Patek, M. v Lord Mayor Councillors & Citizens of Melbourne

Re: MICHAEL PATEK
And: LORD MAYOR COUNCILLORS and CITIZENS OF THE CITY OF MELBOURNE
No. VG148 of 1984
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Smithers J.

CATCHWORDS

Trade Practices - Misleading or deceptive conduct - lease of business premises - representation by landlord as to suitability and likelihood of success of business enterprise - necessity to review totality of conduct - measurement of damages.

Trade Practices Act 1974 ss.52, 82 and 87

Federal Court of Australia Act 1976 s.51A

HEARING

MELBOURNE

#DATE 20:8:1986

ORDER

The applicant is entitled to judgment on the applicant's claim for $44,995.00.

The respondent is entitled to judgment on the respondent's cross-claim for $17,066.34.

The amount of the cross-claim be set off against the applicant's claim and there be judgment for the applicant for $27,928.66.

The respondent's to pay the applicant's costs of and incidental to these proceedings less such of those costs as are referrable solely to the cross-claim and less also the amount of costs incurred by the repondent in respect of the proceedings solely referrable to the cross-claim.

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

JUDGE1

The immediate questions before me are whether the conduct of the respondent through its City Square manager, in negotiating for the applicant to enter into occupation of shop 8 in the garden lounge of the Square and to enter into a lease of that shop from the respondent was misleading conduct in trade or commerce, and whether by reason of that conduct Patek suffered loss and damage. The applicant's claim is based upon alleged breach by the respondent of the provisions of s.52 of the Trade Practices Act 1974, and also upon alleged breach of warranties entered into by the respondent.

The respondent conducts the Melbourne City Square. That Square is in three compartments, first an open concourse where open air public meetings, demonstrations and concerts are held, second, shops which are for the main part directly accessible from the open concourse and third, shops in and about an area called the garden lounge. This garden lounge is a substantially enclosed area where there are ferns and shrubs, a running water channel and water spouts and arm chairs for the use of patrons. Access to this lounge may be had by means of an escalator running a substantial distance down to it from the Collins Street footpath level. The lounge area may also be approached from Flinders Lane, but this is of no relevance. The number of people who might approach the lounge from that direction is for relevant purposes negligible. Access to the garden lounge may also be had from the open concourse. But, the opening into the lounge from the concourse is screened from the general area of the concourse by a cascade wall making it, in the words of Mr. Doyle the Square Manager, "difficult to find, the discovery part of it being a prime handicap". One would not find the commercial area of the garden lounge without what was called an exploratory exercise.
It is of importance to notice that the garden lounge is essentially a terminus. One goes there either by accident or exploration, to use it as a lounge, or to visit a shop of which in some way one has acquired knowledge. It is not on the way to anywhere. The number of people who might travel from Collins Street to Swanston Street by way of escalator, through the lounge and into the open concourse to reach Swanston Street would obviously be of no significance.
These proceedings concern premises known as Shop 8 which is situated in the garden lounge furthest from the escalator and the last shop on the right as one enters the lounge from the open concourse. It is one of the largest shops in the complex. Altogether in the garden lounge complex there are fourteen shops.
The Square was officially opened in 1980. Shops were let and rentals fixed at a level that turned out to be much too high. The result was a general lack of prosperity, in fact real financial difficulty to the tenants. An all round reduction in rents was agreed upon. However, it seems clear that save for the hairdresser a satisfactory level of financial return was never established by any of the tenants. The situation existing in about March 1983 was was described by Mr. Doyle as being, one of "doom and gloom that I was being beseiged with by the other tenants", the other tenants being persons other than the applicant.
Into this somewhat "negative" commercial situation Mr. Patek arrived with promise of a colourful presentation which could possibly change the air of near despair which permeated the garden lounge. He came with a desire to display in Melbourne the "Treasures of the Forbidden City". He was the owner of Chinese artefacts, colourful, aesthetic, delicate and refined examples of oriental culture. He had come upon the garden lounge early in 1983 and was charmed by it. As he said:

"I was surprised to find the environment there. I was quite intrigued by the atmosphere there. It had an artistic nature about it. I saw possibilities in the Square ... I was surprised to find several empty shops ... What surprised me most was an empty shop, a very large impressive facility which was No. 8 that was at the far end of the garden lounge facing Flinders Lane. ... I must say I was very partial to the environment. I saw possibilities there. There was a considerable amount of construction work in the complex. It was very noisy, very dusty ... I viewed Shop 8 fairly closely, I saw a lot of rubble ... but it looked relatively dismal. It was a rather dormant area of that section in the garden lounge."

At that stage the applicant was contemplating setting up an exhibition of Chinese artefacts in Melbourne either for a short period or on a permanent basis. Having seen the Square and the garden lounge and with this in mind he called at the office of Mr. Doyle who was the Manager of the Square including the commercial sections thereof. He showed Mr. Doyle photographs of what he had to display and told him what he had been doing with it in Canberra, Sydney, Perth and other places in Australia. Mr. Doyle was interested and impressed. The applicant and Mr. Doyle discussed the possibility of the applicant setting up his display in Shop 8. There were various aspects to be considered. Notwithstanding the applicant's early attraction to the environment it was clear to him and well known to Mr. Doyle that, visually, the garden lounge was essentially dull. Mr. Doyle knew that the lounge area was the favourite haunt of young and probably unemployed youths who stayed for long periods smoking, eating and drinking and whose presence and behaviour were calculated to deter, from entering or staying in the lounge the more mature persons to whom the Chinese artefacts might have any appeal. The youthful persons whose wont it was to gather in the lounge were unlikely either from desire or financial resources to purchase Chinese cultural objects. The extent of the intrusion of these young persons into the lounge was rather played down by Mr. Doyle who explained the presence of a number of them as due to the school holidays.
It was apparent also that the noise level was extremely high. "Incredible" was the word Mr. Doyle used to describe it. This noise came from the water fountains and the ventilation system. The nature of the shops in the lounge commercial area was of the more domestic kind. There was a hairdresser, a rather unattractive florist, a shop selling sheep skin rugs and garments, an icecream parlour and a fast food purveyor. The clientele attracted by these shops was not necessarily likely to be interested in Chinese culture. It was apparent that although large numbers of persons used the Square the great bulk of them would never go to the garden lounge unless they wished either to sit and smoke and eat or to patronise one of the shops known to them. It was clear that to entice persons into the garden lounge for general shopping novel and imaginative initiative was necessary. And Mr. Doyle was well aware of this. He had been appointed as Manager of the Square, one of his functions being to raise the standard of the shopping complex in the garden lounge area. The difficulty was the dull, cold, second grade grey bluestone which had been used, the attraction of the area to the unattractive idle youth, the lack of attraction to general shoppers of the classes of business offered by the existing shops and the fact that the garden lounge was screened from the Square and was not on the natural way to anywhere. Notwithstanding these matters so far as he understood them the applicant exhibited an enthusiasm for bringing his display into shop No. 8 but there is no doubt that his continuing enthusiasm was reinforced by a partiality which he developed for Mr. Doyle and what Mr. Doyle had to say. Mr. Doyle explained his private enterprise background and his desire and intention to lift up the commercial area of the Square to a high standard. He pointed out that the location, being the centre of Melbourne, was the prime location for business. One of Mr. Doyle's great difficulties in raising the standard of the complex being its general lack of attraction to general shoppers. He had been unable to persuade any of the major retailers to enter into occupation of any of the shops in the garden lounge or even put a display into empty shops. He could let the shops to pin ball proprietors, body painting entrepreneurs, persons offering tattoos and coin operating machines but not to Myers, Woolworths, David Jones or other established major retailers. There is no doubt that he saw the applicant's proposed colourful and attractive presentation as having potential to "start", not the revitalisation of the area, but the vitalisation thereof. As he said "I regarded Mr. Patek's shop as most attractive. ... I was saddened by the fact that we had in shops 4, 5 and 6 a business which inhibited the development somewhat, but I felt that we could counteract this if we had a substantial well presented display in shop 8".
Mr. Doyle and Mr. Patek discussed the project for a long time. Mr. Patek urged that the display could have far reaching effects in the Square and that there was a relationship between the display and the running water in the garden lounge. Mr. Doyle was most impressed and said he would welcome Mr. Patek's interest and looked forward to hearing more. Mr. Doyle said, that Mr. Patek was extremely enthusiastic, he had beautiful things to display which he, Doyle, was delighted to see, and that he looked forward to it coming to the Square. Further, "we did have a problem in the City Square. I was looking for solutions. We had contacted the larger emporiums in town and they were not interested in putting in small shop displays and we needed to get a specialty style of shop moving in the area".
And it is clear that not only did Mr. Doyle welcome Mr. Patek's interest but he encouraged that interest and encouraged Mr. Patek to think that the project had good prospects of success. In particular on 8 March 1983 Mr. Doyle wrote to Mr. Patek thanking him for his submission of 10 February 1983 to use shop 8 as a venue for an exhibition of oriental art and craft, and continued:

"The proposal is very interesting and it is felt that, provided agreement can be reached on financial consideration, considerable benefit could accrue to both parties.

As you are aware, the Plaza garden is an ideal situation for such a display as the Square is in the centre of Melbourne and attracts a large number of people each day.

Shop 8 being 2170 square feet, plus a small storage area, is the largest shop in the complex and has a glass frontage of 24 metres. Facing as it does the Garden area, your exhibit would be in pride of place.

As you know, a tavern is being constructed above the Garden area and when this is completed in June/July this year it will be a powerful drawcard for the commercial area of the Square. Naturally during construction there will be some inconvenience to tenants below the development.

For this reason the Corporation would be prepared to offer a reduced rental for a six month period of, say, $1000 per month and waive the operating costs and promotional levy. Similarly during this period, which would be covered by a licence to use, no charge would be made for rates and taxes. Therefore, the only additional cost to the $1000 per month would be for electricity and telephone.

Naturally you would have insurance coverage for your exhibits, but we do have security guards on duty from 0700 until midnight when a mobile patrol takes over. As I mentioned to you, the Plaza Garden area is open until 8.00 p.m. Monday to Saturday with the exception of Friday night when it closes at 9.00 p.m. and Sunday when it is kept closed.

Provided these terms are satisfactory I will formally submit your proposal to Council for it's approval. So that this can be achieved at an early date I would be grateful for your early advice."

It is apparent from the terms of the letter that Mr. Doyle had already conveyed to Mr. Patek the significance of the central situation of the Square as ideal for Mr. Patek's proposed display. It confirmed that Mr. Patek would have pride of place in the complex, that the plaza garden attracts a large number of people each day, that the tavern will be a powerful drawcard for the commercial area of the Square. It would be difficult to devise a more persuasive sales talk. And it is clear that it was intended to influence Mr. Patek in deciding whether or not to proceed with the project. There can be no doubt that it reflects the content of the conversations which preceded it the most important of which was that for reasons including those referred to Mr. Doyle regarded the project as a reasonable commercial venture for Mr. Patek to enter upon. It may be that Mr. Patek had been brimming over with enthusiasm about the beauties of the garden lounge, but there arises from this letter an inescapable inference that Mr. Doyle had not been a neutral recipient of Mr. Patek's enthusiasm. He reciprocated it in full measure. He wanted Mr. Patek's display in the lounge. The evidence of Mr. Patek that Mr. Doyle said to him that he regarded the project as likely to succeed and encouraged him to enter into it is confirmed. And the message of the letter of 8 March is never withdrawn or qualified in later correspondence. There are warnings to Mr. Patek to consider the project well before committing himself, but there is also continuing encouragement.

Thus on 21 March Mr. Doyle writes that the tavern works are proceeding with expedition and permit a commencement of the proposed six month period on 1 May. He points out however, that it would be counter productive to remove Mr. Patek's exhibit in the prime selling period, namely, Melbourne Cup time and Christmas so that an extension of the lease on the basis of a 3% gross turnover should be considered. He points out that as the area is patronised from 7.00 a.m. to 24.00 seven days a week there would be no problem in Mr. Patek's staff being in the shop after normal closing time. And he looks forward to further discussions with Mr. Patek covering the display of his exhibition and invites enquiry on any points requiring elaboration.
On 28 March Mr. Doyle wrote that the works have proceeded so well that Mr. Patek should have clear access by mid-April and an opening in mid-May. He is proffering his assistance if there are any problems and is looking forward to seeing the display. On 8 April Mr. Doyle urged Mr. Patek not to be disturbed by adverse comments about the garden lounge, in particular about the presence of the young people therein. He wrote:

"I am pleased that you perceive the beauty of the Garden Lounge, despite the adverse comments made by some of our traders. Without undue cynicism, as Manager of a commercial complex it is rare to find a satisfied tenant. The profile of the desirable client differs widely between the ice-cream parlour and the seller of sheepskin products costing several hundred dollars. Certainly the average age of people in the lounge would be in the twenties, but like all averages this can be misleading. From your advice your exhibit should attract the attention of persons of more mature years."

He pointed out:

"You made mention of the empty shops in the area. At this point I have only one other shop, No. 13, which is untenanted. Certainly there are others in the Plaza Concourse, but negotiations are in train for most of these.

The letter continued as follows:

"You made some observations about the usage of some of these and the idea of a tea house is attractive. Unfortunately none of the availabler premises have ventilation facilities suitable for this purpose.

I agree with your comments about the flower shop. Regrettably the present occupant has not proven satisfactory and in May the premises will be taken over by a more substantial tenant, well known in the floral supplies field.

I also like the idea of the Nut Cracker. This would fit with the location of shop 13 and if you have a contact with a person interested in entering this type of business I would be delighted to speak with them.

I note your comments about the Regent, but unfortunately it is difficult to balance the revenue to be obtained from an exhibition/ convention centre against the heavy capital expenditure to bring the derelict theatre up to modern day standards required by the public health authorities, let alone refurbishing the premises.

I have discussed the display wall to Flinders Lane entrance with the management of I.C. Creams Pty. Ltd. They will be most pleased to co-operate with you on this matter.

The use of the exhibition area outside shop 8 will require careful planning, not only to ensure free passage of pedestrians, but to provide security of the display.

I look forward to discussing with you a suitable dressing of the general area to attract more people to the display. Naturally, we will have to take great care in this area and I would suggest that on your next visit we bring the Corporation's Senior Architect into the discussions to take note of his professional advice.

The works associated with the tavern have almost been completed in shop 8 and I should be able to allow you access by mid-April. The rental will commence as from the opening date.

Parking is not available within the complex. We have a loading bay which all tenants may use, but vehicles must not be left in the area for protracted periods.

I note your comments about extension, but must advise that Council would not be prepared to extend the initial arrangement for a protracted period.

I trust that the foregoing provides the information sought in your two letters.

A commercial decision on such matters can only be left in the hands of those required to make it. From my part I will give you all the co-operation I possibly can as I have no wish to see a venture such as yours fail within my complex"

That was the last letter from Mr. Doyle to Mr. Patek before Mr. Patek went into occupation and thus committed himself to the project. It is important that Mr. Doyle's observations about the significance of the young people in the complex are couched in terms calculated to quell any anxiety Mr. Patek might have felt on this account. Having regard to the facts known to Mr. Doyle these observations lack frankness. The presence and conduct of the apparently unemployed lounging, smoking, eating and drinking youths in the garden lounge was known to be a major handicap to the use and development of the garden lounge as a commercial area, and it was obvious to Mr. Doyle that they would be a distinct deterrent to the mature people who might in any event have been attracted to the lounge area, and in particular to enjoy the delights of oriental refinement to be offered by Mr. Patek. And Mr. Doyle would have had no confidence that the young people could be persuaded to stay out of the lounge. He was concerned that any restriction would be seen as an unjustifiable invasion of the freedom of the individual. The Council was not prepared even to put up "no smoking" signs.

In the letter of 8 April Mr. Doyle sought to put Mr. Patek at ease about the vacant shops, he referred to the impending replacement of the dowdy florist by a well known substantial tenant. He welcomed the idea of a nut cracker shop and also the proposed display wall to Flinders Street. He looked forward to discussing a suitable dressing for the general area to attract people to the display. He indicated progress with the Tavern and promised to give "all the co-operation I possibly can", as he "has no wish to see a venture such as yours fail within my complex". The letter refers to some less favourable aspects of the project and indicates that it is of course for Mr. Patek to make the decision. But taken as a whole the letter is one of encouragement to Mr. Patek to proceed with the project and it does nothing to qualify in any way the expressed view that the project could be of considerable benefit to both the Council and more importantly, to Mr. Patek, that it was regarded by Mr. Doyle, at least, as a commercial operation that might reasonably and sensibly be undertaken by Mr. Patek.
The inference from the correspondence is clear. Mr. Doyle unequivocally encouraged Mr. Patek to believe that the project held out good prospects of success. The inference arising partly from express words and partly by implication is equally clear, namely, that Mr. Doyle believed that the project would succeed. The evidence of Mr. Patek is that in the early conversations Mr. Doyle was most enthusiastic about the project and assured him that there were developments taking place which would be very important to the Square becoming the most important shopping complex in the centre of Melbourne, that shop 8 was in a prime location and that the Council's intention was that only the very best tenants would be coming to the Square. I accept this evidence. I think Mr. Doyle did not say there was a waiting list of such potential tenants. I believe that he said that tenants were available, but the Council being selective as it was determined to achieve only the highest class of tenants. I believe he painted a rosy picture of such tenants soon being recruited. It was true that there was a waiting list of a sort, namely, of pin ball parlour proprietors and the like but there was little prospect of any of the major or high class Melbourne retailers seeking tenancy in any part of the Square. I believe that Mr. Doyle encouraged Mr. Patek to come to the Square and to incur the inevitable heavy expense of doing so. I believe he told Mr. Patek that it was his view that his project would do exceptionally well.
This optimism was in contrast to the existing atmosphere of doom and gloom which at that time and had for so long pervaded the commercial entities in the garden lounge. It failed to reflect the failure to entice any of the major city retailers to interest themselves in the garden lounge. It ignored the fundamental elements in the situation, namely, that whatever Mr. Patek might think of the beauties of the lounge it was inherently dull, drab and unattractive, that it had no inherent attractiveness to persons likely to be interested in general shopping, that it was rather cave like, hidden from the generality of persons visiting the Square and that it had a serious problem of noise and ventilation and that for practical purposes there were no parking facilities. It ignored that the commercial history of the lounge was one of failure rather than success. It becomes clear that all the confident predictions of Mr. Doyle were really based not upon what the Council would do for the garden lounge but upon what he hoped Mr. Patek would do for it. But to Mr. Patek there was conveyed the notion that the Council was about to enter a new era with respect to the garden lounge and that Mr. Doyle regarded success for Mr. Patek as assured. There would be promotion and Council co-operation to bring this about. Mr. Patek became very "partial" to Mr. Doyle as a private enterprise person fired with enthusiasm for enlivening the garden lounge and confident that Mr. Patek's oriental display would be a financial success. And Mr. Doyle acknowledged in evidence that from the relevant conversations Patek might have gained the impression from him that he and Patek were to co-operate together to revitalize the complex. Mr. Doyle would suggest that all the confident forecasts of successful exploitation of the garden lounge came from Mr. Patek and that Mr. Doyle was entirely neutral. But the evidence of Mr. Patek supported by the correspondence is to the contrary and I accept it to be to the extent mentioned above.
It is perfectly clear that Mr. Doyle was delighted at the emergence of Mr. Patek with his colourful oriental display. Such a display could not fail to brighten up the lounge. It is my view that in discussing the Square as a commercial entity Mr. Doyle failed to address the unfavourable reality of aspects of the proposition, and did his best to ensure that Mr. Patek proceeded with the project. And there might well have been nothing misleading or deceptive about this, if, when Mr. Doyle gave Mr. Patek to understand that he believed that Mr. Patek's project would succeed he really believed it would. It is my view however, that although Mr. Doyle hoped that Patek would succeed, he did not believe it. He did not believe that the proposal was viable, or that, looked at with commercial reality it was a reasonable proposition. And this was the state of mind of Mr. Doyle notwithstanding that the construction of the tavern was in contemplation. I am led to this conclusion by a number of considerations. First, the nature of the display as a cultural exhibition of beautiful art objects was utterly out of harmony with the garden lounge, its atmosphere and the people who frequented it. Second, there was no real chance of eliminating those elements of unemployed, smoking, eating, drinking and sometimes poorly behaved youth. While they were there, the kind of people who had cultural or even general commercial interests were deterred from using the garden lounge. Third, the classes of shops in the garden lounge either catered for the eating and hairdressing requirements of the unemployed youths or were otherwise incompatible with a cultural centre. Fourth, the prospects of the tavern being anything of significance for Mr. Patek's project were in reality anything but bright. The tavern was on a different level of the Square outside the lounge. To proceed from the tavern to the lounge involved a journey of some distance in a circuitous route. The only relationship between the lounge and the tavern was a tavern drinker who went to a particular portion of the tavern and looked down might glimpse one or more of Mr. Patek's artefacts.
Fifth, there was no intention on the part of Mr. Doyle to do anything of a new and radical nature in the management of the Square in relation to promotion or the search for suitable tenants which might have changed its character for the better.
Sixth Mr. Doyle knew that he was subject to bureaucratic control which restricted what he could do in co-operating with Mr. Patek to promote the project. Mr. Doyle's concept of improvement that might have occurred in relation to the classes of tenants in the lounge was improvement would come, if at all, almost entirely from the hopefully good effects of the presence of Mr. Patek's project. The following extract from the evidence of Mr. Doyle illustrates this:

"HIS HONOUR: All I am saying is this: in this letter it is clear that he expects to co-operate with you? --- Yes.

In doing something? --- Well, my expectation there ---

Just grapple with that; that is clear, is it not? --- Yes, sir.

...

He is expecting you to do something, is he not, as well as himself? --- I am sorry, sir, I do not follow your point.

He says he is prepared to co-operate with you wherever possible to create a development? --- In that case, I see it as me, as a representative of the landlord, making available space to Mr. Patek to present his display.

But how is that co-operation with you? It seems to me that he is saying to you: you and I are going to do something together. Well, perhaps he is not - co-operate with you - to create a development. Well, I do not know. It seems to me that he is looking forward to you and he doing something together? --- Well, my point there, sir, is that Mr. Patek was aware that I wanted to improve the interior of the garden lounge and he is offering his co-operation in bringing down this showcase display to help me achieve that objective.

Yes, and how were you going to do it? What were you going to do to improve it? --- To improve it, it would be improved in that context by the presence of Mr. Patek's display in a presently untenanted and vacant shop and this would introduce colour.

Well, the only improvement was going to come about on that basis was what Mr. Patek was going to do? --- Yes, in that area.

Yes."

Seventh, unfortunately Mr. Doyle did not regard Mr. Patek's proposal as viable although he hoped it might be.
Evidence that Mr. Doyle did not regard the project as viable was given by Mr. Brench a former property officer employed by the Council who was called to prove that Mr. Patek must have known that the view of the Council Officers was that his project could not succeed and that he went ahead in defiance of that opinion. When Mr. Brench gave his evidence Mr. Doyle had completed his testimony. There was no suggestion that Mr. Doyle was recalled to explain or qualify what Mr. Brench had said as to his view of the viability of Patek's project. And after considering the evidence of Mr. Doyle himself, I have come to the conclusion that he told the Court, in substance, that he did not regard Patek's project as viable. The following passage of evidence is relevant:

"MR NETTLE: Did he say to you orally that he was totally unaware of the scale and the dimension of the shortcomings of the square when he came into it? --- Yes.

Did you respond at all to that allegation orally? --- Yes.

What did you say to Mr. Patek? --- I said that Mr Patek had had a great deal of chance to see the actual environment as it existed before he entered into the arrangement, and I could not understand why at this stage he brought that out again.

Do you suggest that he was aware of the scale and dimension of the short-comings? --- I believe so.

I ask you to go to folio 101 ?

HIS HONOUR: Just before you go over, if we look at the next paragraph he says: I have also reason to believe that I am the very first tenant that has shown the ability to bring into the ailing garden lounge patrons that would normally never enter this area, I suppose that had some truth? --- Yes, certainly truth in that.

The whole trouble is that he should never have been in your complex at all? --- That is one of the feelings we had.

You must have known that it is hopeless from the very jump; immediately you saw the photographs of his chinese screens - why he did not know, I do not know? --- May I suggest ---

Did you not think it was pretty hopeless? --- The arrangement was on a short term basis. It was an exhibition, as we were thinking; the aims and ambitions of the city council and myself were to turn the problem around and develop it into a reasonable centre. The development of the centre has got to start somewhere. It may be put that if you put in a shop of slightly higher character to those that are there, it is a step in the right direction. If you try and turn the thing in the short term by a short term exhibition - I should point out it was termed an exhibition area rather than a retail outlet - this is surely a start. It was on a short term basis that Mr. Patek was saying at that stage he wished to transfer his operation to Melbourne. If it was successful, he would like to take up the long term lease in the square and this was an option. He had been told of the problems associated with it. Alternatives had been suggested. He persisted with his project. It gets to be a very interesting situation, as the manager of the facility, to tell another person that as a specialist in his area, that he does not know what he is talking about.

I am still waiting to get an answer from you. You did not give me a direct answer. Did you not think it was hopeless? --- I never regard things as hopeless.

This particular thing - who would go and buy his products - none of those teenagers? --- The proposal which was put forward is that at the exhibition stage that it would have a great deal of publicity. It had great success in other areas and in effect, it could add a dimension to the city square which it needed."

The question put to Mr. Doyle in this passage invited a simple answer. To my mind, Mr. Doyle deliberately avoided it. In the longer passage he approached it first by saying in effect that the council wanted to develop the garden lounge into "a reasonable centre", and that it had to start somewhere and the exhibition was surely a start. All this was quite irrelevant to the question and the implications are clear. That Mr. Patek persisted with his project was hardly relevant. The observation, "I never regard things as hopeless"was a sort of confession and avoidance. The final statement that "it gets to be an interesting situation, is the manager of the facility to tell another person, as a specialist in his area, that he does not know what he is talking about" proceeds on the basis that if Mr. Doyle had thought the project hopeless he would not have said so and carries the implication that that was what he did think. The observation in question is sound enough in ordinary circumstances, but not where, as in this case, Mr. Patek's project was seen by both parties as an exercise directed to the regeneration of the garden lounge in which the Council and particularly its Manager of the Square was vitally interested and one with which the Council was anxious for Mr. Patek to proceed and spend the considerable sums involved, and was encouraging him to do so. It is important that Mr. Doyle conceded that from the conversations between him and Mr. Patek he knew that Patek could have gained the impression that the proposal was that Mr. Doyle and Mr. Patek should join in a co-operative effort to make the garden lounge a high class commercial centre. In my view Mr. Doyle knew that Patek did gain this impression and on good grounds.
In the context the statement by Mr. Doyle "I never regard things as hopeless" seems to reflect an irresponsibility or irrationality incompatible with the reality of the situation. It accords with what is to be gathered elsewhere in the evidence that Mr. Doyle's real attitude was that, although he believed that Mr. Patek's project could not be a success so far as Mr. Patek was concerned, he hoped it would be, but in any event, it was a start in the upgrading of the garden lounge commercial area. And it might have been one thing for Mr. Doyle to refrain from telling Mr. Patek that he regarded his project as hopeless, but it was quite another for him to tell Patek that he regarded it as sound and reasonable. And I am satisfied that he did this verbally in their conversations and of course he did so expressly in the letter of 8 March and inferentially confirmed it in his subsequent letters. That Mr. Doyle should have believed in the probable success of Mr. Patek's venture was important both for the immediate stimulus it provided to Mr. Patek and for the substance and reality it gave to the respondent's assurances of co-operation. It was important also as an element in the spirit in which Mr. Patek understood quite reasonably that the respondent was entering into the transaction.
In the light of the foregoing I am led to the conclusion that the respondent's conduct in the negotiation leading to the transaction between it and Mr. Patek was misleading and deceptive. Patek was led to believe that it was the view of Mr. Doyle that, from a commercial point of view, the project to bring his exhibition to shop 8 of the garden lounge was one that could reasonably be undertaken by him, that it had reasonable prospects of success and could be expected to succeed. I am satisfied that the belief of Mr. Doyle, was to the contrary, that the project was not one which, from a commercial point of view, it was reasonable for Patek to undertake and that there was never any reasonable prospect that it would or could succeed.
As to the prospects of success the history of the complex, the physical nature of the garden lounge, its secluded situation off what one might call the beaten track, its dullness, its noise level, its lack of ventilation, its provision of fast foods for unemployed unattractive youth, the presence of such youth in numbers likely to deter the class of person possibly sufficiently interested in oriental art to buy it, all contributed to render the project hopeless. The situation was well described by Mr. Burnett a project architect employed by the Council, who said:

"What did you say to Mr. Patek about that? --- Items that I pointed out were that one, the shop was virtually landlocked because it was in the back of the garden lounge and there would not be that much passing trade; two, that the adjacent businesses probably would not result in much spin-off of Mr Patek's business which was a high class product and the adjacent businesses were probably aimed at the lower socio-economic group than Mr. Patek would have been aiming at; third was the socio-economic grouping of the people which were congregating in the garden lounge and using the city square. There was particular reference made to the south end of the square where there are record shops and so forth and a lot of young people would congregate there, listen to music with their ghetto blasters and so forth."

And the evidence of Brench and Mr. Burnett that it was, in their view, not a viable project confirms the inference which would arise in any reasonable man looking at the objective facts concerning the introduction of gentle works of oriental art into the so called garden lounge.

It is pointed out that most of the disabilities of the garden lounge were known to Patek, in general, at least, before he committed himself to the project. And it follows from the foregoing that if, commercially speaking, he had been a reasonable man, he would have refrained from entering upon the project. Mr. Patek is a most unusual man, intelligent, proud, and with a strong belief in the drawing power of his artefacts. And the question is whether the losses which he suffered from entering into the project were the product of his own judgment not influenced by the conduct of Mr. Doyle or whether they were, in the words of s.82 of the Trade Practices Act 1974 suffered by the conduct of another person.
If the proper inference is that but for the conduct of Mr. Doyle outlined above Mr. Patek would not have entered into the project generally and signed the lease and that the conduct of Mr. Doyle was a materially operating influence in Mr. Patek deciding to go on with the project then s.82 is satisfied. Mr. Patek swore that he was induced to enter into the project by various statements made to him by Mr. Doyle. Thus:

(a) that the tavern when constructed would attract large

numbers of suitable persons to the City Square;

(b) that there would be developments additional to the

tavern in the promotion and advertising that would be very important to the shopping complex becoming the most important in the centre of Melbourne;

(c) that the shop would be in a prime location;

(d) that only the very best tenants would be coming into the

City Square and that some people were waiting for shop tenancies;

(e) that Mr. Patek would do well if he took shop 8 as it was

the central location of Melbourne;

(f) that the China relationship was important to the City

Council;

(g) that many people including tourists vital to Mr. Patek

came into the square;

(h) that he would bring in the best quality tenants to the

City Square.

Mr. Patek swore that it was not only those actual statements and those in the correspondence but the general tone of optimism and the spirit which was exhibited and communicated to him by Mr. Doyle in his enthusiasm for the development of the complex to the highest standard and the part that Mr. Patek was to play in this which induced him to enter into the project. I accept this.
As to the truth of these statements item (a) was true and (b) was probably true. Item (c) could be true only in an irrelevant sense. Shop 8 was as near to the centre of the city as one might be, but, as a statement made in the context of considering whether shop 8 was a good place to set up Mr. Patek's business, it meant nothing. That particular part of the centre of Melbourne had been so unhappily designed and operated that its location for Patek's business no matter how central, was most unsuitable.
The first part of item (d) was a statement of hopeful intention possibly true. I treat the second part as not being made or understood in the sense that suitable potential tenants were waiting for tenancies. I consider that the statement referred to in item (e) was made and understood in accordance with the natural meaning of the words used.
Item (f) was true in a limited sense. Item (g) may or may not have been true. If it was true then it was so only in the most limited sense. Save with respect to item (e) it is not the truth or falsity of those statements which is important in this case. For instance, Mr. Patek did not believe that the Tavern alone would convert the garden lounge into a satisfactory commercial complex. But all the statements concerning the probable effect of the tavern and the other statements in items (a) to (h) went to confirm to Mr. Patek that Mr. Doyle believed that Patek's project would be a success.
Item (e) carried with it, by inevitable implication, the assurance that Mr. Doyle believed that the project would succeed. Every statement of an encouraging nature following upon item (e), such as those in the letter of 8 March, those explaining that disparaging statements made by tenants about the age of the youths who frequented the lounge were based on a fallacy, those indicating that by Christmas there would be a waiting list for tenants tended to confirm that Mr. Doyle believed that Mr. Patek could enter the lounge with confidence, that Mr. Doyle believed it would succeed. No doubt Patek would connnect this with assurances of co-operation, which were made to him. He would be operating in a co-operative environment with Mr. Doyle in their common objective. And the vital matter was the assurance of that belief. Mr. Doyle understood the problem, he knew what had to be done. If he thought the project would be a success that was because he envisaged co-operation between the Council and Patek which, with Patek's contribution, would enliven the garden lounge. It was the spirit of co-operative achievement communicated by Mr. Doyle to Mr. Patek, manifested in statements such as those from (a) to (h) and the correspondence which confirmed Patek's partiality to the project and induced his decision to proceed with it. I am quite satisfied that had Mr. Patek been received in non-committal bland terms by Mr. Doyle he would not have proceeded with the project. The reciprocal spirit of co-operation, enthusiasm and encouragement was vital. That spirit was manifested in assurances of belief in success which were misleading because they were not true. It was encouragement to Patek to proceed which stamped the conduct of Mr. Doyle as misleading. He could only honestly encourage Patek to proceed if he believed the project would succeed. Accordingly, the loss suffered by Mr. Patek was suffered by the conduct of another person.
The actual statements attributed to Mr. Doyle may not fall within the particulars of representations in para. 9 of the further amended statement of claim, save to some extent under item (i) which is to the effect that the respondent represented that the applicant would be well advised to enter upon the project. I accept that the representations (a) to (h) were made and those together with those in the correspondence contributed to confirm the applicant's belief that the project held out good prospects of success. And I believe that this confirmation played an operative part in the applicant's decision to enter upon the project. In the mind of Patek the success of the project largely depended upon the attitude of the respondent to the task of raising the standard of the garden lounge commercial area. All the statements about the attitude of the respondent tended to create the belief in Patek that the rejuvenation of the area was a prime objective of the respondent. Indeed as late as 12 July 1983 Mr. Doyle is referring to that objective as "our common purpose". This general note of optimism was important. It was probably this which sustained Mr. Patek in his faith in the project in the face of doubts of his "associates". Although he fell in love with the garden lounge he was not blind to its disabilities. Had it not been for the enthusiasm conveyed by Mr. Doyle to Mr. Patek I do not think Mr. Patek would have persisted. He says he was caught up in Mr. Doyle's spirit and I believe that. Had he met a dull neutral response from Mr. Doyle, which would have been the case if Mr. Doyle had spoken according to his true belief, I believe, Mr. Patek would not have taken shop 8.
Unfortunately, Mr. Doyle intended to do nothing more in the way of promotion and advertising that was in any substantial way different from what had formerly operated. So far as emphasis had been placed by him, by way of encouragement to Mr. Patek, on shop 8 being in a prime position in the City of Melbourne that emphasis was really spurious. If it meant anything it meant that, commercially speaking, shop 8 was in the prime situation. Nothing could have been further from the truth. And except in the context that basic changes in the management of the complex were contemplated such emphasis was misleading and deceptive. Yet emphasis was repeatedly laid on the prime quality of the location.
It is said that so far as there might have been created a notion that Mr. Doyle and Mr. Patek were to be partners co-operating in the rehabilitation of the complex, Patek had realised from the refusal of the Council to waive electricity costs that "our project exercise is now viewed as a purely commercial matter". This was expressed by Patek in his letter of 12 April 1983. But putting this at its highest this does not mean that he considered that Mr. Doyle had ceased to believe in the fundamental viability of the project and withdraw the encouragement previously extended or that the Council had decided to abandon its intention to take active and effective steps to upgrade the garden lounge complex and obtain only the very best class of tenants. Not too much is to be read into Patek's expression of disappointment at the decision about the electricity charges. His letter of 12 April continued after the observation quoted above, "If this is the case then we must reconsider our Melbourne options".
Mr. Doyle's reply of 18 April 1983 was that notwithstanding Mr. Patek's comments the Council's attitude about the electricity charges and its statement that an extension of the lease would not be on the intitial low rental, the Council's attitude on those matters would not change. It is to be observed, however, that in that letter of 18 April the general tone of encouragement is maintained. Thus, Patek's ideas for improvements to the lounge have been passed to the city architect for consideration, the Parks & Gardens experts are examining a replacement programme for the dying trees in the main entrance, Shop 20 will shortly be taken over by a top level florist and "we can look forward to a rapid improvement in this area", by Christmas the entire complex should be operating and "from enquiries currently in hand we should have a waiting list for tenancies". The tenancies referred to are to be understood as suitable tenancies under the upgrading policy. Other than the interest of the florist there is no evidence of actual enquiries suggesting that by Christmas there would be suitable tenants waiting for the opportunity to enter the garden lounge.
The letter of 18 April 1983 concludes with the intimation that "the works for the tavern through shop 8 are partially complete, and if the proposal is to go ahead, I could allow you access by the end of this month". Co-operation and good news are the keynotes on the practical matters relating to the project in answer to Patek's suggestion that he might not proceed.
In the final paragraph Mr. Doyle said, "I would therefore counsel you to critically evaluate the proposal now before you are totally committed and let me know your decision". There is no written reply to this letter, but it is to be inferred that Mr. Patek's decision to go ahead was made shortly after 18 April. It is to be inferred that he did critically evaluate the proposal. In doing so, however, he was not invited to ignore all that had been said orally and in the correspondence. Nor would he fail to take those matters into account. It is relevant that every paragraph of the letter of 18 April that bears on practical points is positive and encouraging. They reflect the co-operative attitude previously expressed and the statement that, by Christmas, there should be a waiting list for tenancies is very optimistic as to the future of the garden lounge, and inferentially, Patek's display being regarded as a key factor in that future, as to the prospects of Mr. Patek.
That letter was one of welcome on terms agreed or to be agreed and Mr. Patek's decision to proceed may be taken to be a manifestation of the attitude expressed in Mr. Patek's letter of 1 April 1983 namely, "Your co-operation, spirit and your obvious human experience sway us to be more partial to your project needs. I also believe that many of your complex's disadvantages and shortcomings can be revitalized. We need to know if you do in fact welcome us to become project partners". It might have been possible that a person in Mr. Doyle's position to take the view that the outstanding qualities of Patek's display would have revitalised the garden lounge by Christmas. But it could not have been true that any such conclusion could have been drawn from inquiries in hand in April 1983. There is plenty of evidence that suitable persons approached had rejected tenancies, but none that any suitable person, other than perhaps the new florist was enquiring for tenancies. Notwithstanding the able manner in which Mr. Nettle put the case for the respondent and in particular this aspect thereof I have found myself unable to accept his submissions on the critical matters.
Mr. Patek went into occuptation about the middle of May 1983. He engaged in Herculean efforts in making shop 8 fit for habitation and in preparing the aluminium structure on which to display his oriental artefacts. He signed the lease in July. He was fully committed in the middle of May.
It is said also that when Patek committed himself to the project he knew quite well, from what had been said by Mr. Brench and Mr. Burnett that the Council officers considered that the project under consideration could not and would not succeed. I reject this. It is quite likely that Mr. Brench and Mr. Burnett expressed the view that Collins Place would be a better location than the garden lounge. But I do not believe that they made plain to Patek that they considered his garden lounge project could not succeed. Mr. Doyle's evidence does not support this and I think contradicts it. His evidence is that "we wondered about the actual location, mentioned various problems of the Square and suggested that it would be better located in Collins Place". There is no suggestion from Mr. Doyle that he or Mr. Brench or Mr. Burnett indicated to Mr. Patek that it was the opinion of any one of them that the project would not or could not succeed. It is quite possible that Mr. Brench, brought out of retirement, was unduly enthusiastic in asserting that the disaster was all the fault of Patek, exaggerated the discussion about the problems of the Square into a statement of firm opinion that the project must fail. If Mr. Doyle or Mr. Brench or Mr. Burnett had given any such indication it would have been impossible for Mr. Doyle to have written on 8 March "the Plaza Garden is an ideal situation for such a display as the Square is in the centre of Melbourne and attracts a large number of people each day".
Mr. Patek denied that he had had a conversation at which Mr. Brench was present. I do not think Patek was just plainly lying. It would have cost him nothing to have remembered that Mr. Brench wondered whether Collins Place might have been a better locality for the display. For Mr. Brench to have so wondered would not have impressed itself on Mr. Patek's memory. It was of no importance. He had already discussed that with Mr. Doyle, and for his own reasons rejected Collins Place. The important thing was not whether Collins Place was better, but whether the garden lounge was a good place. On this point Mr. Doyle said in writing and no doubt orally that it was. It would have made a real impression both on Mr. Doyle and on Patek if Mr. Brench had put forward the exact opposite. It is clear that Mr. Doyle was encouraging Mr. Patek to proceed with the project and he would have been very put out if Mr. Brench had seriously discouraged the best prospective tenant who had turned up in the history of the Square. The evidence of Mr. Burnett does not take the matter further. It was not that Patek was not generally aware of the current disabilities in the Square but that he had faith in his own judgment combined with that of Mr. Doyle.
It is to be noted that neither Mr. Brench nor Mr. Burnett suggest that Mr. Doyle said anything to Mr. Patek to suggest that it was his view that Patek's project would not or could not succeed.
Having regard to the foregoing the applicant is entitled to relief under ss.82 and 87 of the Act.
As indicated above relief is claimed in respect of breach of alleged warranties made by the respondent's manager. On the question whether such statements as were made by Mr. Doyle to Mr. Patek in the course of negotiations for the shop were intended and understood by the parties thereto to take effect as promises binding by way of contract in the event of the negotiations proceeding to fruition, I think the answer is in the negative. I regard such statements as statements of fact intended to be relied on by Mr. Patek for the purpose of assisting him to make up his mind as to whether he would enter into legal relations with the respondent. As such if they were misleading or deceptive they would give rise to remedies. But to say that at that stage Mr. Doyle was undertaking in a contractual way a liability by way of warranty is to mis-state the situation.
Relief may therefore be extended to Mr. Patek on the ground of misleading conduct on the part of the respondent on the ground that by his conduct the respondent's manager led Patek to believe, that looked at from the point of view of commercial reality the project in question was a reasonable one and that there was a good chance of it succeeding and that Mr. Doyle held that opinion. It was said by Fisher J. in A.J. Thompson Pty. Ltd. & Anor v. K.L.K. Manufacturing Pty. Ltd. & Ors (Unreported decision) No. SA G43 of 1983, on 8 July 1986 at p 10:

"It is my opinion that the proper approach to this matter is to assess the conduct of KLK as a whole and to view the various statements in the context and atmosphere of the meetings rather than to analyse each statement separately for the purpose of determining its truth or falsity. By adopting this approach I propose considering critically each statement which I find was made, not so much for the purpose of determining its intrinsic accuracy but rather for the part it played, in the context of the meeting as a whole, ..."

His Honour referred to the observations of Brennan J. in Gould and Anor v. Vaggelas and Others (1984) 56 ALR 31 at p 58 approving the approach of Connolly J. at first instance when that judge refrained from considering separately each representation. Brennan J. said at that page:

"... but assertions that the business was very profitable were inherent in the four representations found to have been made by Mr. Vaggelas (the vendor), and it was open to his Honour to find that the general representation of profitability was one of the factors which induced the Goulds to decide to buy. On a reading of the whole of his Honour's judgment, I think that is what he found. He quoted from the judgment of Lord Halsbury L.C. in Arnison v. Smith supra, to show the fallacy of attempting to analyse the mental impression created by each of a number of representations. He said that the effect of a series of verbal representations could be ascertained as one might ascertain the effect of a series of written representations, referring to Aarons Reefs v. Twis (1896) AC 273, where Lord Halsbury 'observed of a prospectus that it contained statements calculated to show that the commercial adventure in question was a very good thing which was likely to produce very large profits'. I understand his Honour to have found that the four misrepresentations falsely conveyed a statement that the business was very profitable and that the Goulds, unable to form 'an independent jugment' in 'the critical area' but having 'a lively concern about the financial position' were thereby induced to buy. That finding was open and no error of law vitiates it."

He referred also to Taco Co. of Australia Inc. v. Taco Bell Pty. Ltd. (1982) 42 ALR 177 per Deane and Fitzgerald JJ. at p 199 when they said:

"The question whether particular conduct to which complaint is made is misleading or deceptive or more likely to mislead or deceive is, in the ordinary case, a question of fact to be answered in the context of the evidence as to alleged conduct and as to relevant surrounding facts and circumstances."

As indicated above I adopt the same approach.

The critical question is what was it which induced Mr. Patek to spend the considerable sums involved and to commit himself to the garden lounge. The answer is that Mr. Doyle said that in his opinion Patek's project would succeed and he would co-operate so far as he could to make it succeed and surrounded those expressions with encouraging statements designed to induce Mr. Patek to undertake the project. Whether those matters were or were not strictly correct by the pleadings they were the subject of evidence and were it necessary I would have allowed any amendment to cover them. I treat the allegation without amendment as alleging a statement of the opinion of Mr. Doyle as the operating agent of the respondent for the purpose of all negotiations between it and the applicant.
Having regard to the foregoing I find that Patek was induced to proceed with the project to display his Chinese artefacts for sale in shop 8 of the garden lounge of the City Square of the Melbourne City Council and to incur great expense therein by the misleading statements of the respondent's manager to the effect that the project was reasonable from a commercial point of view and that he believed that it would be a commercial success for the applicant. Accordingly the applicant is entitled to relief in respect of the loss and damage incurred by him.

Damages
Finding as I do for the applicant, he is entitled to damages pursuant to s.82 of the Trade Practices Act 1974. Applying the principles in Brown & Anor v. Jam Factory Pty. Ltd. & Anor (1981) 35 ALR 79 the correct way to approach the assessment of damages is to compare the position in which the applicant might have been expected to be if the misleading conduct had not occurred with the situation he was in as a result of acting in reliance on that conduct. Further, there must be a causal relationship between the relevant conduct and the loss or damage which has occurred to invoke the operation of s.82. As was said by Fisher J. in Thompson & Anor v. K.L.K. Manufacturing Pty. Ltd. & Ors (supra) at p 32:

"It was accepted that they are akin to those recoverable in an action of deceit and reference was made to the formulation by Gibbs CJ in Gould v. Vaggelas supra at p 34."

As this case was presented there is difficulty in assessing the quantum of loss and damage suffered by Mr. Patek as a result of his proceeding with the project and signing the lease in respect of shop 8 of the Garden lounge area of the Melbourne City Square. On this aspect of the case there was every indication of inadequate preparation. I take the relevant period for calculating Mr. Patek's losses to be from May 1983 when Patek entered into occupation of Shop 8 until 7 February 1984 when the lease expired. Profit and Loss statements of the company Patek & Associates Pty. Ltd., were tendered on behalf of the applicant by his accountant Mr. J. J. Varcoe. Mr. Varcoe had prepared these statements with care to the limits of his information. I regard him as competent and reliable. He was satisfied that there had been great loss suffered by the applicant from his adventure in the garden lounge. I would accept this and I do not think there can be any doubt that he did. Mr. Patek put his losses at something over $200,000. And having regard to the capital brought by Mr. Patek in the form of cash including some $30,000 or more being the proceeds of auction sales of artefacts conducted in Melbourne and his interest in a house property at Canberra I think the total losses attributable to the adventure must have been in that region. That total loss relates, no doubt, to the whole period of Patek's occupation. But he is not entitled to damages for loss suffered after 7 February 1984 except perhaps for some residual item which however, has not been proved. His occupation from 7 February 1984 until 20 June 1985 was that of a trespasser. Whether the real trespasser was Mr. Patek or the company Patek & Associates Pty. Ltd. might have been a question. But the point was not raised, no doubt because the company is properly to be regarded as the instrument of Mr. Patek, his agent or alter ego.

With respect to the period of occupation from May 1983 to 7 February 1984 I think the statement of Mr. Varcoe may be taken as a sound basis. The business practice of Mr. Patek was to keep proper and bona fide records. I rely on Mr. Varcoe's statement because it reflects the records kept by Mr. Patek which were given by him to his accountants and the result of Mr. Varcoe going through them with Mr. Patek. Save with respect to the cost of stock and the value of stock on hand at the end of the period Mr. Varcoe was satisfied that his statements represented the true picture of income and expenditure of the conduct of the business of Patek & Associates Pty. Ltd. which was the company through which Mr. Patek's business was conducted, the trade name of that company being L'extreme Orient. I accept this.
The losses incurred were, in the first instance, losses of the company. However, the only shareholders in the company at any relevant time were the applicant and his wife. Unfortunately, at some time after the lease was entered into Mr. Patek and his wife parted company, although, it would seem without acrimony. As a result Mrs. Patek entered into an agreement to hold her one share in the company in trust for Mr. Patek as the beneficiary designated therein and to hold all dividends or other benefits which might accrue from such share in trust for Mr. Patek.
It appears clear that the ultimate beneficial interest in money expended by the company in the garden lounge project and the proceeds thereof was in Mr. Patek. In these circumstances Mr. Nettle pointed out that such losses as were incurred were incurred by the company. However, he referred the court to the principles enunciated in Esso Petroleum Co. Ltd. v. Mardon (1976) 1 QB 801 which were applied by Jenkinson J. in this Court in T N Lucas Pty. Ltd. v. Centrepoint Freehold Pty. Ltd. (1984) ATPR 40-440. He recognised that in accordance with those principles it might be appropriate to "look under the corporate veil and treat the loss of the company as though it were the loss of the individual". He did not suggest any reason why it is not appropriate in this case. I think it is.
In the financial statements prepared by Mr. Varcoe one finds a value stated for the cost of stock but no amount stated for stock on hand at the end of the period. The cost of the stock sold by the company at the shop during the period up to 7 February 1984 adopted by Mr. Varcoe was $46,138. But there is no firm evidence by which this was established. However, the value of sales and the extent of expenditure incurred as shown by him are satisfactorily established. The loss may be established therefore by reference to the expenditure incurred deducting therefrom such profit as was made on the sale of stock during the period. I treat the onus of proof of the extent of this profit as being on the applicant, although the contrary may be arguable. Mr. Varcoe adopted the sales figure as represeting the cost of the stock sold plus 100% thereof.
The difficulty in establishing precisely the cost of the stock sold arises from the oriental procedure under which as between Patek and the vendor, prices were not fixed for individual artefacts. There was a price for "a room full" of the artefacts as they were displayed in Hong Kong. Whether any profit was made on the sale of any individual artefact depended upon the assessment of the contribution of that sale to the total returns from the sale of all the goods in the room full of goods bought in relation to the cost of that roomful of goods. Where only part of the room full of artefacts was sold the question whether there was a profit on that sale and what that profit was could only be a matter of judgment. Mr. Patek was in a position to make a judgment. He had to fix the prices for his artefacts over a trading period of two and a quarter years in the light of all his experience. He would have had his total liability in mind and the relationship of particular artefacts to his liability for the total and prospective returns of the ultimate disposal of the whole. He was not led to discuss the matter in those terms but neither was there cross-examination questioning his capacity to make a judgment. I therefore accept his evidence that sales in the garden lounge were conducted at a profit of 50% to 100% mark up against cost. He said that in auction sales a mark up as high as 200% to 300% was achieved and with regard to rare objects perhaps as much as 700%. Mr. Patek has a good deal of experience in trading in the manner described. I accept that he well knows that the prices obtained by him in the city were nothing like those obtained at auction. I draw the inference from Mr. Patek's evidence that the mark up in the garden lounge was not more than 100%. The value of sales up to 7 February 1984 was $54,920. In addition to damages it is appropriate in this case that the applicant be released from the outstanding liability of the applicant under the lease between the respondent and the applicant and his wife. The outstanding liability is $4,211. Thereby the loss and damage suffered is correspondingly reduced.
Accordingly, the damage suffered was:

expenditure incurred 86,666 less rent not paid 4,211 82,455 less profit on sales 27,460 $54,995

However, there is included in the expenditure $15,123 for cost of the construction in the shop of an elaborate aluminium pagoda unit. It is pointed out that this unit is capable of use in other premises. A deduction should therefore be made from the loss calculated as above.

Having regard to common knowledge of the habits of such equipment the value of that installation would be materially below $15,123. I would consider an allowance of $10,000 as reasonable. The damages for which the applicant is entitled on the his claim is therefore $44,995.

The Cross-claim
It is not disputed that between 7 February 1984 and 20 June 1985 shop 8 was occupied by Mr. Patek in the capacity of a trespasser. The lease expressly provided that no overholding of the demised premises should be construed as creating a lease from year to year. The damages recoverable by the respondent in respect of the period overholding would be at the appropriate rate of mesne profits. The relevant rate is the damage which the respondent has suffered through being out of possession of the land, or if he can prove no actual damage caused to him by the defendant's trespass the amount of the open market value of the premises for the period of the defendant's wrongful occupation. In most cases the rent paid under any expired tenancy will be strong evidence as to the open market value. See Halsbury's Laws of England 4th Ed. Vol 27 para. 255 at p.197. A footnote to this paragraph states that in the vast majority of cases in which mesne profits are claimed they are awarded, if at all, at the rate of the previous rent and as a rule of practice, if not of law it can be taken as being the case that the burden lies upon a party who argues for a different rate for mesne profits to adduce evidence to support his claim.
The rent under the lease was $1,000 per month or $6000 for six months, without liability for rates and taxes. The respondent claims however, mesne profits at the rate of $21,420 per annum. The respondent supports its claim upon the evidence mainly of Mr. Dudakov. Mr. Dudakov is no doubt a competent valuer but in my opinion in this case he has failed to take into account the unique characteristics of shop 8. The uniqueness of shop 8 arises from the disabilities described above. Shortly they are, lack of exposure, poor access, little if any relationship to established pedestrian passage, poor tenancy mix, the negative influence of the presence and conduct of unattractive youths who frequent the garden lounge, the "basement feel" of the area, and the noise and ventilation difficulties. None of these factors affect the tenancies in other areas on which Mr. Dudakov relied to a considerable extent. Even with respect to the shops in the Princes Gate shopping arcade there was open access, there was no screening of the approach thereto, and that arcade was passed repeatedly by a great number of people every working day who would certainly have become acquainted with the existence of the shops therein. The same could not be said with regard to the garden lounge so far as visitors to the open concourse was concerned. It is relevant also that shop 8 had never been occupied on long lease. The only occupier was Cherry Lane who used the shop for temporary purposes relating to the removal of their main business and took a tenancy for a period of three months extended for a further three months the second three months being at a rental of $2,000 per month. There is no evidence even of any enquiry for a tenancy in the shop since June 1985. In addition any reasonable person considering a tenancy in the garden lounge could not be expected to be unaware of the checkered history of the garden lounge. All in all the garden lounge was an unfortunate creation by the respondent and it is not surprising that the suggestion is that the respondent has given up all hope of letting shop 8 to a tenant pending a complete redesign of the complex.
I therefore prefer the evidence of Mr. Forsyth who has taken into account matters such as those discussed above. I assess the mesne profits for the period 7 February 1984 to 20 June 1985 at the rate of $1,000 per month namely $15,500 for fifteen and one half months. Under the provision of s.51A of the Federal Court of Australia Act 1976 interest from 21 November 1984 is recoverable on the same. That interest shown to be at the rate of fourteen per centum per annum in all to $1,566.34.
The respondent is entitled to judgment, therefore, in the cross claim for $17,066.34.

Conclusion
In the result I set off the amount recoverable by the respondent on the cross claim namely $17,066.34 against the amount recoverable by the applicant on his claim namely $44,995.00. Accordingly, there should be judgment for the applicant for $27,928.66.
I award the applicant his costs of and incidental to the proceedings less such of those costs as are referrable solely to the cross claim and less also the amount of costs incurred by the respondent in respect of the proceedings solely referrable to the cross claim.

[1986] FCA 355

20 AUGUST 1986