Kizbeau Pty Ltd & Ors v W.G. & B. Pty Ltd

[1993] HCATrans 312

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne Nos M113 of 1993

B e t w e e n -

KIZBEAU PTY LTD, GARRY FRANCIS
SHEILS and ANNA MARIA ELIZABETH

SHEILS

Applicants

and

w.G. & B. PTY LTD and

WALLACE GEORGE McLEAN

Respondents

Application for special leave

to appeal

BRENNAN J
DEANE J

McHUGH J

Kizbeau 1 15/10/93

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 OCTOBER 1993, AT 12.01 PM

Copyright in the High Court of Australia

MR F.H. CALLAWAY, QC:  May it please the Court, in this

matter I appear with my learned friend,

MR D. SHAVIN, for the applicants. (instructed by

Molomby & Molomby)

MR B.J. SHAW, QC:  If the Court pleases, in this matter I

appear with my learned friend, MR M. COLBRAN, for

the respondents. (instructed by Wisewoulds)

BRENNAN J: Yes, Mr Callaway.

MR CALLAWAY: If the Court pleases. Apart from the question

of legal principle involved, this is one of those
unfortunate cases where the clients, a layman, can

see from the face of the reasons that the Full

Court has made a mistake, and a mistake which

kind. results in an injustice to them of a pecuniary

So far as the error of principle is concerned,

may I come to that later, but begin with the
question of injustice, because the Court does

sometimes intervene in the interests of the

administration of justice where it can be shown

that something has clearly gone wrong in a material

respect in the court below.

The passages to which I intend to refer are

set out in full in the joint judgment of

Their Honours Mr Justice Sweeney and

Mr Justice Jenkinson, but I found that they were

easier to read in the judgment of

Mr Justice Northrop, if only because they were

double spaced. If I might ask Your Honours to go

to page 70 of the application book.

Mr Justice Northrop has been referring to the

valuations that were prepared by Mr Young and, at

the foot of page 70, comes to Mr Young's conclusion

about valuation. That is set out at the next page.

Mr Young there set out three valuations: the first

one, the $1.1 million, was the value if the

boardroom and boardroom annex could have been used

as conference rooms; the second valuation was on

the basis that they could not, and the third

valuation assumed an adjustment in the rental.

It is the third valuation which gives rise to

the damages of $265,000 which were awarded by

Mr Justice Northrop. But it is clear that that

figure is dependent on there being an adjustment of

the rent and, of course, ultimately what the Full

Court does is to leave the damages figure untouched

but to delete all the variations of the rent.

The matter is, if anything, made even clearer in a passage of His Honour's judgment, again set

Kizbeau 15/10/93

out by the Full Court, that begins towards the

bottom of page 72. In the fourth-last line

His Honour says:

The Court has found that the applicants have

suffered loss or damage by the conduct of the

respondents in contravention of s52 of the Act

and has determined that Kizbeau Pty Ltd is

entitled to damages in the sum of $265,000.

In arriving at that amount, the Court took

into account the rent for the motel at a rate

less than the rent specified in the lease

entered into by Kizbeau Pty Ltd. The

obligation on Kizbeau Pty Ltd to continue to

pay the rent as specified in the lease
remains. In these circumstances the Court has

power to make such order or orders as it

thinks appropriate ..... to compensate Kizbeau

Pty Ltd in whole or in part for the loss or

damage -

So His Honour is saying, I have adopted the low

figure for damages on the basis that I am going to

do what the valuer himself assumed, adjust the

rent. Then at page 74, line 10, His Honour says

that if the case were a simpler one, it would

simply have been a matter of adjusting the rent

down from the $480,000 provided in the lease to a

lower figure of $406,690, but His Honour said that

that was over-simple in the rather complicated

events that had happened. Two pages later, at

line 14, His Honour said:

The correct course is to vary the terms of the

lease in such a way as to prevent unfairness - Now, this is nothing to do with the 6 per cent;

this is the search for a lower starting point, as

the valuer himself contemplated, to reflect the

lower value of the premises. His Honour then

refers to submissions that were made and decides,

in effect, to substitute market value, beginning on

8 May 1991, which will be lower than the $480,000

increased by 6 per cent each year.

That is reflected, if I might digress for a moment, in His Honour's orders, the material parts

of which are at pages 85 to 87. His Honour sets

out a new clause (18A) that is deemed to be

included in the lease and His Honour starts at

8 May 1991, because prior to that in fact Kizbeau

was using the motel as if it were lawful to conduct

seminars on the upper floor, but beginning there His Honour says that failing agreement, the rent

will be based on current market values at the

beginning of each rent review period and that, of

course, is a lower platform, and that is the

Kizbeau 15/10/93

essential assumption made by the valuer in arriving

at that figure of $265,000.

DEANE J: But His Honour's approach to the appropriate rent

demonstrates that the $265,000 was over-generous

from your clients' point of view for the reasons

given by Justice Davies, does it not? I mean, once

you accept His Honour's approach to adjusting rent,

surely it is apparent that the $265,000 is

unreasonably high.

MR CALLAWAY: With respect, Your Honour, we would not

concede that, but the $265,000 - - -

DEANE J: It seems that nobody concedes anything in this

litigation.

MR CALLAWAY:  No, but the $265,000 is really a drop in the

ocean in a case like this, Your Honour. The annual

rent increased by 6 per cent, which is the result

of the Full Court judgment, is now up to just over

$600,000 a year.	The $265,000, while it sounds
like a lot, is not.	The relief that matters to the

applicants is the variation of the lease.

BRENNAN J:  Even though it was not claimed.

MR CALLAWAY: Relief under section 87 was claimed,

Your Honour, and the primary relief sought, as I understand it, was rescission. It is true, as I understand it, that the court process did not ask

for removal of the 6 per cent proviso, but the case

was conducted on that basis and the Federal Court Rules say that the court can give relief, even if

not prayed for specifically in the process. That

is Order 35 rule 1, I think.

DEANE J: But be that as it may, your answer to me indicates

that your main point does not matter to the

parties.

MR CALLAWAY:  No, Your Honour. The Full Court's judgment

involves a slip, for at least two reasons: one is
that Their Honours take a figure which is

predicated on a rent adjustment, but make no rent

adjustment. So that on any view, it is submitted,

we should be entitled to greater damages. But the

other and separate - - -

DEANE J: Except what I was putting to you was that the

starting figure was obviously too high anyway and
perhaps in the wash-up, if the fight was only about

the correct figure there, it would be time the

parties took account of the legal costs that will
be involved in an appeal to this Court and would be

better off just leaving that aspect of it as it

lay.

Kizbeau 4 15/10/93

MR CALLAWAY:  Your Honour, I am not as familiar with the

evidence as I would have been if I had appeared in

either of the courts below.

DEANE J: There was no suggestion of criticism of you,

Mr Callaway.

MR CALLAWAY:  I am sorry, Your Honour, I did not take it

that way. But the learned primary judge did have
the advantage of all sorts of conflicting

submissions and evidence and decided that it was

not appropriate to attach the same weight to the

best case scenario and worst case scenario to which

Mr Justice Davies referred. The majority in the

Full Court essentially thought that His Honour was

right in his approach to valuation and it is
therefore not to be supposed that our submission

that Mr Justice Davies' analysis would ultimately

prove to be correct, if one looked at all the

conflicting evidence. But the stressing aspect of

the case is that if one looks at what the majority

in the Full Court accepted as a proper approach, it

is wrong not only because of the Siamese twin

aspect, that the damages are related to valuation

and you cannot keep the $265,000 but not make an

adjustment, but there is another mistake which,

with respect, is again apparent from the reasoning.

If one goes to pages 117 to 119, after

Their Honours have set out what Mr Justice Northrop

found and His Honour's reasoning, Their Honours

then address two issues and two issues only.	From
117, line 24, to 118, line 16, Their Honours
address the 6 per cent floor and then, in the
remaining part of Their Honours' judgment,

Their Honours address a quite separate issue which

was that Mr Justice Northrop had thought that
whenever there was a future alteration to the

planning permission, it should be possible for

either party to have an additional rent review.

terms of His Honour's order on pages 85 and 86, in In

the new subclause (18A), subparagraphs (1) and (2) provide the new base rent, in effect, market value

instead of $480,000 increased, in conformity with

the -

BRENNAN J:  Do we need to get into these details of the

variation? Is there not a question here of whether

there is either a variation or no; if there is a

variation, then what are the damages? Is that not

the point?

MR CALLAWAY:  So long as I make good the submission to the

Court that there are two quite separate errors and that they are demonstrable, rather than being

matters of opinion, from the face of the judgment.

The one that I am addressing now, Your Honour, is

Kizbeau 15/10/93

not perhaps highlighted very much in the affidavits

and I was just concerned to mention to the Court

that in terms of His Honour's order, what

Mr Justice Sweeney and Mr Justice Jenkinson do is

to deal with the 6 per cent issue and to deal with

paragraph (3) on page 86, but to say nothing about

the new floor involved in subparagraphs (1) and

(2). So it would appear that there was, in fact, a

slip. Their Honours give reasons which - it is a

matter for argument on appeal if the Court granted leave - Their Honours give reasons for disagreeing with Mr Justice Northrop about the 6 per cent,

Their Honours give reasons for disagreeing about the ad hoc reviews if there are future changes to the planning permission, but then Their Honours, without reasons, delete the whole of the rent

review clause.

Now, that in fact, as we understand it - and

my learned friend, Mr Shaw, did appear in the court below - but that is not the way in which the matter was the subject of submission in the Full Court.

It was implicit in the discussions and the

submissions between the bench and my learned friend

Mr Shaw, as we understand the transcript, that one

would not keep the $265,000 and delete the whole

of the rent review clause. It was acknowledged
that the valuer had assumed an adjustment in the

rent if the $265,000 was adopted, and my learned

friend, indeed, handed up to Their Honours two

draft orders, each of which assumed that there

would be some adjustment done if the court took the

view that the court ultimately did.	So there is
that error.

But it is not just a matter of claiming extra

damages. Our principal concern is having been denied the relief under section 87 altogether,

quite apart from this financial flow through to the

damages.	What Their Honours did - His Honour
Mr Justice Northrop had explained at length why in

the interests of fairness there should be a

variation, not only to account for the valuation

but also other considerations of fairness which

Your Honours have seen in the judgment which are

set out again in the Full Court, that for example

unless you took out the 6 per cent you would depart

from market value in relation to a lease which was

quite different from what the parties believed they

were taking on. Here we have parties who were

misled and who, as a result of the misleading

conduct, have entered into a bargain that they

would not have entered into but for the misleading

conduct. Section 87 is there for the purpose of

protecting and compensating people in that

position.

Kizbeau 6 15/10/93

The error of principle, with respect, that the

Full Court fell into, on page 118 of the application book, revolved around the statement

from ASX Operations v Pont Data, which is

conveniently quoted at 118 line 12. Now, what was

said in ASX was that in granting variation under

section 87 "the court must be slow to impose upon
the parties a regime which could not represent a

bargain they would have struck between them."

Pont was a very different case. Pont was a

monopolization case and the variation in question

would have forced a monopolist to supply services

at a nominal price. That is a very different case

indeed; perhaps caution is appropriate there. The

difficulties are well known. But that is a very

different case from parties who have been induced

by misleading conduct to enter into a lease on

certain terms, those terms now work unfairly and

section 87 is used to vary the lease to compensate

them for the consequences of the misleading

conduct. If the Pont statement were applied in

relation to leases, that part of section 87 would

be virtually emasculated. It is a totally

different situation. This is precisely the sort of

case, in our respectful submission, for which that

p·art of section 87 was designed.

I am conscious that Their Honours say the court must be slow. We are not in as strong a

position as if the court said that it will never

impose a bargain which the parties would not have

made themselves. But there are grave dangers in

the Full Court enunciating a policy like that

because the legislature has enacted an important

remedial statute of a consumer affairs variety and
has given the court new and deliberately worded

wide powers. If the Federal Court adopts a self-

denying ordinance that even in a simple case like

this, where you need to fix up a lease, the court

will be slow to impose a different bargain, that is

bound to stultify the remedy.

Your Honours, even more fundamentally, with respect the Full Court misapplied the statement in

ASX v Pont because that statement is that the court

should be "slow to impose upon the parties a regime

which could not represent a bargain they would have

struck between them". Now, what

Mr Justice Northrop did, in effect, was to change

the lease so it provided for market value from time

to time. That is a regime which could represent a

bargain that the parties might have struck. And it

is an appropriate regime to substitute for a

contractual regime induced by deception, in

complicated circumstances where it is not just a

matter of making a mathematical variation.

Kizbeau 7 15/10/93

In ASX v Pont the variation that the court

disapproved was requiring a monopolist to supply at

a nominal price. Now, that is a regime which could

not represent a bargain that the parties would have

struck. No monopolist would ever agree to supply

at a nominal price. That is what that statement is

directed to in ASX v Pont. This is the opposite

case. This is precisely the sort of bargain that

lessor and lessee might strike.

Your Honours, so that quite apart from the

interests of the individual litigants in a case

like this, who are shown to have borrowed heavily

to go into this business and so forth, quite apart

from the injustice point, there is a genuine error

of principle as to whether the Full Court should
adopt a self-denying ordinance of this kind or even

whether the earlier Full Court in ASX meant it.

Our submissions on appeal would be that ASX is

rightly decided but has been misapplied in this

case, but misapplied by the Full Court so it is

going to be binding in future on the Federal Court

unless that error is corrected here.

This Court has not previously considered

section 87 to the best of our knowledge, except in

Sent v Jet Corporation where the issue was procedural and not of substance. Sent's case,

Your Honours will recall, stands for the

proposition that you have to have another
proceeding on foot, you cannot apply for relief

only under section 87 and this limitation of

actions point. So it is not as if the Court has

previously had a relevant opportunity to speak to

these matters.

Your Honours, there is an alternative course

that the Court could take. We put it very much as

a second best because we are anxious, if possible,

that this Court should consider the issues that we	have raised, including above all reinstatement of
Mr Justice Northrop's orders about the lease.

BRENNAN J: What other issues were alive in the Full Court?

MR CALLAWAY:  There was the issue of liability on which we

succeeded again, Your Honour. Then there were the

issues of remedy which were concerned with damages,

the new floor - and I think it is right to say my

learned friend assumed that in the events that have

happened there would be a new floor, that is what

the Full Court, with respect, has overlooked - and
the 6 per cent, and Your Honours will recall in

1991 the planning permission was varied so that you

could use the upper floors but with a limit of 50

persons at any one time. Submissions were made

about the effect that that should have on the

Kizbeau 15/10/93

relief granted.	As I understand it, they were the
issues.

BRENNAN J:  Now, if we were to grant you leave to appeal, it

would be open, of course, to the respondent to

agitate those questions that they agitated in the

Full Court anew: liability, I imagine, and what about the question of damages?

MR CALLAWAY:  Your Honour, it would be open to the

respondent to give a notice of cross appeal, after

being served with out notice of appeal. It would

then, of course, have to seek special leave when

the appeal was called on to reagitate those

matters. It may be - and I would be grateful if

the Court would not take this as a concession -

being sensible about it, it may be that the

respondent would have difficulty getting special

leave to reopen the liability question on which the

courts below have been unanimous. It might be that

the Court would consider it had to look at the

whole corpus of relief; it could not isolate

particular aspects of relief one from another.	We
might be in some difficulty resisting that

contention because it is our own case that one has
to look at damages together with appropriate relief

under section 87.

BRENNAN J:  Then looking at the question of damages, was the

$835,000 deducted from a purchase price which

included stock at valuation or was it taken from

the goodwill?

MR CALLAWAY:  It is the former of what Your Honour said but

that is the same figure that the valuer gave to the

value of the motel, as he called it, which was

mainly goodwill with an addition for stock.	So
that it is subtracted from the $1.1 million.

BRENNAN J:

So the $835,000 was not arrived at by any means

of capitalizing of profits?

MR CALLAWAY: All figures are, Your Honour. In the earlier

pages that I did not read to the Court, all three

figures are done on the basis of capitalizing the

profits.

BRENNAN J: That is why I rather thought that the

appropriate figure to set it against was the

goodwill figure.

MR CALLAWAY:  Yes, but I am fairly confident that the $1.1

million in the - yes, if Your Honour looks at

page 69 of the application book, the agreements
provided that the figures were $986,945 for

goodwill and 113,055 for plant, equipment and

chattels, and that made the $1.1 million in the

Kizbeau 9 15/10/93

agreement. Mr Young then made a value which, as

Your Honour correctly foreshadows, is based on

capitalization, reaching that same figure of $1.1.

BRENNAN J: Which means that if that had been the profit,

$1.1 was a very cheap price for the premises, cheap

by $113,055.

MR CALLAWAY:  My learned friend reminds me that there was a

substantial amount - I think is was $800,000-odd -

that was paid in relation to the transfer of the

chattel leases, so that one would need to look at

that before one could confidently answer

Your Honour's question.

BRENNAN J: That is the $600,000 which is deducted there, is

it not?

MR CALLAWAY:  No, I do not think it is, Your Honour. I

think it is $800,000-odd somewhere referred to in

Mr Justice Northrop's judgment. Perhaps it does

not matter very much but I am - - -

BRENNAN J:  We do not need to go into it, but it just seemed

to me that this case had a number of problems in

it, both at first instance and on appeal, and the

question was what we were going to do with a· case

that had so many problems.

MR CALLAWAY:  Yes. Your Honour, it is always rash to

predict, but we would predict by way of submission

that if the Court granted leave it would not be
nearly so complicated on appeal. It sounds

complicated, but it is unlikely that the Court

would be prepared to look at all the evidence again

and second guess all the work that

Mr Justice Northrop did, and indeed the Full Court

did not do that either. So that the Court could

proceed with some confidence from the methodology

that was accepted by the expert, the trial judge

and the majority in the Full Court. If the Court considered that despite the

problems to which we have adverted, this Court

should not take the case - we would respectfully

ask the Court to do so - but if Your Honours

considered there were difficulties because it was
an unsuitable vehicle or for some other reason, in
the interests of the administration of justice

something, we submit, should be done where one can read the judgment and see a mistake has been made.

If the order had not been entered the next day, doubtless what would have happened is that someone

would have gone back to the Full Court and drawn

Their Honours' attention at least to the two

logical errors that appear on the face of the

Kizbeau 10 15/10/93

judgment and the Full Court might well have done

something about that.

DEANE J: Are they two, or is it really a different way of

looking at one? On the approach adopted by the

Full Court - and subject to what Mr Shaw says -

they should have adjusted Justice Northrop's figure

to take account of the fact that they were working

on agreed unfair rent.

MR CALLAWAY:  Yes, Your Honour.

DEANE J: Or alternatively, overlooking the point made by

Justice Davies, they should have adjusted the

starting rent to fair rent and, overlooking

Justice Davies' point, that would have left

Justice Northrop's figure. What I am suggesting

is, is there not really only one error that you are

trying to erect into two? If they had not fallen
into what you say is the first error, the second

error is not an error.

MR CALLAWAY:  Yes, with respect, Your Honour, that probably

is right, but I am concerned to make good the

submission to the Court that it is obvious the Full

Court fell into error and if it had not been for

the order being entered, we could have shown the

Full Court that, because it is not just that you

read the valuation, it is that Their Honours make a

jump and give no reasons for deleting paragraphs

(1) and (2) of the order. So that even if we did

not have the valuation, even if we did not have the

Siamese twin point, we would still be in the

position of being able to say to this Court, or to

Their Honours if we had been able to, "We

understand Your Honours' reasons for deleting 6 per

cent, however much we may respectfully disagree; we

understand Your Honours' reasons for taking away

the ad hoc variations whenever there is a change in

the future, however much we may respectfully

disagree; but Your Honours have given no reasons

for deleting the new starting point." And then if

one looks at the transcript we are unable to find

anything in the submissions that would have led

Their Honours to do so. So it would appear that

there has been a mistake which causes injustice to

individual litigants.

Your Honours, we would ask this Court to take

it, but if the Court were against us on that, we

would at least ask the Court to make orders

enabling the matter to go back to the Full Court of the Federal Court. The orders have been entered so

it cannot be just sent back, but the machinery is

there - if I might hand up this piece of paper to

Your Honours, these are the orders which, as we

understand it, would be necessary for the purpose

Kizbeau 11 15/10/93

of enabling the matter simply to go back to the special leave would have to be granted, and the

appeal would have to be treated as instituted and

heard instanter and allowed and the Full Court

order set aside. Once one has done that, without

this Court expressing any view on the merits of the

matter, it would be open for us to make further

submissions, whether they find favour or not, to

the Full Court about the matters that have been the

subject of submission this morning.

In those circumstances, Your Honours, it would be irresponsible to ask for the costs; there would

be some success on either side and that explains

paragraph 3. But that is legally and commercially

very much a second best solution, if the Court

pleases, but we prepared it in case it seemed to

have some merit to Your Honours.

Your Honours, unless there is anything I can

add that might assist the Court, those are our

respectful submissions.

BRENNAN J: Thank you, Mr Callaway. Mr Shaw.

MR SHAW:	If the Court pleases, in our submission no error of principle has been shown in relation to the way in which the discretion under section 87 of the
Trade Practices Act ought to be exercised. The statement from ASX v Pont, to which my learned
friend has referred, is in our submission a
correct statement and hardly, at any rate, amounts
to a statement of principle. It just says be
slow.  One would have thought it was a sensible
thing to say.
BRENNAN J:	It is difficult to apply it in a case like this, is it not, because if the applicants' viewpoint of
the business is adopted, they would not have
entered into the contract to start with. So any variation of it is one which would not have been
accepted by the parties anyhow, one way or the
other.

MR SHAW: That may be, Your Honour. At any rate, it is

submitted that there is no error of principle

there because it has certainly been decided that

rescission would not be granted.

My learned friend's main point was that there

was a manifest injustice. In our submission, that

simply is not so. My learned friend says, well, if

the damages are to be $265,000, then the rent

should be adjusted. But if one follows the logic

of my learned friend's reasoning, the rent should

be adjusted to an amount of - it was $406,000-odd -

Kizbeau 12 15/10/93

but His Honour expressly considered doing that and

decided that he would not do it and that appears at

page 74 of the application book, and said he would

not do it because - this is at line 13 and the

following lines - he would not do it because of

what had happened in relation to the use of the

premises up to 8 May 1991 and because of what

happened in relation to the change in the condition

in relation to the use of upstairs. It was that

which led to His Honour Mr Justice Davies saying,

well, if a variation is to be made in the lease as

to the starting point, then the damages ought to

come down. And it is obvious His Honour is, it is

submitted, obviously right about that.

The other variation is, of course, the

deletion of the 6 per cent, and my learned friend

said nothing about that, and in our submission,

rightly, because in our submission that was simply

completely indefensible. The reasons His Honour

the trial judge did it seem to have nothing to do

with the consequences of misleading conduct.	So
that what one is looking to is what His Honour
Mr Justice Davies looked to.	He said, well, if you

vary the beginning rent, then you have got to put

the damages down. But assume you do not put the

damages down, then the consequence may well be that

the starting point remains exactly what it was as
fixed by the majority, or to look at the matter the
other way round, if one adjusted the commencing

rent in the way my learned friend wants to do, the

damages may very well be no greater than the

$265,000 which has been awarded and, in our

submission, very probably would be less.

DEANE J: But, Mr Shaw, can I just put two propositions to

you, and that is: accepting the approach of the

majority in the Full Court, are there not two

errors? The first is that Their Honours overlooked

the fact that Justice Northrop's reasoning in

relation to rent should have led to a reduction of

the $265,000; now that favoured you. The second

was that on Justice Northrop's approach, if you did

not interfere with the rent you had to increase the

capital amount because the valuation which he

accepted then became inapplicable. Is there any

escape from those two things?

MR SHAW:	What Your Honour is putting to me, as I understand it, a mistake was made both ways and that may very
well be so, Your Honour. All I am saying is assume one says well, all right, leave the
commencing rent as it is and recalculate damages in the proper way, it seems to be highly likely
they are not going to be any higher than they are.

Kizbeau 13 15/10/93

DEANE J: That might be so, but if on the face of things

there are those mistakes, and I am not expressing a

concluded view that they are, I am simply saying as

I read it, has not this Court got two alternatives:

either to grant leave to set the matter right

itself or if the party opposing leave assents to

that course, instead of adopting that approach

adopt Mr Callaway's second and "commercially and

legally undesirable", if I quote him correctly,

approach?

MR SHAW:	Your Honour, the answer to that question is, it is
submitted, no, and the reason for that is this: my learned friend has to show, it is submitted, not simply that there is a mistake or a series of mistakes but that the mistakes have led to an
outcome which does him injustice. And he simply
cannot show that.

DEANE J: Except looking at the figures, error one, assuming

that it be an error and accepting Justice Davies'

approach, would lead to an adjustment of

$100,000-odd. Error two, assuming again it would

be an error, would lead to an adjustment in the

other direction of presumably considerably more

than $100,000 which would mean that you would be

worse off.

MR SHAW:	Your Honour, that is on the face of it, but if the matter were opened up, the whole question of
damages would have to be reargued and, in our
submission, when proper account is taken of the
fact that, first of all, the premises were used
without regard to the first condition until
8 May 1991 and, secondly, thereafter there was the
change in the condition, that when account is
taken of the fact that that produced at the worst of it a fall in profit of 5.18 or 5.17 per cent, on the best of it from our point of view something
made, it is submitted that it is improbable that over 2 per cent, and when all the calculations are the damages would be any more than $265,000.

DEANE J: Then can I ask you this: if at the end of the day

the Court regarded itself as compelled to grant

leave to address at least the two matters that I

have raised with you, and presumably look otherwise

at what needs to be looked at, would you prefer

that course to the matter being sent back by

consent to enable the Full Court to hear argument

on the two prima facie errors that have been

discussed?

MR SHAW:	Your Honour, I would have to get instructions
about that.

Kizbeau 14 15/10/93

DEANE J: Because one is very conscious of the fact that the

costs in these proceedings must already be

astronomical.

MR SHAW:	I cannot answer that question without
instructions, I am sorry.  I might be able to get
them.  Your Honour, my instructing solicitor is
not in a position where he can give me instructions about that matter.
BRENNAN J:	Mr Callaway, we will hear you in reply and we

will then adjourn the matter until quarter past 2.

MR CALLAWAY:  If the Court pleases. Your Honours, I do not

know that there is a great deal that I would wish

to add, except two or three rather simple points.

The reason I said nothing about the 6 per cent was

not because we are bereft of arguments about the
6 per cent but because they are not the kind of
thing that can be sensibly agitated on the special

leave day. That does require one to look at the

evidence.

The other matter is that we respectfully ask

this Court to take the case because while there are

the two what might be called arithmetical errors in
the judgment, there is the error of principle about

ASX and Their Honours asking the wrong question of

whether Mr Justice Northrop's variation is the kind

of variation the parties might have agreed to.

Now, we have suffered what we submit is a serious

loss and injustice as a result of that error of

principle, that wrong question the Full Court asked

itself.

Two things flow from that. We submit that

that is a sound basis to ask this Court to take the

case. But the second thing that flows from it is

that if in the end the matter did go back to the

Full Court, we would respectfully ask not to be

limited in any way on the submissions that might be

made about relief because we would seek to make

submissions, if the Full Court permitted us to do

so, about ASX v Pont in the light of what has been

said this morning. No doubt the Full Court would

give leave for that to be done, so it would be a

shame if it went back to the Full Court and we

could only talk about the money amounts.

DEANE J: But if we were to make orders sending it back to

the Full Court, it would clearly be on the basis

that we were doing it only so that argument could

be addressed to what you have put as errors on the

face and what has also been raised as a problem

with Justice Northrop's initial amount, and it

would then be a matter for the Full Court whether

it permitted you to address other matters.

Kizbeau 15 15/10/93

MR CALLAWAY:  So long as it was .open to us, Your Honour, to

ask Their Honours to hear submissions on the ASX

point because as His Honour the presiding Justice

said this morning when it is looked at afresh there

would seem to be a difficulty in applying that

statement the way Their Honours did. Otherwise we

could be, from both parties' point of view, in the

unfortunate situation of going back to the Full

Court, then having to apply to Your Honours again

for special leave because the ASX point was
outstanding which would perhaps be the worst of all

possible results for everyone.

DEANE J: But His Honour the presiding Judge was not

suggesting that the Full Court was in any error in declining to leave the parties to their 6 per cent

minimum rent adjustment.

BRENNAN J: That is quite right.

MR CALLAWAY:  I did not understand His Honour's question to

my learned friend to be directed to the 6 per cent

so much as to the issue of whether it really is

right in this sort of lease situation to ask the

question, would the parties have agreed to the

variation?

BRENNAN J:	I would have thought if the two points that Justice Deane has identified went back to the Full
Court, then inevitably the problem of the approach to the solution to those two questions would involve the ASX point. That is the way in which I
see it at the moment.
MR CALLAWAY:	If Your Honour pleases. We are not trying to inveigle the Court into giving any kind of
direction to the Full Court.  My concern is only
that nothing should be done to limit the extent to
which the Full Court, in the light of what has
directed to the question of relief. It was that happened this morning, might permit argument to be thought which informed the draft that we handed up
to Your Honours this morning which Your Honours
will have noticed spoke of submissions relating to
relief and costs. Costs only because one never
knows that the effect of the submissions on relief
might be about costs, but essentially that the scope should be such submissions on relief as the
Full Court considers appropriate in the light of
what has happened. If the Court pleases.

BRENNAN J: This matter will stand over now until 2.15 pm.

AT 12.47 PM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

Kizbeau 16 15/10/93

UPON RESUMING AT 2.22 PM:

BRENNAN J: Gentlemen, in this matter the Court is of the

view that it will be necessary to grant special

leave but the course which will be taken as to the

making of any further or other order depends upon

Mr Shaw's response to the matters that were

discussed before lunch.

MR SHAW:	Your Honour, I am not in a position to consent to
the matter being sent back to the Full Court.
BRENNAN J:	Mr Callaway, the Court is minded to grant you

limited special leave to appeal at this stage, that

is limited to the point that you raised on what

you submit to be the patent problem arising on the

Full Court's judgment, and that Mr Shaw should be

at liberty in response to rely upon the question

that was raised on Justice Davies' judgment,

leaving it to the parties otherwise to apply as
they may be advised on the appeal for any extension

of the special leave beyond those points.

Now, that being the kind of order that we are

minded to make, it may be appropriate to adjourn

the matter further, until say 3.30 this afternoon,

for the purpose of framing a draft order in

accordance with that indication.

MR CALLAWAY: If the Court pleases.

BRENNAN J:  We will adjourn it until 3.30, if that time is

suitable to you.

MR CALLAWAY: If the Court pleases.

AT 2.27 PM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

UPON RESUMING AT 3.45 PM:

BRENNAN J:	Has time been sufficient, gentlemen?
MR SHAW:	It has not been quite sufficient for me, if the
Court pleases. Could the Court stand it down
until after - I am sorry to mess my learned friend
around, but if the Court could stand it down until
after the next - - -

Kizbeau 17 15/10/93

BRENNAN J:  We are half-way through a case, so we will

continue to the end of that case.

MR SHAW:  Thank you, Your Honour.

AT 3.47 PM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

UPON RESUMING AT 4.34 PM:

MR CALLAWAY:  If the Court pleases, my learned friend and I

have a difficulty, but it is one which the Court is

eminently qualified to resolve speedily.

Your Honour the presiding Justice referred to the

patent problem that I had identified and to what was said by Justice Davies and to the liberty to

the parties to apply as they may be advised to

extend or vary those limitations. At our end of

the bar table we have endeavoured to reduce that to
writing, and at my learned friend's end of the bar

table there has been an endeavour to reduce it to

writing.

May I hand up to the Court four pieces of

paper marked FHC, which are my interpretation, and

four pieces of paper marked BJS, which are my

learned friend's interpretation.

MR SHAW:  And they are not the same.

MR CALLAWAY:  They are not the same. I thought that was

apparent. Similar style, but different substance.

Your Honours, as I understood it, the patent error

Deane pointed out in two different way, was that	that I had endeavoured to identify, and as Justice
the Full Court had adopted a measure of damages
which implied a variation to the lease but had not
varied the lease. The other way I put it was the
Full Court had deleted all the paragraphs of
Mr Justice Northrop's variation order without
explaining why. I have endeavoured to reflect that
in my paragraph l(a), and in l(b) have endeavoured to reflect the conjoint criticisms that were made
by Mr Justice Davies.
In 2, my learned friend and I have both adopted the word "vary" in case in six months time
we discover that there is some infelicity in this
wording which would mean we could approach the
Court and have it tidied up. But I do not think I

Kizbeau 18 15/10/93

can properly make submissions beyond that as to

what the Court is minded to order.

DEANE J:  Mr Callaway, could I put to you what I understood

was involved, and that is you raised a point that

the majority of the Full Court adopted a valuation

which you attacked on two really alternative

grounds. The first ground was that if the rent

stayed the same, the valuation was too low because

it was made on the basis of a fair market rent.

The second was if the valuation were accepted as

the proper result, the rent had to be reduced to a

fair market rent at the commencement. Now, as I

understood it, they were the points which you said

were apparent on the face of the majority's

judgment as being erroneous.

MR CALLAWAY:  Yes. Either one had to increase the damages

or one had to adjust the base rate, if I understand

Your Honour's question. In substance, Your Honour,

that is so.

DEANE J: But not raising the 6 per cent minimum because

that was a different matter. In other words, there

is nothing apparent on the face of it erroneous

about the 6 per cent conclusion.

MR CALLAWAY:  I understand Your Honour's question. No, with

respect, Your Honour, I think that is right. My

reservation is not the usual caution of counsel in

conceding anything, it is just that when one reads

Mr Justice Northrop's reasons, one is left with the feeling that His Honour might have said that the

6 per cent was part of adjusting the rents because

His Honour makes the comment that if you do not

remove the 6 per cent you will defeat the market
value. That is what troubles me. In that way, and

that way only, perhaps the 6 per cent is relevant

to adopting the new base rate.

DEANE J: But the 6 per cent was not, as I understood it,

included in what the court regarded as the
suggestion of error on the face of the Full Court's

decision, leading to an understatement of value.

MR CALLAWAY: If Your Honour pleases. Yes, when it is put

that way, that is so.

DEANE J:  The only other point that seemed to involve

argument or error on the face of the Full Court

judgment was that when one read Justice Northrop's

comments as to the appropriate rental adjustment it

was at least strongly arguable that they led to a

conclusion that the valuation basis was mistaken

and needed to be adjusted in the manner suggested

by Justice Davies, namely that the valuation was on

the basis that the restriction on use of the

Kizbeau 19 15/10/93

upstairs premises was applicable and enforceable

whereas the factual position was it had never

really affected the position but had been replaced

by the maximum of 50. Now, they are the two points

that, as I understood it, the court had in mind.

They are the two areas.

MR CALLAWAY:  Yes, well I am not sure how right it is for me

to make submissions about what the court intended.

I thought Mr Justice Davies' criticism was slightly different in two respects: I thought His Honour was

saying that one should really have paid more

attention to the variation to the planning

permission in 1991, one should have looked at the

position then, not just to the fact that the
premises were used in breach of the condition; and

the other was that it - - -

DEANE J:  But assume for the moment that the Full Court's

perceived error was overcome by adjusting the

commencing rent to a fair market rent. Then is not

the point identified by Justice Davies for reducing

the $265,000 as adjustment for interest a clear

enough point?

MR CALLAWAY: It is, Your Honour, subject to this, that

His Honour's reasoning led him to the conclusion

that in addition to reducing the damages,

paragraph 1 of Mr Justice Northrop's variation

order should stand. So that there might be some

peril in adopting - - -

DEANE J:  No, but that was what His Honour saw as reducing

the commencing rent to a fair market rent in the

light of the circumstances of the case, leaving the

agreed adjustments to operate in accordance with

their terms.

MR CALLAWAY:  I am very sorry if I am being obtuse,

Your Honour, it is just that - - -

DEANE J:	No, I may be being obtuse.
MR CALLAWAY:	It is just that His Honour says on page 126,

first, that the damages should be reduced by a

broad brush figure of $100,000. But there

nevertheless should be a new starting point for the

rent, so that there are two components to

His Honour's view. My learned friend's draft, for example, speaks only of reduction of damages which

might put my learned friend in the position of
arguing that the damages should be reduced by

$100,000 but we still should not get a new base

rent whereas His Honour Mr Justice Davies was

saying that the damages should be reduced by

$100,000 but, line 20 on page 126, there should be

Kizbeau 20 15/10/93

a variation to the base rent for the initial

periods.

BRENNAN J:  Mr Callaway and Mr Shaw, if the order read as

follows: special leave to appeal and cross appeal

granted on the following conditions:

(a) Subject to paragraph 2, the applicants are

limited on the appeal to contending either that the

lease should be varied to adjust the base rent or

to increase the damages to $500,000;

(b) Subject to paragraph 2, the respondents are

limited on the cross appeal to contending that the

damages should be reduced as proposed by

Justice Davies.

2. Any of the parties may apply to vary those

conditions when the appeal is called on for
hearing.

MR CALLAWAY:	Yes, Your Honour.
BRENNAN J:	Have you anything to say about that, Mr Shaw?

DEANE J: Apart from looking puzzled.

MR SHAW:	If the Court will excuse me, it is really in
relation to paragraph (b).

BRENNAN J: Shall I read it again. The respondents are

limited on the cross appeal to contending that the

damages should be reduced as proposed by

Mr Justice Davies.

MR SHAW:  Yes, Your Honour.

BRENNAN J: Very well. There will be an order in the

following terms:

1. Special leave to appeal and cross appeal is

granted on the following condition:

(a) Subject to paragraph 2 the applicants are

limited on the appeal to contending either that the

lease should be varied to adjust the base rent or

that the damages should be increased to $500,000.

(b) Subject to paragraph 2 the respondents are

limited on the cross appeal to contending that the

damages should be reduced as proposed by

Mr Justice Davies.

Kizbeau 21 15/10/93

2. Any of the parties may apply to vary those

conditions when the appeal is called on for
hearing.

MR CALLAWAY: If the Court pleases.

MR SHAW: If the Court pleases.

AT 4.46 PM THE MATTER WAS ADJOURNED SINE DIE

Kizbeau 22 15/10/93