Kingslane Pty Ltd v Crawford - [2006] WASC 289

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: KINGSLANE PTY LTD -v- CRAWFORD [2006] WASC 289

CORAM: MASTER SANDERSON

HEARD: 22-24 NOVEMBER 2006

DELIVERED : 20 DECEMBER 2006

FILE NO/S: CIV 2074 of 2005

BETWEEN: KINGSLANE PTY LTD (ACN 009 441 410)
Plaintiff
AND
IAN WESLEY CRAWFORD
Defendant

Catchwords:

Trade Practices Act 1974 (Cth) - Alleged misleading and deceptive conduct leading party to enter lease - Turns on own facts

Legislation:

Trade Practices Act 1974 (Cth), s 87

Result:

Lease declared void ab initio

Category: B

Representation:

Counsel:

Plaintiff: Mr C S Gough
Defendant: Ms C H Thompson

Solicitors:

Plaintiff: Minter Ellison
Defendant: Nielsen & Co

Case(s) referred to in judgment(s):

Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41‑558

Case(s) also cited:

Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719
Buttermere v Hayes (1839) 151 ER 193
Capital & Counties Bank Ltd v Rhodes [1903] 1 Ch 631
Chambers v Kingham (1878) 10 Ch D 743
Dileum Pty Ltd v JK Corp Pty Ltd (1988) 1 WAR 244
Federal Commissioner of Taxation v Phillips (1978) 20 ALR 607
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13
Henville v Walker (2001) 206 CLR 459; [2001] HCA 52
Johnston v McGrath [2005] NSWSC 1183
Kewside Pty Ltd v Warman International Ltd, unreported; Fed C of A; 18 January 1990
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Milner v Delita Pty Ltd (1985) 61 ALR 557
Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700
Pritchard v Racecage Pty Ltd (1997) 142 ALR 527
Rye v Rye [1962] AC 496
Salomon v Salomon [1897] AC 22
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd (2005) 224 ALR 134; [2005] WASCA 174

MASTER SANDERSON: This case concerns a failed pharmacy run from premises in East Perth. The plaintiff is the owner of the premises. The defendant is the assignee (or one of them) of the lease for the pharmacy. The plaintiff claims unpaid rent pursuant to the provisions of the lease. The defendant says the lease was procured by misleading and deceptive conduct and he seeks relief under the Trade Practices Act 1974 (Cth).
After discussions between the parties and consequent upon a notice to admit served by the plaintiff, most of the facts and the quantum of the claim were agreed. It is possible, then, to provide a short and uncontroversial summary of the facts.
Mrs Sue Crawford ("Mrs Crawford") is a pharmacist. She is married to Mr Andrew Oliver Crawford ("Andrew Crawford") who is not a pharmacist but describes himself as a pharmacy assistant. Mr Ian Wesley Crawford ("Ian Crawford") is the father of Andrew Crawford. He too is a pharmacist. For a period of time prior to 2001, Mrs Crawford and Ian Crawford were in partnership in a pharmacy business in Lord Street, East Perth. That partnership was dissolved and Mrs Crawford remained as the sole proprietor. Ian Crawford continued to work in the business from time to time but had no financial interest in its operation.
From about late 1999 the Lord Street pharmacy was non‑viable. That is to say, although it continued to trade, it was not making any or any significant profit. This was because the Aboriginal Medical Service which had been located near the pharmacy had moved to premises elsewhere in East Perth. This in turn meant that the number of prescriptions filled by the pharmacy declined significantly adversely affecting the profitability. Mrs Crawford kept the business open and operating to ensure that the licence attaching to the pharmacy could be moved elsewhere. Mrs Crawford also owned and operated a pharmacy in Charles Street, North Perth.
Some time prior to September 2001, Mrs Crawford had considered the possibility of relocating the pharmacy from Lord Street to premises in Royal Street, East Perth. At the time, these premises were owned by a Mr Bill Busby ("Mr Busby"). The negotiations were protracted, acrimonious and, for reasons presently not relevant, did not lead to any lease agreement. But as a consequence of these negotiations, Mrs Crawford was familiar with the Royal Street premises and she had given detailed consideration to what was required to establish a pharmacy in the premises.
The plaintiff is a company controlled by Mr John Windsor Cranston ("Mr Cranston"). On 11 September 2001, the plaintiff acquired the Royal Street property at a mortgagee auction. Immediately after the auction, Mr Cranston and a real estate agent who had been acting for him in the purchase of the premises, Mr Terry Richard Matthews ("Mr Matthews"), held a discussion with the former owner, Mr Busby. As a consequence of that discussion, both Mr Cranston and Mr Matthews became aware that Mrs Crawford was interested in establishing a pharmacy in the premises.
Armed with that information Mr Matthews wasted no time. In late September he contacted Mrs Crawford and told her that the Royal Street premises were now owned by Mr Cranston. He indicated that Mr Cranston was keen to see a pharmacy established in the premises and that he saw Mrs Crawford as an ideal tenant. Mrs Crawford says that, bruised as she had been by her experiences with Mr Busby, she was initially dismissive of the prospect of setting up business in the Royal Street property. But Mr Matthews persisted. He said that Mr Cranston was very keen to reach an arrangement and that dealing with him would be an entirely different proposition to dealing with Mr Busby. Mrs Crawford says at this first meeting she made the point to Mr Matthews that a pharmacy in the Royal Street property would only be viable if it was supported by medical practitioners. What she had in mind was a number of general practitioners being in the same building or nearby. Mrs Crawford said it was preferable that the medical practitioners be general practitioners because it was general practitioners who wrote prescriptions. It was the prescriptions which provided the lifeblood of any pharmacy.
There is no dispute between the parties that from the first, Mrs Crawford made it plain that she regarded it as vital to the viability of any pharmacy that she might establish in the Royal Street premises that at least four to six medical practitioners be in the same building. She made that plain to Mr Cranston in their very first contact. Mr Cranston seems to have taken her comments on board. He appointed a Mr Nick Aitken ("Mr Aitken") to assist him in locating suitable doctors to work from the premises.
Mr Aitken did not give evidence at the trial. Apparently, efforts to locate him by the plaintiff had been unsuccessful. But there was no dispute between the parties as to his role. Prior to his working as a consultant with the plaintiff, Mr Aitken had been involved with so‑called corporatised medical practices. These corporate medical practices are organisations where doctors work as independent contractors, but all the services and infrastructure necessary for their practice are provided by the corporation. The corporation charges the doctor a fee which is a set percentage of their income. Mr Cranston engaged Mr Aitken because of his knowledge and contacts within the corporate medical field. The very fact that Mr Aitken was employed is an indicator that he understood the importance to Mrs Crawford and the viability of her pharmacy of having doctors in the building.
There then followed a period of negotiation. There were various discussions between Mr Cranston, Mrs Crawford, Andrew Crawford and Mr Matthews. There was at least one visit by Mrs Crawford and Mr Cranston to the Royal Street property. During the course of this visit, Mrs Crawford noticed that offices were being constructed and Mr Cranston told her that they would be occupied by doctors.
On 21 December 2001, there was a meeting between Mrs Crawford, Mr Cranston, Mr Matthews and Mr Aitken. It took place at a coffee shop called Poppies in North Perth. At this meeting, Mrs Crawford signed an offer to lease the Royal Street premises. The conversation that took place at that meeting is central to the outcome of this case. However, before analysing in detail what was allegedly said, it is appropriate to finish the story.
After the agreement to lease was signed, the fit out of the premises to accommodate the pharmacy was undertaken. From time to time Mrs Crawford spoke with Mr Cranston and Mr Matthews. She says that she emphasised in virtually every conversation the importance of having doctors in residence when the pharmacy commenced business. She says that at no stage was she advised that there would be no doctors operating from the premises. For his part, Mr Cranston says that he maintained his efforts to secure doctors as tenants. It is clear from the evidence that at no time did Mr Cranston express any reservations as to whether or not doctors would be in position as tenants at the time the pharmacy commenced operation.
The formal lease for the pharmacy premises was signed by Mrs Crawford in April 2002. Both she and Mr Cranston regarded the signing of the lease as a formality. Both regarded the agreement to lease as binding. The way this case was argued, it really was the agreement to lease which was seen by everyone as the important document. In closing, counsel for the plaintiff suggested that in fact the lease itself was the key document in the case. For reasons which I will explain below, I do not accept that submission.
In or about mid‑2002, Andrew Crawford visited his father. He had with him an assignment of the lease of the premises. The document anticipated an assignment of the lease from Mrs Crawford to her and Ian Crawford. The reasons why the assignment was necessary are not relevant to any issue in these proceedings. It is sufficient to say that it had to do with the transfer of the licence from the Lord Street pharmacy to the pharmacy in Royal Street. Ian Crawford was reluctant to sign the assignment. But he did so. In fact, he signed the execution page of the assignment but did not see the whole document. At no time did he meet Mr Cranston, Mr Matthews or anyone else associated with the plaintiff. At no time did the plaintiff, through its agents or officers, make any representations to Ian Crawford as to whether or not medical practitioners would be in the Royal Street premises when the pharmacy opened.
But Ian Crawford had discussions with his daughter‑in‑law on that issue. It was clear from the evidence that Ian Crawford was not closely involved with his daughter‑in‑law's moves to relocate the Lord Street pharmacy to the Royal Street premises. But he says, and I accept, that he did discuss relocation of the pharmacy with Mrs Crawford and that she told him that Mr Cranston had told her that medical practitioners would be in the premises. Ian Crawford was very firmly of the view that the viability of a pharmacy such as the one established in the Royal Street premises in what he described as a "Greenfield" site, was dependant upon the presence of doctors. Ian Crawford regarded this as an article of faith. With four to six doctors the pharmacy was viable. Without doctors it was not. It was as simple as that. He says he signed the assignment of lease because he accepted the word of Mrs Crawford that she had been told by Mr Cranston that doctors would be in position when the pharmacy opened. With that reassurance he saw there being little risk in entering into the assignment of the lease.
It was very difficult for counsel at trial to cast any doubt on the evidence of Mrs Crawford and Ian Crawford that Ian Crawford was told by Mrs Crawford that Mr Cranston had assured her that doctors would be in place. There were some minor inconsistencies between the evidence of the two witnesses, but nothing that would cast any doubt upon what Ian Crawford says he was told and upon which he relied. Of course his evidence on this point says nothing about what Mr Cranston actually told Mrs Crawford. But it is important that I make plain that I accept Ian Crawford's evidence that he was told by his daughter‑in‑law that she had been assured there would be doctors on site when the pharmacy opened. He was told that prior to signing the assignment of the lease. He signed the assignment of the lease relying on that information.
The fit out of the pharmacy premises took rather longer than anyone had anticipated. The premises were not ready until early November 2002. When the pharmacy opened, no doctors were in the premises. No doctors moved in prior to March 2003. The pharmacy was not profitable. By March 2003 the patience of Mrs Crawford's bankers was exhausted and they appointed receivers not only to the Royal Street pharmacy but to the North Perth pharmacy. With the appointment of receivers and the closing of the pharmacy, no rent was paid to the plaintiff pursuant to the terms of the lease. Mrs Crawford and Andrew Crawford both eventually went bankrupt. The plaintiff now seeks to recover from the defendant.
There is one further matter of fact which is of real importance and which was agreed by all parties. On a number of occasions Mrs Crawford put it to Mr Cranston that the lease for the pharmacy premises should contain a provision that there should be doctors occupying the premises when the pharmacy opened. Mr Cranston refused point blank to include such a provision in the lease. In fact, what the lease contains are provisions which state that there were no representations made by the plaintiff which induced Mrs Crawford to enter into the lease. It was not contended on behalf of the plaintiff that these clauses prevented a claim being made under the Trade Practices Act.
It is convenient at this point to return to the crucial meeting at Poppies café on 21 December 2001. The meeting is dealt with by Mrs Crawford in pars 24 and 25 of her witness statement. Because of the importance of this evidence, I will quote in full what she has to say:
"24.Mr Matthews outlined the lease agreement papers. I said words to the effect that 'I am really concerned about signing without a written guarantee of doctors'. Mr Cranston asked Mr Atkin to outline the negotiations with the doctors. Mr Atkin said words to the effect that 'I am actively working with doctors; it is only a matter of time'. Mr Cranston said words to the effect that 'You are making life difficult as doctors want a chemist in there before they will commit; if you sign the lease and commit, the job of finding the doctors will be so much easier'.
25.I gained the impression it was my fault, by not signing the lease, that was putting doctors off committing. I asked each of the three of them 'Can you give me an assurance that the doctors would go in if I sign the lease?' Each replied 'yes'. I then signed the agreement for lease. A copy of this is document D1 of the defendant's list."
As was to be expected, Mrs Crawford was cross‑examined closely about what was allegedly said. She would not be moved. She insisted that she had a perfectly clear recollection of the conversation that took place. It is worth noting that in her statement she purports to give direct quotes of conversations which took place almost five years ago. That is an amazing feat of memory. But Mrs Crawford said that the conversations were of such significance that they were indelibly printed on her mind.
In his witness statement Mr Cranston deals with the meeting held on 21 December 2001 (pars 47 and 48). No mention is made by Mr Cranston of any representations to Mrs Crawford about having doctors in the premises. That is not perhaps surprising given that at the time Mr Cranston's witness statement was prepared, he had not seen Mrs Crawford's witness statement. What emerged in cross‑examination was that Mr Cranston admitted that at a meeting on 21 December 2001 Mrs Crawford put the question directly to him - "Can you give me an assurance that the doctors would go in if I sign the lease?" His only qualification on that admission was to say that it was not put to each of the three men who attended the meeting individually. Rather, the question was asked collectively. Mr Cranston then says he does not recall what answer was given to that question by Mr Matthews and Mr Aitken. Mr Cranston acknowledged that he personally could not recollect the precise words that he used in response to the question. He said that he would have used the expression "best endeavours" in relation to the prospect of having doctors in the premises. He then went on to admit he was speculating about how in fact he answered the question.
It became clear during the cross‑examination of Mr Matthews that he had a very hazy recollection of all of the events surrounding the lease of these premises. He seemed to need to refer to his witness statement when answering questions, suggesting that he had no independent recollection of what occurred. The position is well illustrated by an exchange which took place between Mr Matthews and me at the conclusion of his cross‑examination. It went as follows (transcript 234 ‑ 236):
"THE MASTER: I just want to put something to you again, Mr Matthews, in case I misunderstood your answer to the question. What Ms Crawford says is that there was a meeting at Poppies cafe on 21 December that was attended by you, Mr Cranston, Mr Aitken and her, four persons at that meeting on 21 December, so relatively close to Christmas, if that might jog your memory, and it was at that meeting she says that the agreement to lease was signed?‑‑‑Yes.
I just want to read you a paragraph of her witness statement. It's paragraph 25 and it's in these terms:
I gained the impression it was my fault -
that has to do with the fact that the doctors weren't committing to the centre:
By not signing a lease, that was putting doctors off committing. I asked each of the three of them -
that's you, Mr Cranston and Mr Aitken, and she expresses it in these words - these are a direct quote -
'Can you give me an assurance that the doctors would go in if I sign the lease?'
She then says:
Each replied, 'Yes.' I then signed the agreement for lease.
That's quite specific. I will just read to you again what she says she put to each of you individually:
'Can you give me an assurance that the doctors would go in if I sign the lease?'
and she says each of you replied, 'Yes,' not, 'Yes, we'll use our best endeavours,' not, 'Yes, there's a good chance that it will happen. Yes, we're optimistic of getting someone in, but, 'Yes' - a direct question, a direct answer. Do you have any recollection of that discussion taking place?‑‑‑I can categorically say that I wouldn't have said, 'Yes' and the lease documentation never would have been signed on the basis of having, you know, a condition of the medical practitioners going in. It was always understood that the deal wouldn't proceed if that was to be a term of the lease, so it was always black and white that if - as far as - yes, it was black and white that the Crawfords were always aware that that was never going to be a condition.
Just what can you remember about that meeting? Can you remember being at Poppies having a cup of coffee, it being close to Christmas and the agreement to lease being signed?‑‑‑Yes.
You can remember that meeting?‑‑‑Yes.
And can you remember Mrs Crawford putting any specific questions to you in relation to the doctors that might or might or might not go into the centre?‑‑‑No."
What that passage does not disclose is the difficulty Mr Matthews had in remembering events surrounding the lease of the premises. That emerges generally from the cross‑examination. However, Mr Matthews and Mr Cranston differ in at least one respect. Mr Cranston acknowledged that Mrs Crawford put to him a specific question about doctors being in the premises. Mr Matthews cannot remember that question being put. His response to the question as to whether he has any recollection of the discussion taking place indicates that he does not have such a recollection.

But it is important to note that Mr Matthews was quite firm when he said that he would not have given the assurance Mrs Crawford says he gave. Mr Matthews struck me as an honest witness - hardboiled, intense, deal‑orientated, but honest. It clearly offended his sense of professionalism to have it suggested to him that he would have misrepresented the position as alleged by Mrs Crawford. But in the end, he simply could not remember enough about the events to offer any evidence on which a decision could be made. All that can be said about his evidence is that it is a circumstance to be weighed in the balance and it is against the evidence given by Mrs Crawford.
In his closing submissions, counsel for the plaintiff referred to a number of matters which he said should cast doubt on Mrs Crawford's credibility. The first point related to the initial meeting between Mr Matthews and Mrs Crawford. Counsel pointed out that Mrs Crawford gave evidence that at the first meeting she had with Mr Matthews she was told that Mr Cranston was making arrangements to have medical practitioners in the premises. In cross‑examination she accepted that she had never spoken to Mr Cranston and that this was the first occasion that she had told Mr Matthews as to her desire for a medical facility. Counsel submitted that at the time of the first discussion, Mr Cranston could have had no knowledge of any request by the Crawfords as to the existence of a medical practice. He submitted this indicated an invention which infected all of Mrs Crawford's evidence.
With respect, that seems to me to overstate both the content and importance of that first meeting. When Mr Matthews first visited Mrs Crawford, he had spoken with Mr Busby and Mr Cranston. He had been dealing with Mr Cranston for some time and he knew that Mr Cranston was, to borrow the phrase used by the defendant's counsel, a "can‑do" individual. It may well have been the case that Mr Matthews represented to Mrs Crawford that if she required doctors to be in the premises prior to her establishing a pharmacy, Mr Cranston would ensure that doctors were in place. There would have been nothing wrong in Mr Matthews making such a representation; in fact, it would have been consistent with his experience of Mr Cranston. But even if Mrs Crawford is mistaken in her recollection, it does not impact generally upon her credibility. It is not surprising that an event which took place more than five years ago might be the subject of a flawed recollection.
Second, counsel suggested that Mrs Crawford was confused as to the dates when certain meetings took place. By way of example, he pointed out that Mrs Crawford's evidence was that a particular meeting at the Dome Café in Subiaco took place in early December 2001. Her husband says the same meeting took place on 8 October 2001. This is an instance where it would seem that Mrs Crawford was confused as to the dates. But it must be remembered that there were numerous meetings and numerous conversations between the various actors in this drama. Once again, such a confusion as to dates about a matter which is not central to the outcome of the proceedings is not, in my view, sufficient to cast doubt on Mrs Crawford's evidence generally.
Thirdly, counsel pointed to the fact that Mrs Crawford referred to a representation allegedly made in November 2001 to the effect that the upstairs of the premises had been fitted out for a medical practice. In fact, a quote for the fit out of the upstairs of the premises was not obtained until January 2002. So as at November 2001 the fit out could not have commenced. Once again, Mrs Crawford is clearly mistaken. But once again, she is mistaken as to a peripheral matter.
Fourthly, Mrs Crawford says in her witness statement that she visited the first floor of the premises in mid‑December 2001 in the presence of Ian and Andrew Crawford. Ian Crawford's evidence was that he attended the premises on only one occasion and that was in mid‑2002. Furthermore, when Ian Crawford did inspect the premises, he says that he was with Mrs Crawford and not Andrew Crawford. The weight of the evidence suggests Mrs Crawford was in error in her evidence and that Ian Crawford visited the premises only once and that was in mid‑2002. Again, I am not satisfied this error is sufficient to taint all of Mrs Crawford's evidence.
In the end, I have to make a decision as to whose evidence to accept. I have carefully weighed the evidence of each of Mrs Crawford and Mr Cranston in the balance. So far as Mrs Crawford is concerned, in her favour is the fact that she seemed to me to be an honest witness. She appeared to have a very clear recollection of what to her was a very important conversation. She was not shaken in cross‑examination. Against that is the fact that she was aware Mr Cranston would not include a provision in the lease which guaranteed that doctors would be in position when the pharmacy commenced operation. That suggests that no oral representation to that effect would have been made.
Despite the fact that a number of amendments were made to the agreement to lease, nothing in that agreement reflects the alleged undertaking. There was no subsequent written confirmation that the undertaking had been given. I have also weighed in the balance that Mrs Crawford appears to have a flawed recollection of other relevant facts.
So far as Mr Cranston is concerned, in my view, he too was an honest witness. He is an experienced businessman and although he may not have fingertip knowledge of s 52 of the Trade Practices Act, he would have been well aware of the consequences of direct misrepresentation in negotiations. At all times he refused to include either in the agreement to lease or the lease itself a provision that doctors would be in place when the pharmacy commenced operation. As at the date of the meeting of 21 December 2001, Mr Cranston knew that one of the corporatised medical practices that was a potential tenant was no longer interested. He did not pass that information on to Mrs Crawford. He made no attempt to hide that evidence - it appears in his original witness statement. When pushed about whether Mrs Crawford put the direct question to him about the presence of medical practitioners, he acknowledged that the question was asked but seemed unsure as to precisely what answer he gave.
On balance, I am satisfied that I ought to accept the evidence of Mrs Crawford. I found her an altogether convincing witness. Her recollection appeared crystal clear and she was unshaken in cross‑examination. I am satisfied that her explanation as to why she had such a clear recollection of the discussion which took place on 21 December rings true. I am not satisfied that there is anything in the evidence which falsifies what Mrs Crawford has said.
Having reached that conclusion, it is clear that there was a representation made which was false. The representation was made in trade or commerce. Counsel for the plaintiff raised the question as to whether or not there was reliance on the representation. Clearly, there was. Mrs Crawford says that it was only after she received the assurance that she signed the agreement to lease. It may well have been that there were other reasons for her entering into this arrangement. The evidence makes it plain that she was concerned about losing the opportunity to take up the Royal Street premises. With the business at the Lord Street premises marginal and with her North Perth pharmacy carrying considerable debt, there were doubtless other factors which weighed upon her mind when deciding to sign the agreement to lease. But I am satisfied that Mrs Crawford relied to a significant extent upon the representation made to her at Poppies on 21 December and that she entered into the lease as a consequence of misleading or deceptive conduct.
If this was a case brought against Mrs Crawford, it would now be a simple matter of declaring the lease void ab initio under the provisions of s 87 of the Trade Practices Act. But there was an assignment of the lease and the defendant is not directly a party who relied on the misrepresentation. He is the assignee of the lease. The question is whether he is offered any protection under s 87 of the Trade Practices Act.
The answer to this question lies in the very wide terms of s 87. Subsections (1) and (1A) are couched in very wide and permissive terms. Subsection (2)(g) would allow an order to be made effectively rescinding the assignment of the lease. But, in my view, it is unnecessary to take that step. I am satisfied that the remedies available are wide enough to simply declare the lease void ab initio under the provisions of s 87(2)(a). That will have the effect of relieving the defendant of the liability he would otherwise have under the lease and the assignment of the lease. In adopting this approach, I am acting in conformity with the views expressed by Burchett J in Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41‑558.
I will hear the parties as to the precise form of orders and as to costs.