The Barrington Services Group Pty Ltd v Bossy

[2012] NSWDC 82

District Court

New South Wales

Medium Neutral Citation:	The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82
Hearing dates:	8/5/12, 9/5/12 and 10/5/12
Decision date:	01 June 2012
Before:	P Taylor SC DCJ
Decision:	1. Judgment for the plaintiff in accordance with these reasons.
Catchwords:	QUANTUM OF DAMAGES - whether the plaintiff failed to mitigate its loss - breach of lease - damages for misleading conduct - whether a representation was made - whether Goods and Services Tax payable
Legislation Cited:	Civil Liability Act 2002 Trade Practices Act 1974
Cases Cited:	Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Gagner Pty Ltd (t/as Indochine Cafe) v Canturi Corporation Pty Ltd (2009) 262 ALR 691 Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited (2008) 234 CLR 237; [2008] HCA 10 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Young v Lamb (No. 2) [2001] NSWSC 1014
Category:	Principal judgment
Parties:	The Barrington Services Group Pty Ltd (plaintiff/cross-defendant) Marcel Emmanuel Abia Alf Bossy (first defendant) Amanda Fisher (second defendant/cross-claimant) Barrington Practice Pty Ltd (third defendant/cross-claimant)
Representation:	Mr C D Freeman with Ms Y Guo (plaintiff/cross-defendant) Mr D S Weinberger with Ms T Gordon (second and third defendants/cross-claimants) on 8/5/12 and 9/5/12 Ms T Gordon (second and third defendants/cross-claimants) on 10/5/12 Streeterlaw (plaintiff/cross-defendant) Whittens Lawyers & Consultants (second and third defendants/cross-claimants)
File Number(s):	2011/63244

Judgment

A. Introduction

1. This matter involves a claim for damages for breach of a lease by the plaintiff lessor against the third defendant lessee and second defendant as guarantor (together called "the defendants"). Other claims between the parties, and other parties, which appear in the pleadings have previously been resolved.

1. The principal issues remaining concern the quantum of damages, whether the plaintiff has mitigated its loss, and the existence and value of a countervailing claim by the defendants for damages for misleading conduct.

B. Background

1. From about 2001 Barrington Practice Pty Ltd, the third defendant, ("the lessee") conducted an accountancy and financial planning business ("the Business") at Units 3 and 4, 7 Narabang Way, Belrose, New South Wales ("the Premises"). Gregory Sharpe was the principal of the Business. By 2007 Ms Fisher, the second defendant, and Mr Clarke worked in the Business.

1. Mr Sharpe was also the owner of shares in the plaintiff, Barrington Services Group Pty Ltd, which owned the Premises. The plaintiff, the lessor, received rent from the lessee.

1. The plaintiff lessor received $74,182 rent in the financial year 2006-2007.

1. In May 2007, Mr Callaghan of CB Richard Ellis ("CBRE") provided to Mr Sharpe a written appraisal of the achievable rental for the Premises, which was in the following terms:

Dear Greg

RE: Suite 4/7 Narabang Way, Belrose

Further to our most recent conversation we advise that should the abovementioned office suite be available for lease in the current market the likely achievable rental would be around $71,000 pa net plus or more.

This is not a valuation but an assessment of potential rental in the current market and should not be relied upon for any other purpose.

We look forward to discussing this advice at the earliest convenience.

Yours faithfully

CB Richard Ellis

Andrew Callaghan

Director

Commercial & Industrial Agency

1. The plaintiff received $71,266 rent in the financial year 2007-2008.

1. In 2007 Ms Fisher and Mr Clarke were interested in purchasing the Business, and Mr Sharpe was willing to sell. On 1 August 2007 Ms Fisher purchased 60% of the lessee, Mr Clarke purchased 35%, and Mr Sharpe retained 5%.

1. At about the time of the purchase, Mr Clarke and Ms Fisher received a copy of the new draft lease for the Premises. The rental figure was $71,000 exclusive of Goods and Services Tax ("GST") per annum. Ms Fisher asked for, and ultimately received in the lease, a right of first refusal with respect to any sale of the Premises. Ms Fisher gave evidence that she received advice from a lawyer in 2007, including about rent and outgoings.

1. In about November 2007 Ms Fisher received a copy of the 8 May 2007 rental appraisal. The circumstances of this occurrence remained a matter of dispute at the trial and are dealt with later in this judgment.

1. Also at about this time Mr Clarke made enquiries of the rental value of the Premises. These enquiries indicated the proposed rent was reasonable. Mr Clarke gave evidence that he informed Ms Fisher of his enquiries in a conversation to the following effect:

"Amanda, I have made some enquiries with Matt Collins and Ian Maitland. They are paying about the same or more per sqm than what is in the new lease. I have also made an enquiry with Jones Lang Lasalle. They have given me a verbal appraisal for the rental and it is about the same rate as that is proposed in the lease. So the only other further question that we need to determine is do we need all this space? I think we do just to give us some room to grow."

1. Mr Clarke also gave evidence that he had discussed with Ms Fisher, and subsequently with Mr Sharpe, the prospect of leasing only Unit 4, but ultimately Ms Fisher and Mr Clarke agreed that they would take both units.

1. Early in 2008, before any new lease was signed, the relationship between Mr Clarke and Ms Fisher deteriorated. Ms Fisher purchased Mr Clarke's 35% share of the lessee by June 2008.

1. On 1 August 2008, the third defendant entered into an agreement with the plaintiff to lease the Premises for a four-year term expiring on 31 July 2012.

1. In 2009 Mr Sharpe ceased to be a director of the lessee. At the hearing I was informed by the parties that Mr Sharpe no longer had an interest in the lessee.

1. In February 2010 Ms Fisher contacted Mr Callaghan in an attempt to re-let the Premises. She made contact with another agent, David Mulligan, for the same purpose. She signed a commercial lease agency agreement with Raine and Horne Dee Why in May 2010, and another with CBRE in July 2010. She was unable to find a tenant for the premises.

1. In the defendants' submissions it is accepted that:

1.2.In around January 2011, Barrington Practice abandoned the Property and on 28 January 2011, Barrington Services took possession of the Property. Barrington Services claims that it is entitled to damages in the amount of $174.062.23 from Barrington Practice for its breach of the Lease or from Amanda Fisher, who guaranteed the Lease.

1.3.Barrington Practice and Ms Fisher admits that Barrington Services is entitled to some but not all of the damages claimed on the basis that Barrington Practice:

(a)failed to mitigate its loss in relation to the Property; and

(b)is not entitled to all of the expenses claimed under the Lease.

1. The plaintiff commenced proceedings on 25 February 2011. The plaintiff retained agents to attempt to lease the Premises but no lease had been entered into at the date of Mr Sharpe's evidence during the trial. On 7 November 2011 Ms Fisher filed a cross-claim alleging misrepresentations by Mr Sharpe and the plaintiff in respect of the market rental.

C. Issues

1. The defendant has raised three primary issues in resisting the plaintiff's claim. These are:

(1)   The plaintiff failed to mitigate its loss;

(2)   Some of the outgoings are not recoverable under the contract; and

(3)   The third defendant is entitled to a set-off for damages resulting from misleading conduct by the plaintiff, or Mr Sharpe.

(1) Failure to mitigate

1. The obligation on the plaintiff to mitigate its loss arises under the law. It also was the subject of an express contractual provision in this case.

1. The lease provided:

"12.6If there is a breach of an essential term the lessor can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another lessee on reasonable terms.

12.7The lessor can recover damages even if:

12.7.1the lessor accepts the lessee's repudiation of this lease; or

12.7.2the lessor ends this lease by entering and taking possession of any part of the property or by demanding possession of the property; or

12.7.3the lessee abandons possession of the property; or

12.7.4a surrender of the lease occurs."

1. Both the parties submitted that clause 12.6 replicated the position under the law, and that the onus rested on the defendants to establish that the plaintiff had not taken reasonable steps to mitigate its loss.

1. In Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited (2008) 234 CLR 237 at 258-259; [2008] HCA 10 at [55], [56] and [58] the High Court decided:

"The Lessor was only entitled to obtain, as damages, the present value of any difference between the rent not paid by the Lessee and the rent received or to be received on re-letting...

... If landlords obtain possession, they can only recover loss of bargain damages if they have tried unsuccessfully to obtain a new tenant at the rent stipulated in the terminated lease. The monetary equivalent of what they would have got if they had not taken possession of the property reflects the fact that they cannot obtain tenants, or cannot obtain tenants who promise to pay as much as the defaulting tenants promised...

Save for any applicable statutory requirements or rules of law, there is no reason in law why general contractual principles do not apply to leases in this respect. Under general contractual principles, an innocent promisee can terminate the contract, and recover loss of bargain damages, where there is repudiation, or a fundamental breach, or a breach of condition - ie a breach of an essential term. And under these principles it is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision - not only in order to support a power to terminate the contract, which the Lessee concedes, but also to support a power to recover loss of bargain damages".

1. In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187], the Court of Appeal of New South Wales held:

187 A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130). Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did (Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452; Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5).

1. Similarly, in Young v Lamb (No. 2) [2001] NSWSC 1014 Austin J held:

28 McGregor on Damages (15th ed (1988) paras 275ff) identifies three rules with respect to mitigation of loss:

(a) the plaintiff must take all reasonable steps to mitigate the loss to him consequent upon the defendant's wrong (British Westinghouse Co v Underground Railway [1912] AC 673, 689 per Viscount Haldane LC;

(b) where the plaintiff takes reasonable steps to mitigate the loss to him, he can recover for costs incurred in so doing (there appears to be no claim for recovery in this category in the present case); and

(c) where the plaintiff takes steps to mitigate the loss to him, and the steps are successful, the defendant is entitled to the benefit accruing from the plaintiff's actions.

29 Where a tenant fails to pay rent in breach of the lease, and the landlord fails to mitigate his loss by re-letting the premises, damages for loss of rent should be assessed on the basis that the landlord would have been able, if he acted reasonably, to re-let the premises at a realistic monthly rental after a reasonable period for re-letting had expired. That is, damages should be the difference between the rent payable under lease, and the realistic rental that the landlord would have received had he mitigated his loss: Marshall v Mackintosh (1898) 78 LT 750.

1. The defendants identified a number of respects in which they alleged the plaintiff failed to mitigate its loss.

1. First, the plaintiff listed the property for almost a year at a rate above the market value. The joint expert report dated 28 March 2012 established the market value as at 1 October 2011 at $44,250 per annum, whereas the property was listed at $50,175 per annum (or $225 per square metre).

1. I do not regard the fact that the plaintiff asked more for the rent than the fair market rental value as establishing a failure by the plaintiff to mitigate its losses or that the plaintiff's asking price in 2011 was unreasonable. Further, I do not regard a variation of 13% between the asking price or list price of the rental property, and the subsequently established market value, as evidencing unreasonable conduct by the plaintiff. In my view, a list price 10-15% higher than the market price would be both reasonable and expected, as it would allow the lessor the opportunity to secure an interested tenant by reducing the asking price to the market price.

1. I regard it to be of some significance that the plaintiff's asking price represented a 42% reduction on the existing rental agreed to by the defendants. The GumlandProperty decision indicates that the landlord is entitled to seek to secure a rental equivalent to that stipulated in the terminated lease. Here the plaintiff has substantially reduced the rental in an attempt to attract a tenant. It seems to me that a landlord who too readily secures a tenancy at a rental far below the rate in the terminated lease might leave itself open to a claim that by so doing it failed to mitigate.

1. For these reasons, I do not think that the lower market rental value to the extent evidenced is significant in assessing whether there was a failure to mitigate.

1. Secondly, the defendant submitted that the plaintiff was and ought to have been aware that the property was listed above the market rate. This submission fails because of the matters identified in the previous paragraphs even were the plaintiff to be aware of the market rental. But in any event, the evidence did not support the submission that the plaintiff was or ought to have been aware of the market rental. The plaintiff obviously had no access to the 2012 joint valuation. After the tenant abandoned the property, the plaintiff consulted three real estate agents. They gave oral appraisals that the market rent was $200, $200-$225 and $225 per square metre respectively (about $45,000 to $50,000 per annum). This range included the plaintiff's asking price of $225 per square metre. This evidence persuades me that the asking price was set at a reasonable level given the expert advice received by the plaintiff.

1. Thirdly, the defendant submits that the plaintiff did not do every reasonable thing to advertise the property, in particular because the extent of advertising was unclear, and no flyers to surrounding premises were distributed until 2012. The defendants assert that a tenant was found soon after flyers were distributed.

1. I do not find this submission persuasive. The defendant bore the onus of proof on this issue, so any lack of clarity on the extent of advertising would militate against the defendant discharging the burden. Also, as no tenant has yet been "found", in that no lease has yet been signed, it is not accurate to submit that after the use of flyers a tenant was found "soon thereafter". Further, there is no evidence to allow me to conclude that the flyers were in any way significant in attracting a prospective tenant. Nor was there any evidence to the effect that the plaintiff disregarded advice from real estate agents in relation to the use of flyers, or indeed, in relation to any proposal to improve the prospects of attracting a tenant.

1. Fourthly, the defendant submitted that Mr Sharpe gave evidence that the property was left by the tenant in "very poor unlettable condition" and yet he failed to improve the property by repainting and recarpeting until April 2011, about three months after the tenant had abandoned the property.

1. This submission has, with respect, no merit. The evidence on this subject was given by only one of the estate agents. It was to the effect that he would expect recarpeting and repainting to take about three months, given the need to contact tradesmen, arrange inspections, receive quotations, approve the work to be done, enter a contract with the tradesmen, and have the work completed. As it turned out the recarpeting and repainting were not successful in attracting a tenant at anytime in 2011. There was no evidence to the effect that the prospects of attracting a tenant were better in February and March of 2011 than in April of 2011.

1. Finally, the defendants suggested that some tradesmen might have visited the property until August 2008. There was no evidence as to the nature of the trade involved, nor any evidence that any visit by tradesmen impacted on finding a tenant. This suggestion is of no support to the assertion of a failure to mitigate. The plaintiff has accepted that the additional energy usage above $125 for the relevant quarter, resulting from the air-conditioning mistakenly being left on, should not be met by the defendants

1. The circumstances established by the evidence do not support a claim of a failure by the plaintiff to mitigate its loss. The circumstances that were established show that unknown to the plaintiff in 2010, the defendant without success sought to find a replacement tenant for a substantial part of 2010. The plaintiff was then left with premises abandoned in January 2011. It expeditiously retained three agents, followed their advice, and reduced the asking rent significantly. There was no suggestion in the evidence by the agents or Mr Sharpe that he failed to follow their advice with respect to finding a tenant. He offered free supply of the workstations and a three month rent free period. Further, Mr Sharpe expended significant funds in improving the premises in an effort to attract a tenant and ultimately offered an additional bonus of $2,500 to any agent that secured a tenant.

1. Finally, the report of the defendant's own retained expert recorded that after the global financial crisis:

"...by the time that the reality of the economic situation became evident to lessors it was too late to attract lessees, no matter how low the asking rent was reduced. This situation has compounded to the situation that prevails today..." [underline added]

1. In these circumstances, I am of the view that the plaintiff took all reasonable steps to mitigate its loss, and that the assertion to the contrary by the defendants must be rejected.

(2) Unrecoverable outgoings

1. The defendants also advanced a number of reasons why certain outgoings were irrecoverable. The first argument sought to resist outgoings incurred after April 2011 because of the failure to mitigate. For the reasons already given there was no failure to mitigate and so this argument must fail.

1. The defendants also submitted that the plaintiff was not entitled to the cost of rectifying fair wear and tear to the Property and, somewhat inconsistently, was only entitled to restore the property to its condition as at the date of commencement of the lease.

1. The claims by the plaintiff for recarpeting and repainting were not based on a claim for rectifying fair wear and tear. Rather, this amount is alleged to be the cost of reasonable steps to mitigate the loss, a recoverable head of damage in accordance with Young v Lamb (No. 2) at [28] and [29] quoted above (at [25]).

1. On the other hand, the plaintiff has received a benefit from the carpeting and painting. The cost of completing the carpeting and painting, if it was required to attract a new tenant, would have, but for the tenant's breach, been incurred by the landlord in about August 2012 after the lease ended.

1. The tenant does not dispute that the recarpeting and repainting were the costs of reasonable steps to mitigate the loss. Indeed as indicated above the defendant submitted that the cost should have been incurred earlier, immediately upon the defendant vacating the premises.

1. The defendants submitted that costs of attracting a tenant should be discounted so that only 40% is payable by the tenant, although it is unclear whether this submission extended to the cost of recarpeting and repainting.

1. I think some credit to the defendants for the cost of improvements should be allowed. There is, however, no certainty as yet that a tenant will be attracted, or when, and in any event, the carpeting and painting will have depreciated in value by that time. In the circumstances, I propose to allow the whole of the costs claimed in attempting to secure a tenant, including repainting and recarpeting costs, but allow the defendants a credit of 60% of the recarpeting and repainting costs as improvements with that credit to take effect as at the earlier of the date of final orders or 31 July 2012 (which was the termination date of the lease).

1. The defendants also contend that the plaintiff is about to enter a new lease, and so outgoings already incurred, but covering a period after the date of any new lease should be discounted.

1. The plaintiff, on the other hand, submits that the defendants are liable under the lease for outgoings incurred during the term of the lease. It submits that the date the outgoing is due and payable is the relevant date, not the period covered by the outgoing.

1. Absent any particular provision of the lease, I would not be persuaded that outgoings that relate in part to a period after the term of the lease, even if payable during the term of the lease, can properly be regarded wholly as an outgoing under the lease. But in any event, Item 14 of Annexure A of the lease, in referring to outgoings, notes that they are to be "fairly apportioned to the period of the lease".

1. However, none of the outgoings relate to a time after the period of the lease. The plaintiff makes no claim for future outgoings even if payable before the original termination date of the cancelled lease. It seems to me that I should not discount the outgoings that relate to a period concluding before the conclusion of the lease period in the absence of a new lease having been entered. Accordingly, I do not propose to discount the outgoings claimed.

1. The plaintiff claims the cost of a $10 million public liability insurance policy. Clause 19.1 of annexure A requires the tenant to maintain a $20 million public liability policy "during the tenant's occupancy of the property". The defendant submitted that it does not have to meet the cost of the insurance policy because it covers the period in 2011 and 2012 when the defendant had ceased "occupancy".

1. I do not see any merit in this argument. Had the defendant fulfilled its obligation under the lease it would have been in occupancy, and would have been liable for the cost of a policy with a larger limit of indemnity (and premium). The cost of the insurance is a cost which the landlord has undertaken to meet because of the breach by the tenant.

1. However, the policy relates to the twelve months ending 31 August 2011, a full month after the date when the subject lease was due to expire. I do not see how the tenant could be liable for that additional month, and it would in any event be open to the landlord to cancel the policy on 1 August and recover one-twelfth of the premium.

1. In these circumstances, I would allow the plaintiff eleven-twelfths of the cost of the insurance.

1. The defendant has also sought a reduction in the amount of damages by reason of the impending lease. Although there is no current lease, Mr Clarke acknowledged in oral evidence that a prospective tenant was willing to enter a lease but it had not yet occurred. There was no evidence of the lease terms proposed or agreed upon, including the amount of rent or the commencement date for the lease or for the payment of rent.

1. The parties each argued that this lacuna in the evidence was attributable to the failure of the other. Ultimately, I have come to the view that either party could have elicited further details if they thought it useful to their case, but that no inferences adverse to either party should be drawn merely because some aspects of the proposed lease remained unexplored.

1. Doing the best I can it seems that there should be some discount to the damages because of the likelihood of a lease being entered. However, that discount should be modest because I must infer that any lease is likely to be at a rent equal to or lower than the asking price (which is substantially below the rent in the cancelled lease), and because the last day of the cancelled lease is only a little over two months away. At best, the landlord would receive an amount equal to about 60% of the rent under the cancelled lease, for about two months. At worst he will receive nothing for this period.

1. In those circumstances, I propose to reduce the amount of damages by 50% of the amount equal to the rent payable under the cancelled lease for the final month of July 2012. This presumes that the rent under a new lease will be at about the level of the asking price, but that the lease will commence (and any rent free period will conclude) in about early July 2012.

(c) Misleading and deceptive conduct

1. The defendants claim that they suffered damage as a result of the misleading conduct of Mr Clarke and the plaintiff, and seek to set-off that damage against the plaintiff's entitlement.

1. The defendants allege that, unprompted, Mr Sharpe told Ms Fisher in late November 2007 that the rent in the draft lease for the property was "the current market rent". A day thereafter Ms Fisher asserts she asked Mr Sharpe, "How did you determine the rent?" and he stated that the market rent was $71,000 "or more" and said he had a letter from a real estate agent confirming this. Ms Fisher says that the next day Mr Sharpe provided her a letter from a real estate agent, Andrew Callaghan of CBRE dated 7 May 2007. The content of that letter was quoted in paragraph 6 above.

1. The defendants assert that the letter and the statement of Mr Sharpe were misleading, as the market rental as at November 2007 was $55,000 per annum, and was $58,500 at the time the lease was entered in August 2008.

1. The market rental values referred to in the previous paragraph are derived from a joint expert report, and so are uncontroversial. The parties were also agreed as to the meaning of this "market rental value", being:

Market Rental Value is defined by the International Valuation Standards Committee (IVSC) as being:

"the estimated amount for which an asset should be leased on the date of valuation between a willing lessor and a willing lessee in an arms length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion."

1. Ms Fisher says she relied upon the representations and suffered loss. The cross-claimants assert that they are entitled to an award of damages amounting to the difference between the amount paid under the lease and the market rent and Ms Fisher also claims a similar amount for the year before the lease from 1 August 2007 to 1 August 2008, which includes a period before the representation is alleged to have been made.

1. The plaintiff disputes that a representation was made, and also asserts that any representation was not misleading, that there was no relevant reliance and that Ms Fisher suffered no loss by reason of any misrepresentation. I shall deal with each of these matters.

(1) Representation

1. Mr Sharpe denies that he made an oral representation as alleged. He does not dispute that Ms Fisher was provided with the CBRE letter but says that he did not provide it.

1. The question of an oral representation involves a contest between the credit of Ms Fisher and Mr Sharpe. It seems to me that either party would have difficulty recalling with precision contents of an oral conversation occurring some three years earlier. Neither party made notes of the conversation, if it occurred.

1. There are, however, a number of matters which, to my mind, diminish the reliability of Ms Fisher as to the existence and contents of the conversation.

1. First, Ms Fisher swore an affidavit in the proceedings with a number of errors in it. On three occasions she identified dates in 2008 which, in giving oral evidence, she sought to change to 2007. Such a mistake could be explained by a typographical error on one occasion. Where the mistake occurs in three successive paragraphs this explanation seems less likely, particularly when two of the errors are not simply a mistake as to the year.

1. The contents of the affidavit are as follows:

4. On 1 August 2008 the acquisition of the purchase of the 65 per cent share of the accounting business was settled. No lease document was provided with the purchase documentation.

5. In November 2008, the third defendants' solicitor belatedly produced the lease document for signature at which time there was no ability to negotiate any of the clauses of the lease.

6. On or about the end of November 2008 the third defendant as lessee entered into a registered lease agreement (lease number AE318118) with the plaintiff in respect of the property described as units 3 and 4 of Narabang Way, Belrose more particularly described as certificates of title folio identifiers 3/SP65901 and 4/SP65901 (the property) with effect from 1 August 2008.

1. At the trial, the defendants appeared to accept the correct date for these three events were respectively 1 August 2007, October 2007 (as the first date Ms Fisher received a draft lease), and 1 August 2008 (according to the cross-claim). As is apparent, the suggestion that Ms Fisher's own solicitor "belatedly" produced the lease document and that she was unable "to negotiate any of the clauses" is measurably weakened by the fact that the lease was signed eight months after she was provided with a draft. In addition, Ms Fisher gave evidence that she by negotiation managed to secure a first right of refusal as an additional term of the lease.

1. Further, Ms Fisher conceded she only purchased 60% of the shares of the accounting business, not 65%.

1. Ms Fisher is a very experienced accountant. To me, that lessens the likelihood that these errors were a result of a mere failure to pay attention to detail. I am inclined to attribute these errors to a mistaken recollection.

1. It is also significant that Ms Fisher made no assertion until late 2011 of any representation. By this stage she had sworn an affidavit in the proceedings, dated 29 August 2011. That affidavit made no reference to any misrepresentation and raised no issue about the rental payments. Similarly, the defence is silent on the issue of a misrepresentation. In my view, this is a weighty matter mitigating against the account given by Ms Fisher.

1. It also seems odd to me that the discussion as asserted by Ms Fisher would occur. In 2007 the rent for the previous year was at approximately this same level, and it continued at this same level throughout 2007 and 2008 until the lease was signed in August 2008, without any complaint or query by Ms Fisher. Thus the rental on the draft lease reflected the current rental for the past year or more. There seems no reason why Mr Sharpe would, unprompted, assess and refer to the value of the current "market" rent, rather than refer to the current rent.

1. Further, Ms Fisher's evidence is inconsistent with the evidence of Mr Clarke, her former business partner. An extract of that evidence is in paragraphs 11 and 12 above. Mr Clarke was a witness having no financial interest in the outcome of these proceedings. Ms Fisher did not in her affidavits take issue with any of Mr Clarke's evidence, although she sought to do so at trial.

1. Nor is the second conversation alleged by Ms Fisher persuasive. Ms Fisher knew that rent on the draft lease was the same as the rent that had been paid by her company in the previous 12 months or more. There was not an increase or even a change that would prompt a query about the rent. Again those circumstances would not ordinarily prompt an answer referring to the market rather than to the existing rent or to the earlier opinion of the agent.

1. For these reasons, I prefer the evidence of Mr Sharpe that he did not make any oral representation as to the current market rent.

1. Ms Fisher also received the CBRE letter. Mr Clarke says he gave Ms Fisher a copy of this letter, and Mr Sharpe does not dispute that he authorised that action. Whether Mr Sharpe gave Ms Fisher the letter, as she asserts, or Mr Clarke did so with Mr Sharpe's authority, as Mr Clarke testified and which is consistent with Mr Sharpe's accounts, seems not to be a matter of great significance. Were it necessary, I would prefer the evidence of Mr Sharpe and Mr Clarke, for the reasons previously given.

1. The provision of the CBRE letter is no more or less than a representation of what CBRE has written, namely that in May 2007 CBRE held the opinion that $71,000 per annum was an "achievable" or "potential" rental in the current market. There is no evidence that CBRE did not hold that opinion, indeed it was not disputed that this opinion was held. In that event there can be no relevant misleading representation.

1. Further, even if I were wrong in finding that no oral representation was made by Mr Sharpe, I would not find that an oral representation went beyond the representation contained in the May 2007 letter. On Ms Fisher's version, the letter was confirmatory of this market rent. It seems to me that the oral representation and the letter, taken together, especially given the letter is authored by an expert in the area, convey no more than the letter alone.

1. This is especially so when the representation alleged concerns matters where minds may differ, such as current market value, ` as distinct from existing objective facts, such as matters like the existing rental or the lettable area. No reasonable person could suppose that Ms Sharpe knew more about the matter of the market rent than that which was disclosed by the expert's written assessment of potential rental which, on Ms Fisher's evidence, Mr Sharpe was relying upon.

1. Accordingly, I find that the plaintiff has conveyed no more than that Mr Callaghan and CBRE held, in May 2007, the opinion stated in the letter.

1. The defendants rely on the authority of Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592. I do not think this case assists the defendants. The circumstances to my mind are a clear example of where the representations of another are being passed on. In the facts as I have found them, no representation is being made by Mr Sharpe, and if any representation is made, it is made by CBRE and Mr Callaghan. In the circumstances of this case, that Mr Sharpe happens to believe what he is told by CBRE and Mr Callaghan is of no significance in attributing a further representation to him.

1. Accordingly, the case for a misleading representation advanced by Ms Fisher fails at the outset. But I should also note that I would be unable to find that any representation was relied upon to cause damage, in any event.

(2)Causation and Damage

1. As I have noted, during the 2006-2007 and 2007-2008 financial years, to Ms Fisher's knowledge, the third defendant was paying rent at about $71,000 per year. No issue was raised by Ms Fisher about this level of rent either before or after the representations alleged, even though she was the majority owner of the Business.

1. I have earlier made reference to the difference between a representation about a matter where opinions differ, and a representation about an existing fact. In my view, the nature of the representations alleged is also relevant to the question of whether they were relied upon by Ms Fisher. I think it most unlikely that Ms Fisher believed that Mr Sharpe had any expertise in assessing market rents, such that she would rely upon any representation by him on the subject as anything more than an expression of opinion.

1. Ms Fisher asserted in her evidence that the sole consequence of the representation was that she refrained from making enquiries. Yet she made no relevant enquiries prior to the making of the representation, even though her business was paying the same level of rent.

1. Nor did Ms Fisher make enquiries some nine months after the alleged representation by Mr Sharpe (and 15 months after the opinion expressed in the letter) immediately before entering the lease. She accepted in cross-examination that it would be ridiculous to treat the agent's opinion of market rental in May 2007 as a representation of market rental in August 2008, but that is largely the effect of her cross-claim. At least, it involved the allegation that the landlord's assertion of market rent in November 2007, referring to and relying on an earlier agent's opinion in May 2007, represented something relevant in August 2008 about market rental.

1. Ms Fisher' response upon being informed by Mr Clark of the results of his enquiries also militate against reliance.

1. Although I have not accepted her account, I note that Ms Fisher's affidavit evidence recorded that she believed Mr Sharpe's oral statement about the market rent "and in the result I continued to pay him rent at that rate". The affidavits also record that she did not make any enquiries about the rent market value, and that she would have done so absent what Mr Sharpe told her. However, I do not read her affidavits as saying that, at the time she signed the lease, she believed the market rent to be $71,000 exclusive of GST.

1. The only statement in her affidavits as to her belief or circumstances at the time she signed the lease is that:-

"In November 2008, the third defendant's solicitor belatedly produced the lease document for signature at which time there was no ability to negotiate any of the clauses of the lease."

Whilst I have found there to be errors in this evidence, it nevertheless does not support the claim of a belief about the market rental at the time of the signing of the lease.

1. It follows that there is no evidence to establish any causative effect of the representation. If the landlord's oral opinion as to market rent was a matter of significance to Ms Fisher, it seems to me she would at least have checked with Mr Callaghan to confirm whether the opinion he held in May 2007 was applicable in August 2008. She took no such step.

1. Finally, there is the question of damages.

1. To ascertain the quantum of damages it is necessary to ascertain what would have happened if the representation had not been made. Taking the defendants' case at its highest, Ms Fisher would have made enquiries. There is no evidence that enquiries in 2008 would or might have produced a different and lower opinion to that given by Mr Callaghan in May 2007. The joint expert report indicates that rents increased in the period from May 2007 to August 2008 by about 8%. Ms Fisher disavowed any claim that she would have sought a valuation from her own expert, Mr Phippen, or from anyone else. There is also no evidence that any information so derived would have caused the plaintiff to have reduced the rent.

1. But there is evidence from Mr Clarke. His evidence was to the effect that (in part at the request of Ms Fisher) he made enquiries, that he passed the results on to Ms Fisher, and that both of them then agreed to lease units at the existing rent. This is probative evidence of what would have occurred had Ms Fisher made enquiries.

1. The defendants' submissions appear to acknowledge at least the uncertainty of what would have occurred:

"It is entirely plausible that she would have entered into negotiations with Barrington Services to reduce the rent payable under the Lease or that she may not have entered into the Lease at all."

1. After the conclusion of the evidence at the trial on 9 May 2012, the defendant sought and the parties were granted an adjournment of half a day to prepare written submissions. Addresses with written submissions occurred the following day and I then reserved my decision. Neither parties sought leave to file further written submissions, and none was granted. Without leave, on 30 May, the defendants filed a further "supplementary submission" dated 27 May 2012, over the plaintiff's objection. A further submission in reply was also then filed by the plaintiff. I have considered the submissions made, notwithstanding their lateness.

1. The defendants rely upon the decision of the Court of Appeal in Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 as the foundation for a submission that it is not necessary for the Defendants to prove what would have happened 'but for' the misleading conduct, but that the relevant question is whether there is a sufficient and direct link between the conduct and the consequences. The defendants accepted that they still needed to prove reliance upon the misleading conduct.

1. Although Bullabidgee establishes that there may be an evidentiary onus upon the representor in some circumstances, I do not think this principle has any application to the present case.

1. Bullabidgee involves facts different from the present case. There it was found that there was misleading conduct, which was contemporaneously relied upon by the plaintiff in entering into a contract to purchase land. In the present case, I have found there to have been no misleading conduct, and in any event no reliance by the defendant in entering into the lease many months later.

1. Further, unlike in Bullabidgee, there is some evidence of what would have happened if Ms Fisher made enquiries, because Mr Clarke did so. In the circumstances of this case there is no sufficient or direct link between the alleged conduct in 2007 and the signing of the lease in August 2008.

1. Ms Fisher claimed in her evidence that she believed that the purchase of the Business compelled her to remain at the premises. If that is so (and it was challenged by the plaintiff) it nevertheless meant that she might have remained even if she had known that the rent was above the market rate. Nor was there evidence about whether her business might have been affected by a change of location.

1. Further, Ms Fisher purchased in 2008 the remaining 35% interest of the business held by Mr Clarke. The price and value of that business would have been affected by a lower rent, but these matters were not explored in the evidence.

1. I am not satisfied that any damage to the defendants resulted from any belief Ms Fisher had about the market rent. In particular, the evidence of Mr Clarke concerning his enquiries persuade me that the defendants suffered no damage by failing to make enquiries.

1. Accordingly, I find that the defendants suffered no damage by reason of misleading conduct and therefore were not entitled to any set-off.

1. The plaintiff raised a further issue in respect of the misleading conduct, namely that any set-off must be apportioned between the plaintiff and CBRE because CBRE was a concurrent wrongdoer under s 73 of the Civil Liability Act 2002 and s 87CD of the Trade Practices Act 1974.

1. Because I have found that no set-off is available, it is not necessary that I decide this question.

D. GST

1. The defendants refer to Gagner Pty Ltd (t/as Indochine Cafe) v Canturi Corporation Pty Ltd (2009) 262 ALR 691 in submitting that GST should not be included in the award.

1. Campbell JA delivered the principal judgment in Gagner. His Honour held:

[147] I accept that the consequence of these provisions is that, even though the respondent might pay out an amount of GST in connection with the goods and services which it acquired for the purpose of making good the damage to its premises, it would be able to recover that amount back, either in the form of a reduction of the net amount it must remit to the commissioner for the quarter in which the payment was made, or as a refund. Thus the amount of GST component of any payments it made for making good the premises would not ultimately be a loss that it suffered. Given the compensatory purpose of the damages award, it was wrong to include that component in the award of damages.

...

[151] In summary, as the GST legislation currently stands, if the plaintiff in an action for tort is registered for GST purposes, and stands to receive an input credit for any GST payments incurred in making good its damage, and there is no impediment to the plaintiff receiving the full benefit of the input credit, that GST amount should be excluded from the quantum of damages recoverable.

...

[156] Mr Brender, counsel for the respondent, put forward in oral argument an alternative basis for allowing GST. It was that the damages award itself would be subject to GST. I do not accept that argument.

[157] An essential prerequisite for there being an obligation to pay GST concerning (relevantly for present purposes) a supply of goods or services is that there is a "taxable supply". Under s 9-5 GST Act, an essential prerequisite of there being a "taxable supply" is that "you make the supply for consideration". The Australian Taxation Office has issued a public ruling, GSTR 2001/4, concerning the GST consequences of court orders and out-of-court settlements. It states, at [60], that "a court, in giving judgment, does not make a supply for GST purposes". Nor is there any relevant "taxable supply" involved in the events that led to litigation such as the present. At [71]-[73] the ruling considers situations, including "claims for damages arising out of property damage" and concludes:

This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss or injury, in itself does not constitute a supply under section 9-10 of the GST Act.

[158] Nor would a judgment in the present case later, of itself, generate a liability for GST. The ruling says, at [61]:

[61] The payment, in money, of a judgment debt will not itself be a supply for GST purposes. It is excluded from being a supply under subsection 9-10(4).

[159] When this public ruling has been issued, it decides for practical purposes the way in which the GST legislation will be administered. It would be pointless for me to examine in any more detail the correctness of the commissioner's views expressed in that ruling.

1. It is apparent that a judgment itself is not a taxable supply. The question of whether GST is payable on a judgment depends on whether the payment of the judgment is in respect of a taxable supply. As Gagner indicates, referring to the Commissioner's Ruling GSTR 2001/4, payment of a judgment for damages of itself cannot be characterised as a supply. However, the ruling also indicates that if there is a sufficient nexus between an earlier supply and the payment, the payment may be consideration for that supply and a GST liability would then arise (see GSTR 2001/4 at [101]).

1. The claim for damages may be classified into three categories or groups:

(a) rent foregone for the remaining period of the current lease by the termination of the lease consequent on the abandonment of the Premises by the defendant;

(b) expenses incurred but not repaid by the former tenant; and

(c) unpaid rent for January 2011.

1. The first category of loss cannot properly be regarded as a supply. The tenant did not have possession of the premises and therefore there was no "supply" (eg of the premises) by the plaintiff. Accordingly, no GST is payable on this amount by the plaintiff, and so the compensation received by the plaintiff should not include any amount for GST.

1. The second category involves expenses incurred by the plaintiff but unpaid by the tenant. These expenses, to the extent they included GST, would give rise to an input tax credit for the benefit of the plaintiff, either to reduce the amount of GST payable, or to increase the amount refunded. In either case, the GST amount is not a loss that needs to be compensated. Accordingly, damages for these expenses should not include any GST component.

1. The third item is the unpaid rent in January 2011. The tenant failed to pay this rent, and the plaintiff took possession of the property on 29 January 2011. In these circumstances, there was a taxable supply, and the component of damages that represents the unpaid rent for January 2011 seems to me to be subject to GST. The plaintiff would be liable to remit the GST component of the January rent to the Commonwealth, and therefore the damages award should include the amount of GST on this one month of rent.

1. Accordingly, the only amount of GST that should be included in the award of damages is the sum of $717.54 being GST on the rent in January 2011.

E. Conclusion

1. Accordingly, I propose to order that the defendants pay the plaintiff's damages in accordance with these reasons, with interest at 12% in accordance with the lease. The parties have asked that I refrain from making final orders so that any questions of interest and costs can be considered in the light of these reasons. Agreed short minutes of order in accordance with the reasons, or alternative forms of order, will need to be delivered to my associate to enable final orders to be made.

Decision last updated: 01 June 2012