P.T. Ltd v NB2 Pty Ltd

[2017] NSWSC 309

Supreme Court

New South Wales

Medium Neutral Citation:	P.T. Ltd v NB2 Pty Ltd [2017] NSWSC 309
Hearing dates:	28/11/2016, 29/11/2016, 30/11/2016, 09/03/2017 and 10/03/2017
Date of orders:	31 March 2017
Decision date:	31 March 2017
Jurisdiction:	Equity
Before:	McDougall J
Decision:	Plaintiffs to have judgment for $3,537,040.50 together with interest. Cross-claim dismissed. Reserve costs.
Catchwords:	TRADE PRACTICES – misleading or deceptive conduct – whether representations made – whether reliance – unconscionable conduct – s 51AC Trade Practices Act 1974 (Cth) – RETAIL LEASES – unconscionable conduct – s 62B Retail Leases Act 1994 (NSW) – claim for compensation – s 34(1)(b) Retail Leases Act 1994 (NSW)
Legislation Cited:	Evidence Act 1995 (NSW) Retail Leases Act 1994 (NSW) Trade Practices Act 1974 (Cth)
Cases Cited:	Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No.3) (2006) 67 NSWLR Henville v Walker (2001) 206 CLR 459 Travel Compensation Fund v Tambree (2005) 224 CLR 627 Watson v Foxman (1995) 49 NSWLR 315
Category:	Principal judgment
Parties:	P.T. Limited (First Plaintiff) Perpetual Trustee Company Limited (Second Plaintiff) RE1 Limited (Third Plaintiff) NB2 Pty Limited (First Defendant) Michael Panetta (Second Defendant) Nicolas Basile (Third Defendant)
Representation:	Counsel: A F Fernon / J Nathan (Plaintiffs) A M Hochroth (Defendants)   Solicitors: Holding Redlich (Plaintiffs) THOSHLegal (Defendants)
File Number(s):	2014/249580

Judgment

1. HIS HONOUR:   The plaintiffs (the landlords) sue the defendants for rent due under a lease (the lease) of shop premises (shop 2082) in the Westfield Shopping Centre at Miranda (the Centre). The first defendant (the tenant) is sued as lessee. The second and third defendants are sued on their guarantees of the tenant’s liabilities to the landlords.

2. The defendants say that the tenant was induced to enter into the lease by misleading or deceptive, or unconscionable, conduct on the part of the landlords. They rely on ss 52 and 51AC of the Trade Practices Act1974 (Cth) and analogous provisions in the Retail Leases Act1994 (NSW). They rely on those matters by way of defence, and also in a cross-claim.

3. In addition, the cross-claim relies on s 34 of the Retail Leases Act. The latter (and subsidiary) claim relates to renovations of the Centre undertaken by the landlords in 2013, which the defendants say caused a substantial reduction in customer traffic to shop 2082 and, in consequence, loss of trade. They seek compensation accordingly.

The issues

4. The parties agreed on the issues for decision arising out of the “pleadings”. I set out the issues so agreed:

1.   What is the amount of rent, outgoings and other expenses due but unpaid under the 2009 lease up until the date of termination?

2.   What is the amount of the loss of rental etc, if any, suffered by the landlords, by reason of the termination of the lease?

3.   What is the amount of the damage, if any, suffered by the landlords referable to the tenant’s failure to remove improvements at the termination of the lease?

4.   What representations were made by the landlords to the tenant prior to the execution of the 2009 lease?

5.   To the extent that any of those representations were as to existing facts, were they correct?

6.   To the extent that any of those representations were as to future matters, did the landlords have reasonable grounds for making them (including having regard to the answers to questions 10 and 11 below)?

7.   To the extent that any of those representations were as to opinions held by the landlords, were those opinions genuinely held and on reasonable grounds?

8.   To what extent (if any) did the tenant rely on any of those representations in deciding to execute the 2009 lease?

9.   To the extent that there was such reliance, was it reasonable?

10.   Does the issue of the landlords’ knowledge of Franklins’ intention that it would renovate its Miranda supermarket so as to include (or remodel) a section for the sale of fresh fruit and vegetables form part of the tenant’s pleaded case in relation to misleading or deceptive, and/or unconscionable, conduct?

11.   (a)   Did the landlords form an intention that Franklins would renovate its Miranda supermarket so as to include (or remodel) a section for the sale of fresh fruit and vegetables?

(b)   If so, when did the landlords first form such an intention? and/or

(c)   To the extent it forms part of the tenant’s pleaded case, when did the landlords become aware of Franklins’ intention to renovate its Miranda supermarket so as to include (or remodel) a section for the sale of fresh fruit and vegetables?

12.   What representation was made by the landlords to the tenant after the date of execution of the lease as to Franklins’ intention (after renovating its Miranda Supermarket) to sell fresh fruit and vegetables?

13.   To what extent (if any) did the tenant rely on that representation in deciding to renovate Shop 2082?

14.   To the extent that there was such reliance, was it reasonable?

15.   What do the words of the exclusivity representation (cl 17(b) of the letter of 27 October 2009) reasonably convey?

16.   Was Franklins’ sale of fresh fruit and vegetables from its renovated Miranda supermarket inconsistent with that representation?

17.   In the circumstances demonstrated by the answers to the previous questions, was the landlords’ conduct as it appears from those answers:

(a)   misleading or deceptive; or

(b) unconscionable within the extended meaning given by s 51AC of the Trade Practices Act 1974 (Cth) and/or s 62B of the Retail Leases Act 1994 (NSW)?

18.   Has the tenant proved a case for damages for misleading or deceptive, or unconscionable conduct; if so, what is the proper amount of damages to be awarded?

19. Did the redevelopment of the Centre inhibit or alter to a substantial extent the flow of customers to the shop within the meaning of s 34(1)(b) of the Retail Leases Act 1994 (NSW)?

20. If the answer to question 19 is “yes”, did the tenant request in writing that the landlords rectify the matter within the meaning of s 34(1) of the Retail Leases Act 1994 (NSW)?

21.   If the answer to question 20 is “yes”, did the landlord fail to rectify the matter as soon as reasonably practicable?

22. If the answer to question 21 is “yes”, has the tenant established a claim for compensation under s 34(1) of the Retail Leases Act 1994 (NSW)?

23.   Should any damages and/or compensation awarded to the tenant be set off against amounts owing to the landlords?

24.   What are the orders to be made?

5. As to “Franklins” and its Miranda supermarket: that supermarket adjoined shop 2082. When the lease was made (on the pleadings, it is admitted to have been made “on or about 7 May 2010”, for a term of ten years commencing on 1 October 2009), Franklins did not sell fresh fruit and vegetables (FFV) from its Miranda supermarket. During the currency of the lease, Franklins carried out an extensive renovation to its supermarket. The defendants say that, as part of the renovation, Franklins introduced a significant area for the display and sale of FFV.

The landlords’ application for leave to amend

6. Paragraph 16 of the Cross-Claim List Statement reads as follows:

16.   On or about 7 May 2010, the Original Lessors and the Lessee entered into a new lease of the Premises for a ten year term commencing from 1 October 2009 (the Lease).

7. When the lease was made, the owners of the Centre were the first two plaintiffs, P.T. Limited and Perpetual Trustee Company Limited. On 20 December 2010, the third plaintiff, RE1 Limited, acquired half of the first plaintiff’s 50% interest in the centre. In the cross-claim list statement, the first two plaintiffs are referred to as “the Original Lessors”.

8. The cross-claim list response admits para 16.

9. In the course of the hearing, Mr Fernon of Counsel, who appeared with Mr Nathan of Counsel for the landlords, sought leave to amend the response to para 16 of the Cross-Claim List Statement. The effect of the proposed amendment (in the form in which it was ultimately pressed) was to admit that the lease bore the date 7 May 2010, but to assert, relying on s 8 of the Retail Leases Act, that it “was entered into from or about 1 December 2009”.

10. Mr Hochroth of Counsel, who appeared for the defendants, opposed the amendment. He submitted that it would introduce a new evidentiary issue, one that he was not in a position to meet.

11. I refused the application for leave to amend (both when it was first pressed and when it was renewed). I said that I would give reasons for that decision when giving judgment in the matter. What follows are my reasons for refusing leave to amend.

12. Section 8 of the Retail Leases Act provides:

8    When the lease is entered into

(1)    For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

(2)    However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease.

13. Mr Fernon’s argument was that the tenant had begun “to pay rent as lessee under the lease” from December 2009 when, Mr Fernon submitted, all material terms of the lease had been settled. He acknowledged that the tenant had been holding over under the previous lease, and thus that up until (on his submission) about 1 December 2009, it could not be said that rent payable by the tenant was paid “as lessee under [the new] lease”.

14. Mr Fernon pointed to the definition of “retail shop lease” and “lease” in s 3 of the Retail Leases Act:

retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:

(a)     whether or not the right is a right of exclusive occupation, and

(b)     whether the agreement is express or implied, and

(c)     whether the agreement is oral or in writing, or partly oral and partly in writing.

15. Mr Fernon submitted, relying on that definition, that the new lease came into existence when its essential terms were settled between the parties, and the tenant paid rent “under” it.

16. In my view, the amendment, if allowed, would have raised two fresh evidentiary issues. First, it would focus attention on the state of negotiations over the terms of the (then proposed) lease. Although there was some evidence of that, it was not a matter in controversy. Identification of terms on which (as at 1 December 2009) agreement had not been reached was not seen to be a matter of any importance.

17. Second, and more importantly, the amendment would direct attention to the state of the rental account. The primary documents were in evidence (in the sense that they formed part of the court book that was tendered as exhibits PX2 and PX3). However, their only function was to prove the landlords’ claim for arrears of rent and outgoings.

18. If the amendment were permitted, it would be necessary to examine the detail of the state of the account from 1 December 2009 to 7 May 2010, to see if it could be said that at any point in time within that date range, the rent paid by the tenant to the landlords aligned with what was required to be paid under the new lease. That would not be an easy task because, as Mr Hochroth submitted, the payments of rent were inconsistent: under-payments followed by catch-up payments and over-payments, with the pattern repeating itself. That was not an issue that arose on the pleadings as they stood.

19. Mr Fernon submitted that the amendment would requirement no further evidence, and that it would succeed or fail based on an analysis of the material that was in evidence. That may have been so from the landlords’ perspective, but that submission overlooked (as the same submission in other cases often overlooks) the position of the parties against whom the amendment was sought.

20. I was, and am, by no means satisfied that the only evidence that could bear on the issues raised by the amendment would be found in the material that was already before the Court. In any event, even if that were the case, the analysis required (particularly in relation to the state of the rental account) is likely to have been a difficult and lengthy task.

21. I add two points. First, there was another factor bearing on my decision not to allow the application. It required leave to withdraw an admission, and there had been no explanation given as to why the admission had been made, or as to why the application for leave to withdraw it was made so late.

22. Second, at the time the application was first made and at the time when it was renewed, the parties were confident that the matter could finish within the three days allotted (with the excision of the issue of quantification of damages, if necessary). In fact, the estimate given proved to be grossly inadequate and the matter was adjourned, part heard, at the conclusion of the lay evidence. Perhaps the application for leave to amend could have been renewed once it was clear there would be an adjournment. It was not.

23. In the circumstances prevailing at the time when the application was first made and at the time when it was renewed, I took the view that the interests of justice did not dictate that the application should be allowed. As I say, I was influenced by, among other things, the hope (ultimately vain) that the hearing could be completed within the allotted time (perhaps, as I have said, with the excision of the issue of quantification of damages).

An evidentiary ruling

24. The landlords relied on an affidavit sworn by Mr Carmelo (Charlie) Tomarchio. He described his occupation as “a Regional Leasing Manager for the Scentre Group, of which the plaintiffs form part”. That Group, according to Mr Tomarchio, was “formerly known as the Westfield Group”.

25. Mr Tomarchio said [1] :

12.   Based on my experience as referred to in this Affidavit, I believe that during the period in which the first defendant was in occupation of Shop 2082 at Westfield Miranda, there was a general downward trend in revenue earned by specialty fruit and vegetable operators in the retail sector. In particular, I believe this is due to the dominance of supermarkets in the fruit and vegetable retail sector, both in terms of the strengthening of their offering and their buying power. It is my belief that this has led to increased competition in the fresh fruit and vegetable retail sector and this has had a direct effect on speciality fruit and vegetable retailers.

1. Affidavit, [12].

26. Mr Hochroth objected to that evidence and I rejected it. I said that I would give reasons when delivering judgment in this matter. What follows are my reasons for that ruling.

27. It is clear from Mr Tomarchio’s affidavit that he has had very significant experience, at different levels, as a Centre Manager and Leasing Executive within the Group. However, the difficultly with para 12 is that it gives no evidence of:

1. the factual assumptions, or matters of fact known to Mr Tomarchio, that are encapsulated within “my experience”; or

2. the way in which Mr Tomarchio’s specialised knowledge, based on his training, study or experience, enabled him to reason from whatever those factual matters may have been to the opinions expressed in the paragraph.

28. Thus, in my view, it had not been shown that the requirements of s 79 of the Evidence Act1995 (NSW) were met.

29. In addition, Mr Tomarchio was ill, and unable to give oral evidence. The defendants accepted that this was so. I permitted his affidavit to be read (subject to my ruling on para 12, and to the exclusion of another paragraph that was not pressed), despite the fact that it could not be tested by cross-examination. In the event, very little turns on his affidavit, because, as a result of the matters just noted, it says very little of any direct relevance. However, were para 12 to be admitted (that is to say, had I been wrong in my conclusion that s 79 did not apply), there would have been a very significant prejudice to the defendants arising out of their inability (through no fault on the part of anyone) to cross-examine Mr Tomarchio.

30. In the circumstances it seemed (and seems) to me that the defendants would be severely prejudiced were the paragraph to be admitted in circumstances where it could not be tested in cross-examination. Thus, even if I were wrong in my view as to the admissibility of the paragraph, I would have excluded it under s 135 of the Evidence Act.

The witnesses

31. The landlords relied on the evidence of:

1. Ms Katie Holsgrove, a Regional Manager for what I will call the Westfield Group;

2. Mr Tomarchio;

3. Mr Courtney Boyd Kingston, a Regional Manager in the Westfield Group’s Leasing Division; and

4. Mr Brian Maxwell Fuller, formerly the General Manager, Leasing for the Westfield Group.

32. The defendants relied on the evidence of the second and third defendants, Mr Nicholas Gregory Basile and Mr Michael Panetta. They were directors of the tenant. Mr Panetta appears to have had the principal responsibility for the tenant’s trading operations.

33. Although there were some difficulties in the evidence of some of those witnesses (specifically, Mr Fuller, Mr Basile and Mr Panetta), I formed the view that for the most part, those difficulties reflected the usual imperfections of memory (the relevant discussions happened six years ago, at the time the proceedings were heard) rather than any desire to give false or misleading evidence. I should add that in my view, even if considerations of demeanour can be helpful to an assessment of credibility in some cases (a topic on which, it may be said, there is some divergence between popular and scientific understanding), they are of no assistance in this case.

34. From my observations of Mr Basile over the course of his searching cross-examination, I formed the opinion that he was an intelligent, careful and competent businessman. I have the strong impression that he is someone who would consider for himself before acting, rather than take at face value and act, upon any proposition that was put to him. My impression of Mr Panetta, over the course of his equally searching cross-examination, is very similar. I thought, perhaps, that Mr Panetta was a little more self-confident, and even more inclined than was Mr Basile to act on his own views. In short, I think that each of them is the kind of man who would consider for himself, before (if at all) acting on, any information or opinion expressed by a third party to do with the tenant’s business activities.

35. There were two specific matters of concern. One relates to the evidence of Mr Fuller. The other relates to the evidence of Mr Panetta.

36. As to Mr Fuller, the concern arises out of his evidence as to a conversation between himself and Mr Basile in mid to late June 2009. Mr Basile gave an account of that in his first affidavit [2] . Mr Fuller’s response [3] could be taken to suggest that he did not agree completely with Mr Basile’s account of the conversation, but did not descend into detail.

    2. Affidavit affirmed 27 February 2015, [24].

    3. Affidavit affirmed 19 October 2015, [41]

37. Mr Fuller was cross-examined on the conversation. He accepted, more than once, that he had said the words attributed to him by Mr Basile, in particular about considering “an exclusivity clause for you as the only independent fruit and vegetable operator in the Centre”. The questions were clear, and Mr Fuller’s answers equally so [4] . However, when referred to his affidavit, Mr Fuller sought to retract what he had said, suggesting that he “must have been confused” [5] . That explanation is not convincing, particularly taking into account the repeated occasions on which Mr Fuller was questioned on that topic, the clarity of the questions and the certainty of his answers.

    4. See, generally, T93-95.

    5. T106.31-.32.

32. The other concern relates to the evidence of Mr Panetta. He professed to have a word-perfect recollection of various conversations, in particular with representatives of the landlords. It became clear in the course of his cross-examination that his powers of recollection were, to say the least, imperfect. In the result, nothing seems to me to turn on that exaggeration, save that I should exercise more care than usual in scrutinising Mr Panetta’s evidence.

33. I add that, taking into account the lapse of time and the interest that, in particular, the defendants have in the outcome of this litigation, I should pay careful attention to the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319:

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as “misleading”) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not … attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration.

Factual background

40. Many of the background facts are non-contentious. The matters that are contentious relate to aspects of the negotiations between the landlords and the tenant. Since it is the content of those negotiations – specifically, the content of various conversations between Mr Fuller or Mr Kingston on behalf of the landlords and Mr Basile or Mr Panetta on behalf of the tenant – that forms the basis for the case based on misleading or deceptive conduct and unconsionability, I shall deal with the contentious aspects when I turn to the particular issues.

41. The tenant first became a tenant of the landlords when it bought an existing business in the Centre, and took a lease for five years from 1 October 2004 to 30 September 2009. Its business, conducted from shop 2082, comprised the sale of FFV and other foodstuffs. The business name was stated variously as “Panetta Fruits” or “Panetta Mercato”.

42. Shop 2082 is located on the third level of the eastern end of the Centre. That particular area of the Centre was known as the “Fresh Food Precinct” or the “Fresh Food Market”. The shops there in 2009 included the tenant’s business conducted from shop 2082; the Franklins supermarket adjacent (to the north) of shop 2082; and another FFV business known at one time as “So Fresh” and, later, as “In Season”. The business of In Season (as I shall generally call it) was conducted from shop 2089-90 (shop 2089).

43. In 2009, the tenant and In Season were the only retailers of FFV in the Fresh Food Precinct. Indeed, the only other retailer of FFV in the Centre was Woolworths, which had a supermarket at the western end of the Centre.

44. The So Fresh business failed. The tenant thereafter took a lease of that shop from the landlords, and conducted the In Season business from it. That lease was for a period of about five years, up until 30 May 2013.

45. The lease of shop 2082 was due to expire on 30 September 2009. Earlier in 2009, Messrs Basile and Panetta negotiated with representatives of the landlords – in particular, Mr Fuller – for a new lease. One of the proposals discussed was that the lease for shop 2089 would be surrendered, on the basis that the tenant would take a lease of shop 2082 for ten years, from 1 October 2009 to 30 September 2019. As might be expected, there were detailed negotiations over the rent and other conditions.

46. Mr Fuller came to hold the view that the tenant would be effectively a monopoly FFV business in the Fresh Food Precinct [6] . Accordingly, he argued, the landlords were entitled to charge a substantially higher rent (I must say, an unusual twist to the expression “monopoly rent”). Messrs Basile and Panetta were prepared to consider paying a higher rent, but wanted guarantees of exclusivity. The disputed conversations occurred in the course of those negotiations.

    6. See at [100] and following below.

47. It is common ground that Messrs Basile and Panetta sought, as a condition of the lease, that the tenant would be the sole FFV operator in the Centre. Mr Fuller was not prepared to agree to this. First, he pointed out, Woolworths (at the other end of the Centre) did in fact sell FFV. Second, he said, the landlords had some plan of leasing a shop at the western end of the Centre to another “independent” or “specialty” FFV retailer.

48. Messrs Basile and Panetta were prepared to accept the prospect of there being another independent FFV retailer at the western end of the Centre. They sought a right of first refusal to become that operator. The landlords were prepared to grant that right.

49. Regardless, the tenant said, it would require exclusivity within the Fresh Food Precinct. Mr Fuller was prepared to consider this.

50. On 10 June 2009, Westfield Limited (which throughout acted as, or conducted itself as if it were, the lessor to the tenant) submitted to the defendants “our proposal … for a lease of [Shop 2082]”. The offer was subject to a number of conditions. There was enclosed with the letter the “Lessor’s Disclosure Statement” required by s 11(1) of the Retail Leases Act. That disclosure statement set out, under the heading “Details as to Agreements or Representations”, the following:

2.   The Lessee does not have exclusivity of use for the purpose for which the Premises are to be leased. There are or may be other lessees in the centre selling the same or similar goods or providing the same or similar services to those to be sold or provided by the lessee.

51. Mr Basile annotated that disclosure statement by hand and returned it to Westfield. Against para 2 (set out in the preceding paragraph), he wrote:

However refer to cl 17 (inserted below).

52. Mr Basile made a number of other handwritten amendments. Relevantly, they included the following:

17.   Exclusivity: Agreement to terminate the lease on shop 2089/90 with effect 23/10/09, and to grant exclusive right to be the sole independent Fresh Fruit and Vegetable Produce operator in the current Fresh Food Precinct of the existing centre.

18.   Westfield to install a ‘coolroom’ in the storeroom in the loading dock in lieu of Panetta’s relinquishing the storeroom attached to shop 2089/90. This is to proceed immediately.

53. I interpose that the reference to the “coolroom” is significant, because:

1. it appears to have been a very important matter from the tenant’s perspective; and

2. it was not the subject of agreement as at 1 December 2009 – the date when, Mr Fernon submitted, the key provisions of the new lease had been agreed (see at [13] above).

54. There were further discussions between Mr Basile and Mr Fuller. Since there is some dispute as to what was said, I shall move forward to 27 October 2009, when Westfield wrote again to the tenant referring to “our proposal dated 10 June 2009, and your letter of acceptance dated 30 September 2009” (the latter document is not in evidence). Westfield’s letter purported to confirm agreement as to the terms of the new lease, and noted that it had instructed its solicitors “to issue lease documentation” that reflected a number of amendments. One of the matters stated in the letter was:

17   (a)    The Lessor notes your comments that the lease for Shop 2089 0. [sic] Westfield Miranda is to be surrendered, and refers you to our letter dated 21 October 2009.

(b)   The Lessor notes the Lessee’s comments in relation to exclusivity and advises as follows:

The Lessor agrees to grant the Lessee the right to be the sole independent specialty fruit and vegetable retailer in the Fresh Food Market located on Level 3 from Shop 2076 to Shop 2090 of Westfield Miranda as per the attached.

55. I am not sure that the letter of 21 October 2009 is in evidence.

56. It is common ground that the reference to “Level 3 from Shop 2076 to Shop 2090” is a description of the area known as the Fresh Food Precinct, and that it includes the space (shop 2081) occupied by Franklins as its supermarket.

57. There was some disputation as to what was meant by the words “the sole independent specialty fruit and vegetable retailer”. That is the subject of issue 15. However, by way of summary, I note at this stage that in my view the words denote a retailer that is independent in the sense that it is not an offshoot of a supermarket operation [7] , and whose main or principal business is the retail sale of FFV. To the extent that such a retailer sells products other than FFV (as Panetta Mercato did), that sale would be subsidiary or ancillary to the sale of FFV.

    7. Such as the Thomas Dux business that was taken over by Woolworths.

58. As Mr Panetta accepted, that meaning would not encompass a supermarket such as Woolworths, which sold FFV along with all the other products that supermarkets customarily offer. Although he sought to suggest that it might include Aldi (and, at passages in his evidence) Franklins, I do not agree. As I have said, I shall return to the detail of his evidence later in these reasons.

59. Negotiations continued for some time after 27 October 2009. Eventually, the parties agreed on the form of the new lease. It was signed, apparently on 7 May 2010 although with the term retrospective to 1 October 2009. At about the same time, the lease for shop 2089 was surrendered.

60. The tenant closed the shop (2082) in September / October 2010, whilst it carried out a renovation as required by the terms of the new lease. The cost of that renovation was said to be about $1,425,000.

61. At about the same time, Franklins closed its supermarket for renovations. It reopened in March 2011. The renovation was comprehensive (to the extent that the plans are any guide). It included, in part, the provision of a substantial area, including “gondola” bins and a refrigerated cabinet, for the display of FFV. Mr Basile estimated that the bins and cabinet between them offered about 144 lineal metres of display space. The plans for shop 2082 showed a total of about 160 lineal metres of display space. The accuracy of that observation was challenged. Whilst I accept that Mr Basile was seeking to tell the truth, I do not think that it is particularly reliable. At one point, Mr Panetta referred to his estimate as a “best guess” [8]

    8. T254.28.

62. The tenant’s case is that its trade and turnover diminished from about March 2011, to the point where it had trouble paying rent. Negotiations with the landlords failed to secure any sufficient alleviation of its financial distress. Ultimately, when the lease was terminated (with effect from 31 July 2014), the arrears of rent, outgoings and the like exceeded $1.85m.

63. On 25 May 2013, the landlords announced that the Centre would be redeveloped. That redevelopment commenced in late May. Sections of the carpark adjacent to the Fresh Food Precinct were closed, and sections of the Centre itself were closed. Mr Basile said that once the redevelopment started, there was a further downturn in the tenant’s trade. Again, negotiations failed to alleviate the problem.

64. On 10 July 2014, the landlords demanded payment of arrears of rent, and said that if it were not paid by 31 July 2014, they would re-enter and terminate the lease. The arrears were not paid. The tenants closed down its business and vacated shop 2082.

65. Thereafter, the landlords negotiated with Franklins for the surrender of the Franklins lease. The landlords then entered into a lease with Coles. The area leased to Coles included the former Franklins supermarket, shop 2082 and (I think) a further part of the Fresh Food Precinct. That lease commenced on about 10 November 2015.

66. The landlords claim unpaid rent and outgoings up to the termination of the lease, a further amount for damages from there until 11 November 2015 (the damages being calculated by reference to loss of rent and outgoings), the cost of making good shop 2082, and interest. The cost of making good is claimed because the tenant did not remove its fixtures and fittings from shop 2082, and otherwise failed to make good as it was required to do.

Issues 1 to 3: quantification of the landlords’ damages

67. The landlords’ three heads of loss were quantified as:

1. arrears of rent up to termination of the lease: $1,858,397.50;

2. rent from the date of termination up until 10 November 2015, when Coles commenced to pay rent as tenant of premises that included the former shop 2082: $1,751,198.53; and

3. the cost of removing the tenant’s fixtures and fittings: $64,959.50.

68. The tenant had provided a bank guarantee in the sum of $137,505. The landlords have called on that guarantee. They accept that the proceeds must be taken into account in calculating their damages.

69. Allowing for the guarantee, the total claimed by the landlords therefore is $3,537,040.53, together with interest.

70. The defendants do not dispute the arithmetical accuracy of the landlords’ calculations. Nor do they raise any issue as to the first and third elements (arrears of rent to termination, and cost of removing fixtures and fittings). They do however dispute both their liability for and the quantification of the second element (damages for lost rental following termination).

71. In addition, of course, the defendants say that they are not liable for any of the damages claimed against them, by reason of the matters pleaded in their cross-claim.

72. In the course of his closing submissions, Mr Hochroth submitted that the landlords had failed to mitigate their loss. Mr Fernon submitted that mitigation (more accurately, failure to mitigate) had not been pleaded.

73. The defendants’ Commercial List Response does not plead that the landlords failed to mitigate their loss, nor does it plead any facts that could be regarded as suggesting that mitigation of loss was in issue. For the most part, the Commercial List Response consists of admissions, non-admissions and denials. The principal pleaded answer to the landlords’ claim is that the defendants rely on the matters pleaded in their cross-claim.

74. In those circumstances, it would be unfair to permit the defendants, in their closing submissions, to raise, as a significant issue, the alleged failure of the landlords to mitigate their loss.

75. Mr Kingston gave relatively brief evidence of efforts to re-lease shop 2082. He said that his “team” took steps, including offering the shop to four identified specialty FFV operators, each of whom declined the offer. Mr Hochroth criticised that evidence both because it was hearsay and because of its skimpy nature. Had mitigation been raised as an issue on the pleadings, those criticisms would be amply justified. However, one consequence of the failure to plead mitigation is that the landlords were denied the opportunity to put on more detailed first hand evidence of the steps that had been taken to relet shop 2082, and of the negotiations that led to the lease of a greater space, including the area of shop 2082, to Coles.

76. I add that the defendants’ case, in relation to mitigation, comprised only submissions. They adduced no evidence themselves, as one would expect them to have done had it been pleaded by them as an issue.

77. Accordingly, subject to one further question, I think that the damages should be quantified in the net amount for which the landlords contend.

78. The remaining issue as to quantification is this. Mr Hochroth submitted that if damages were to be allowed for breach of contract, representing rental lost from the date of termination of the lease until the date of reletting the shop, they should run only to 6 February 2015 (when Coles commenced to occupy and pay rent), not to 10 November 2015 (when the landlords signed their agreement for lease with Coles).

79. That point had not been flagged, by pleading, evidence, or otherwise, as an issue in the case. Had it been flagged, the landlords would have had an opportunity to lead evidence of the negotiations with Coles and as to the commercial reasons that might justify the period of nine months between February and October 2015. To permit the defendants to raise that point now would cause significant injustice to the landlords.

80. Accordingly, I do not think that the damages claimed should be reduced to reflect the nine months’ delay between signing the agreement for lease and commencement of occupation.

81. Were I wrong in that, the amount of the reduction would be of the order of $1,028,000 (monthly rental of $114,208.60 for the nine months in question).

Issue 4: representations made prior to signing the lease

The pleaded case

82. The tenant’s pleaded case is that, arising out of the negotiations and correspondence up to 7 May 2010, three representations were made:

1. that under the lease, the tenant would be in a position to capture the whole market for fruit and vegetable retailing in the Fresh Food Precinct of the Centre;

2. that under the lease, the tenant would be the only retailer of FFV in the Centre apart from Woolworths, and apart from any new FFV retailer at the western end of the Centre (in respect of which the tenant had the first right of refusal); and

3. that the tenant would have “the right to be the sole independent specialty fruit and vegetable retailer in the Fresh Food Precinct”.

83. The third representation (which is pleaded “further, or in the alternative”) is an express representation, arising from the terms of Westfield’s letter of 27 October 2009[9] . The pleading is a little strange, particularly in the way it alleges that a representation that (as a matter of fact) was express and written could properly be described as “further or in the alternative” to a representation said to arise partly from conversations and partly from conduct that in each case preceded the express written representation. There is a real question, to which I shall return, as to how the second pleaded representation can stand consistently with the third.

    9. See at [54] above.

The background to the negotiations

84. The tenant’s evidentiary case as to the first two representations arises out of a number of conversations between Mr Panetta or Mr Basile on the one hand and Mr Fuller, Mr Tomarchio or Mr Kingston on the other. Those conversations, and any representations that may be said to arise from them, must be considered in context. It is also necessary to bear in mind that the pleaded case is not that the representations were express oral representations but, rather, were representations arising out of the pleaded conduct (including conversations and correspondence) of the parties, in relation to renewal of the lease, between late March or early April 2009 and 27 October 2009.

85. Mr Panetta gave evidence of three conversations (relevant to the fourth issue):

1. one with Mr Fuller, in late March or early April 2009;

2. one with Mr Tomarchio, in early July 2009; and

3. one with Mr Kingston, one on 1 August 2009.

86. Mr Basile said that he had three conversations (relevant to the fourth issue) with Mr Fuller:

1. one in early 2009;

2. one in mid to late June 2009; and

3. one on about 11 August 2009.

87. The following rough chronology, which covers both the period and the events relevant (on the pleadings) to the fourth issue, emerges from the evidence:

1. Mr Basile and Mr Panetta had a conversation or conversations with Mr Fuller before and in March or April 2009, in which they discussed renewal of the lease of shop 2082 and surrender of the lease of shop 2089.

2. On 4 April 2009, Mr Panetta sent an email to Mr Fuller referring to a meeting “this week” (4 April 2009 was a Saturday) and setting out, among other things:

Key points discussed

-   10 year lease

-   expanded usage appropriate for a mini major eg meat products

-   renovation contribution (huge)

-   exclusive fruit & veg operator in centre

-   relinquishing In Season

3. On 10 June 2009, Westfield sent its lease proposal to the tenant which, among other things, denied exclusivity (see at [50] above).

4. Mr Panetta had a discussion with Mr Tomarchio in early July 2009, in the course of which, according to Mr Panetta (and Mr Tomarchio did not say otherwise), Mr Tomarchio suggested that the tenant submit a counter-offer.

5. On 5 July 2009, Mr Basile sent an email to Mr Fuller referring to “a discussion between Charlie [Tomarchio] and Michael”, making some comments as to “Westfield’s proposal that included a massive hike in rental of more than 45%” and setting out “two alternative proposals”. The first proposal was for a ten year lease at an annual rent (exclusive of GST) of $788,500 with no exclusivity, and with other conditions. The second proposal was again for a ten year lease but at an annual rent of $888,500 on the basis that the tenant should have the “[e]xclusive right to be the sole independent Fresh Produce operator in the Centre” which would “require an agreement to terminate the lease on Shop 2089/90 with effect 30/9/09”.

6. Shortly after that email was sent, Mr Tomarchio telephoned Mr Panetta. According to Mr Panetta (and again, Mr Tomarchio did not say otherwise), Mr Tomarchio said that “we prefer option two, obviously; but without the exclusivity” and added that Westfield wanted “the higher rent but just can’t do exclusivity”. Mr Panetta emphasised that exclusivity was essential if the higher rent was to be paid.

7. Messrs Panetta and Kingston spoke (at the “Cookie Man” shop in the Centre) on 1 August 2009. There is a significant dispute as to what was said at that conversation.

8. About ten days later, Messrs Basile and Fuller met. According to Mr Basile, Mr Fuller said that he could not offer the requested exclusivity but added that the tenant did not need it because, when the lease for shop 2089 was surrendered, it would “pick up the total fruit & vegies trade in the Fresh Food precinct”. According to Mr Basile, Mr Fuller explained that the landlords could not offer exclusivity for the whole Centre because of their proposal to redevelop and install an independent FFV retailer at the western end. He offered “the right of first refusal” for that business and, according to Mr Basile, “exclusivity in the Fresh Food Precinct”. When Mr Fuller swore his affidavit replying to Mr Basile’s affidavit (among other things) he did not dispute the substance of Mr Basile’s account, except for saying that “exclusivity in the Fresh Food Precinct” was something to which he might be able to agree, rather than something to which he could agree.

9. On 13 August 2009, Mr Basile emailed Mr Fuller referring to telephone discussions “on Tuesday and today” (13 August 2009 was a Thursday). The email set out Mr Basile’s “understanding that we have both agreed (or acceded [sic]) on all items except for the rental level” (emphasis in original). Relevantly, the email said:

Exclusivity: Agreement to terminate the lease on Shop 2089/90 with effect 30/09/09 or 31/10/09 (Panetta’s to advise). Exclusive right to be the sole independent Fresh Produce operator in the Food Precinct of the Centre.

10. Mr Fuller replied the next day. He made some comments, which were indicated in red in the original. Relevantly, he varied the exclusivity stipulation to read as follows (the material that is in bold was in red in Mr Fuller’s email):

Exclusivity: Agreement to terminate the lease on Shop 2089/90 with effect 30/0909 or 31/10/09 (Panetta’s to advise). Exclusive right to be the sole independent Fresh Fruit and Vegetable Produce operator in the current Fresh Food Precinct of the existing Centre.

11. On 30 September 2009, Mr Basile signed, and thereafter returned to Westfield, his annotated version of Westfield’s lease proposal of 10 June 2009, including para 17 dealing with “Exclusivity”.

12. In late October 2009, there was an exchange of emails between Mr Fuller and other leasing executives employed by Westfield. In one of those, a Mr Lachlan Gelder raised as an issue how the proposed exclusivity “will… impact on the supermarket selling some fruit and veg or a deli, etc??”. Mr Fuller replied stating:

…

The exclusivity relates only to the existing FFM. That is the room [sic] bounded by Riot Art/Optus etc, Joes Meats and Bushes meats and relates only to an independent specialty F& V operator. In [sic] giving up “In-Season” and paying the higher rent would be of no value if were then to put back another in its place. (Emphasis in original.)

13. The “FFM” is the Fresh Food Market, or Precinct.

14. On 27 October 2009, Westfield sent the letter containing an express but qualified exclusivity stipulation.

Approach to the assessment of evidence

88. I propose to assess the evidence by reference to each of the conversations of which Mr Panetta and Mr Basile gave evidence[10] . It is however important to note that this is a somewhat artificial approach, because clearly there was an ongoing process of negotiation between the landlords (principally, through Mr Fuller) and the tenant (through Messrs Basile and Panetta). At a level of some generality, I think that the witnesses’ recollection of specific dates and conversations may be mistaken, and that in some cases, what they purport to recall (or agreed in cross-examination that they did recall) as having happened on a particular occasion may in fact represent a synthesis of several conversations.

    10. See at [85], [86] above.

89. That is not to say that I think that the thrust, or essence, of the evidence of who said what to whom is unreliable. The point is, rather, that although the detail of specific meetings and conversations may be confused, the evidence overall paints a fairly clear picture.

The conversation in early 2009

90. Mr Basile gave evidence of this conversation, with Mr Fuller, in his affidavit [11] . Mr Basile said that the conversation concerned the possibility of surrendering the lease for shop 2089, and that in it, Mr Fuller said words to the effect:

It is probably better for you to consolidate into one shop but then you need to pay a higher rent for your current place, because Panetta Fruits would then be capturing all of the fruit and vegetable trade in the Fresh Food precinct from the one site. Adding the turnovers of the 2 sites, $8 million from Panetta Fruits and $5 million from In Season totals around $13 million turnover a year.

11. Affidavit affirmed 27 February 2015, [19].

91. In the next paragraph of his affidavit, Mr Basile referred to an email of 4 April 2009 from Mr Panetta to Mr Fuller. That email referred to a meeting between those two men “this week”, stated the tenant’s desire to finalise the arrangements for shop 2082”, and said that the tenant looked “forward to receiving proposal from you as soon as possible”. One of the “[k]ey points discussed” was said to be “exclusive fruit and veg operator in centre”.

92. Mr Basile said [12] that this email had nothing to do with the earlier conversation with Mr Fuller, of which he had given evidence. That must be correct.

    12. T185.7-.38.

93. Mr Basile said, more than once, that the early 2009 conversation (which he dated to 12 January 2009) was preliminary: “the beginning of the negotiations for the new lease” or “part of the same negotiation phase” [13] .

    13. T185.48,T187.20, respectively.

94. Mr Fuller did not specifically deny the conversation in his affidavit evidence.

95. Mr Hochroth did not contend for a finding that the conversation had taken place. That was because on his case, that “[t]he key conversation is one that took place between Mr Fuller and Mr Panetta in late March or early April 2009” [14] .

    14. Written closing submissions, [6].

96. Were it necessary to decide, in light of the way that Mr Hochroth put this aspect of the tenant’s case, I would not find that the conversation took place, at least in the terms alleged. I think that Mr Basile was running several conversations together in his mind. Further, given the terms of the conversation of late March or early April 2009, where Mr Fuller specifically asked Mr Panetta if the latter thought that the tenant would capture all the FFV trade in the Fresh Food Precinct, it is unlikely that Mr Fuller would have volunteered to Mr Basile, some two or three months earlier, that the tenant would be likely to do so.

97. Having said that, nothing really seems to me to turn on the point, because of the findings that in my view should be made in respect of the subsequent conversations.

The conversation in late March or early April 2009

98. Mr Panetta gave evidence of a conversation with Mr Fuller in late March or early April 2009. Mr Fuller denied that he had had a conversation with Mr Panetta in the terms alleged. However, he agreed that he had had a conversation (or perhaps several conversations) with Mr Basile in early 2009. I suspect that Mr Fuller’s memory of the person to whom he spoke is confused, and I think the better view of the evidence overall is that the relevant conversation of which Mr Panetta gave evidence was indeed between Messrs Panetta and Fuller.

99. Mr Fuller accepted in cross-examination that in early 2009, the defendants, as operators of two FFV shops in the Fresh Food Precinct, effectively had a monopoly over FFV trade, but were not paying a commensurate rent [15] . He agreed that he had a conversation with (as he put it) Mr Basile on that topic. In the course of that conversation, Mr Fuller agreed, they discussed the possibility of the tenant’s surrendering its lease over shop 2089, and taking a new lease, for a further five years, with two five year options, over shop 2082.

    15. T90.27-.30.

100. Mr Fuller said that [16] in the course of the conversation (and I repeat he said that it was with Mr Basile rather than Mr Panetta), there were words spoken to the following effect:

Fuller: Do you think that you will capture all of the market share for fruit and vegetable in the Fresh Food Precinct from the one site. Adding the turnovers of the two sights, $8 million from Panetta Fruits and $5 million from In Season totals around $13 million turn over per year.

Basile: Yes. We do believe that we will capture all of the market share for fruit or vegetable in the Fresh Food Precinct.

Fuller: If you were to consolidate into one shop, you would need to pay a higher rate rent for your current place, because Panetta’s Fruits would then be capturing all of the fruit and vegetable trade in the Fresh Food Precinct from the one site. Adding the turnovers of the two sites, $8 million from Panetta and $5 million In Season totals around $13,000,000 turn over a year.

16. At various points in his affidavits affirmed 19 November 2015 and 28 November 2016.

101. Mr Panetta said [17] , and Mr Fuller in substance accepted [18] , that in this or a similar conversation the following words were said:

Panetta: Happy to pay a little bit higher but remember I don’t want

competition.

Fuller: Let me get a proposal out to you.

17. Affidavit affirmed 4 March 2015, [7].

18. T89.33 - .35.

102. As I have said, I conclude that the relevant conversation was in fact between Messrs Panetta and Fuller. I accept also that the conversation of which Mr Fuller gave the evidence just set out may in fact represent an amalgam of several discussions, some involving Mr Basile and some involving Mr Panetta. Otherwise, the relevant terms of the conversation are clear enough.

The conversation of mid to late June 2009

103. The context for this conversation is that on 10 June 2009, Westfield had sent a lease proposal to the tenant which denied exclusivity and proposed a rent that was, in effect, the higher of $1.1 million annually (exclusive of GST) or 6% of gross sales from shop 2082.

104. Mr Basile gave evidence of a conversation to the following effect: [19]

Basile:   For the rent you are asking, you must be assuming that we will capture all of the fruit and vegie business in the Centre. So give us an exclusivity clause in the lease as the only fruit and vegie operator in the Centre.

Fuller: I can’t do that. You know Woolworths is selling fruit and vegies and I can’t do anything about that. My hands are tied. But I can probably consider and exclusivity clause for you as the only independent fruit and vegetable operator in the centre. Why don’t you send me a counter proposal and I will see what I can do for you.

19. Affidavit affirmed 27 February 2015, [24].

105. Mr Fuller’s affidavit did not engage directly with this aspect of Mr Basile’s evidence. However, in the course of cross-examination, Mr Fuller accepted repeatedly that he had said words to the effect attributed to him, including specifically the proposition that he could “probably consider an exclusivity clause for [the tenant] as the only independent fruit and vegetable operator in the Centre” [20] .

     20. See, generally, T93-95.

106. When Mr Fuller was then taken to what he had said in his affidavit, he sought to retract that evidence, saying, as I have pointed out, that he “must have been confused”. [21]

     21. T 106.29-.32.

107. In my view, Mr Fuller was telling the truth when he agreed, repeatedly, that he had said words to the effect of those attributed to him. I do not accept his evidence in which he sought to retract the concessions that he had made. The questions that had been asked of him were clear, and he was given every opportunity to consider the matter. His responses were equally clear [22] .

     22. See generally T93-95.

108. I add that on 5 July 2009, Mr Basile did indeed send “a counter proposal” to Mr Fuller: an email which, among other things, proposed Centre-wide exclusivity. That email would have been sent within 1 to 3 weeks of the conversation. I do not think that Mr Basile would have sent an email in those terms if, in the conversation that it was obviously intended to follow up, Mr Fuller had said he would not give Centre-Wide exclusivity.

109. In my view, the conversation of mid to late June 2009 did occur in substantially the terms alleged by Mr Basile, as I have set them out above. I do however accept that in a later conversation, Mr Fuller said that the concept of exclusivity could not apply Centre-wide, but must be limited to the Fresh Food Precinct[23] .

     23. See at [120] below.

The conversation of July 2009

110. The context for this conversation is Mr Basile’s email of 5 July 2009, to which I have referred. As noted (see at [87(5)] above), that email proposed two alternatives: lower rent with no exclusivity, or higher rent with exclusivity. Mr Panetta said that he had a conversation with Mr Tomarchio about that email, and reinforced the proposition that the higher rent and exclusivity were inextricably linked. Mr Tomarchio did not deny that conversation. I find that the conversation did occur. Its significance is another matter.

The conversation of 1 August 2009

111. It is common ground between Messrs Panetta and Kingston that they met on 1 August 2009 and discussed the terms of the proposed lease of shop 2082. According to Mr Panetta, Mr Kingston said words to the following effect:

Mike, with In Season going you’ll capture the sales from In Season and you won’t be adding to your labour force. You’ll easily do $13 million in sales given you are a good operator, and at 8-9% your occupancy cost is good.

112. Mr Kingston denied that he had used the words attributed to him. He said that there was a conversation which included words to the following effect [24] :

Panetta: Brian Fuller is trying to squeeze me for more rent. Is doing this deal for the new lease the right thing for me to do? Our occupancy cost is around 8-9%.

Kingston: Only you’ll know the sales you can do out of this business. You will need to make that assessment and the call on whether or not your proceed. There will come a time when you hit your financial limit. You need to decide. I cannot make this call for you.

24. Affidavit affirmed 6 October 2015, [17].

113. According to Mr Kingston, the conversation then turned to the topic of exclusivity, and he told Mr Panetta that Westfield could not offer exclusivity for the whole of the Centre.

114. I find that there was a conversation between Messrs Panetta and Kingston, on 1 August 2009, in the course of which Mr Kingston used words to the effect of those that Mr Panetta attributed to him. First, it seems to me to be consistent with the probabilities, regarded objectively, that some such words were used. Second, it seems to me, bearing in mind my assessment of Mr Panetta’s character, ability and self-confidence, to be unlikely that Mr Panetta would have spoken the words attributed to him by Mr Kingston.

115. The landlords, through Mr Fuller (and, I have no doubt, Mr Kingston) had formed the view that with the closure of In Season, the tenant would become effectively a monopoly retailer of FFV in the Fresh Food Precinct. The landlords’ object in the negotiations was to re-lease shop 2082 to the tenant, at a rent which, in the landlords’ view (as held by at least Messrs Fuller and Kingston) reflected the value of the tenant’s de facto monopoly. I have no doubt that the landlords, through Messrs Fuller and Kingston, saw this as the strong point in their bargaining position, and the justification for their demand for a substantially increased rent.

116. I do not think that it was put directly to Mr Kingston that, as at 1 August 2009, he knew what the turnovers of the two shops had been. However, each lease included what was in effect a turnover rent alternative. It is clear that Mr Fuller knew[25] what those turnovers were. I think it is more probable than not that Mr Kingston also knew, either directly or from what Mr Fuller had told him. In those circumstances, I think, it is inherently plausible that Mr Kingston would have stressed the combined turnover to Mr Panetta, as a powerful reason justifying the increased rent.

     25. See at [100] above.

117. Further, and notwithstanding my doubts as to the power of Mr Panetta’s memory, the simple fact is that this was a conversation of extreme importance to him. The tenant conducted only two businesses at the time, and had only two leases to think about. By contrast, the landlords had many other tenants in the Centre, and Mr Kingston was responsible for managing leases not merely for the Centre but for other Westfield Centres as well.

113. The conversation was routine from Mr Kingston’s perspective. He had had hundreds of such conversations over the years, and accepted that he could not recall any particular one with a great degree of accuracy [26] . By contrast, from Mr Panetta’s perspective, the conversation, whilst not unique, was one of a number between himself and representatives of the lessors, directed to the one end: securing a new lease of shop 2082 at the best terms possible.

     26. See, generally, T151-152.

114. In the circumstances, I think, Mr Panetta’s recollection of the conversation is more likely to be accurate – in substance if not in exact words – and is to be preferred to Mr Kingston’s.

The conversation of 11 August 2009

120. Mr Basile gave evidence of a conversation with Mr Fuller on about 11 August 2009 [27] . According to Mr Basile, the conversation was to the following effect:

29.   On or about 11 August 2009 I met with Brian Fuller again to find a resolution to the impasse. We had a conversation in words to the following effect:

Basile:   “Michael told me that Courtney [Kingston] had met up with him and he told him Westfield would not give us exclusivity.”

Fuller:   “I am unable to offer the exclusivity as you have suggested. I don’t understand why you need it anyway. When you surrender the lease for Shop 2089-90 you would pick up the total fruit & vegies trade in the Fresh Food precinct, from one location. So a higher rent is quite justified.”

Basile:   “If that is the case, why not then provide us with the exclusivity?”

Fuller:   “We’re contemplating redeveloping the other end of the Centre and want the flexibility to have a fruit & vegies operation at that end. So we cannot give you exclusivity for the whole Centre. What I can do is give you guys the right of first refusal to take up a lease of any new fruit & vegetable shop.”

Basile:   “Great, but then what about at least the exclusivity in the Fresh Food Precinct?”

Fuller:   “That is something we can agree to.”

27. Affidavit affirmed 27 February 2015, [29].

121. Mr Fuller said in reply [28] that his response “would have” been to the following effect:

I may be able to agree to providing you with exclusivity as the sole independent fruit and vegetable operator in the Fresh Food Prescient.

28. Affidavit affirmed 19 October 2015, [42].

122. In the course of his cross-examination, Mr Fuller accepted that the conversation had gone as Mr Basile said it did, save that Mr Fuller said his answer, on the question of exclusivity, was limited to “the sole independent fruit and vegetable in the Fresh Food Precinct” [29] .

     29. T111.39-113.1.

123. I find that the conversation did occur as Mr Basile said, except that I think Mr Fuller’s response to the request for exclusivity was not as Mr Basile put it but, rather, as Mr Fuller put it. I note that Mr Basile’s email of 13 August 2009 to Mr Fuller referred to the particular conversation two days earlier, and said that what had been agreed included that the tenant would have:

Exclusive right to be the sole independent Fresh Produce operator in the Food Precinct of the Centre.

124. It is unlikely in the extreme that Mr Basile would have written in those terms if Mr Fuller had not given the response to the request for exclusivity that, Mr Fuller said, he had indeed given two days earlier.

Decision

125. The issue of what (if any) representation can be spelled out of the conversation (or conversations in question) is inextricably tied up with the question of reliance. Thus, to some extent, it is a little artificial to split the analysis by reference to the issues.

126. Although reliance is dealt with separately (in connection with the eighth issue), I should point out at this stage that Mr Panetta and Mr Basile held somewhat different views. Mr Panetta thought that, with the closure of shop 2089, the tenant would capture the all FFV trade in the Fresh Food Precinct. Mr Basile thought that there would be some leakage. I add that this difference of opinion makes it more probable that the conversation which, it is common ground, occurred, was between Messrs Panetta and Fuller rather than between Messrs Basile and Fuller, since Mr Panetta held the view that Mr Fuller attributed to his interlocutor, and Mr Basile did not.

127. As I have noted, it is the defendants’ pleaded case that the representations alleged arose out of the conduct (including the conversations) that I have summarised already. Mr Hochroth emphasised in submissions that the identification of the representations, and an understanding of what they conveyed, required consideration of the totality of the conduct.

First representation: the tenant would capture all the FFV retail market in the Fresh Food Precinct

128. I start with the first alleged representation. That is said to arise from the conversation between Messrs Panetta and Fuller [30] in late March or early April 2009. However, as I have noted, it is likely that the words that Mr Fuller accepted he had said[31] were synthesized, or emerged, from a number of conversations, some with Mr Basile and some with Mr Panetta.

     30. According to Mr Fuller, there were several conversations, and most of them at least were with Mr Basile.

     31. See at [122] above.

129. Although the evidence varies a little as to precisely who said what to whom, and when, there is common ground that a conversation to the effect of that set out at [100] above took place. The striking feature of that conversation is that it was Mr Panetta (or, according to Mr Fuller, Mr Basile) who first volunteered the proposition standing at the heart of the first representation: namely, that the tenant would “capture all of the market share for fruit and vegetable in the Fresh Food Precinct”. Mr Hochroth specifically submitted[32] that the sequence and substance of the conversation were as out above; i.e., that it was (on his submission) Mr Panetta who first said that.

     32. Written closing submissions at [6].

130. Thus, the conversation (for convenience, I shall refer to it in the singular) starts with Mr Fuller asking Mr Panetta (or Mr Basile) whether the defendants thought that the tenant could capture all the FFV business in the Fresh Food Precinct, and being told that they did. Mr Fuller then appears to have adopted that stated belief, and used it to justify his demand that the tenant should pay a higher rent for shop 2082.

131. So analysed, it is more than a little difficult to see how some representation emanating from the landlords, through Mr Fuller, can be spelled out of that conversation. At the most, as I have said, Mr Fuller appears to have adopted the stated belief of whoever it was he was speaking to, and to have used it in support of his negotiating position. Mr Fuller asked what the other person’s views were. That person stated his views. Mr Fuller then repeated them, and continued with the conversation. I do not think that in doing so, Mr Fuller can be taken to have made any representation. At most, I think, he was saying that if that were the correct analysis of the situation, then the consequence for which he contended should follow.

132. I conclude that the first representation was not made.

Second representation: sole retailer of FFV (in the Eastern and of the Centre)

133. As to the second representation, Mr Hochroth accepted, I think, that it had not been uttered in terms. If he contended that there was an express oral representation for the effect of the second pleaded representation, he was incorrect. The most that was ever offered was “exclusivity… for [the tenant] as the only independent fruit and vegetable operator in the Centre” [33] , or “exclusivity as the sole independent fruit and vegetable operator in the Fresh Food Precinct” [34] .

     33. Conversation of mid to late June 2009.

     34. Conversation of 11 August 2009, confirmed in Mr Basile’s email of 13 August 2009.

134. The second representation omits some crucial words that Mr Fuller said he used, and that Mr Basile accepted (by the email of 13 August 2009) were used. The exclusivity was limited to being "the sole independent fruit and vegetable operator”, and to the Fresh Food Precinct.

135. Mr Hochroth submitted that the content of the second representation went further than the spoken words, and was to be inferred from all the circumstances shown by the evidence. He submitted that the landlords’ only concern was not to shackle themselves in relation to Woolworths or in relation to a future independent FFV retailer at the western end of the Centre.

136. Even if that submission were to be accepted, it does not follow that the second representation is made out. In terms, in all the relevant conversations and documents, the second representation was limited not simply by the exclusion of Woolworths and an FFV retailer at the western end of the Centre, but by reference to an independent (specialty) FFV retailer and the Fresh Food Precinct. The words spoken by Mr Fuller, in his formulation of the extent of the exclusivity that might be granted, are narrower than the meaning that Mr Hochroth sought to attribute to them. So, too, are the words used by Mr Basile in his email of 13 August 2009.

137. Mr Hochroth characterised the events from March (or earlier) 2009 through to August 2009 as an ongoing negotiation, in which the parties sought to refine the key concepts, or elements, of their bargain. Thus, he submitted, the content to be ascribed to the second representation in particular was to be informed in the manner that I have outlined.

138. I agree that there was an ongoing process of negotiation. However, in my view, the proper characterisation of what happened is that the negotiations moved forward and the matters that had been agreed began to emerge clearly, as what had been said earlier was in some cases superseded by what was said or written later. In my view, the correct characterisation of what happened is that even if the second representation had been made, it could not have continued to be operative once the third representation was made, by the letter of 27 October 2009. That representation stated the extent of the exclusivity that the lessors were prepared to grant.

139. On 30 September 2009, Mr Basile signed, on behalf of the tenant and with the approval of Mr Panetta, the landlords’ disclosure statement given pursuant to s11 of the Retail Leases Act. That disclosure statement, which Mr Basile read and amended before he signed it, contained the following provision related to exclusivity, which Mr Basile himself wrote onto the document provided by Westfield (as, de facto at least, the lessor):

17. Exclusivity: Agreement to terminate the lease on shop 2089/90 with effect 23/10/09, and to grant exclusive right to be the sole independent Fresh Food and Vegetable Produce operator in the current Fresh Food Precinct of the existing Centre.

140. That was followed by a declaration that the disclosure statement “contains all agreements and representations that influenced me to contemplate entering into the proposed lease”. It was picked up in substance, although not word for word, in the landlords’ offer of 27 October 2009.

141. Having regard to the terms of the amended and signed disclosure statement and the letter of 27 October 2009, it is in my view impossible to conjure out of the negotiating process a representation in the words or to the effect of the second pleaded representation.

142. I conclude that the second representation, as pleaded, was not made.

Third representation: sole independent specialty FFV retailer in the Fresh Food Precinct

143. It was common ground that the third representation was made. Its terms come from the written offer of lease dated 27 October 2009[35] .

     35. See at [83] above.

144. Objectively, the third representation conveyed that the tenant would be the only business in the Fresh Food Precinct:

1. that was independent, in the sense that it was not part of a supermarket, or a stand-alone business that was a subsidiary of or controlled by a supermarket chain; and

2. whose principal business was the retail sale of FFV.

Fifth issue: was the third representation correct?

145. As a statement of present fact – that the landlords agreed to grant the stated right – the representation was correct when it was made. There was no evidence that this was not the landlords’ then state of mind.

146. The draft lease did not contain an equivalent term. Hunt & Hunt, who were then acting for the tenant, queried this. Landerer & Company, who were then acting for the lessors, replied, saying that the representation would not be included in the lease, but that the tenant “may rely on the Disclosure Statement and the associated correspondence in this regard”.

147. The merits of that contention need not be investigated. There is no basis in the evidence for thinking that the landlords ceased to hold the view that the tenant had the right of exclusivity described in the letter of 27 October 2009. The dispute is, rather, whether in the circumstances prevailing up until the lease was signed on 7 October 2010, that representation was or became misleading or deceptive.

Sixth issue: reasonable grounds

148. It follows from what I have said that this issue falls away. The only representation that I have found proved was as to an existing fact: the landlords’ agreement to the stated (and limited) right of exclusivity the subject of the third representation. And even if that contained some element of futurity, there is no basis in the evidence for concluding that the landlords ever had reason to think that their state of mind might change.

Seventh issue: opinion

149. This issue does not arise.

Eighth and ninth issues: reliance

150. On the findings I have made, the question of reliance only arises in respect of the third representation. I accept that the tenant, through Messrs Basile and Panetta, relied on that representation. Clearly, it was important to them. That is why Mr Basile stipulated for it in the email of 13 August 2009, and why he included cl 17 in the revised version of the landlords’ disclosure statement that he amended, signed and dated 30 September 2009. And that, no doubt, is why Hunt & Hunt raised the point with Landerer & Company after the latter had provided the draft lease to the former.

Objective approach to third representation

151. Mr Hochroth contended that the third representation, understood in context, meant that the tenant would be the only FFV retailer in the Fresh Food Precinct. I do not accept that proposition. It ignores the various forms of words employed:

1. “sole independent Fresh Produce operator in the Centre” (from Mr Basile’s “two alternative proposals” email to Mr Fuller of 5 July 2009;

2. “the sole independent Fresh Fruit and Vegetable Produce operator in the current Fresh Food Precinct of the existing Centre” (cl 17 added by Mr Basile to the landlords’ disclosure statement); and

3. “the sole independent speciality fruit and vegetable retailer in the Fresh Food Market located [in the Fresh Food Precinct]” (from the landlords’ letter of offer dated 27 October 2009).

152. Mr Hochroth’s submission effectively ignores, or treats as meaningless, the words “sole independent” or “sole independent specialty” that immediately precede the reference to the FFV retail business. I do not think that those words can be ignored. I think that their purpose was to draw a distinction between two quite different kinds of retail operation:

1. independent, often family owned, retail businesses such as the tenant’s, devoted principally to the sale of FFV; and

2. supermarket businesses, even those comprising a substantial FFV component, or supermarket-owned FFV businesses.

Subjective understanding of third representation

153. To the extent that (as Mr Hochroth’s submissions urged) the understanding of the parties at the time is relevant, it is against acceptance of this aspect of the defendants’ case. Mr Panetta said that an independent fresh produce operator “would be, in my sight, a small family business like the one we were running independently where I would, in, be running the shop… just a family store” [36] . He agreed that this would not include “a business such as Woolworths” [37] , but suggested, in my view disingenuously, that it would include “a business such as Aldi” because “Aldi’s owned by a family” [38] .

     36. T271.19-.24.

     37. T271.30-.32.

     38. T271.34-.35.

154. Mr Panetta then gave evidence conceding that Franklins fell outside his concept of an independent FFV retailer, but sought, again in my view disingenuously, to suggest that nonetheless the exclusion for which the defendants were negotiating (and he had been advised by Mr Basile of the terms of the right of exclusivity that Mr Basile had sought) would catch Franklins. The whole of that passage of Mr Panetta’s evidence is significant, and although it is lengthy, I set it out [39] :

     39. T272.1-273.35.

Q.    You agree that however it wouldn’t include a store like Franklins, would it?

A.    Independently managed, I would say Franklins was independently managed.

Q.    Franklins, as you understood, was an Australia-wide company.

A.    Back in its hay day, yes.

Q.    It had been trading next to your store since 2003.

A.    Since 2003?

Q.    It had been there the whole time that you had been there.

A.    It had been there a lot longer, yes.

Q.    Well, since at least 2003.

A.    Since at least 2003, yes.

Q.    I suggest to you that you understood that the concept of independent signified to you that anything that was a large supermarket chain would not be caught within the use of that word.

A.    Would not be caught? I would think in the Fresh Food precinct, Franklins where it was at the time - no, you’re, you’re correct.

Q.    So the use of the word “independent” in that time, I suggest, you understood that what was being negotiated with the landlord did not include any prohibition on Franklins from selling fruit and vegetables in the Fresh Food precinct or in the centre at large.

A.    There definitely was, in my interpretation, in my thinking, restrictions to no, Franklins could not sell fruit and veg in that area.

Q.    Well, I thought you just agreed with me that the concept of the word “independent” would not include a supermarket like Franklins.

A.    Yeah, I have to agree with you, I have to agree with you that Franklins was not family run but, it was not family run but I can’t, I can’t find the word that I’m looking for, that it was a, not part of a Woolworths organisation either that was on a global scale so it was, a mini major, I would say.

Q.    But it doesn't fall within the definition of independent as you'd understood it?

A.    Yeah, you're, you're correct.

Q.    It must follow then, must it not, that when you were discussing an exclusivity right to be the sole independent Fresh Food produce operator, you weren't seeking to restrict in any way the ability of Franklins to sell fruit and vegetables were you?

A.    I would like to think that if Franklins were to put fruit and veg in, it would have been brought up at that time and we would have addressed it differently, but I don't think Westfield made any effort to make us aware that--

Q.    That's not my question. I'm asking you in relation to the scope of the exclusivity clause that you were negotiating, and I suggest to you that when you were negotiating such an exclusivity clause you weren't intending to restrict in any way the ability of Franklins to sell fruit and vegetables in the centre?

A.    I did not have this discussion with Brian Fuller, although I'm cc'd on it. I did not even have this discussion to the detail of what was in Nick Basile's head at the time, but my discussion, I can refer back to my affidavit, where I had told Mr Fuller I don't want any competition in this area.

Q.    You just told me that you did discuss with Mr Basile the use of the words "sole independent fresh produce operator in the centre". Do you accept that you did discuss those words with Mr Basile?

A.    In the whole centre, yes, but not specifically - we did not pick just Franklins, we were talking purely about the whole Fresh Food area.

191. In those circumstances, there being no basis for drawing the inference, the failure of the landlords to call Mr Breen, to lead from him what he understood from the plans (if he even read them) goes nowhere.

192. I return to cl 26.1. I do not agree that it supports the inference for which Mr Hochroth contended. The requirement that it imposes is to carry out the refurbishment works “in a proper and workmanlike manner”, so as to achieve a “standard not less than the standard of” the two other specified supermarkets. The clause seeks to do two things. First, it specifies the standard of workmanship to be used. Second, it specifies the standard of fitout to be achieved. Neither of those has anything to do with the range of goods that might be exposed for sale.

193. So far, I have dealt with the question of knowledge. I conclude, on the evidence, that:

1. the landlords knew, by August or September 2010 (when the fourth representation was made) that Franklins intended to sell FFV from its refurbished supermarket in the Centre; but

2. the landlords are not shown to have had knowledge of that at any time prior to 7 May 2010, when the tenant signed a new lease of shop 2082, and Messrs Panetta and Basile signed their guarantees.

198. The tenth issue inquires, further whether such knowledge as the landlords may have had is relevant to the misleading or deceptive conduct case, or whether (as apparently pleaded) it goes only to the case based on unconscionability. Having regard to the factual conclusions that I have just expressed, it is unnecessary to resolve that arid pleading dispute. If it were, I would be inclined to the view that it is limited to the unconscionability case, which in turn is limited to the tenant’s decision to spend a large amount of money in renovating shop 2082, as the lease required it to do.

199. As to the remaining issues dealing with the question of knowledge of the Franklins’ refurbishment, I am prepared to conclude that the tenant did take into account the representation that I have found was made: namely, the representation that Franklins intended to sell FFV from the refurbished supermarket. That is what Mr Fuller said. There is no reason why the tenant should not have treated what he said as truthful. The question of reliance is otherwise devoid of meaning, because the reliance that was pleaded and pressed was reliance on the more extended representation that, I have found, was not made.

Fifteenth and sixteenth issues: what did the third representation convey, and were Franklins’ post-refurbishment activities inconsistent?

200. For the reasons I have given, the third representation conveyed the meaning set out at [144] above. It follows that whatever Franklins did by way of selling FFV after its refurbishment was completed was not inconsistent with that representation.

Seventeenth issue: misleading, deceptive or unconscionable conduct

201. On my findings of fact, there was no misleading or deceptive or unconscionable conduct.

Eighteenth issue: damages

202. On my findings, the tenant has not made good any claim for damages. However, in case others should come to a different view, I will deal, as briefly as I can, with the question of damages.

203. There was a dispute, as to whether the opening of the FFV section in the Franklins supermarket in the centre had had any adverse impact on the tenant’s sales. Common sense suggests that it would have had some such impact. After all, shoppers who hitherto had gone to Franklins for their dry goods and to shop 2082 for their FFV were given the choice of doing all their shopping (to the extent that the Franklins’ range of FFV permitted) in one place.

204. That common sense analysis finds some support in an industry report on which the lessors relied on the question of quantum. That report was prepared by IBISWorld in February 2015. It was report G4122, dealing with “Fruit and Vegetable Retailing in Australia”. That report made it clear, among other things, that supermarkets were major competitors to independent FFV retailers. It noted at pages 4 to 5:

Consumers often purchase fruit and vegetables from [supermarkets and grocery stores], rather than at specialty fruit and vegetable retailers. Consequently, supermarkets and grocery stores compete with fruit and vegetable retailers. Increased demand from supermarkets and grocery stores is indicative of increased consumer spending in these stores, to the detriment of specialised retailers. Demand from supermarkets and grocery stores is forecast to rise in 2014-15, increasing competition for the industry”.

205. I add that the report may shed some light on what is a “specialty fruit and vegetable retailer”: namely, that it is an FFV retailer other than a supermarket or a grocery store. However, I have not taken that into account in reaching the conclusion set out at [144] above.

206. Having noted that point, I shall limit what I say to the issues relating to quantification of loss. There were separate issues as to whether any or all of the items of loss claimed were caused “by” the misleading or deceptive conduct that had been alleged. Those questions of principle arise whether the claim is considered by reference to s 82 of the Trade Practices Act 1974 (Cth) (on the assumption of breach of s 52 of that Act), or under s 62E of the Retail Leases Act (on the assumption of breach of s 62D of that Act).

207. A decision on those issues of principle necessarily assumes, contrary to my findings, that there has been misleading or deceptive conduct. It would require analysis of any connexion between that conduct and the damages claimed. It cannot be decided in the abstract. The parties’ competing contentions were clearly articulated in their written and oral closing submissions, and there is no need to set them out.

208. The tenant claimed damages under four heads. Altering the order in which they were stated, those heads are:

1. the arrears of rental and any other damages that it might be ordered to pay the landlords;

2. the amount of the bank guarantee that the landlords cashed;

3. the amount that it expended on its renovations; and

4. lost revenue up until termination of the lease in July 2014.

209. A claim for damages after termination was abandoned by the time final written submissions were delivered.

210. The first two heads of damage are self-explanatory, and their quantification poses no problem. As Mr Hochroth submitted, were I to conclude that the tenant had made good a claim for damages, the obvious way to deal with the first head would be to make an order under s 87 of the Trade Practices Act refusing to enforce, at all or pro rata, the relevant provisions of the lease.

211. The amount claimed under the third head, the cost of renovations, is $1,460,912. That claim was considered by the experts: Mr Phillip McCarthy, who gave evidence for the tenant, and Mr Robert Bell, who gave evidence for the landlords. The issue between them was whether the whole of the claim had been sufficiently verified.

212. Mr McCarthy said that he had verified 87% by value of the amount claimed. This he had done by examining invoices, five in number, for work done and materials supplied by the contractor who undertook the renovation. Those invoices, Mr McCarthy said, substantiated the claim to the extent that I have mentioned. Mr Bell did not dispute this proposition.

213. The disputed portion of the claim related to a number of items of fixtures and fittings shown on the tenant’s asset register as having been installed in shop 2082. Mr Bell said that he had not sighted invoices or other documents to show that those assets had been installed in the shop. He noted, correctly, that the tenant had operated another business. Mr McCarthy accepted that he had not sighted supporting documentation corroborating the asset register.

214. In my view, the asset register is a business record that is capable of proving what it says. It states that the assets in question were located in shop 2082 at the relevant time. It states, further, the acquisition cost of those assets. I see no reason why it should not be accepted as proving those things, on the balance of probabilities. There is no reason (and Mr Bell did not suggest there was [63] ) to think that the register was inaccurate.

     63. Apart from his general concerns to which I refer at [218] and following below.

215. It follows, in my view, that the tenant has proved the cost of the renovations in the amount claimed by it: $1,460,912.

216. The real dispute between Messrs McCarthy and Bell concerned the claim for lost revenue. Mr McCarthy sought to identify the decline in gross profit (sales less cost of sales) for the financial years ended 30 June 2011, 2012, 2013 and 2014. He did this by looking at the performance of the business in each of those years, and comparing it to the performance of the business in the financial year to 30 June 2010. For convenience, I will refer to those financial years as “FY2010”, “FY2011” and so on.

217. Using that methodology, Mr McCarthy determined that there had been a loss of gross profit in each of the years from FY2011 to FY2014, compared to the gross profit achieved in FY2010. Having done so, Mr McCarthy considered what expenses would have been avoided because of the drop in gross profit, and arrived at a net figure of loss, for the years in question, of $1,443,000.

218. Mr Bell did not appear to disagree with Mr McCarthy’s methodology. However, Mr Bell queried the accuracy of the tenant’s accounting records and financial statements, which provided the data used by Mr McCarthy in his analysis. Mr Bell also pointed to factors that, he suggested, showed an industry-wide decline in gross profit over the years in question.

219. Dealing first with the second of those matters: it raises a question of principle and a question of fact. The question of principle is whether, assuming there had been an industry-wide decline, it would have had any impact on the amount of damages recoverable had I concluded that the tenant had made good its case of misleading or deceptive (or for that matter unconscionable) conduct. That question can be put to one side, although the analysis of the Court of Appeal in Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No.3) [64] might suggest that the issue would be resolved in favour of the tenant.

     64. (2006) 67 NSWLR 341.

220. Likewise, the question raised by Mr Fernon, as to whether the tenant had proved adequately what he said was its alternative, “no contract”, case, can be put to one side. However, I note that the submission might be thought not to reflect adequately authority on the application of the statutory test of causation: for example, Henville v Walker [65] and Travel Compensation Fund v Tambree [66] .

     65. (2001) 206 CLR 459.

     66. (2005) 224 CLR 627.

221. The question of fact is one that I should deal with. Mr Bell referred to industry data collated by IBISWorld in its report G4122. It is correct to say, as Mr Bell noted, that the report indicates an industry-wide decline in sales in FY2011 compared to FY2010. However, the causes identified were specific to FY2011. The data showed, at least as an overall trend, a slight increase in revenue industry-wide over the years FY2012 to FY2014. In any event, Mr Bell agreed that he had no sound basis to say, and did not say, that whatever was the cause of the industry-wide decline from FY2010 to FY2011 continued to operate thereafter [67] .

     67. T373.11-.16.

222. In short, to the extent that industry-wide factors are relevant in principle, they do not appear in fact to have had any significance after FY2011. And as to FY2011, unless it could be shown arithmetically that the actual decline in sales was no greater than might have been referable to the industry-wide figures, it would not appear to have much significance for that year either.

223. I turn to the question of the reliability of the tenant’s accounting records. Mr Bell pointed to two matters that, he said, cast doubt upon them. The first was what he described as (and what certainly appears to be) an abnormally high closing stock figure for FY2011. Mr McCarthy accepted that the stock figure was abnormally high compared to preceding and following years. He said that, given that the exercise involved determining loss of gross profit over a number of years including FY2011, an abnormally high closing stock figure for that year would have no impact because it would be picked up as the opening stock for the immediately following year. Mr Bell agreed with that, and the proposition is plainly correct. However, Mr Bell’s point was different: the figure was abnormally high; there was no explanation for it; and thus it cast doubt on the reliability of the tenant’s financial records.

224. Mr McCarthy (who was responsible for preparation of the tenant’s statutory accounts, but who did not audit them) had queried the abnormally high stock figure. He received a confirming email which indicated that the figure was due to restocking after the renovations were carried out, and reflected the fact that the tenant had begun to carry a much larger line of non-perishable stock in trade. Mr McCarthy regarded that explanation as sufficient. Mr Bell did not dispute that the suggested explanation could be valid, but nonetheless maintained his reservations as to the abnormally high level.

225. Mr Fernon submitted that the tenant could have led evidence from Mr Panetta or Mr Basile corroborating what was contained in the email (which on any view was a business record, capable of proving what it said). No doubt the tenant could have done so. But where there is an available inference from the primary evidence, reflecting the understanding of the relevant actors at the time, I see no reason for disregarding it and requiring, instead, testimonial evidence that carries with it the inevitable risk of unconscious (or subconscious) bias prompted by perceptions of self-interest. If there were some real reason for thinking, despite the explanatory email, that the closing stock figure was dubious, the question would be different. But there was not. In my view, there is no reason to query the figure in the face of the explanation that has been given.

226. I conclude that the closing stock figure as at 30 June 2011, although abnormally high, is not indicative of unreliability in the tenants’ financial records.

227. The other matter to which Mr Bell pointed was a decline in the ratio between cash and EFTPOS sales between FY2011 and FY2012. Mr Bell said that, unexplained, this, too, could indicate unreliability in the financial records.

228. Cash sales, as a percentage of total sales, were 60% in FY2011; 55% in 2012; 56% in FY2013; and 52% in FY2014. It is clear that, over the whole of the four year period, there was a downward trend in cash sales, and a corresponding upward trend in EFTPOS sales. Mr Bell accepted that it was “a reasonable possibility” that the change from FY2011 to FY2012 reflected “no more than a trend towards greater card sales over this four year period” [68] . It followed, and Mr Bell again accepted [69] , that if there were such an overall trend, then “the ratio issue wouldn’t be any reason to doubt the veracity of the [tenants] financial records”.

     68. T359.41-49.

     69. T360.1-5.

229. Seen in context, I do not think that the change in the composition of sales, between cash and EFTPOS, reflects any unreliability in the tenant’s financial records. I add that if either Mr Panetta or Mr Basile was cross-examined to suggest that there had been some disguising of, or non-accounting for, cash sales over this period, I was not taken to that evidence in the course of closing submissions.

230. Looking at the two matters together, they do not seem to me to have any more impact, combined, than they do individually. Whether considered separately or together, the concerns identified by Mr Bell do not seem to me to provide any basis for concluding that the financial records of the tenant are unreliable to the extent that Mr McCarthy’s calculations based upon them are not capable of proving what they show.

231. The remaining issue relating to quantification of loss of profit concerned the figure of avoided employment costs for which allowance should be made. It was common ground between the experts that employment costs are, to an extent, a function of turnover. It follows that as turnover increases, the number of employees required will increase; correspondingly, as turnover decreases, so will the number of employees required. However, as the experts agreed, the relationship is not “straight-line”, but stepped. Thus, as turnover increases or decreases, the number of employees will remain static for a time until the demands of the business require that the number be increased or decreased, as the case may be.

232. Mr McCarthy calculated a figure of $127,500 based on what he said were actual movements in employment costs. Mr Bell looked at a straight line comparison, and produced a figure of approximately $600,000.

233. Ultimately, the experts agreed “that the true figure probably lies somewhere between the two” [70] (that is to say, somewhere between Mr McCarthy’s figure of $127,500 and Mr Bell’s figure of “roughly $600,000” [71] ).

     70. T377.19-29.

     71. T375.1-6.

234. Counsel agreed that there was no rational or scientific basis by which the court could select a figure “somewhere between the two” as the appropriate amount of avoided costs to allow, in reduction of the gross loss. My strong impression from the evidence overall is that Mr McCarthy’s figure is a significant under-estimate of the proper amount of avoided employment costs, and that although Mr Bell’s methodology is flawed, it probably produces a figure that is closer to the mark. In those circumstances, I think, an allowance of $400,000 for avoided employment costs would be reasonable. In selecting that figure (which I acknowledge may be somewhat conservative), I take into account that the tenant could have adduced evidence that would enable a more precise figure to be calculated, but did not do so.

235. Since Mr McCarthy’s calculated loss of $1,443,000 took into account saved employment costs of $127,500, a further amount of $272,500 should be deducted, to reflect what I think is the proper allowance to make for avoided employment costs.

236. Were it necessary to do so, I would quantify lost profits, to the date of termination of the lease, as $1,170,500.

237. I note, as a possible issue that might require further consideration were the assessment of damages to become necessary, that I raised with Mr Hochroth, in the course of submissions, whether the tenant would be entitled to damages for lost profit in addition to being relieved of its rental obligations under the lease. Mr Hochroth submitted that there would be no element of double counting were this approach to be adopted. Mr Fernon did not address the point. It is unnecessary for me to decide.

Issues 19 to 23: s 34(1) of the Retail Leases Act

238. Section 34 of the Retail Leases Act provides as follows:

34 Lessee to be compensated for disturbance

(1)    A retail shop lease is taken to provide that if the lessor:

(a)    inhibits access of the lessee to the shop in any substantial manner, or

(b)    takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop, or

(c)    unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or

(d)    fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor’s control, or

(e)    fails to rectify any breakdown of plant or equipment under the lessor’s care or maintenance, or

(f)    in the case of a shop within a retail shopping centre, fails to adequately clean, maintain or repair the retail shopping centre (including common areas),

and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence.

(2)    In determining whether a lessor has acted unreasonably for the purposes of subsection (1) (c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices.

(3)    A retail shop lease may include a provision preventing or limiting a claim for compensation under the provisions implied by this section in respect of any particular disturbance if a written statement specifically drawing the attention of the lessee to details of the anticipated disturbance was given to the lessee before the lease was entered into, and the statement included the following:

(a)    a specific description of the nature of the disturbance,

(b)    a statement assessing the likelihood of the disturbance occurring, including an indication of the basis on which the assessment was reached,

(c)    a statement of the timing, duration and effect of the disturbance, so far as they can be predicted.

(3A)    A general statement to the effect that disturbances may occur during the term of the lease without setting out the matters referred to in subsection (3) is not a statement to which that subsection applies.

(4)    The provisions implied by this section do not apply to any action taken by the lessor:

(a)    as a reasonable response to an emergency situation, or

(b)    in compliance with any duty imposed by or under an Act or resulting from a requirement imposed by a public or local authority acting under the authority of an Act.

239. The tenant’s claim arises out of a redevelopment of the Centre which commenced in about mid 2013. It continued until the lease between the landlords and the tenant was terminated in July 2014. The work involved a staged redevelopment affecting all the Centre. However, only the western part of the Centre (that is to say the opposite end to that in which shop 2082 was located) was actually closed.

240. As a result of the redevelopment, the carparks were closed intermittently, there were works of demolition and excavation in the middle of the Centre (which was remodelled), the flooring around the Fresh Food Precinct was replaced, and the flow of pedestrian traffic through and around the Fresh Food Precinct was altered substantially from time to time.

241. As might be expected, the redevelopment prompted a significant number of complaints from tenants. Many of those tenants were given assistance, without admissions, by way of a “promotional allowance”. The tenant also complained, but received relatively little by way of assistance.

242. In my view, it is self-evident that the redevelopment had the effect of inhibiting or altering the flow of customers to shop 2082, and disrupting the tenant’s trading in that shop. The real questions are whether the inhibition or alteration to the flow of customers was “substantial”, whether the disruption was “significant” or had “a significant adverse effect”, and whether the landlords took reasonable steps to prevent that disruption.

243. The starting point is that the lease specifically reserved to the landlords the right to alter and manage the carparks and common areas. Clauses 16.1, 16.2 and 16.4 provided:

16.1   All Common Areas and Car Parks of the Centre are subject at all times to the exclusive control and management of the Lessor. The Lessor may establish, vary, and enforce reasonable rules and regulations about them and the Lessee agrees to comply with them.

16.2   With respect to the Common Areas and the Car Parks or any part of the Common Areas and Car Parks the Lessor may at any time:

(a)   construct, maintain and operate lighting facilities and landscaping facilities,

(b)   police Car Parks, prevent employee parking and discourage non-customer parking, construct surface, subterranean or elevated Car parks,

(c)   construct surface, subterranean or elevated Car Parks,

(d)   increase or decrease the size of Car Parks and Common Areas, change the location and composition of them, change the arrangement of parking spaces, and change the direction and means of access to them in any way or manner which the Lessor may choose,

(e)   close temporarily or permanently all or any part of the Common Areas and Car Parks if the Lessor thinks it is necessary or desirable to do so:

(i)   to reconstruct, maintain or repair the Centre or any part of it;

(ii)   to prevent either a dedication of it or them to the public or the accrual of any rights in any person; or

(iii)   to manage the Centre better,

(f)   construct buildings or improvements on the Common Areas and Car Parks,

(g)   do anything else which the Lessor thinks will be either for the convenient use of them by the customers of lessees of premises in the Centre of for the advertising and promotion of the Centre.

16.4   The Lessor may increase or decrease the size of, alter or reconstruct the Centre or any part of it other than the Premises.

244. The landlords submitted, and I find, that the works that they carried out in 2013/2014 were for the improvement of the Centre overall, and thus for the benefit of tenants generally (once completed), as well as of the landlords themselves (or Westfield).

245. I am not satisfied that there was any substantial effect on the flow of customers, significant disruption of trading, or significant adverse effect on trading. The only evidence (apart from impressionistic assertions from Messrs Panetta and Basile) that could permit some quantification of the effect of the disruption came from Mr McCarthy. He assessed a further drop in turnover during the time the works were carried out. However, when questioned as to this, he agreed that it was impossible to say to what extent it resulted from the renovation, and to what extent from other causes [72] :

     72. T324.1-.35.

FERNON:    Therefore one of the factors that may be a cause in relation to your total calculation for the period March 2011 to July 2014 is the issue concerning the Scentre renovations.

WITNESS MCCARTHY: That's correct, yeah.

FERNON:    That's in essence the large claim that I think you make of 1497, is the lost net profit ultimately that you say has been suffered from March 2011.

WITNESS MCCARTHY: That, that's correct.

FERNON:    Correct? And of that 1,497,000, that incorporates, potentially at least, matters relating to the Scentre renovation.

WITNESS MCCARTHY: That would be correct, yeah.

FERNON:    But you would agree with me that it's not possible simply to look at the figures to be able to say how much of that figure could be resulting from the Scentre renovation, how much could be resulting from store renovation, how much could be resulting from Franklins. Correct?

WITNESS MCCARTHY: That would be correct.

FERNON:    Or even how much could be resulting from other external factors.

WITNESS MCCARTHY: That would be correct.

FERNON:    Because as you say, the process that you did was more of a mathematical assessment. Correct?

WITNESS MCCARTHY: That's correct.

FERNON:    You didn't seek to identify causal matters in relation to--

WITNESS MCCARTHY: I wasn't asked to.

246. I note that the figures “1,497” and “1,497,000” reflect Mr McCarthy’s original assessment of loss overall, which he later revised down to $1,443,000.

247. It follows that the tenant has not proved any breach of s 34(1)(b), (d).

248. Further, to the extent that it remains in issue, I am not satisfied that the landlords failed to take all reasonable steps to prevent disruption or adverse effect on trading. There is no evidence that they carried out the renovations in an inappropriate or unduly disruptive fashion. To put it another way, there is no evidence of anything else that the landlords could have done (apart from abandoning the renovations completely) that would have diminished disruption or adverse effect.

249. The concluding words of s 34(1) of the Retail Leases Act direct attention to a failure on the part of a lessor to rectify “as soon as reasonably practicable after being requested in writing by the lessee to do so”. That is the subject of issues 20 and 21. The only requests in writing to which the tenant pointed are emails from Mr Basile to Mr Talbot Sanderson of Westfield, dated 10 June and 8 August 2013.

250. The earlier email referred to negotiations concerning “assistance” and its duration and amount, and said that Westfield had undertaken “to put together a proposal and revert within a few weeks”. It then referred to further apparent disruption arising from the blocking off of areas of the carpark, and asserted that this, whilst it might “prove to be beneficial in the long run”, was something that “is certainly having a detrimental impact in the short term”.

251. The email then stated:

We continue to keep Shop 2082 open only on the back of an expectation, which stems from meetings held late last year with Westfield representatives, of a reasonable assistance package being provided and Westfield working together with us to improve customer traffic.

252. There is nothing in the letter which amounts to a request to the landlords to rectify the matters. On the contrary, it seeks “a reasonable assistance package” and Westfield’s cooperation “to improve customer traffic”. I add, although it matters little, that it is difficult to see how meetings held late in 2012 could have anything to do with a renovation of the centre that apparently commenced in mid 2013.

253. The second email makes it perfectly clear that Mr Basile’s concerns were not limited to the renovations, but included also the alleged effects of the reopening of Franklins, selling FFV, in 2011. It recited, or perhaps more accurately, summarised, the complaints that had been made.

254. The email then sought “rental assistance” of “at least $50,000 per month”, for reasons which were said to have been stated earlier.

255. The email continued:

Our predicament is a direct result of the Lessor’s business practices:

1.   The Lessor failed to comply with its obligations in providing our Shop with the exclusivity for the sale of fresh fruit and vegetables as per the Lessor’s letter dated 27 October 2009.

2.   When we were entering into our current lease, the Lessor failed to disclose that Franklins would be significantly expanding its fresh fruit and vegetable section.

3.   There has been a significant drop in the number of people coming through the centre and through our Shop. This is very clear as it is directly reflected in our sales receipts.

4.   Recently due to the part closure of the parking area and redevelopment taking place within the centre there has been a further drop in people traffic through the centre.

256. Again, there is nothing in that email which amounts to a request to rectify within s 34(1).

257. I conclude that the tenant has not made good its claim under s 34(1) of the Retail Leases Act.

258. I add that the question of assessment of damages would be very difficult, given Mr McCarthy’s evidence as to the difficulty of extracting, from the trading figures overall, any decrease in turnover referable to the asserted impact of the lessor’s renovation.

Twenty-third and twenty-fourth issues: the orders to be made

259. It follows from what I have said that the landlords have made good their claim to damages in the sum of $3,537,040.50 set out at [69] above, together with interest. It follows, further, that since the amount of the guarantee has been taken into account, there is nothing to be set off against that sum by way of damages or compensation payable to the tenant.

260. Mr Fernon requested that I reserve costs, and I will do so.

261. The parties should prepare an agreed calculation of interest, and draft orders to give effect to these reasons and providing directions for the question of costs to be resolved. My present view is that costs should be decided on the papers, following an exchange of written submissions and any evidence relevant to the costs question.

262. The only orders that I make at this point are:

1. direct the parties to agree on the form of orders to be made to give effect to these reasons.

2. Stand matter over to 10am on 7 April 2017 for the making of orders.

3. Reserve costs.

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Endnotes

Decision last updated: 31 March 2017