Sullivan, S.S. v Copas Newnham Pty Ltd

C A T C H W O R D S

TRADE PRACTICES - Negotiations for lease

- statement as to basis

which owner proposes to contract

- statement as to state

of mlnd or intention

- whether liability under

s . 5 2

whether can award proportion

loss.

CONTRACT - negotiations for lease

- main terms agreed

- subject to

preparation of lease by solicitors.

Trade Practices Act,

1974

s s . 5 2 ,

Shane Stephen Sullivan

& Anor.

v. Copas Newnham Pty. Ltd. & Ors.

QLD G78 of 1985

PINCUS J. BRISBANE

1 SEPTEMBER

1 9 8 6

IN THE FEDERAL COURT

OF AUSTRALIA

)

QUEENSLAND DISTRICT REGISTRY

QLD G78 of 1985

DIVISION

GENERAL

SHANE STEPHEN SULLIVAN

First Applicant

W : PENELOPE JANE SULLIVAN

Second Applicant

m: COPAS -HAM

PTY. LTD.

First Respondent

-	AND: JOHN ANDERSON

Second Respondent

m: HILDA MAUDE ANDERSON

Third Respondent

m:	JOHN ANDERSON AND HILDA MAUDE ANDEXSON

Cross Claimants

m:	SHANE STEPHEN SULLIVAN

Cross Respondent

G: COPAS N E "

PTY. LTD.

Cross Claimants

m:	JOHN ANDEXSON AND HILDA MAUDE ANDERSON

Cross Respondents

MINUTES OF ORDER

JUM;E

W I N G ORDER:

PINCUS J.

DATE OF ORDER:	1 SEPTEMBER 1986
WHERE MADE:	BRISBANE

THE COURT ORDERS

THAT:

1. The first respondent pay the applicants the sum of

$5,000.

2. The applicants' claim against the second and third respondents be dismissed.

3 . The first respondent's cross-claim against the second and third respondents be dismissed.

4. The second and third respondents' cross-claim

against the applicants be dismissed.

5. The second and third respondents' cross-claim against the first respondent be dismissed.

6 . The first respondent pay the applicants' costs of and incidental to the proceedlngs, to be taxed.

7 . The first respondent pay the second and thlrd

respondents' costs

of and incidental to the

proceedings, to be taxed.

NOTE:

Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

)

QLD

G78 of 1985

GENERAL DIVISION

)

BETNEEN: SHANE STEPHEN SULLIVAN

First Applicant

m: PENELOPE JANE SULLIVAN

Second Applicant

m:	COPAS NEXWHAM PTY. LTD.

First Respondent

m:	JOHN ANDERSON

Second Respondent

m: HILDA MAUDE ANDERSON

Third Respondent

m: J O H N ANDERSON AND HILDA MAUDE ANDERSON

Cross Claimants

m: SHANE STEPHEN SULLIVAN

Cross Respondent

m:	COPAS NEWNHAM PTY. LTD.

Cross Clamants

m: JOHN ANDERSON AND HILDA MAUDE ANDERSON

Cross Respondents

PINCUS

1986

1 SEPTEMBER

REASONS FOR JUDGMENT

This is a small but, as I have found, difficult

application

under s.52 of the Trade Practices Act. The

L .

applicants, husband and wife,

are both doctors who wished to set

a general practice in Toowoomba. They arranged to

go into

possession of premises in a

shopping centre in that city, did

so,

and remained in possession

for some months. No lease was executed

and negotiations for

a lease were never concluded. The applicants

left and began practlce in other premises. They

now sue for the

amount they wasted by their abortive attempt to set up practice

the shopping centre,

a sum agreed

to be $5,000.

As amended,

the

statement

claim

complains

what I shall call representations made by the first respondent,

real estate agent, that the second and third respondents, who had

recently bought the shopping centre in question, had agreed to let

the

applicants

accordance

with

certain

stated

terms;

alternatlvely, the appllcants say in thelr pleading that the first

respondent (the agent) represented that the second and third

respondents (the owners) Intended

offer

a lease on certain

terms. There is a plea of fraud on the part

of the agent, but no

evldence of it; on the contrary,

I think the agent, through its

employee, Mr. Belrne, acted honestly and In good faith.

The applicants say they were told by Beirne that the

rent would increase annually

in accordance with the Consumer Price

Index, whereas the owners' true position was that they insisted

upon increase in accordance with the index, or at the rate

of 10%,

whichever was the greater. Secondly, the appllcants say the agent

told them the outgoings payable by them would be

$20 to $30 per

month, whereas the owners desired outgoings

to be reimbursed on

basis which would produce

substantially greater liability.

3 .

Thirdly, the applicants say the agent represented that outgoings

would be calculated

a percentage of

an increase above "base

figures as at

the 30 December 1983"; this was said to be false

for

the sane reason as the second.

The second alleged representation,

as to the amount of

the outgoings, is in a special category insofar as it conveyed

information about, not merely the owners' state of mind, but

objective facts. A legal question arises, however, with respect

to the first and third representations, namely whether

5.52 of the

Trade Practices

Act covers the relevant

ground, which could be

said to be representations as

to the terns on which a party

wllling to contract. That is dealt

with below.

The applicants and the agent negotiated in February and

March 1984, thelr negotiations concludlng in a letter dated 30

March which it is covenlent to set out.

"Dear Dr. Sullivan,

RE:

NORTHLANDS SHOPPING CENTRE

- SHOP 15

I would like to confirm various aspects relating to your tenancy.

FLOOR AREA:

710 ft2

RENTAL:

$7.00 ft'/an.

REVIEWS :

Annually .

Increases

accordance with the increase in the

Consumer

Price

Index

(Brisbane

figures) for the relevant perlod.

LEASE TERM:

3 Years with an option of a further

3 years.

OUTGOINGS :

Based

on the floor area occupied,

each tenancy

contributes

the

increases in

- common area cleaning,

common area electricity - rates -

insurance - garbage-repairs -

management - over and above the base

figures as at the

30th

December

1983. The allocation

for

this

tenancy is 4%.

DATE OF COMMENCEMENT:

The building owner is In agreement

with

your suggested date of

16th

April 1984.

BUILDING OWNER'S WORKS:

The building owner will supply and

install a toilet and vanity basin.

YOUR WORKS:

Supply and install partitions and

floor

coverings

as required,

include

the

partitions

for

the

toilet

area.

Permission

qlven

for

your builder

commence

Monday 2nd April.

that

may instruct the solicitors to prepare the lease

document, could

you please confirm

this letter and enclose

cheque for $414.16, being the first month's rental.

Yours faithfully,

COPAS NEWNHAM PTY. LTD.

As requested, the

letter was signed and returned

wlth a

cheque for $414.16.

The flrst of

the three representations mentloned above,

that relating to rent reviews, is set out in the letter. It was common ground that the agent made a mistake in including in the

letter the statement to the effect that Increases were to

be in

accordance with

the increase in the Consumer Price Index. The

owners' instructions were that increases were

to be at the rate of

the C.P.I.

or 10%, whichever was the greater. The only answer to

the applicants' case in this respect was that it was claimed that

the agent. through Beirne. correctly informed the male applicant

on the point orally before the writing

of the letter. In support

of that suggestion, reference was

made to a form of lease which

the agent supplied to the applicants shortly before the letter was

written -

a lease which had been granted

previous owners and

which referred to annual reviews being on the basis	of the C.P.I.
or 10%, whichever was the greater.

On this issue,

I accept the applicants' case, and

doing

so,

take into account the fact that the male applicant

himself made an error

in recounting to the Court the conversation

claimed to have had with Beirne concerning the rental.

said, at

first, that the rental was quoted

at $6.50

per metre,

later increased, in the course of discussion, to

$7.00 per metre.

Subsequently he corrected that to

$7.00 per square foot. The real

estate industry has not yet fully adjusted to the introduction of

the metric system, and in recent years commercial rentals have

usually been quoted on the basls of

a figure per square foot, but

sometimes on

the basis of a figure per square metre.

I have no

doubt that Beirne quoted in Imperial measurements.

The point on

which I

have had dlfficulty, however, is whether to accept that

the male applicant well enouqh remembers what Beirne said

enable

confident conclusion to be drawn in the applicants'

favour.

In accepting the applicants' case

as to what was said

with respect to the basis

of annual increases of

rental, I rely

principally upon the letter just quoted; it seems to me improbable

that Beirne would have been more careful in his oral statement

than in the written one.

6 .

As to

the second representation alleged, Mr. Anderson,

one of the owners, gave evidence that, in response

to an enquiry

from Beirne, he estimated the outgoings would be $20

to $30 per

I accept that evidence.

It may seem a little improbable

that,

presumably

shortly

afterwards,

Beirne

told

the

male

applicant that the outgoings were $20

to $30 per month. On the

whole, I

have decided that

I should accept the evidence of the

male applicant and find that

was, as he says, told by Beirne

that the outgoings would be

$20 to $30 per month.

As to the last representation, with respect

to the mode

of calculatlon of the

contribution towards outgoings,

it is clear

from	the letter quoted above what the respresentation was, and

there can be little doubt that it was erroneous.

The agent never

had instructions from the owners to justify the statement

as to

the basis

of calculation of

outgoings made in the letter to the

effect that each tenant had

to contribute to increases in certain

outgoings "over and above the base figures

as at the 30 December

1983". Beirne's recollection was that he was told by the owners that, with respect to outgomgs, the premises would be leased on

the same basis as they had been previously.

He said the base year

for exlstlng leases was 1980.

However, a number of copies of the

existing leases (granted by the immediately preceding owner) were

tendered and they used varlous base years. Beirne's explanation

of having mentioned 30 December 1983 was that it was in accordance

with the normal practice, but

he had no recollection of Anderson's

ever specifically discussing

a base year with him.

Having

seen

Anderson

the

box,

and

formed

the

impression that

he would be a precise and rather demanding client,

I think it unlikely that

he gave Beirne such vague instructions as

the latter alleges.

I accept Anderson's evidence that

he told

Beirne, before

30 March (and not merely after, as Beirne says),

that the outgoings were to

be calculated as a

percentage of the

total, not merely

an increase over

a base year. The only other

plausible explanation is that Anderson changed his mind, deciding

to stiffen the terms after the letter of

30 March was written, and

I am not prepared to accept that

he did so.

It is necessary to add, as to the second representatlon,

that on the evidence there

was no reasonable basls on which the

outgoi'ngs could have been estimated at $20 to $30 per month. The

statement to that effect was misleading. In summary, then, I find

favour

the

applicants

respect

of all

three

representations relled on	- that	is, that all three were made and
were misleading.

A conslderable

amount

questioning

the

male

applicant was directed to the issue of inducement, and attempts

were made to quantify the difference between the cost of such a

lease as would have accorded with the instructions of the owner,

and the cost of that which

was, in fact, offered by the agent. One

difficulty bedevilling such attempts, in my

view, is that the

financial

implications

neither

lease

could

preclsely

assessed without knowing in detail what the terms of the lease

were;

as I read the

letter of 30 March, those terms were to be

fixed in the first place

by the owners' solicitors, subject,

doubt, to acceptance by the tenants. An example of a term which might vary in a way making a significant difference to the value

of the lease is that related

to the fixation of rent in the event

of the exercise of the option of

a further three years' lease.

Another is the precise drafting of the provision concerning

outgoings, which the male applicant objected to

In his evidence on

the

basis,

effect,

that

gave

the

owners

too

much

untrammelled power

to charge outgoings to the tenants.

The	applicants' case was that they would not have

entered into possession and wasted

$5,000 if they had known what

the owners' true terms were. One cannot, with accuracy, speak

a certaln perlodic sum

as being the difference between the two

proposals; but if all else remained constant, the true

propod

was, I am satisfied, significantly worse than that put forward by

the agent. The difference, although not one

which

would be

notlced in a thrivmg practice, was slgnlficant to the applicants,

who were anxlous to minimise their expenses. That relatlvely

small weekly sums were involved was not, however, the only point

relled on

by the respondents

on the inducement issue. It is

necessary to set out further facts.

Soon after taking possession, the applicants were sent

form of lease drawn up by the owners' solicitors. That accorded, of course, with the owners' instructions and not with the letter of 30 March. The male applicant claims he did not read the lease

until mid-July.

He then consulted Toowoomba solicitors who wrote

a letter dated 31 July

1984 on his behalf. In that they said that

there were 'I...

some aspects which we would like to discuss

. . . ' I

and made suggestions for a number

of changes in the lease.

The

terms of

the

letter

are

difficult

reconcile

with

the

applicants' case that they were induced to take possession by the

making of misleading statements, but an

explanation was advanced

by the male applicant

as to the way in which the letter came

to be

written, and

I accept it. On

13 August, the owners' solicitors

replied, insisting on the terms of the proffered lease. On	16
August, the solicitors for the applicants wrote again to the

owners' solicitors making, for the first time,

a complaint akin to

that put forward in thls case. Shortly after that, the applicants

became aware of the availability of other suitable premises owned

by a

Dr. Ure,

but the applicants did not immediately decide to

move thelr practice. Some negotiation took place about the end of

October, the owners offering to enter into

a lease containing more

favourable provislons with respect to outgoings than they had

origlnally Intended. However, the applicants rejected that as it

was stlll less satisfactory to them than the terms origlnally put

forward by the agent.

Counsel for the respondents contended that the main

reason the appllcants left was that thelr practice was not doing

well (and

I find It was not), and that they therefore wished to

accept the offer of accommodation

from

Dr. Ure to reduce their

expenses.

seems

clear

that

under

s .07

the

Act, whose

function in the Act has recently been elucidated by

the High Court

( S e n t v.

Jet Corporation of Australia Pty. Ltd., unreported,

June 1986), it would be possible to award the applicants part only

of the agreed figure

of $5,000.

That was the sum which was thrown

away by their havlng taken possession in anticipation

of entering

10.

into a

lease, but they would not have lost it

had

they stayed

instead of shifting to

Dr. Ure's rooms. Whereas under the general

law	the rules with respect to damages appear, at least in

practice, to have an "all or nothing" operation,

s . 0 7 allows the

making

orders

which

the

Court

considers

will

compensate

applicants in part for loss they have suffered. That was no doubt

designed to meet situations in which

number of contributlng

causes might be seen to exist. It would not be inconsistent with

the agreement of the parties as to quantum to award

a proportion

of the sum of $5,000, but I have decided not to

do so.

I am

satisfied that the applicants were induced to take possession and

spend the

$5,000 by mlsleading statements falling within 5.52 of

the Act.

It is true that their decision to move rather than stay

was in part Influenced by factors which had nothing to

do with the

respondents, but

I do not think they were obliged to accept the

proposals made by

the owners, which would have left them

wlth

terms whlch they regarded as significantly worse than those on

the

basis of which they had taken possession.

I think the conduct of

the applicants in failing to ralse the discrepancy between the two sets of terms earlier than they did was unreasonable, as was their

mode of leaving

the premises - 1.e. wlthout notice.

The conduct

just mentioned did

not, however, augment their

loss.

It is necessary to deal with another factual Issue.

I find that the parties never made any contract

with one another.

It appeared to be suggested that if one read the letter of

the 30

March

with

the

draft

lease

which

the

agent

showed

the

applicants, a

set of contractual terms could be extracted

which

would constitute a concluded agreement. In my opinion, the letter

11.

of 30 March, on its proper construction, brought the matter within

the third category mentioned in Masters

Cameron (1954)

C.L.R.

353 at 360.

The case was not one in which the parties had

“completely agreed upon all the terms

of their bargain

... but

nevertheless

... made performance of one or more

the terms

conditional upon the execution of a formal

document“. The draft

lease shown to the applicants during negotlations was not, in my

view, used in such a way as to bind the owners (by their agent) to

its terms.

Subsequently, as mentloned

above, a form

lease

correctly embodylng the

owners’ instructions was prepared by their

solicitors and received by the applicants. They were asked

to,

and did, send a cheque for the solicitors’ costs, but

did not sign

and return the lease. Although the contrary is certainly

arguable view,

I do not think a reasonable lessor would have taken

the conduct

the applicants as being acceptance of the terms

proposed.

The slmple way to accept them was to sign them and send

them back.

I pass

now to the legal point mentloned In the

fourth

paragraph. I adopt,

with

respect,

the

summary in

James

Australia and New Zealand Bankins Group Ltd.

(1986) 64 A.L.R.

347

at pp.312 and 373 with

respect to the effect of the authorities

under 5.52, where the allegation is one

of misrepresentation as to

state of

mind

intention.

particular,

I accept

that

liability under

s . 5 2

may be

founded on

an allegation that the

respondent has made a promise which he had no “present intention

to make good”. See also the discussion

in Collier v. Electrum

12.

Acceptance Ptv. Ltd. (unreported,

6 May 1986 at pp.45, 46).

Although it is

now well enough established by dicta that

5.52 creates liability for misleading promises,

I have found no

case, either under 5.52

or under the general law, in which one

party to a proposed contract has successfully sued another on the

basls

of a

misrepresentation such as is here alleged and that

circumstance has given me pause. In a practical

sense,

the

present case appears to break

new ground.

Here,

the finding is

that one party's intention was misrepresented,

in the course

negotiations.

appears

necessarily

follow,

from

the

authorities

just

cited

and

those

referred

to in

them,

that

although a broken promise does not by any means necessarily fall

within the scope

of 5-52, it can do

so if the promisor did not

intend to

carry the promise out

or even, perhaps, where mere

recklessness is shown:

"My Lords,

the dlstinction in law between

a promise

as to future action, which

may be broken or kept,

and a

statement as to existing fact, which may be

true

false,

clear

enough.

There

may

Inherent in a promise an implied statement

as to a

fact, and

where

this 1s really the case, the

court

can attach appropriate consequences to any falslty

in, or

recklessness

in the

making

of,

that

statement.

So said Lord Wllberforce in British Airways Board

v. Tavlor (1976)

1 W.L.R. 13 at 17, in which there was

a conviction under the

U.K.

Trade Descriptions Act

1968

the

basis

that

B.O.A.C.

had

recklessly made a

false statement by confirming

a reservation for

a particular flight when, unknown to the prospective passenger,

there was a deliberate policy of overbooking. It was not that the

L.Y.

airline had no intention of carrylng the promise out; their

intention was to do

so if they had enough seats.

If a promise, subsequently broken, is caught by

5.52,

whether because of falsity or recklessness,

it may be that the

disappointed promisee

will

have

choice whether to sue in

reliance on the Act or contractually. If that choice is open, the

selection of a cause of

action may be

substantially affected by

such considerations as the differing measures of damages, or the availability of defences under the law of contract which are not necessarily efficacious for the purposes of the Act. The present

case is perhaps an example of the latter consideratlon operating;

the applicants might have chosen to sue in contract

on the basis

of promises in the

letter

of 30 March, but on the basis

of the

findings above would have failed. Instead, the applicants have,

in effect, alleged that what the owners (by their agent) said they

were prepared to promise differed from thelr true state of mind.

One possible legal solution to problems of

this sort is

reliance

on the

principle

promissory

estoppel:

see

discussion of the Californian case of Drennan

v. Star Pavinq Co.

in Lindgren et al. "Contract

Law

in Australia" at pp.125,

126.

There is, however, no reliance

on estoppel here.

Although it may seem a surprising

result

the

enactment of s.52 that litigants such

these applicants may

recover under it,

I think I should decide the matter on the basis

that the statements made by the owners' agent

as to the basis upon

which the owners were prepared to contract attract the operation

of s.52.

I have not overlooked that there is high authority that

the

section

should

not

be "beneficially

construed"

(Parkdale

Custom Bullt Furniture

Ptv. Ltd. v. Puxu Pty. Ltd. 149 C.L.R. 191

at 198),

and that

its scope and operation should be understood

having regard to common law principles (Parkdale at

p.219), but am

of the view that it is right to follow the trend

of the decisions

of this Court mentioned above.

I add that there

a curious

dearth

of modern case-law on the question whether under the

general law misrepresentatlon suit on such a basis as I

a broken

promise

may

the

subject

of a

have discussed: see

Hammersley v. De Biel C18451

8 E.R. 1312 discussed in Maunsell v.

Hedqes C18541

10 E.R. 1039

and in Western Fish Products Ltd. v.

Penwith District Council C19811 2 All E.R. 204 at 218.

It is not

clear

whether

right,

stated

Spencer

Bower

"Actionable Misrepresentation" at pp.

41-42 that where a statement

is shown to be

a promlse "the words amount either to

a promlse, or

to nothlng at all which entails legal

liability". The assumptlon

on which commerclal people have acted may have been that mere

statements of negotiatlng posltlon attract

no llabllity.

It follows from the views of the facts and law set out

above that the applicants must succeed, but against the agent

only.

The owners, who are natural persons, are not shown to have

been involved in their agent's breaches, and in accordance

wlth

the view expressed as to the operation

s.75B in Keen

Mar

Corporation Pty. Ltd. v. Labrador Park

Shoppins Centre Pty. Ltd.

61 A.L.R. 504 at 507,

judgment can go

only against the agent.

That is so, although for the purposes

of the general law the agent

had ostensible authority to make the statements in question.

15.

As to the cross-claims, the only one requiring specific

mention is that of the owners against the agent

for

loss

rental, loss of outgoings

and

expenditure

incurred.

the

findings,

the

agent was in breach of its obligations to the

owners, but it is impossible to make

a finding on the evidence

to what loss, if any, was caused by the breach. If the agent had not misrepresented the owners' state of mind, the applicants would

not have entered and paid rent as they did; whether, and if

so to

what extent, the owners would have been better	off thereby is a
matter of speculation.

There wlll, therefore, be judgment

for the applicants

against the first respondent in the sum of

$5,000, and the claim

of the appllcants against

the second and third respondents will be

dismlssed, as will all the cross-claims. There will be

an order

that the first respondent pay the costs of the appllcants, as well

as those of the second and third respondents, of and incldental to

the proceedings, to be taxed.

[1986] FCA 371

9 Jan 1986