Merost Pty Ltd v CPT Custodian Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97

Citation: Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97
Parties: MEROST PTY LTD (ACN 005 272 346) (AS TRUSTEE FOR CD BURGESS FAMILY TRUST) v CPT CUSTODIAN PTY LTD (ACN 077 870 243) (AS CUSTODIAN FOR CENTRO MCS 5)
File number: VID 14 of 2012
Judge: NORTH J
Date of judgment: 19 February 2014
Catchwords:

CONSUMER LAW – Misleading or deceptive conduct – s 18 Australian Consumer Law – sale of shopping centre – representation by vendor of incorrect breakeven figure for percentage rent calculation – whether incorrect representation misleading or deceptive in all the circumstances – whether correct breakeven figure discernible from other material provided by vendor – whether applicant relied upon misleading or deceptive conduct – whether applicant indifferent to the representation

DAMAGES – damages applicable analogous to damages for tort of deceit – Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 – damages not constrained by analogies to tort – damages awarded reflecting difference between real value and the price paid – contributory negligence – s 137B Competition and Consumer Act 2010 (Cth) – applicant found to have contributed to loss and damage – damages recoverable reduced by 20 per cent – proportionate liability – s 87CB(3) Competition and Consumer Act 2010 (Cth) – whether applicant’s solicitors concurrent wrongdoers – applicant’s solicitor’s conduct informed by retainer with applicant – solicitor not concurrent wrongdoer

Legislation: Australian Consumer Law ss 18, 236
Competition and Consumer Act 2010 (Cth) ss 87CB, 87CD, 137B
Cases cited:

Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45
De Bortoli Wines Pty Ltd v HIH Insurance Ltd (In liq) (2011) 200 FCR 253
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Pennington v Norris (1956) 96 CLR 10
Podrebersek v Australian Iron and Steel PtyLtd (1985) 59 ALR 529; [1985] HCA 34

Date of hearing: 13, 17 and 18 September 2013
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 154
Counsel for the Applicant: Mr T R Messer
Solicitor for the Applicant: Abrahams Meese
Counsel for the Respondent: Mr M O'Farrell
Solicitor for the Respondent: M & K Dobson Mitchell & Allport

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 14 of 2012
BETWEEN:

MEROST PTY LTD (ACN 005 272 346) (AS TRUSTEE FOR CD BURGESS FAMILY TRUST)
Applicant
AND:

CPT CUSTODIAN PTY LTD (ACN 077 870 243) (AS CUSTODIAN FOR CENTRO MCS 5)
Respondent

JUDGE:

NORTH J

DATE OF ORDER:

19 FEBRUARY 2014

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The respondent pay the applicant the sum of $260,000.

2.The question of any orders consequential on these reasons for judgment, including orders for costs, is reserved.

Note:Entry of orders is dealt with in…

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Details
Case
[2014] FCA 97
Decision Date

CaseChat Overview and Summary

Merost Pty Ltd brought an action against CPT Custodian Pty Ltd in the Federal Court of Australia, alleging misleading or deceptive conduct under section 18 of the Australian Consumer Law. The claim arose from the sale of a shopping centre in Launceston, Tasmania, where the vendor provided an incorrect breakeven figure for the calculation of percentage rent in a sales information memorandum. Merost argued that this misrepresentation misled them into purchasing the shopping centre at a price that did not reflect its true value. CPT Custodian denied the allegations, asserting that the misrepresentation was not misleading, that Merost did not rely on it, and that any loss incurred was due to Merost's own contributory negligence. Additionally, CPT Custodian contended that Merost's solicitors were concurrent wrongdoers, which would reduce CPT Custodian's liability.

The court needed to determine if the incorrect breakeven figure constituted misleading or deceptive conduct under section 18. This required examining whether the misrepresentation was misleading or deceptive in all the circumstances and whether Merost relied on it. Furthermore, the court had to assess if Merost was indifferent to the representation and if CPT Custodian's liability should be reduced due to the actions of Merost's solicitors. In assessing damages, the court considered whether they should follow the principles applicable to deceit, and if so, how contributory negligence should be treated. The court also needed to decide if Merost's solicitors were concurrent wrongdoers.

The court found that the information memorandum was misleading or deceptive because it did not accurately reflect the breakeven figure required for calculating the percentage rent, which was a critical aspect of the shopping centre's financial performance. The detailed nature of the information memorandum and the reliance of potential purchasers on the professionals involved lent weight to the argument that the misrepresentation was misleading. The court also held that Merost relied on the information memorandum in making their offer to purchase the shopping centre. The court rejected the argument that Merost was indifferent to the breakeven figure and found that Merost's reliance on the information memorandum was reasonable given the circumstances. The court determined that Merost's solicitors were not concurrent wrongdoers as their role was limited to the negotiation and conveyance of the sale, and they were not involved in the title search. Regarding damages, the court awarded Merost the difference between the real value of the shopping centre and the price paid, considering the contributory negligence of Merost by reducing the damages by 20 per cent. The court made no reduction for the conduct of Merost's solicitors.

The court ordered CPT Custodian to pay Merost $260,000 in damages. The question of any consequential orders, including costs, was reserved.

Orders

Orders of the court

1. The respondent pay the applicant the sum of $260,000.

2. The question of any orders consequential on these reasons for judgment, including orders for costs, is reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

An agreed court book was filed containing all the documents relevant to the proceeding. the facts The facts were in many respects uncontroversial. The following description of the circumstances constitutes findings of fact made on the evidence before the Court. The shopping centre is about two kilometres from the CBD in Launceston, Tasmania. It sits on a site of approximately 3.5 hectares. It has two major tenants, namely, Kmart which operates a discount department store, and Coles which operates a supermarket. There are eight speciality tenancies, two kiosks and two ATMs. Together the two major tenants, Kmart and Coles, account for about 80 per cent of the rental revenue. The case concerns the terms of the Kmart lease (the lease). The lease commenced on 29 November 1999. It was for a term of 11 years, 7 months and 2 days, expiring on 30 June 2011. The lease provided for three five year options thereafter. The rent had two components, a base rent and a percentage rent. The base rent commenced at $730,895 per annum until 30 June 2006. It was reviewed then every five years. At the review the base rent was fixed at one third of the total of the base rent and percentage rent in the three years immediately preceding the review date. By early 2011 the base rent had increased to $876,041. The next scheduled rent review was on 1 July 2011. The percentage rent was calculated in accordance with a formula set out in cl 2.1(b) of schedule B of the lease as follows: Central to the issues in this case is a variation of cl 2.1(b) of schedule B of the lease (the variation) which was in the following form:[D]eleting the letters and figures ‘2(GS – $21,032,000) – (BR – $724,895)’ in clause 2.1(b) and substituting ‘2(GS – $24,311,569) – (BR – $730,895). The variation was executed on 8 December 2009 and registered in the Tasmanian Land Titles Office on 21 May 2010. The significant effect of the variation was to increase the figure to be deducted from gross sales in the percentage rent equation from $21,032,000 to $24,311,569 (the breakeven figure). The breakeven figure was a component of the calculations of the figure from which the two per cent percentage rent would commence to be paid. The effect of the variation was that, by increasing the breakeven figure, the amount of rent which would have been payable under the original form of the lease was reduced, because the two per cent percentage rent was payable on a gross sales figure reduced by a larger deductible. The variation also increased the amount of the rent deductible from the base rent from $724,895 to $730,895. The conduct of Centro which Merost alleges was misleading and deceptive was to publish, in an information memorandum distributed to potential purchasers of the shopping centre, a breakeven figure of $21,032,000 for the lease when the correct figure was $24,311,569. It is now necessary to outline the relevant circumstances relating to the transaction. Mr Burgess grew up in Launceston and his parents live there now. He became aware that Centro was selling the shopping centre. He knew Mr Forrest and rang him late in 2010 to enquire about the proposed sale of the shopping centre. Mr Forrest said that the sale was not yet ready to proceed but that it would be going ahead shortly. Then, in April 2011, Mr Burgess was put in touch with Knight Frank, Tasmania which had been appointed selling agents. It was shortly after that he obtained the information memorandum prepared by Knight Frank. The information memorandum had been prepared by Knight Frank on instructions from and with documents provided by Centro.

Evidence

Evidence Before The Court

Centro denies that the pleaded conduct was misleading or deceptive, denies that Merost relied on it in the decision to purchase the shopping centre, and denies that the conduct was the cause of any loss or damage. Then, in reliance on s 137B of the Competition and Consumer Act (Cth) 2010 (the Act), Centro argued that if Merost suffered loss and damage, such loss and damage was caused or contributed to by Merost itself. The amount of damages should be reduced by the extent of the contributory negligence of Merost. Then, in reliance on s 87CD of the Act, Centro argued that, if it is liable to Merost, then Abrahams Meese Lawyers (AML), the solicitors for Merost, independently caused the loss or damage, and that Centro’s liability to Merost should be reduced proportionately. the evidence Oral evidence was given for Merost about the circumstances of the transaction by Christopher David Burgess, the director of Merost, and the person who negotiated the purchase of the shopping centre. Mr Burgess engaged Ingrid Alexandra Filmer to assist him in making calculations concerning the financial performance of the shopping centre. Ms Filmer is the Director of Asset Management at Burgess Rawson, a commercial real estate agency. The agency was founded by Mr Burgess in 1975, but he retired from active involvement in that business about two years ago. An expert report relating to the value of the shopping centre at the date of acquisition was provided to Merost by Timothy John Perrin, who also gave oral evidence on the issue. Mr Perrin is a director of Burgess Rawson. Thomas Lance Forrest gave evidence for Centro. He is the Manager, Property Transactions, and administered the sale of the shopping centre for Centro. An expert report relating to the value of the shopping centre was prepared for Centro by Stephen Ross Thomas, a valuer with CBRE Valuations Pty Ltd. Mr Thomas also gave oral evidence on the subject. An expert report relating to the obligations of the solicitor acting for a purchaser such as Merost in a transaction like the present was prepared for Centro by Peter Van Manser, a barrister practising in Hobart with past experience as a solicitor in transactions of that nature. He also gave oral evidence on the subject. An agreed court book was filed containing all the documents relevant to the proceeding. the facts The facts were in many respects uncontroversial. The following description of the circumstances constitutes findings of fact made on the evidence before the Court. The shopping centre is about two kilometres from the CBD in Launceston, Tasmania. It sits on a site of approximately 3.5 hectares. It has two major tenants, namely, Kmart which operates a discount department store, and Coles which operates a supermarket. There are eight speciality tenancies, two kiosks and two ATMs. Together the two major tenants, Kmart and Coles, account for about 80 per cent of the rental revenue. The case concerns the terms of the Kmart lease (the lease). The lease commenced on 29 November 1999. It was for a term of 11 years, 7 months and 2 days, expiring on 30 June 2011. The lease provided for three five year options thereafter.

Decision

Reasons for decision

I find that the arrangement between Mr Burgess and AML did not require AML as part of its retainer to advise him of the result of the title search. So far as the solicitors were concerned, the search was undertaken only for the purpose of fulfilling the functions of negotiating the terms of the contract of sale and completing the conveyance. Thus, AML was not a concurrent wrongdoer and Centro’s liability should not be reduced as a result of the acts of AML.conclusion For these reasons there will be judgment for Merost against Centro in the sum of $260,000. The question of consequential orders, including orders for costs, is reserved as requested by the parties.

Ratio Decidendi

Legal Principle Established

Centro also argued that the effect of the erroneous breakeven figure had no impact until a calculation was made of the percentage rent. Centro contended that the evidence showed that Mr Burgess did not make any calculation of the percentage rent figure before he made the offers to purchase. By that time he was, in practical terms, even though not legally, committed to the transaction. He was very anxious to buy the property. consideration – liability - was the information memorandum misleading and DECEPTIVE? The first question is whether the representation made by Centro was misleading or deceptive or likely to mislead or deceive. Centro does not contest the fact that the breakeven figure stated in the information memorandum was wrong and that the lease in the electronic data room contained the same breakeven figure. Both Merost and Centro agreed that it was necessary to judge the nature of the alleged contravening conduct by reference to all the circumstances surrounding the transaction. Some of the surrounding circumstances support the conclusion that the information memorandum and the lease were misleading. The information memorandum and the information in the data room were designed to equip potential purchasers with material necessary to submit an expression of interest for the purchase of the shopping centre. The income which the shopping centre produced was a critical factor for a purchaser. Hence, the information memorandum gave detailed attention to the issue. As Kmart was one of the two major tenants, and it contributed around 60 per cent of the rent revenue of the property, the information memorandum set out in detail and at length the main features of the lease and the way in which the rent was calculated. The lease profile for the lease occupied two full pages of the information memorandum. The information memorandum indicated that an electronic data room was available “containing comprehensive due diligence information”. Further, the standing of the professionals involved in the transaction gave Mr Burgess an assurance of the reliability of the information provided. The information memorandum was prepared by Knight Frank one of the leading agents in Tasmania. It was prepared for Centro, which was the largest operator of community and neighbourhood shopping centres. Mr Forrest was managing the sale and he is a qualified valuer. The electronic data room was administered by Freehills, one of the largest law firms in Tasmania. From these circumstances, Mr Burgess said “[t]here’s no real requirement to go outside of” the information memorandum and the electronic data room. Other circumstances of the transaction suggest that the error in the information memorandum would not mislead a purchaser. Thus, Mr Burgess was an experienced operator in the property industry, and particularly in commercial transactions of this nature. The sale was a commercial transaction in which both parties were expected to take precautions and undertake due diligence. Mr Burgess was aware of the importance of title searches in property transactions. Normally the person negotiating the terms of purchase would arrange to have access to the result of the title search and hence be aware of the requested dealings. Further, the disclaimers made it clear that the information provided was incomplete. That gave Centro a reason to assume that potential purchasers would make their own enquiries by conducting a title search, which would reveal the variation.