations of Storage One was given by Mr Callegher. The lease between Woodards and Storage One was executed on 3 December 1998, but does not include a guarantee.
Settlement on the purchase took place on 15 December 1998.
In about January 1998 Mr Callegher, acting on behalf of all defendants, informed agents acting for Gemini that Wakefield and Storage One would not fit out or occupy the leased premises. Wakefield and Storage One defaulted under their leases. By notices dated 9 April 1991 Gemini terminated the leases and re‑entered the leased premises. Wakefield and Storage One have not made any payments under the leases.
Mr Callegher has never subsequently given a guarantee of the obligations of Storage One under its lease.
The Claims
As against Woodards, Gemini’s claim for damages is made under s 82 of the Trade Practices Act 1974 (Cth) (“the Act”). Gemini claims for loss or damage suffered “by conduct of” Woodards, which conduct it alleges was in contravention of s 52 of the Act. The alleged contravention of s 52 is that Woodards engaged in misleading or deceptive conduct, when it falsely represented that the leases to Wakefield and Storage One were bona fide.
By failing to file a defence, Woodards has admitted that the leases to Wakefield and to Storage One were not bona fide leases, and that Gemini relied on the representation that they were bona fide leases when Gemini purchased the property. I find that Woodard engaged in misleading and deceptive conduct, contrary to s 52 of the Act when it made the representation in question. I find that Gemini has suffered loss by that conduct. I also find that Woodards has contravened s 56 of the Fair Trading Act 1987 (SA), and that Gemini is entitled to recover damages for that contravention under s 84 of the Fair Trading Act. I am satisfied that Gemini is entitled to damages under s 7 of the Misrepresentation Act 1972 (SA).
I will hereafter concentrate on the claim for damages flowing from the breach of s 52 of the Act. In my opinion, the process of determining the amount of the damages under s 82 of the Act would be the same under the other Acts referred to. It is not necessary to deal separately with the claim under those Acts.
Wakefield and Storage One are liable to Gemini for damages for loss suffered by Gemini as a result of their repudiation of their leases. The repudiation is admitted, and the entitlement to damages follows as a matter of law.
Mr Callegher is liable to Gemini under his guarantee of Wakefield’s obligations under its lease. He is liable to Gemini for damages for loss suffered by it by Woodards’ breach of s 52 of the Act. Mr Callegher is liable for that loss or damage suffered by Gemini because, by s 75B of the Act, he is a person involved in the contravention of s 52. I am satisfied that Mr Callegher is, in any event, liable to Gemini, for the loss suffered as a result of the false representations, under s 56 and s 84 of the Fair Trading Act, and under s 7 of the Misrepresentation Act.
Damages - Loss on Purchase
Gemini claims from Woodards and from Mr Callegher the difference between the price it paid and the value of the property it purchased: Kenny & Good v MGICA(1992) Ltd (1999) 199 CLR 413 at 460-461, Kirby and Callinan JJ ; Gould v Vaggelas (1985) 157 CLR 215, Gibbs CJ at 220, Brennan J at 255.
Gemini led evidence from Mr Hickin, a qualified valuer, as to the value of the property at the time of the purchase. His written valuation was admitted as Exhibit P20. I accept Mr Hickin as a qualified and competent expert valuer. He valued the property by capitalising the rental which, in his opinion, could be obtained for the property. In so doing he took account of the rental being paid by existing tenants (other than Wakefield and Storage One), the relationship between that rental and market rentals (this was relevant to rentals likely to be obtained on the expiry of the existing leases), and market rentals for the areas that Wakefield and Storage One had leased. I accept his general approach, and his estimate of market rentals generally.
From the estimated annual rental income, Mr Hickin deducted his estimate of the landlord’s outgoings, an amount of $93,050 per annum. He then capitalised the balance of the income at a rate of 12%, which I find to be an appropriate rate. He then made provision for increased rentals likely to be obtained on the expiry of leases that were currently returning less than market value, and made a deduction for his estimate for the period of time that it would take to obtain new tenants for the space left vacant by Wakefield and Storage One, and for concessions that, in his opinion, it would be necessary to offer to new tenants against “face rental” for the vacant areas. He arrived at a capital value of $1,019,515. I find his general approach to be acceptable.
Mr Callegher challenged the estimate of landlord’s outgoings, claiming that it was excessive.
Mr Callegher tendered a number of documents relating to outgoings incurred when Woodards, of which he was a director, was the owner of the property. The purpose of tendering these documents was to suggest that Mr Hickin had allowed too much for a number of items, in particular for electricity, cleaning and for lift maintenance. Included in the item of electricity was the cost of air conditioning.
The effect of these documents was far from clear. Some of them were invoices relating to the premises, but it was not always clear just what the invoices related to. Some of them were estimates of the cost of work to be done on the premises, which work Mr Callegher claimed was in fact done. Mr Callegher’s argument appeared to be that not only had Mr Hickin over-estimated the outgoings, but that in any event he had under-estimated the amount that could be recovered from tenants. In relation to the latter point, Mr Callegher relied on documents and some oral evidence about the extent to which outgoings had been recovered from tenants when Woodards was the owner of the property. On the latter point, Mr Hickin’s response was that in estimating the rental likely to be received for the areas to be occupied by Wakefield and Storage One, he had estimated a rental which reflected the fact that he allowed for the landlord meeting outgoings related to that part of the property. In other words, Mr Hickin’s answer was that while he had assumed no recovery of outgoings for this part of the property, he had allowed for that by, presumably, estimating a higher rental than would otherwise have been the case. This aspect of Mr Hickin’s evidence was not really tested by Mr Callegher. Mr Callegher relied mainly on the documents that he produced relating to outgoings when Woodards was the owner, and documents and evidence relating to the recovery of outgoings from tenants during that time.
The market rental rates adopted by Mr Hickin in his report estimate a gross market rental rate of $160 sqm for the space in question. Mr Feely, a witness of Mr Callegher’s, a person experienced in securing tenancies for commercial premises, indicated that the gross rental value of the space in question was between $140 and $170 per sqm. There is nothing in this that tends to contradict the evidence of Mr Hickin. Indeed, it is consistent.
As to the estimate of outgoings, the evidence put forward by Mr Callegher, such as it was, does not cast any real doubt on Mr Hickin’s estimate of outgoings. Some of the evidence was evidence of outgoings borne by Woodards, after the recovery of tenant contributions. To that extent the evidence missed the point, because Mr Hickin’s evidence was he had worked on the basis of a higher rental without subsequent contribution to outgoings by the tenants. The evidence was, in any event, confusing and inconclusive. For example, in evidence Mr Callegher accepted that exhibit P37 was a schedule of landlord’s outgoings for the property for the year ended 30 June 1997. The total was $96,327.42. This figure had been audited and certified by accountants apparently employed by Woodards. Confronted with the fact that this figure provided strong support for Mr Hickin’s estimate, Mr Callegher contended that the accountants’ schedule was wrong. But apart from asserting that, by reference in a general way to other material that he had adduced, he did not demonstrate in an acceptable fashion that the schedule was wrong. This whole topic of outgoings was unsatisfactorily left up in the air.
I mention here that, not surprisingly, Mr Callegher’s struggled with the rules of evidence, and with the process of cross-examination and giving evidence in court. In some respects the evidence for the plaintiff was not properly tested. However, on 13 June 2001 I conducted a directions hearing in this matter, at which Mr Callegher was present. The directions hearing lasted for 1¼ hours. At my request, Mr Strawbridge outlined how Gemini’s case would be presented, and what would be claimed. I gave Mr Callegher the opportunity to outline the case he would make. Along the way I explained, as clearly as I could, the importance of him providing to Gemini’s solicitors copies of the documents upon which he intended to rely at the hearing. Despite this, most of the documents relied on by Mr Callegher had not been disclosed prior to the hearing, and this contributed to the difficulty in understanding what his evidence amounted to. The documents were produced as the case progressed, and in no particular order. The disorganised and piecemeal manner in which Mr Callegher conducted the case made it very difficult to tell, as the case was unfolding, just what was the basis upon which the damages were being contested.
I accept Mr Hickin’s estimate of the outgoings in respect of the property. As I have said, the rather confusing material presented by Mr Callegher does not cause me to doubt the reliability of Mr Hickin’s overall estimate of outgoings. In light of Mr Hickin’s evidence about how he arrived at a market rental for the space that would have been occupied by Wakefield and Storage One, I accept this aspect of his evidence overall. I understand Mr Callegher’s concern that the deduction for outgoings seems large, but he has failed to identify a weakness in Mr Hickin’s approach.
Mr Callegher also challenged the allowance made by Mr Hickin for parts of the property being vacant while replacement tenants were located, and the allowance made by Mr Hickin for incentives likely to be required to obtain a tenant. Once again, the challenge was made in very general terms, really by way of an assertion rather than anything else. Although I found Mr Hickin’s evidence and approach generally acceptable, I consider that in this respect he has been unduly cautious. I would reduce the allowance made by Mr Hickin under this head from $231,138 to $200,000. That has the effect of increasing the total capital value of the premises from $1,019,515 to $1,050,653, which I would round out at $1 050 000.
Mr Callegher also submitted that Mr Hickin had taken too pessimistic view of the quality of the property and of the prospects of letting it. Once again, this really amounted to nothing more than a general assertion by Mr Callegher. I do not accept his criticism. I consider that Mr Hickin took a reasonable approach to this matter.
Mr Callegher called Mr Cooney, who said that he was a qualified valuer, although he said that for some time now he had practiced mainly as a sales person. Mr Callegher wished him to give expert evidence about the value of the property, and began by asking him to comment on the valuation by Mr Hickin.
No expert report from Mr Cooney had been disclosed by Mr Callegher. That was the case despite the fact that at the directions hearing referred to, I was at particular pains to warn Mr Callegher that if he proposed to call an expert valuer, a report must be provided as required by the Supreme Court Rules. I also urged Mr Callegher, if he intended to call an expert valuer, to arrange for a conference between valuers so that the points of difference could be identified. Nothing had been done about that. I should add that in cross-examining Mr Hickin, Mr Callegher did not put to him anything that appeared to be referable to any expert evidence that might later be led by Mr Callegher. Mr Strawbridge objected to the calling of this evidence, and I ruled that Mr Callegher could not lead expert valuation evidence from Mr Cooney.
The result is that I accept the evidence of Mr Hickin, subject to the qualification mentioned. I find that the property was worth $1 050 000 at the time of its purchase. I assess damages for the loss suffered by Gemini by Woodards’ contravention of the Act at $631,000. Pursuant to s 30C of the Supreme Court Act 1935, I award interest on that amount from 15 December 1998, the date of purchase, to 6 July 2001, the date of judgment, at the rate of 8%. That is an amount of $129,035.17.
Judgment will be entered for Gemini against Woodards for $760,035.17.
Damages - Loss on Leases
Gemini led evidence from Mr Mules, a qualified actuary, to support the opinion which he expressed in his reports, Exhibits P18 and P19. In broad terms, Mr Mules calculated for each of the repudiated leases the amount payable for unpaid rental and interest to 1 July 2001 (the case was heard on 19, 20 and 21 June 2001). He also calculated the present value of the unpaid future rental under the repudiated leases. He allowed for rent received from the new tenants, and he also allowed for costs incurred and to be incurred by Gemini letting the vacant space. The detail of his approach, which I accept generally, is set out in his reports.

In accordance with his evidence I assess the damages payable by Wakefield to Gemini as follows:
Loss of rental  $186,586.00
Extra stamp duty paid (50% thereof)  7445.50
Leasing costs already incurred (50% thereof)      21,601.00
Total  $215,632.50
As for Storage One, the new tenant of that part of the premises has a two-year lease. The loss depends upon whether one assumes that tenant continuing thereafter as a tenant, at the same rental, or alternatively whether one assumes that a new tenant at a better rental is obtained. Mr Mules made a calculation on each basis. There being no firm basis upon which one approach rather than the other can be said to be correct, I select a figure of $120,000 for loss of rental, which is just below the mid point. Accordingly, as against Storage One, I assess the damages as follows:
Loss of rental  $120,000.00
Extra stamp duty paid (50% thereof)  7445.50
Leasing costs already incurred (50% thereof)               21,601.00
Estimated future leasing costs  2,436.00
Less rental recovered         4,800.00
Total  $156,282.50
Mr Callegher led evidence suggesting that Gemini had acted unreasonably in failing to mitigate its loss, by not accepting proposals for tenancies solicited by Mr Callegher and Mrs Brady, an employee of one of his companies. The onus rested on the defendants to prove that Gemini had acted unreasonably and had failed to mitigate its loss.
None of these matters were put to Mr Dixon, a director of Gemini, when he gave evidence. However, in fairness to Mr Callegher, Mr Dixon did say that no offers had been referred to him by the letting agents, that were said to emanate from the defendants. However, Mr Callegher did not put the specific letting proposals to Mr Dixon so that he could express an opinion on their acceptability. More significantly, none of the documents upon which Mr Callegher relied in connection with this part of his case, and which he put forward in evidence, had been disclosed to the solicitors for Gemini before the hearing. This was despite the warning about the need to do so, that I gave to Mr Callegher at the directions hearing.
This meant once again that the evidence was in an unsatisfactory state.
In any event, the evidence presented by Mr Callegher is not at all persuasive. I am satisfied that Mr Callegher and Mrs Brady tried to find replacement tenants, and that they did everything that they could. I am also satisfied that for reasons that remain unexplained, such proposals as they were able to put forward to the letting agents for Gemini were not acceptable. But I do not find that Gemini acted unreasonably. First of all, to a large part the evidence relied on by Mr Callegher was evidence of efforts made by him and Mrs Brady to find alternative tenants. The fact that they tried to do so proves nothing. Mr Callegher did establish that a specific proposal to rent part of the premises was made by Origin Australia Pty Limited in March 1999. The proposal was for lease of part of a floor, and subject to some relatively minor alterations. I accept that the proposal was a genuine one. I accept that the proposal was rejected by Gemini’s letting agents. That rejection is unexplained. Mr Strawbridge did not apply to call evidence in rebuttal. However, it is understandable that Gemini might have preferred to lease the whole floor to a single tenant, and that it might have been reluctant to commit itself to a lease of part only of the floor when it was uncertain whether it would be possible to obtain other tenants for the balance of the floor. Mr Callegher’s evidence was that it was sensible to spread the risk by letting to a number of tenants, rather than to a single tenant, and that there were obvious benefits in generating income early, from an available tenant, rather than waiting for a tenant who would take a complete floor. They are all reasonable arguments, but to say that is not to show that Gemini acted unreasonably in taking the approach that it did. This was the only identified offer that Gemini declined to accept. In the circumstances, I am not satisfied that Gemini acted unreasonably. The only other specific offer referred to was from Kronos Australia Pty Ltd. I am not prepared to put any weight on that offer. Mr Callegher produced what appeared to be a facsimile of 29 March 1999, offering to lease an office and an adjacent small store. The letter required an acceptance no later than 29 March 1999, the date on which the offer was made. As was pointed out in cross-examination, another item of correspondence indicated that company’s interest in obtaining space in the building was dated April 1998, almost a year earlier. Under the circumstances, I cannot be satisfied that an offer, apparently out of the blue, made on the basis that it required more or less instant acceptance, was an offer that, acting reasonably, Gemini should have accepted.
The onus is on the defendants to show that Gemini did not act reasonably. They did not discharge that onus.
Claims against Mr Callegher
Mr Callegher is liable to Gemini for the loss that Gemini sustained on the purchase of the property. In this respect he is liable jointly and severally with Woodards. Judgment should be entered for Gemini against Mr Callegher in this respect for the sum of $760,035.17.
Mr Callegher is liable to Gemini for the loss it sustained on the leases. That loss also flows from the false representation. Mr Callegher is also liable for both losses under the Fair Trading Act and the Misrepresentation Act. Judgment should be entered against Mr Callegher on this basis for $371,915. That amount is cumulative upon the previous amount.
Mr Callegher is liable to Gemini on the guarantee he gave of the obligations of Wakefield. The amount payable under the guarantee is the same as the amount due by way of damages for breach of the lease. No separate order was sought in respect of this amount, as I understood Mr Strawbridge.
Accordingly, judgment should be entered against Mr Callegher for the sum of $1,131,950.10.
Damages against Woodards
Woodards is liable to Gemini for the same amounts, because the loss on the leases likewise flowed from false representations made by Woodards.
Accordingly, judgment should be entered against Woodards for the sum of $1,131,950.10.
Conclusions
Accordingly, judgment will be entered as follows in favour of Gemini:
Against Woodards for  $1,131,950.10
Against Wakefield for  $   215,632.50
Against Storage One for  $   156,282.50
Against Mr Callegher for  $1,131,950.10
The judgment against Woodards and Mr Callegher is a judgment for amounts in respect of which they are jointly and severally liable. A payment by one or other of those defendants will discharge the other defendant to that extent. The judgments against Wakefield and Storage One are for amounts in respect of which Mr Callegher and Woodards are also liable. A payment in discharge of those judgments will reduce, to the extent of the payment, the amount payable by Mr Callegher or Woodards under the judgment against them.

[2001] SASC 228

6 July 2001