Irabina Pty Ltd v St.Martins Victoria Pty Ltd

[1992] FCA 193

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	) No. VG 295 of 1991
GENERAL DIVISION	1

BETWEEN:  IRABINA PTY. LTD., ZEA INVESTMENTS LTD. and A L F R E D G E O R G E MOUFARRIGE

Applicants

ST. MARTINS VICTORIA PTY. LTD. and GROLLO PTY. LTD.

Respondents

Jenkinson J.
Melbourne

16 April, 1992

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.        Paragraphs 11, 13, 14, 21, 30, 31, 35, 36, 37(b), 41, 42(b) and 44(a) of the statement of claim filed on 7 November 1991 be struck out.

5. The directions hearing be adjourned to 5 June 1992.

2.        The applicants be at liberty to amend the statement of claim as they may be advised by filing and serving an amended statement of claim on or before 14 May 1992.

1. Any request for particulars of the amended statement

of clalm be filed and served on or before 21 May
1992.

1. he applicants file and serve their response to any

   such request on or before 4 June 1992.

2. The respondents' costs of the motion of which notice was filed on 20 February 1992 (including costs reserved) and costs thrown away in consequence of the foregoing orders be paid by the applicants.

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

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	) NO. VG 295 of 1991
GENERAL DIVISION	1

BETWEEN:  IRABINA PTY. LTD., ZEA INVESTMENTS LTD. and A L F R E D G E O R G E MOUFARRIGE

Applicants

AND :  ST. MARTINS VICTORIA PTY. LTD. and GROLLO PTY. LTD.

Respondents

LRAM : Jenkinson J.

PLACE :	Melbourne
W:	16 April, 1992

REASONS FOR JUDGMENT

Motion to strike out a statement of claim.

Two categories of the causes of action raised in the statement of claim were said by the respondent to have accrued more than 3 years before the commencement of the proceeding on 7 November 1991. Reference was made to s.82(2) of the T r a d e

P r a c t i c e s A c t 1974 and s.37(2) of the F a i r T r a d i n g A c t 1985

(Vic. ) , defences founded on which provisions have been pleaded. One category comprehends causes of action for damages for breaches of ss. 52 and 53A of the Trade P r a c t i c e s

A c t 1974 and the other comprehends causes of action for

damages for breaches of ss. 11 and 13 of the F a i r T r a d i n ~ A c t 1985 (Vic.). For reasons to be stated hereafter the paragraphs of the statement of claim which specify the representations and which state in what respect each representation was false, namely paragraphs 11 and 14, are to be struck out as having a tendency to cause embarrassment and delay in the proceeding. But Mr. Dwyer Q.C., who appeared with Mr. McNab for the applicants, stated the substance of what will be alleged when those paragraphs are reformed, so that it is possible to deal with the respondent's submissions concerning the limitation period on the basis of what Mr. Dwyer said.

It is alleged that in December 1986 the respondents made an agreement in writing for lease to the flrst applicant of a substantial part of a building in the central business district of Melbourne known as the Rialto, that a term of the agreement provided for variation of the rent, the first occasion of variation being specified as on 1 September 1988. It is to be alleged that the respondents represented to the applicants, before - and in order to induce - the making of

the agreement by the first applicant, that the variations of

rent would be proportioned to any fall which might occur in

the general level of rent for space in buildings like the Rialto in the central business district of Melbourne between the date of the agreement and 1 September 1988 and between the time for each variation and the time for the next succeeding variation. This representation was, it was said, by way of mere prophecy. It is to be further alleged that the respondents also represented that at the times when the representations were made the respondents had the intention so to act as to bring about the happening of the events prophesied.

It was submitted by Mr. Macaw Q.C., who appeared with Ms. Hollingworth for the respondents, that on its proper construction the agreement provided no possibility of a reduction of rent below the orlginal rent specified in the agreement as payable until the occasion of the first variation on 1 September 1988. On that basis damage was sustained, according to Mr. Macaw's submission, when the agreement was made which bound the first applicant to pay throughout the term a rent not less than the rent specified for the period ending 1 September 1988.

For reasons to be stated hereafter it is in my opinion the preferred construction of the agreement that it authorises the respondents so to act as to fulfil some of the prophecies they are alleged to have made. If that be so, it

could not be known until shortly before September 1988 whether	the respondents would so act as to bring about the events
prophesied, because the first step prescribed by the agreement for variation is a notice by them fixing the rent at an amount to be specified in the notice. (It is alleged by the applicants that that first step was in fact taken within 3 years before the issue of the originating application.) Even if it were found that when the representation as to the respondents' intention was made they did not have the represented intention, their minds might have changed before September 1988. And, even if no change of intention had occurred, the prophetic representation, notwithstanding the respondents' lack of belief in it when they made it, might have proved correct, as for example if the respondents had assigned the reversion before September 1988 to a person whose exercise of the lessor's rights fulfilled the prophecy. Until, at the earliest, the notice fixing the rent from 1 September 1988 was given no damage had in my opinion resulted from the statutory breaches alleged. (Cf. Maman International Ptv. Ltd. v . WestDac Bankina Cor~oration (1991) 104 A.L.R. 575.) If it be said that the benefit of the agreement to the first applicant, measured by the capital value of the rights conferred by the agreement on the tenant, was less than it would have been if the representations had been true, and that therefore damage was suffered when the agreement was made, the answer is in my opinion that until the first notice was given for variation of the rent the falsity of the representations did not cause that value to be less
but uncertainty, in the minds of those concerned to estimate than it would have been if the representations had been true,
that value, as to whether the representations were true when made, and as to whether the prophecy would be fulfilled, and as to whether the intention represented, if it had ever existed, would change, caused that value to be less than it would have been if it could have been known that the prophecy would be fulfilled, or that the respondents believed that it would be fulfilled, or that the respondents had the intention they represented themselves as having.
No separate argument founded on a limitation provision was advanced in respect of the causes of action founded on breaches of the four sections to which I have referred and raised against the respondents by each of the other two applicants, who are alleged to have been induced by the same representations to have "agreed jointly and severally to guarantee and indemnify the respondent in respect of [the first applicant's] obligations under" the agreement. It may be, having regard to the reasoning in Maaman's Case, supra, and in other Full Court decisions of this court which are discussed in Maaman's Case, that a different conclusion might ultimately be reached in respect of those causes of action from the conclusion I have reached in respect of the first applicant's causes of action. But as a single judge exercising the power conferred by 0.20 R . 2 ( 1 ) I cannot think myself justified in pursuing further a critical examination of the application of limitation provisions to the other
applicants' causes of action.
In my opinion no part of the statement of claim should be struck out for the reason that a cause of action is shown to be barred by a limitation provision.
Paragraph 11 of the statement of claim alleges representations in terms of mere prophecy (except in one instance), thus raising the expectation that lack of a belief that the prophecies would be fulfilled, or lack of reasonable grounds for maklng them, would be the allegation whereby misleading conduct was shown. But the only allegation is, in paragraph 14, that the representations were "false and untrue". Particulars under that paragraph state only the absence of an intention on the part of the respondents that the prophecies should be fulfilled and an intention on their part "to rely on" the term of the agreement which is said by Mr. Macaw to preclude any reduction of rent below the original rent. This pleading in my oplnlon is embarrassing and has a tendency to cause delay in the proceeding. Paragraphs 11 and 14 will be struck out. Paragraph 16, which alleges that the respondents did not have reasonable grounds for making the representations, seems to me inappropriate in application to a representation of present intention. But I will leave it to the draftsman of the amendments to the statement of claim to decide whether it should be altered.
Paragraph 15(b) of the statement of claim alleges with respect to a future matter within the meaning of section that "each of the representations was .... a representation 51A of the T r a d e P r a c t i c e s A c t 1974". Mr. Macaw submitted that the section did not come into operation until after the representations had been made and therefore had no operation in relation to them. The pleading must be taken to include a
reference to s.SlA(2). Mr. Dwyer submitted that sub-section SlA(2) is concerned with the legal consequences of events occurring at trial and should be regarded as having effect at any trial which takes place after the section came into operation, whether or not the representation was made after the section came into operation. But the sub-section is expressly stated to be "[£]or the purposes of the application of sub-section (l), so that its operation is attracted only if sub-section (1) is having effect, in my opinion. Mr. Dwyer further submitted that the representations were having their effect and were to be taken to be made until the time when the agreement was made and the "guarantees and indemnities" were executed, a time after s.51A came into operation. That submission is in my opinion arguable and I do not consider it appropriate to strike out paragraph 15(b).
Submissions were advanced concerning several pleas raised by way of reply to the paragraphs of the defence which plead limitation provisions. No notice had been given of a motion to strike those pleas out, but no point was taken of that omission. However, I think it unwise to entertain the motion when the statement of claim is hereafter to be
reformed, a further defence delivered and an opportunity available to deliver another reply.
Paragraph 13 of the statement of claim alleges that in consideration of the first respondent making the agreement and of the other respondents "entering into the guarantee" the respondents "agreed with and/or warranted to [the first respondent] and [the other respondents] respectively that they would fulfil the promises contained in the representations". There was in my vlew no promise "contained in" any of the representations except that which is alleged in paragraph ll(c). Presumably what was lntended was an allegation that the prophecies as to the occurrence of events in the future were also expressed as promises by the representors that the events would occur. Mr. Macaw submitted that most of the promises alleged could be performed only by disregarding the obligations imposed by the term of the agreement which in his submission required that the rent be not less than the original rent. That term reads thus:

"4.0 Rent

4.1 Payment of rent and increases: The Lessee shall pay to the Lessor or as the Lessor may direct on the days and in the manner herein provided free of exchange and all deductions -

(a)	the initial annual rental specified in Item 6 of the Appendix; and
(b)	the increased annual rental becoming payable in accordance with the provisions of Schedule 1."

Provisions of Schedule 1 relevant to Mr. Macaw's

submission are:

"(1) At the dates set forth in Item 13 of the Appendix (each of the dates being hereinafter referred to as 'the review date') the rent hereby reserved shall be reviewed in the manner hereinafter appearing.

(2) The Lessor may by notice in writing ( 'the Lessor's notice') to the Lessee fix the rent (subject as herein provided) at an amount which in the opinion of the Lessor would be the current market rent of the premises as at the review date. The Lessor's opinion shall be based on the terms covenants provisions and conditions of this Lease and be exclusive of the cost of cleaning and shall, where the premises comprise more than one whole floor, be on a floor by floor basis without any allowance or discount due to the premises comprising more than one floor. The amount so fixed by the Lessor shall be the rent payable by the Lessee as from the review date for the ensuing period. If the Lessee considers any rent fixed by the Lessor pursuant to this clause (2) of this Schedule 1 not to be the current market rent of the premises, taking into account those matters on which the Lessor's opinion shall be based, and the Lessor and Lessee fail to agree upon the current market rent within fourteen (14) days of servlce of the Lessor's notice or such further period as the Lessor and Lessee may mutually agree upon, and the Lessee issues the notice contemplated by clause (5)(a) of this Schedule 1, the rent for the ensuing period shall be determined in accordance with clause (5) of this Schedule 1.

(3) Notwithstanding any determination of rental pursuant to clause (5) of this Schedule 1 the rent payable by the Lessee after any review pursuant to this Schedule 1 shall not in any circumstances be less than the aggregate of the annual rent payable by the Lessee immediately

prior to the relevant review date	together with the Lessee's share of
increases in the Operating Costs of the Building (determined in accordance with Schedule 2) for the twelve (12) months ending on June 30 immediately prior to such review date.

(4) In the event that the Lessor fails for any reason to exercise its right in accordance with this Schedule 1 to have the rent reviewed then such right may be exercised at any time prior to the next succeeding review date or the expiration of the term as the case may be and the rent determined in accordance with this Schedule 1 shall be payable as and from the previous review date. No succeeding review date or right of review of the rent shall be postponed by reason of the review of rent pursuant to this clause (4).

5. (a) If the Lessee considers the rent fixed by the Lessor pursuant to clause (2) of this Schedule 1 not to be the current market rent of the premises (exclusive of the cost of cleaning and on the basis of no allowance or discount for the premises comprising more than one floor as aforesaid) and the parties cannot mutually agree upon the current market rent as provided by clause (2) of this Schedule 1, the Lessee may by notice in writing to the Lessor within fourteen (14) days after failure mutually to agree on such rent require the rent to be determined by two valuers of the Australian Institute of Valuers (Victorian Division) or its succeeding body one appointed by each of the Lessor and the Lessee..."

The rest of Schedule 1 makes provision for determination of the "current market rent" by valuers and ordains that that "current market rent so determined shall (subject to clause (3) of this Schedule 1) be the annual rent payable by the

Mr. Macaw submitted that the giving of the notice in writing	Lessee in lieu of the rent fixed by the Lessor as aforesaid".
contemplated by clause (2) of Schedule 1 formed part of "any review pursuant to this Schedule l", within the meaning of the latter phrase in clause (3), so that, if the Lessor gave a notice fixing the rent at an amount less than the prior rent and the Lessee agreed to that amount, clause (3) would operate to render the notice ineffective by making payable after the review what had been payable before. A promise such as paragraph 13 in substance alleged, that the respondents would so act as to vary the rent by a reduction reflecting any fall in the current market rent in the central business district, was therefore inconsistent with the provisions of the lease and for that reason unenforceable, Mr. Macaw submitted. He
relied on Hovts P r o ~ r i e t a r v L t d . v. S p e n c e r (1919) 27 C.L.R.
133 G a t e s v. C i t v Mutual L i f e Assurance S o c i e t y L t d (1985) 160
C.L.R. 1 and Mavburv A t l a n t i c Unlon O i l Co. L t d . (1953) 89
C.L.R. 507.
The terminology of clause 4.1. (b) of the agreement strengthens Mr. Macaw's submission, for it contemplates no decrease of rent. But it is not in my opinion to be supposed that the right conferred on the lessor to give a notice expressing his opinion of the amount described in clause (2) of Schedule 1, and thereby to make possible an agreed variation of rent, is intended to be so diminished as to be incapable of leading to an agreement for variation to an amount below the original rent. So to construe clause 4 and Schedule 1 is to diminish the lessor's freedom of action
without conferring any benefit on the tenant. The introductory phrase of clause (3) should in my opinion be
understood as confining the operation of the clause to cases in which the tenant issues the notice contemplated by clause (5)(a) of Schedule 1. But upon that construction there is force in the argument that a promise to glve the notice contemplated by clause (2) if the promisor holds the opinion that current market rents in the central business districts have fallen to such an extent that what "would be the current market rent of the premises as at the review date" is in the promisor's opinion less than the rent then payable is inconsistent with the agreement. The agreement may be thought to confer a power on the lessor to give or to abstain from giving the notice contemplated by clause (2) at his uncontrolled discretion. Such a promise would limit that discretion. That is what the collateral promise is said to have done in Mavburv's Case, supra, and in Hovts' Case, supra.
Paragraph 13 of the statement of claim is to be struck out as tending to cause embarrassment and delay in the proceeding : it does not plead wlth sufficient clarity the terms of the collateral agreement which the respondents are later, in paragraph 24, alleged to have breached. I should therefore express no concluded view on Mr. Macaw's submission that the cause of action founded on the collateral contract is unenforceable for inconsistency with the agreement. On what the present statement of claim discloses I think that it would be an unwise exercise of the power conferred by 0.20 R.Z(l)(a)
to strike out the cause of action. The construction of the agreement, the ascertainment of the precise terms of the
collateral contract, if one was made, and a consideration of the correct application of the cases of which Hovts' Case is perhaps the best known, are all tasks better deferred until trial, in my opinion, notwithstanding that I think, as at present advised, that a strong argument exists in favour of inconsistency.
Paragraph 19 of the statement of claim alleges that the representations pleaded in paragraph 11 were made fraudulently. It is expressed in the language commonly employed for such an allegation. Mr. Macaw submitted that paragraph 19 was defective for lack of that particularity which is required of an allegation of fraud. But, if the representations are properly pleaded, there will in my opinion be no lack of particular~ty in an allegation of fraud expressed in the common form.

Paragraphs 21 and 22 of the statement of claim read

as follows:

"21. Further or alternatively, the Respondents owed to Irabina and the guarantors a duty t o take care in making the representations.

22.   In breach of the said duty, the Respondents made the representations negligently.

PARTICULARS

(i)  making the representations without any intention to perform the promises contained in the representations;

(ii) making the representations without any or any reasonable grounds;

(iii)making the representations which they knew or ought to have known were false."

Mr. Macaw made two submissions about these paragraphs. First, he said that the circumstances by reason whereof it is alleged that a duty of care was owed are not indicated. I accept that submission : the relationship disclosed by the other allegations in the statement of claim between those making the representations and those to whom they are alleged to have been made is not so obviously one which attaches a duty of care, as the relationship between drivers of vicinal motor vehicles on a public highway is, that the allegation of the circumstances can be omitted without risk of prejudice or embarrassment. In argument Mr. Dwyer suggested that the allegations found elsewhere in the statement of claim disclosed the circumstances relied upon. If so, paragraph 21 should say so. It is embarrassing in its present form and will be struck out. The other submission by Mr. Macaw was succinctly expressed by his saying that "the notlon that one establishes a cause of action in negligence by saylng that the defendant told lies is preposterous". Certainly particulars (1) and (ii) read strangely, but what mental states may exist in human mlnds is matter for the tribunal of fact at tr~al, as are questions as to what reasonable care required. I do not think I should strike out

will be granted. After reforming paragraphs 11, 14 and 21 the	paragraph 22. General leave to amend the statement of claim	pleader may see fit to reconsider the particulars under paragraph 22.
In paragraph 28 of the statement of claim are pleaded allegations that between January 1987 and September 1990 the respondents and other lessors of offices in the central business district of Melbourne maintained market rents at greater amounts than the demand for such premises would otherwise have gained for lessors by offering and granting to lessees what the pleader particularised thus -

" (i)	the provision of substantial rent free periods in the order of 2-3 years in a 10 year lease;
( ii)	the prov~sion of cash incent~ves to tenants ;
(iii)	the cost of free fitouts of premises to tenants ;
(iv)	the provision of luxury cars and
gifts. "

These benefits to lessees the pleader described as "lease incentives". In paragraphs 28 and 29 it is alleged that lessors of such premises and, in particular, the respondents and agents acting on their behalf veiled from publlc awareness the practice in which they were engaging during that period of offering lease incentives "by the widespread use of confidentiality and secrecy provisions in lease agreements

respondents "engaged in conduct which created, alternatively	and/or collateral agreements", and that thereby the
had a tendency to create, false and/or artificial market values in relation to market rent for Melbourne Central Business District office space". In paragraph 30 it is alleged that the conduct contravened ss. 52 and 53A of the Trade Practices Act 1974 and sections 11 and 13 of the Fair Tradina Act 1985; and in paragraph 31 it is alleged that in consequence of the contraventions the applicants "have suffered and are continuing to suffer loss and damage". No circumstance is pleaded whereby any effect of the conduct on any person misled or deceived by the conduct might be understood to have caused the damage alleged. Nothing which precedes paragraph 31 can be read with paragraph 31 to show a cause of action. Paragraphs 30 and 31 will be struck out. Mr. Dwyer said paragraphs 28 and 29 contained allegations material to other causes of action.
In paragraph 32 it is alleged that the respondents "knew or ought to have known" that as at 1 September 1988 the current market rent of the leased premises was no more than $462,000, in paragraph 33 that the respondents gave a notice in writing dated 22 November 1988 of the kind contemplated by clause (2) of Schedule 1 which stated their opinion of the current market rent of the premises as at 1 September 1988 to be $502,500, In paragraph 36 that the giving of the notice constituted breaches of section 52 of the T r a d e P r a c t i c e s A c t 1974 and section 11 of the F a i r T r a d i n a A c t 1985, and in paragraph 37(b) that the breaches caused the applicants
misleading conduct on any person might be understood to have damage. No circumstance is pleaded whereby any effect of the
caused the damage alleged. Paragraphs 36 and 37(b) will be struck out because nothing which precedes those paragraphs can be read with them to show a cause of action.
A similar set of allegations are pleaded, in relation to the next occaslon of rent review, 1 September
1990, in paragraphs 39, 40(a), 41 and 42(b). Paragraphs 41
and 42(b), which mirror paragraphs 36 and 37(b), will be struck out.
In paragraphs 32, 33, 35, 36 and 37(a) it is alleged that the respondents by their agent made misrepresentations, in a submission in writing dated 17 April 1989 to "the determining valuer, Mr. Johns", in that the submission -

"(a) ... submitted that the existence of lease incentives in the Rialto were minimal ;

(b	. . . deliberately concealed the impact of
the lease incentives practice and confidentiality agreements on the then current market rent; and/or
(C) ... submitted that lease incentives	should be ignored when he knew full well
that they were material in determining current market rent."

That conduct is apparently comprehended by the allegations of breach of ss. 52 and 11 in paragraph 36 and of damage in

paragraph 37(b).	That conduct is alleged in paragraph 35,
which does not appear to be an allegation material to any	other cause of action pleaded. There is no allegation that
Mr. John or any other person was misled by the conduct. Paragraph 35 will be struck out.

Paragraph 27 reads:

"Further or alternatively, in expressing an opinion pursuant to paragraph (2) of Schedule 1 of the lease as to the current market rent of Level 45 as at:

(a) 1st September 1988; and/or

(b) 1st September 1990,

the Respondents were obliged under the collateral contract and/or the terms of Schedule 1 of the lease to express a bona fide reasonable opinion as to the effective market rent at that time."

Paragraphs 33, 34, 38, 39 and 40(a) allege breaches of the obligation alleged in paragraph 27, paragraphs 33 and 34 in respect of the 1988 rent review and paragraphs 38, 39 and 40(a) in respect of the 1990 rent review. Paragraphs 37(a) and 42(a) allege damage to have been caused by those breaches. No particulars of damage are stated, but I accept Mr. Dwyer's submission that the cost to the applicants of the process of review contemplated by clause (5) of Schedule 1 mlght constitute damage caused by the breaches. Those paragraphs will not be struck out.

Paragraph 44(a) was admitted by Mr. Dwyer to be defective. It wlll be struck out.

Paragraph 45 alleges repudiation of the agreement by the respondents, specifying the repudiating conduct, and acceptance of the repudiation by the applicants. Mr. Macaw made several criticisms of the pleading, but I do not think any of those criticisms justifies a striklng out of the paragraph.

There will be liberty to amend the statement of

claim generally.

I certify that this and the 18
preceding pages are a true copy of
the Reasons for Judgment of the

Honourable Mr. Justice Jenkinson.

Dated: 16 April, 1992

Counsel for the Applicants	Mr. J.L. Dwyer Q.C. and Mr. A.R. McNab
Counsel for the Respondents	Mr. R.C. Macaw Q.C. and Ms. E.J. Hollingworth
Solicitors for the Applicants :	Mills Oakley & McKay
Solicitors for the Respondents :	Mallesons Stephen Jaques