W.G. & B. P/L v Kizbeau P/L

W.G. AND B. PTY LTD and WALLACE GEORGE McLEAN v. KIZBEAU PTY LTD; GARRY
FRANCIS SHEILS and ANNA MARIA ELIZABETH SHEILS
No. VG503 of 1992
FED No. 555
Number of pages - 15
Trade Practices Appeal

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney(1), Davies(2) and Jenkinson(1) JJ

CATCHWORDS

Trade Practices Appeal - s.52 Trade Practices Act 1974 (Cth) - sale of motel business - representations as to commercial use of manager's residence - non-disclosure of limitation in town planning permit - misleading and deceptive conduct - damages - variation of lease - whether error of law by trial judge.

Trade Practices Act ss.52, 82 87

ASX Operations Pty Limited v. Pont Data (1991) 27 FCR 492

HEARING

MELBOURNE, 15, 16 June 1993

#DATE 16:8:1993

Counsel for the Appellants: Mr B. Shaw QC with Mr M. Colbran

Solicitors for the Appellants: Wisewoulds

Counsel for the Respondents: Dr C. Pannam QC with Mr G. McEwen

Solicitors for the Respondents: Molomby and Molomby

ORDER

THE COURT ORDERS THAT:

1. the orders under appeal providing for variation of the lease be set aside

2. the appeal be otherwise dismissed

3. both the appellants and respondents abide their own costs of the appeal.
Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.

JUDGE1

SWEENEY AND JENKINSON JJ W.G. and B. Pty Ltd and Mr McLean, a director of that company, are the appellants. The respondents are Kizbeau Pty Ltd and Mr and Mrs Sheils, its directors. The appeal is brought against the judgment of a judge of the Court given on 1 December 1992 in favour of the respondents in respect of claims arising from the sale in 1988 by the appellant company to the respondent company of the business of the Sandown Regency Motor Inn ("the motel"), lease of certain equipment and certain guarantees. The issues in dispute at the trial were set out by his Honour at pages 15 and 16 of the reasons for judgment as follows:

"The dispute arises from the permitted use of the motel under the provisions of the planning permit No.56/81A. The essential basis of the claims by Mr Sheils is an allegation that prior to entering into the agreement to purchase the business, the signing of the lease, and the giving of the guarantees by Mr and Mrs Sheils, Mr McLean had engaged in conduct that was misleading or deceptive or likely to mislead or deceive contrary to the provisions of the Trade Practices Act 1974. As a result of that conduct the applicants entered into the agreement, the lease and the guarantees and thereby suffered damage. The applicants seek damages under s82 of the Trade Practices Act and other relief under s87 of that Act. Other causes of action were not pursued.

The applicants' complaint relates to conduct which, in the circumstances of this case, was constituted by the non-disclosure of a material fact known to Mr McLean, but not communicated to Mr Sheils in circumstances where the non-disclosure constituted conduct in contravention of s52. The material fact related to a condition contained in the planning permit, namely condition (p) which is as follows:

'(p) All seminars shall be conducted within the Breakfast/Seminar Room.'"

His Honour had earlier referred to the history of the motel, as follows:

"The motel was built during the years 1986/87 and commenced to operate in about April 1987. It was built and operated by the respondent, W G and B Pty Ltd, formerly known as W G and B McLean Pty Ltd. The company is the family company of Mr and Mrs McLean and reference will be made in these reasons to Mr McLean as if he were the owner and operator of the motel. He is a respondent in his own right. The motel is situated on two blocks of land on which, in 1981, two separate dwelling houses existed. In that year, the then owner applied for a planning permit under the provisions of the Town and Country Planning Act 1961 (Vic), for a permit under the Melbourne and Metropolitan Planning Scheme to build a motel on the two blocks. The application was made to the City of Springvale. The application was dated 30 March 1981 and sought a permit as follows:

'Motel with Seminar and Breakfast and Dining Facilities, Managers Flat and Associated car Parking'. Plans for the proposed motel were included in the application. These made provision for the construction of the motel units in two stages, initially there being 20 units only to be erected. In order to erect these units one of the existing dwellings had to be demolished. The plans showed that the other dwelling was to be modified to provide for reception and other facilities together with the manager's flat on the ground floor with one room on a second floor. The plan described one room as 'motel breakfast dining and motel seminar' in an area roughly equivalent to what was to become Pastel's Restaurant. Instead of the Gallery the plan showed a passage and there was no provision for a bar. To the north of the passage was a room described as a 'guest lounge'. The upstairs room was described as an 'existing family room'. On 18 December 1981 the City of Springvale granted a planning permit pursuant to the application made by the previous owners of the site.

There is some confusion as to the precise wording of the various planning permits which have been issued from time to time with respect to the motel, but the confusion does not affect this case. The initial permit was permit No.56/81 and stated that subject to the conditions set out, a permit was granted 'To use this site Nos 477-481 (lots 180 and 181 Lodged Plan No. 8370) Princes Highway, City of Springvale, south side, 44.196 metres east of Callander Road for the purpose of erecting a motel with seminar and breakfast dining facilities, Manager's flat and associated carparking' in accordance with plans to be submitted pursuant to Condition (a) of the permit. The permit by Condition (a) required the plans to be approved by the City of Springvale. The permit was to continue for two years to enable the motel to be constructed and if the development had not been commenced within two years from 12 December 1981, the permit would lapse. Mr McLean had experience in conducting motels. He had conducted two motels at Lakes Entrance and one at Sale but none of those had facilities for meetings of a general nature to be held at the motels. He bought the land at Noble Park and resolved to construct a modern motel with what might be described as conference facilities to be included. He arranged for new plans to be prepared for the motel. The new plans showed the demolition of each of the houses. He applied for an amendment of the existing permit and this was granted by the City of Springvale on 12 January 1984. That permit is described as permit No.56/81A. It was a permit to use the site 'for the purpose of erecting a motel with seminar and breakfast dining facilities, Manager's flat and associated car parking'. The permit provided that it should have no force or effect until additional plans had been submitted to and approved by the City of Springvale as the responsible authority. On 14 February 1985 the City of Springvale approved the new plans. In these plans, the Gallery was described as 'passage/gallery', the Restaurant was described as 'motel breakfast dining and motel seminar', the Regency Room was described as 'guests lounge and conference room' and the bar was described as 'liquor servery'. The plans also showed the upstairs version of the building at the front of the motel in the manner described above in relation to bedrooms, lounge, dining, kitchen and family room.

Mr McLean constructed the motel including the 37 suites. Apparently it is accepted that a planning permit to use land 'for the purpose to erect a motel' carries with it permission to use the building so erected as a motel. The building was completed and Mr McLean commenced to operate the Sandown Regency Motor Inn in about April 1987."

His Honour said:

"The claim by Mr Sheils is that Mr McLean did not make disclosure of the limiting effect of this condition ((p)) and that Mr Sheils did not know of its existence. Mr McLean had told him how he had been conducting the business. Mr Mclean had been conducting the business as if no such restriction of the type referred to in condition (p) applied. Mr McLean claims that he mentioned the restriction to Mr and Mrs Sheils. That is denied by them. As a result a conflict of evidence must be decided on this issue. It was suggested in cross-examination by the then senior counsel for the respondents, not Dr Buchanan, that Mr Sheils either knew or should have known of the existence of condition (p) from his examination of the planning permit and, therefore could not rely upon the conduct of Mr McLean to support the claim for damages and other relief. This is another issue of fact that will need to be determined.

Finally it may be said that, in truth, the application to this Court was brought on by conduct of Mr McLean between April and June 1990. To that extent, the position in which the respondents now find themselves can be said to be self-induced. This conduct is not directly relevant to the issue of liability but reference will be made to it in some detail because of the effect it had on the conduct of the parties and its relevance to any question of damages."

After setting out the evidence his Honour considered the matter first under the heading:

"Representations that Boardroom and Boardroom Annex could be used lawfully for commercial purposes:

A number of separate issues arise under this broad heading. It cannot be disputed that the evidence shows clearly that Mr McLean used the Boardroom and Boardroom Annex for commercial purposes and that he told Mr Sheils that he so used them. The fact of the use is supported by the business records kept by Mr McLean and supplied by him to Mr Sheils. The evidence establishes clearly that Mr McLean believed that in so using the rooms he was acting contrary to the provisions of condition (p) of planning permit No 56/81A. The first issue, essentially, raises questions of causation, it being contended by counsel for the respondents that Mr Sheils knew or ought to have known of the restriction imposed by condition (p) but was prepared to proceed with the purchase in full knowledge of the restriction and, therefore, is not entitled to any remedy under the Trade Practices Act. Counsel for the respondents supported their contentions on two main grounds. The first ground is based upon a finding that Mr McLean told Mr Sheils of the existence of the restriction imposed by condition (p) (the disclosure defence). The second ground is based upon a finding that in any event Mr Sheils knew or should have known of the restriction as a result of reading planning permit No 56/81A before entering into the sale agreement (the search defence)."

In relation to the disclosure defence his Honour found:

"(a) The Disclosure Defence

Most of the facts relating to this issue have been referred to earlier in these reasons. I have stated already that I accept the evidence of Mr and Mrs Sheils that Mr McLean did not tell them of the existence of the restriction. In this regard, I do not accept the evidence of Mr McLean. Further, I do not accept the evidence of Mrs McLean who said she was present on the occasion when Mr and Mrs Sheils, with their daughters, inspected the manager's flat when Mr McLean told Mr Sheils of the existence of the restriction. I find it improbable that, according to Mr and Mrs McLean, when told of the restriction Mr Sheils made no comment. This applied on each of the occasions Mr McLean said he told Mr Sheils of the restriction. The failure of Mr Sheils to make any comment was, in these circumstances, inconsistent if the statement had been made. The use of the upstairs rooms for commercial purposes constituted a substantial part of the business of the motel being conducted by Mr McLean. If Mr McLean had told Mr Sheils of the fact that that use was unlawful one would have expected Mr Sheils to have reacted. Mr McLean said there was no reaction. Further, there is no suggestion that there were negotiations relating to the value of the goodwill of the business based upon the unlawful use of the upstairs rooms for commercial purposes.

Generally, I accept Mr and Mrs Sheils as truthful witnesses giving evidence to the best of their recollection. In many respects Mr McLean was not a satisfactory witness. He tended to hesitate in giving answers and gave many unresponsive answers. This might have resulted from a slight hearing difficulty but he presented as not being frank on all occasions and his demeanour, at times, was not satisfactory. He appeared to harbour a grudge against Mr Sheils and this was apparent in the way he gave his evidence. As I have said earlier, Mr McLean's current problems result to a large extent from his own actions occurring in April to June 1990."

(His Honour was here referring to the following passage in his reasons:

"In the meantime, the first of four events occurred which had the effect of causing feelings of antagonism to develop in the mind of Mr McLean, feelings which continued to fester until there was an explosion in April 1990. From the whole of the evidence including the demeanour of Mr McLean, I have formed the view that the antagonism resulted from a feeling by Mr McLean that Mr Sheils was gaining financial benefits from the way he was conducting the business of the motel but at the same time, was refusing Mr McLean a share in those additional financial benefits. It is not necessary for me to decide whether the events were caused by the fault of Mr Sheils or not. I merely state what they were. One event arose from the fact that Mr McLean wanted to increase the amount of the insurance on the motel premises. He sought the assistance of Mr Sheils in agreeing to a value to be put on the premises. Mr Sheils refused to do that and as a result Mr McLean had to engage a valuer to make the valuation. Mr McLean had to pay the fee of the valuer. Mr McLean blamed Mr Sheils for having to spend this money. It is interesting to note that the valuer valued the buildings at $4m on a replacement value. The second event related to the rent review. Mr McLean wanted to increase the rent after the first year of the lease and wanted to negotiate the increase with Mr Sheils. Initially Mr McLean sought an increase of 10% but was prepared to come down. Mr Sheils refused to go above the compulsory 6% increase. As a result the matter had to go to arbitration and this caused Mr McLean to pay extra money for the arbitration of the case and also half of the fee of the arbitrator.

The third matter related to a caveat which had been placed on the land on which the motel was erected. This had been done by Mr Sheils to protect his leasehold interest. Mr McLean wanted to rearrange his finance in order to acquire a motel at Geelong. There was some delay arising from the fact that Mr Sheils required legal advice on what should be done about the caveat and Mr McLean feared that the delay could adversely affect his acquisition of the new motel. The matter resolved itself.

The fourth matter arose from a combination of facts. Mr McLean knew that the business of the motel was expanding. He had heard that Mr Sheils had moved out of the manager's flat and that he and his family were no longer living there and that Mr Sheils had converted two of the bedrooms for use as motel accommodation. This resulted in extra revenue being received by Mr Sheils but at the same time Mr Sheils was refusing to negotiate a higher rent. Mr McLean and Mr Sheils met with the arbitrator to determine the rent to be paid under the lease. They met at the motel in April

1990. There was an inspection of the premises including an inspection of the manager's flat in which Mr McLean was able to confirm his belief that the two bedrooms were being used for paying guests at the motel. Thereafter, in the carpark, an argument occurred between Mr McLean and Mr Sheils. Mr McLean accused Mr Sheils of, in substance, deliberately causing financial harm to Mr McLean. During the course of the argument Mr McLean called Mr Sheils a liar. Mr McLean admits that he was very angry. During the course of the argument Mr McLean made it clear that he was going to take steps to stop Mr Sheils using any part of the manager's flat for commercial purposes. In substance he pointed to the upstairs part of the building and said words to effect 'I will close you down'.

Thereafter, Mr Sheils says he was petrified. He depended very much on the revenue being received from the use of the Boardroom, the Boardroom Annex and the extra two bedrooms to provide revenue to enable him to continue his business. He examined the planning permit No 56/81A and discovered condition (p). He believed that it had the effect of preventing him using the upstairs area for business purposes. He took no action.

At this stage it is useful to make further reference to condition

(p) which is set out earlier in these reasons. It is noted that it refers to 'the breakfast/seminar room'. Neither the plans attached to the original application for a permit nor the plans prepared by Mr McLean and approved by the City of Springvale on 14 February 1985, make reference to a room designated the 'breakfast/seminar room'. Each plan has one area marked 'motel breakfast dining and motel seminar'. The first set of plans makes reference to a 'guest lounge' while the second set of plans makes reference to 'guests lounge and conference room'. In these circumstances it is difficult to know what meaning and effect would be given to condition (p) which requires all seminars to be conducted within the 'breakfast/seminar room'.

The position is not helped by condition (o) which provides:

'(o) All external doors from the Breakfast/Seminar Room shall be designed to minimize noise escape, and no such door shall be propped or allowed to remain in an open position when not in actual use, except when no noise-generating activity is being operated in the Breakfast/Seminar Room'. It is difficult to see what effect could be given to that condition since on neither plan is there any external door from either the 'motel breakfast dining and motel seminar' area, nor in the first set of plans the 'guest lounge', nor in the second set of plans 'guests lounge and conference room'. A reference to these two conditions suggests that there was no adequate consideration given by the City of Springvale to the nature of the plans and the use to which the motel was to be put. The reference to 'conference room' in the second set of plans seems to have been overlooked.

At the hearing, no submissions were made as to the proper construction or application of condition (p) of planning permit No 56/81A. The Court expresses no opinion on that question. At least, until the matter first came on for hearing on 9 December 1991, all the parties seemed to accept the planning permit allowed the downstairs area to be used for weddings, wedding receptions, conferences, seminars and other functions but that the upstairs area could not be used for any of those purposes. Later events have affected this issue, but at the commencement of the hearing, the main issues of fact between the parties appeared to relate to whether Mr McLean had disclosed his belief as to the effect of condition (p) prior to the time of the sale of the business, to whether, at that time, Mr Sheils knew of the existence of condition (p) and the issue of the remedies to be granted if the applicants succeeded in the their claims.

In May 1990, the arbitrator made his report and determined that the rent should be increased by 6%, being the minimum increase provided by the lease. This added to Mr McLean's feelings of dissatisfaction.

The next stage in this drama commenced on 31 May 1990 in the course of a telephone conversation between Mr Axup, the solicitor for Mr McLean, and Mr Brown, the solicitor for Mr Sheils, in which Mr Axup said words to the effect that Mr Axup would be lodging a formal objection in writing with Mr Sheils' solicitors complaining that the residential portion of the motel premises were being used for motel purposes. Thereafter, by letter dated 6 June 1990, Mr McLean's solicitor wrote to Mr Sheils' solicitor referring to the earlier telephone conversation and drawing attention to the fact that following the recent inspection of the property there were two matters of concern to Mr McLean, the relevant one being as follows:

'(b) The upstairs residence is being used for commercial purposes in contravention of the Lease, the Town Planning Permit and the Liquor Licence Control Act and we are instructed to advise this must cease forthwith.'

The letter also contained the following paragraphs:

'Our client will consent to an application being made to amend the Town Planning Permit and the Liquor Licence to facilitate the use of the residence for commercial purposes provided as follows:-

(i) The applications are made at your client's expense;

(ii) All works required (if any) be carried out at the direction and supervision of our client's architect, J. Dale Fisher, whose fees are to be paid by your client.

(iii) All work to be carried out to be of a similar standard to the existing premises and at your client's expense;

(iv) That the rent be increased commensurate with the additional commercial area and therefore the income available to your client.' This paragraph illustrates the fact that Mr McLean was determined somehow or other to get an extra financial return from Mr Sheils. By letter dated 12 June 1990 the solicitors for Mr Sheils replied stating that the first complaint in relation to the property was being attended to. With respect to the particular complaint about the upstairs part of the building, the letter continued: '3(b) Our client, without prejudice to its rights, will cease to let-out to paying guests (or otherwise use commercially) the two upstairs bedrooms which are the only bedrooms to have been so used by our client.' By letter dated 19 June 1990 the solicitors for Mr McLean wrote to the solicitors for Mr Sheils as follows:

'With respect to paragraph 3(b) of your letter, we are instructed to advise as follows:-

1. Your client has apparently installed a new doorway in the Manager's residence to facilitate its use for commercial purposes. In view of the contents of your letter, our client requires the residence to be re- instated to its former configuration as soon as possible.

2. Your client has been using more than two bedrooms in the Manager's residence for commercial purposes. Our client advises that the use of any part of the Manager's residence for commercial purposes is in contravention of the town planning permit and liquor licence and should cease forthwith.' ...

This correspondence caused Mr Sheils to consider his position. On 13 June 1990, that is after receipt of the first letter, he attended his solicitor and gave instructions to brief senior counsel for advice. Following various advices and conferences, an application to the Federal Court of Australia and a statement of claim were drawn and settled. The application was issued on 14 August 1990. The application seems to suggest that those advising Mr Sheils took the view that condition (p) of permit number 56/81A had the effect of preventing Mr Sheils from using the Boardroom and Boardroom Annex for any commercial purpose but did allow the downstairs areas to be so used. It is noted that Mr Sheils had ceased using the two bedrooms for paying guests. Even after the issue of the application Mr McLean continued to act unilaterally and without notice to Mr Sheils. Whether from a feeling of concern for Mr Sheils or with the intention of limiting his own liability or to prevent his motel from being used for a purpose not permitted by the planning authority, he arranged for his advisers on planning matters, Status Design Pty Ltd, to make application to the City of Springvale to amend permit No 56/81A. The application was dated 11 February 1991. The substance of the application was to amend the conditions to regularize the situation that existed in respect of the use of parts of the property to host seminars. The application sought an amendment of the planning permit to enable the two areas of the property that are currently being used for the function of hosting seminars to be extended to allow seminars to be conducted in the guest lounge and conference room on the ground floor and the area named family room, dining room and lounge on the first floor. The application sought an amendment to condition (p) of the permit to give effect to the application and consequent amendments to condition (o). If the application had been granted as sought, the legal proceedings may well have lapsed. The City of Springvale did not grant an amendment in the form sought. On 27 March 1991 it amended condition (p) and condition (o) and inserted a new condition (s). Condition (p) as amended read: '(p) All seminars must be conducted within the guest lounge and conference room on the ground floor and/or the family/dining and lounge room on the first floor.'

The new condition (s) as follows:

'(s) The holder of this permit shall ensure that only one

(1) seminar is hosted on the premises at any one time.'

Condition (o) was amended to refer to 'Guest's lounge/conference room or the family/dining and lounge rooms' in lieu of 'the Breakfast/Seminar Room' as appearing in the earlier condition (o). The effect of condition (s) was dramatic. It is clear that until this time it was common practice to have more than one seminar or conference or function being held at any one time and the effect of condition (s) would be to limit severely the nature of the commercial activities being conducted on the premises. To some extent it appears illogical to limit seminars to three separate rooms but at the same time limit the use to one seminar at any one time. In any event, condition (p) would have a dramatic and adverse affect on the financial position of Mr Sheils. Mr McLean immediately sought a further amendment to the planning permit. During negotiations with the City of Springvale, Status Design Pty Ltd, on behalf of Mr McLean, suggested that it would satisfy the parties if condition (s) was varied to read 'The number of persons attending seminars held on the premises shall not exceed fifty (50).' On 8 May 1991 the City of Springvale further amended planning permit No 56/81A by amending condition

(s) and adding a new condition (t). These two new conditions are as follows:

'(s) The maximum number of persons attending seminars within the specified areas of the Motel Complex must not exceed fifty (50) persons at any one time, whether or not there is one or more seminars being conducted at that time.

(t) Council reserves the right to view the number of people attending seminars and/or the lists of people attending seminars at any time.' The effect of these amendments was to remove the restriction on the number of seminars being conducted at any one time but imposed a limit of 50 persons at any one time. This also had a limiting effect on the commercial activities that were being carried on by Mr Sheils, and, for that matter, by Mr McLean before he sold the business to Mr Sheils.

Mr Sheils did not know that these actions were being taken by Mr McLean. Thereafter, Mr McLean sought to appeal from the determination by the City of Springvale and sought the consent of Mr Sheils to participate in the appeal. Mr Sheils refused to do so and the appeal was withdrawn.)"

His Honour's assessment of the credibility of the witnesses continued:

"The impression was created that in order to extricate himself from those problems, Mr McLean made up a version of what was said. From all the circumstances, his version of the conversations does not ring true. Mrs McLean presented as an honest person but in all the circumstances I do not accept her evidence on this point. Mr Sutherland, the agent, was present on the first occasion when Mr McLean said he told Mr Sheils of the restriction. Mr Sutherland's recollection is not good. No great reliance can be placed on his evidence. He could not recall Mr McLean telling Mr Sheils of the restriction. On another occasion, another prospective purchaser may have been told of the restriction and Mr Sutherland has a hazy recollection of that occasion. Mr Sutherland did not tell Mr Sheils of the restriction. The evidence of Mr Sutherland does not support the evidence of Mr McLean on this point.

Counsel for the respondents referred to a number of factors to suggest that Mr Sheils should not be believed. He referred to his financial position and desire to be released from his obligations under the lease and the sale agreement. I have had regard to those matters but it must be remembered that it was Mr McLean who, in reality, triggered the instigation of these proceedings. Reference was made to errors, including deliberate errors, of fact made by Mr Sheils in preparing estimates of losses that arose or could have arisen from the restriction currently imposed by the planning permit limiting the number of persons being at seminars at any one time to 50. These errors were made but do not, in my opinion, affect the veracity of Mr Sheils on this crucial point. Once this finding of fact has been made, it is reasonably clear, and in the circumstances of this case, is not really disputed, that Mr McLean, in contravention of Section 52 of the Trade Practices Act, engaged in conduct that was misleading or deceptive or likely to mislead or deceive Mr Sheils. The authorities support this conclusion and I so find: see for example Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at p199 and Henjo Investments Pty Ltd and Others v Collins Marrickville Pty Ltd (1987) 79 ALR 83."

His Honour also said:

"On all the evidence I find that neither Mr or Mrs Sheils knew of condition (p) of planning permit No 56/81A until after the argument at the motel in April 1990.

Accordingly, in my opinion, the applicants have made out their case against the respondents in so far as it is based upon s52 of the Trade Practices Act and the representations that the Boardroom and Boardroom Annex could be used for commercial purposes."

His Honour dealt with another set of representations upon which the applicants had relied, as follows:

"In summary, the Court finds that Mr McLean made representations to Mr Sheils that it was lawful for the applicants to use the Sandown Regency Motel for weddings, wedding receptions and other functions and receptions. Further, the Court finds that Mr McLean made those representations honestly believing them to be true."

His Honour held that the applicants were not entitled to relief in respect of these representations.
Counsel for the appellants submitted to us:

"Here what was relied on was a statement that the upstairs part of the premises was used for seminars. This statement does not expressly state that that use was lawful. A copy of the permit regulating the use of the premises was afterwards (and before the contract was entered into) provided to the applicants' solicitors (who also later - and before settlement - obtained one themselves); was read by them in full; and was supplied by them to Shiels with the express advice that he check it. He read part but not all of the permit, failing to read the critical condition. Thus it is clear that the solicitors acting in the matter for Kizbeau and the Shiels actually knew of the existence of the critical condition, because they had been informed of it by the appellants. The solicitors passed the copy permit on to Shiels, with advice which, had it been followed, would have made Shiels conscious of the condition. It is submitted that in these circumstances there was no misleading conduct by the appellants; rather there was inadvertence by the respondents. Kizbeau knew (in the only way it could) what the permit provided in the relevant condition. That it failed to attach the significance to what it knew which it now seeks to give it, is a matter to be laid at its door, not the appellants".

These submissions did not seek to challenge the trial judge's view of the credibility of the witnesses. On the basis of that view, his Honour was satisfied that Mr and Mrs Sheils did not know of the existence of condition (p).
As his Honour pointed out, the main issues between the parties before him appeared to relate to whether Mr McLean had disclosed his belief as to the effect of condition (p) prior to the time of the sale of the business and to whether, at that time, Mr Shiels knew of the existence of condition (p) and the issues of the remedies to be granted if the applicants succeeded in their claims.
His Honour rejected the submission of the respondents before him that Mr Sheils knew or ought to have known of the restrictions imposed by condition (p) but was prepared to proceed with the purchase in full knowledge of the restriction and therefore was not entitled to any remedy under the Trade Practices Act.
His Honour later said:

"The Court finds that in entering into the sale agreement of the motel business, the lease and the guarantees Mr and Mrs Sheils relied upon the representations so made relating to the use of the upstairs rooms. This is made very clear from the fact that in making his calculations of the value of the business Mr Sheils took into account the financial records of Mr McLean which showed that Mr McLean had been using those rooms for commercial purposes. Mr Sheils relied also on the statements made by Mr McLean that the Boardroom and Boardroom Annex were being used for commercial purposes. In reliance on the representations Mr Sheils entered into the sale agreement to purchase the motel business and agreed to pay $986,945 for the goodwill of the business. In addition he paid for other assets and undertook liability to pay the amounts due under the commercial leases even though the assets the subject of these leases eventually became owned by Mr McLean. In addition Mr Sheils entered into the lease, the initial rent being $480,000 per year payable $40,000 monthly in advance. Rent was to be reviewed annually but was to be increased annually by at least 6%. Further more, Mr and Mrs Sheils entered into personal guarantees with respect to the obligations of Kizbeau Pty Ltd. In all the circumstances, the Court finds that W.B. and B Pty Ltd through Mr McLean, in trade or commerce, engaged in conduct that was misleading or deceptive. In so doing the respondents contravened s52 of the Trade Practices Act. The Court finds that the applicants have suffered loss or damage by that conduct."

Bearing in mind the way in which the parties presented their cases during the trial, in our opinion this case is one in which the finding of liability, based as it was upon the trial judge's assessment of the credibility of the witnesses, should not be disturbed by a Full Court which has not seen or heard the witnesses. We would dismiss the appeal so far as it relates to liability.

The Findings on the Form of Relief
19. His Honour said:

"Difficult questions arise in considering what relief should be granted to the applicants. The case made out by the applicants is that based upon s52 of the Trade Practices Act and the representations that the Boardroom and Boardroom Annex could be used for commercial purposes. Even here, the Court has doubts as to the legal effect of condition (p) of planning permit No 56/81A as in operation at all relevant times before the sale of the motel business and the granting of the lease to Kizbeau Pty Ltd. The parties conducted the proceedings on the basis that the use of the upstairs rooms for commercial purposes was in contravention of the planning permit. The Court proceeds on that basis."

Turning to the question of relief, his Honour said:

"The applicants sought relief based upon s82 and s87 of the Trade Practices Act. ...

Section 82 of the Trade Practices Act creates a remedy as follows:

'82(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.'

On the findings made, the applicants are entitled to recover damages from each of the respondents.

The relevant parts of subs87(1) of the Trade Practices Act provide as follows:

'87(1) ... where, in a proceeding instituted under ... this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in ... in contravention of a provision of Part IV or V, the Court may, whether or not it ... makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in that conduct ... (including all or any of the orders mentioned in sub-section (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.'

Included among the orders mentioned in subs87(2) are orders declaring the whole or part of an agreement entered into as a result of the contravention to be void ab initio or at some other time, and orders varying a contract or arrangement so entered into. In the present case the relevant contracts or arrangements are the agreement for sale of the motel business, the lease and the guarantees.

It is to be noted that the remedies conferred by s82 and s87 are complementary.

On the findings made, the range of orders sought has been narrowed. Thus, counsel for the respondents conceded that if the applicants had made out a case that misrepresentations had been made with respect to each of the Boardroom and Boardroom Annex as well as the weddings and receptions, it would be appropriate for the Court to make an order rescinding the sale agreement ab initio with all necessary consequential orders. That concession does not apply to the findings the Court has made. (His Honour had earlier rejected the claim in respect of weddings and receptions.) Despite the limited findings made in favour of the applicants, their counsel still contended that the sale agreement should be rescinded. However, in my opinion, such an order is not warranted. The commercial use of the Boardroom and Boardroom Annex formed a part only of the total business of the motel. From the time of taking possession of the business in December 1989 until May 1991 the applicants conducted the business as if the Boardroom and Boardroom Annex could be used for commercial purposes. Since then, the applicants have observed the limitation imposed by condition (s) of planning permit No 56/81A, namely the limitation of 50 persons at any one time for seminars whether in the Regency Room or the Boardroom or the Boardroom Annex or in all of them. This limitation was imposed a long time after the sale agreement was entered into. In all the circumstances, particularly the lapse of time, the fact of the nature of the limitation before May 1991 and the fact that until that time the applicants conducted the business as if there were no limitations on use except those which related to a motel business or a use incidental to such a business, rescission of the sale agreement, the lease and the guarantees is not justified.

(a) Damages

The general principle applied to determine the measure of damages in cases similar to this where a person has suffered loss and damage resulting from conduct by a vendor in contravention of s52 of the Trade Practices Act is the difference between the price paid and the real value of the business purchased. Leaving aside the question of the lease, which will be considered later, the difference relates to the amount paid for the goodwill namely $986,945. There is no evidence to suggest the value of the other payments made under the agreement of sale are affected. The legal principles are clear, see for example Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1. In the present case, the relevant date is the time the agreement of sale was entered into, namely 28 October 1988. Accordingly, as would have been expected, expert evidence was led for the purpose of identifying the value of the business as at 28 October 1988 on the basis that the use of the premises as a motel was limited by condition (p) of the planning permit No 56/81A namely: 'All seminars shall be conducted within the Breakfast/Seminar Room.'

As a result, the Boardroom and Boardroom Annex could not be used lawfully for seminars, and for that matter, conferences. At the same time, subject to any questions relating to the liquor licence, which was not pressed at the hearing, the upstairs rooms could be used for functions other than seminars. An assessment of damages on this basis amounts, as is discussed later in these reasons, to $265,000.

Counsel for the applicants contended that the evidence disclosed that the Sheils bought the business for its growth potential. They were prepared to pay the purchase price and enter into the lease at the rental specified with annual rental reviews but with the provision of a minimum rental increase each year of 6%, for a period of five years with options to renew on the terms for a total period of 22 years. Accordingly, when the applicants came to sell the business they could offer the balance of a long period of rental to enable the purchaser to obtain a long period within which to make profits to cover the cost of the goodwill paid. Counsel contended that as a result of the amendment to the planning permit No 56/81A with effect from 8 May 1991, namely the new form of condition (p) which permitted seminars, and for that matter, conferences, to be conducted in the Regency Room and the Boardroom and Boardroom Annex but that as a result of condition

(s) the maximum number of persons attending seminars, and for that matter conferences, must not exceed 50 at any one time, the value of the business was drastically reduced and that the measure of damages should be based on the value of the business determined subject to these new limitations on activities. To that end, much evidence was led to establish the value of the business subject to these limitations.

Those submissions are rejected insofar as they are directed to the assessment of damages based upon the existing condition (s). The agreement of sale was made in October 1988. Possession was taken in December 1988. The real value of the business must be determined as at October 1988. The purchase price was stated to be $1,110,000 comprising $986,945 for goodwill and $113,055 for certain plant and chattels making a total sum of $1,100,000. This was the sum used by Mr Young, the valuer called by the applicants to give expert evidence. The balance of $10,000 was for stock other than food and liquor stock. The respondents called an accountant as a witness but did not call an expert valuer. There was some dispute in relation to some base figures to be used in arriving at a capital figure, but I accept the evidence of Mr Young.

The real value of the business is less than the sale price because of the limitation imposed by condition (p) as in force in October

1988. After taking possession of the business, the applicants conducted the business as if it was not affected by the limitation. Nevertheless, the real value of what they had purchased was less than they had paid. They continued to use the premises until 8 May 1991 when they were notified of the new conditions, the limiting one being the restriction on the number of persons attending seminars on the premises at any one time. Thereafter, the applicants conducted the business subject to that limitation but continued to use the motel for weddings, receptions and other functions. In my opinion this new limitation on the use of the motel cannot be used in valuing the business in October

1988. The new conditions illustrate the vagaries of the City of Springvale as the relevant responsible authority under the planning scheme provisions. The City of Springvale might make further variations to planning permit No 56/81A. These variations should not vary the value of the business as sold in October 1988. No action has been brought against Mr McLean based upon action taken by him in initiating the series of amendments made to the planning permit in 1991.

Warren Francis Young is a well qualified and experienced valuer. Since 1966 he has been working as a valuer and estate agent principally of hotels, motels and other licensed premises. He was requested by the applicants' solicitors to undertake a series of valuations of a leasehold interest in the Sandown Regency Motor Inn. Valuations were required on a number of different assumptions. Subsequently he was requested to give supplementary valuations. In the result, a bewildering array of valuations were presented in evidence which had a tendency to confuse rather than to clarify. On the findings made, attention can be directed to those parts of the evidence relevant to determine the assessment of damages. The valuation reports of Mr Young are in evidence as well as the material on which they are based. Mr Young gave oral evidence and was cross-examined. I accept the evidence given and the opinions expressed by him.

It is necessary to determine the value of the business purchased by the applicants in October 1988 on the basis that the Boardroom and Boardroom Annex could not be used lawfully for seminars or conferences. As expressed in his report the appropriate valuation is expressed as follows:

'Valuations have been requested on the following bases:

(a) valuations on the basis of assumptions that would have applied at the time of the purchase of the business in October, 1988 assuming:

(i) that the upstairs manager's residence which contains two living areas which are known as the boardroom and the boardroom annex are included as conference rooms or facilities available for hire.

(ii) alternatively without the benefit of those rooms as conference rooms.

(iii) as in (a)(ii) with a rental adjusted to the same proportion of total revenue as applied in (a)(i).' Sub-paragraph (a)(i), to some extent, is unnecessary since the agreement for sale specifies the value of the business at that time, namely $986,945 for goodwill.

Mr Young had been supplied with all available financial records. He accepted these as being correct figures. On the evidence that acceptance was justified. The difficulty was that the only figures available showing the amount of income received from the Boardroom and Boardroom Annex before the applicants took possession of the business on 16 December 1988 was for the 14 week period from the week ending 11 September 1988 to the week ending 11 December 1988. The remainder of the records have been mislaid. On an analysis of the total trading result of the motel for that period, income applicable to Boardroom and Boardroom Annex functions amounted to $93,522 or 15.28% of the total revenue

(income) of the business for that period, namely $611,984. Converting those figures to an annual basis, after making allowances for possible fluctuations, they show that the total revenue for a 12 month period was approximately $2,200,000. He then expressed the opinion that, for the reasons given and on the assumptions of a net operating profit of 45% of total sales, the net profit to the tenant, after deducting rent, would be $510,000. This figure is before interest and leasing, depreciation, provisional or unusual expenditure and proprietor's remuneration. On the same basis, with the adjustment for the loss of use of the Boardroom and Boardroom Annex, the corresponding net figure was $360,000.

The report then sets out the details of the agreement for sale, the relevant figures being $986,945 for goodwill and $113,055 for plant, equipment and chattels, thus arriving at a figure of $1,100,000. Mr Young referred to the provisions of the agreement for sale relating to certain equipment. He then made a valuation, based on his earlier estimates, as to the valuation as at 28 October 1988 assuming permitted use of the Boardroom and Boardroom Annex as follows:

'Estimated net profit to tenant $ 510,000 Capitalise at 30% = 1,700,000 deduct estimated payout figure

for leased furniture, plant and

equipment 600,000 Value $1,100,000' The equivalent valuation without permitted use of the reception rooms was:

'Estimated net profit to tenant $ 360,000 Capitalise at 30% = 1,200,000 deduct estimated payout figure

for leased furniture, plant and

equipment 600,000 Value $ 600,000' The amount of $600,000 is based upon the rent for the premises being $480,000 for the year, being 21.82% of the sales, estimated at $2,200,000, without the limitation of use of the upstairs rooms and being 25.75% of sales, estimated at $1,863,840, with the limitation. In valuing the premises with the limitation, regard would have to be made for a reduced rent. Accordingly Mr Young made a further valuation based on an adjustment to rent being 21.82% of sales estimated at $1,863,840. On this calculation the estimated net profit to the purchaser would be rounded off to $430,000 and on this basis the value of the business was estimated as follows:

'Estimated net profit to tenant $ 430,000 Capitalise at 30% = 1,433,333 say 1,435,000 deduct estimated payout figure

for leased furniture, plant and

equipment 600,000 Value $ 835,000' The conclusion made by Mr Young on this aspect of his valuation was:

'9.0 DECLARATION OF VALUE

We declare that to the best of our knowledge and belief the values of the subject motel are as follows:

(a) as at October 28, 1988

(i) including the boardroom

and boardroom annex as

conference rooms $1,100,000

(ii) without the benefit of

the boardroom and

boardroom annex as

conference rooms $ 600,000

(iii)as in (a)(ii) with

rental adjustment to

the same proportion

of total revenue as

in (a)(i) $ 835,000'

From all the evidence, I find that the real value of the business sold to the applicants having regard to the limitation imposed on use by condition (p) of planning permit No 56/81A as in operation on 28 October 1988 was $835,000. On the same basis of valuation the actual value paid by the applicants was $1,100.000. Thus the amount of damages to which Kizbeau Pty Ltd is entitled is the difference between the two, namely $265,000."
His Honour's task in assessing damages was by no means an easy one, as he fully appreciated. He was entitled to accept the evidence of Mr Young and to base his reasoning upon that evidence. We discern no error in the conclusions which he drew from it and would dismiss the appeal so far as it relates to the assessment of damages at $265,000, which together with interest, produced the figure of $327,500 set out in paragraph 1 of the order of 3 December 1992.
The next subject considered by his Honour was:

"(b) Relief under s87 Trade Practices Act

The method adopted in assessing damages illustrates the problem raised in considering what relief the applicants are entitled to under s87 of the Trade Practices Act. The relevant part of the section has been set out earlier in these reasons. The Court has found that the applicants have suffered loss or damage by the conduct of the respondents in contravention of s52 of the Act and has determined that Kizbeau Pty Ltd is entitled to damages in the sum of $265,000.

In arriving at that amount, the Court took into account the rent for the motel at a rate less than the rent specified in the lease entered into by Kizbeau Pty Ltd. The obligation on Kizbeau Pty Ltd to continue to pay the rent as specified in the lease remains. In these circumstances the Court has power to make such order or orders as it thinks appropriate against W.G and B Pty Ltd to compensate Kizbeau Pty Ltd in whole or in part for the loss or damage or prevent or reduce the loss or damage suffered by it. In summary, the lease is for a term of five years commencing 16 December 1988 with an option of three further terms each of five years each and one further term of two years. Thus, the lease, if the options are exercised, is a lease for 22 years, ample time to recoup the purchase price of the business, or to sell the business within the early stages of the lease. The lease provides for rental at the annual rate of $48,000 payable monthly in advance, for the first year and thereafter the rent to be mutually agreed upon or failing agreement, rent based on the current market value as determined in accordance with the lease. There is a proviso that the annual increase shall in no event be less than 6%. This proviso is to continue to apply for the whole of the 22 years of the lease if the options are exercised. A serious matter of contention between the parties is whether the proviso for the minimum increase of 6% should be varied.

The essence of the submissions of counsel for the respondents was that the applicants agreed to the lease containing the proviso for the minimum annual increase in rent of 6%, that they had legal advice before entering into the lease, that there was no objection to the minimum 6% annual increase and that therefore that proviso should remain in operation. There is much force in this submission.

In my opinion, the facts of this case illustrate a number of matters of an unusual nature which should be taken into account in exercising the discretion conferred by s87 of the Trade Practices Act. Under normal circumstances, on the findings made, according to the opinion of Mr Young (the rent) at the commencement of the lease should have been $406,690 not $480,000 as specified in the lease. The applicants continued to operate the motel until 8 May 1991 as if condition (p) of planning permit No 56/81A did not apply. Thus, it is only fair that the rent to be paid to that date should be paid in conformity with the terms of the lease. As from 16 December 1989, the annual rent was increased by the minimum amount of 6% to $508,800 per annum. As from 16 December 1990, the annual rent was increased by the minimum amount of 6% to $539,328. That rent was paid up to and after 8 May 1991. Since that date, Kizbeau Pty Ltd has been complying with the amended conditions of planning permit No 56/81A and restricting the number of persons attending the premises for seminars or conferences to 50 at any one time. The financial consequences of this limitation is different from the financial consequences of the limitation imposed by condition (p) in its original form. For practical purposes, the original condition (p) remained in operation until 8 May 1991. Nevertheless, estimates could be given in relation to the fair rental to be paid for the premises on the basis of the current limitations and the lease varied accordingly. This, however, is not the sole consideration.

Earlier in these reasons, criticisms were expressed concerning the standard of proficiency of the City of Springvale in exercising its powers as the responsible authority under the planning scheme provisions. This relates to the wording of the permit and the conditions particularly condition (p), the discrepancy between the wording on the approved plans and condition (p), the obvious difficulty of applying condition (p) and the apparent lack of understanding of a permit to use the premises as a motel. No express permit was granted to use the premises as a motel. Further, the evidence discloses that amendments to the planning permit can be made without reference to the person operating the motel. The initial amendment purported to permit seminars to be held in a number of different rooms, some on different floor levels, provided that one seminar only was held at any one time. It is difficult to see the logic of that condition. Thereafter, the conditions were varied to limit the number of persons attending seminars at any one time. Presumably, this was done because of limited parking facilities, but no reference is made to the fact that persons attending Pastel's Restaurant may have cars and that the Restaurant can seat almost 60 persons. The Court can have no confidence in what the City of Springvale may do in the future with respect to conditions affecting the motel. Further, the Court has held that weddings, wedding functions, receptions and other functions are permitted uses at the Sandown Regency Motel. This finding does not bind the City of Springvale. The Court cannot assume that the City of Springvale will not amend the planning permit to prevent this use in the future. If that occurred, the financial position of Kizbeau Pty Ltd would be affected to a very great extent.

Having regard to all these uncertainties, the Court is of the opinion that it should not attempt to determine an appropriate rent to take account of uncertain future possibilities. The correct course is to vary the terms of the lease in such a way as to prevent unfairness to either party to the lease. To quote the submission of counsel for the applicants, the variation to the lease:

'... should contain within it the following elements: first of all, as and from 8 May 1991, the rent should be reviewed on a market basis from that date until the date of your Honour's order in this action. If your Honour's order proceeds upon the basis of accepting a submission that weddings and other functions cannot be held, then the rent ought to be adjusted to accord with market conditions having regard to the then known limitations of use of the property. The third feature is that if and when there are any changes to the permit to permit either (a) larger number than 50 for seminar conference use or the use of the premises for wedding receptions and other similar functions then as soon as that happens the rent should again be reviewed to market. Thus, there is no windfall to anyone and fairness is achieved between the parties because you have an adjustment of the rent from time to time having regard to the known defects in the use of the premises, the right to use the premises. So you would have, in effect, three steps.' Counsel then handed to the Court a draft proposed order to give effect to those submissions.

The Court proposes to accept the proposals made with one variation. The market rental should be determined first as at 8 May 1991 for the period to 15 December 1991, then as at 16 December 1991 for the ensuing year; then as at 16 December 1992 and thereafter annually. In each case, the market value is to be determined having regard to the planning permit conditions applicable at any relevant time. I accept the submission of counsel for the applicants on this question namely: 'Now, if that approach was adopted that would take account of the criticisms, which when they were made seemed forceful to my learned friend, that there might (be) a windfall one way or the other, his submission was that: Look, you cannot approach this matter by fixing a rent or calculating damages now on the basis that there will never be a permit for the use of the premises for weddings and other functions, or alternatively, that the 50 limit will not be doubled and Mr Barlow is right.

Well, to take account of that so that there would be no unfairness it is a fairly simple task to rewrite the rental obligation under the lease to accommodate those circumstances.'

The evidence given by Mr Young, although voluminous and detailed, does not include opinions as to the amount of the reasonable market rental determined as at 8 May 1991 for the period to 15 December 1991 or as at 16 December 1991 for the ensuing year based on the limitations contained in planning permit No 56/81A as at 8 May 1991 and 16 December 1991 respectively, but on the basis that weddings, wedding receptions and other functions are a permitted use. It is to be hoped that the parties can agree on the rental based on the material presently before the Court. If such agreement can be reached, it would constitute the first step towards the beginning of a normal relationship between them which is a necessary basis for the future well being and success of an attractive and excellent motel business."

His Honour dealt with the 6% issue, as follows:

"This leaves unresolved the issue of whether the 6% minimum annual increase of rent should apply. In my opinion it should not. The business actually purchased was very different to that that which was represented. This is illustrated by the substantial amount of damages awarded. The lower rent used in calculating the amount of damages should not be made subject to the minimum annual increase of 6%. Further, on the business as now limited, the 6% annual minimum increase of rent would tend to work unfairly to the tenant and for the benefit of the landlord to the extent that the rent would tend to bear no relationship to the market value of the premises. The position would become even more dramatic if, by subsequent events, weddings, wedding receptions and other functions could not be carried on at the motel. Counsel for the respondents contended that the applicants were under a duty to mitigate the loss suffered by them. To this end, it was submitted that the applicants should have joined with the respondents in their appeal against the determination of the City of Springvale. It will be remembered that the respondents lodged an appeal, and sought the support of the applicants in the appeal. The applicants refused. The respondents withdrew their appeal. The submission can have no relevance to the damages awarded since the damages related to the real value of the business at the time of the agreement of sale. In my opinion this submission can have no application to orders made under s87 of the Trade Practices Act. There is nothing to stop the respondents from seeking an amendment to planning permit No 56/81A to remove the existing limitations. It would be desirable for the respondents to seek the support of the applicants to any such application. The facts of this case suggest that such an application might be fraught with danger but it may be a necessary step in bringing finality by way of appeal of any determination by the City of Springvale. In any event, the orders to be made are capable of resolving any problems arising out of any variation to the planning permit. With respect to the orders of variation of the lease, ancillary orders will be made that upon the market rentals being determined, an order will direct that there be a payment of money as on a balance of account by the person owing money to the other having regard to the amounts of rental paid and the amounts that should have been paid. Interest will be ordered to be paid on any amount so owing and not paid on and from 1 January 1993. By their further amended application, the applicants are claiming interest. Reference is made to s51A of the Federal Court of Australia Act 1976. The applicant Kizbeau Pty Ltd is entitled to damages in the sum of $265,000. Its cause of action arose in October 1988, but for reasons similar to those already discussed in relation to the orders to be made under s87 of the Trade Practices Act, interest on that amount should be paid with respect to the period 8 May 1991 to the date of judgment. It is proposed to exercise the powers conferred by para 51A(1)(b) of the Federal Court Act and to include in the sum for which judgment is given a lump sum in lieu of interest calculated in conformity with para 51A(1)(a). The lump sum is $62,500 which is based upon interest on the sum of $265,000 from 8 May 1991 to 1 December 1992, 82 weeks at the rate of 15%, rounded off. As a result, there will be judgment for the applicant Kizbeau Pty Ltd against the respondents in the sum of $327,500. The Federal Court Rules make provision for interest on damages after judgment has been entered. In all the circumstances, no orders should be made with respect to the guarantees.

The applicants have succeeded in their action. At the same time they have failed in their claims with respect to the use of the motel for weddings, wedding functions and other functions and receptions. On the application for leave to amend the application and statement of claim in that regard, the Court ordered the applicants to pay the respondents' costs of the motion and the costs thrown away as a result of the leave being granted. The respondents are entitled to those costs. A substantial amount of costs have been incurred on this issue at the trial. In all the circumstances it is appropriate that the respondents pay four fifths of the applicants' costs of the proceedings."

The learned trial judge then made the orders to give effect to his findings.
His Honour's removal from Clause 18 of the lease of the proviso that on all annual reviews "the annual rent increase shall in any event not be less than 6 per centum per annum" was the subject of criticism by the appellants.
As it was put in the written submission on their behalf -

"This was not sought in the amended application (AB42(gg)). This provision was conceded by the respondent Shiels to be reasonable

(AB303,415,430). The removal of this provision fundamentally alters the position of the landlord ... That alteration was made, not to compensate for or reduce loss or damage by conduct in contravention of s52, but by reference to general ideas of fairness without statutory basis, and indeed fairness only to the tenant (not the landlord)."

In our respectful opinion, his Honour erred in deleting the proviso. The tenant had options which entitled him to possession for 22 years or he could bring the term to an earlier end, if he chose not to exercise an option. The landlord had no such flexibility. The agreement by the tenant to a minimum annual increase of 6% in a lease entered into in 1988 which could extend for 22 years was of vital importance to the landlord and was conceded by the tenant to be reasonable.
In ASX Operations Pty Limited v. Pont Data (1991) 27 FCR 492 at 503 a Full Court said that "the court must be slow to impose upon the parties a regime which could not represent a bargain they would have struck between them."
In our opinion the court should not impose upon the parties a deletion of the proviso here in question.
His Honour considered that a review of the rent should occur, failing agreement, whenever an amendment was made to "the terms of the planning permission or permit applying to the demised premises". In our opinion the parties agreed on an annual review in circumstances where the risk existed that such amendments might occur at any time. That risk was unrelated to the appellant's misleading conduct, notwithstanding that its conduct was one of the matters giving rise to the amendment of 8 May 1991. In those circumstances we do not think that the Court would be justified in varying the provision for annual reviews in the bargain made by the parties.
Accordingly we would order that the orders under appeal providing for variation of the lease be set aside and that the appeal be otherwise dismissed.
As both the appellants and respondents have achieved success and suffered defeat in the appeal, they should abide their own costs of the appeal.

JUDGE2

DAVIES J The facts and the issues are fully described in the reasons for judgment of Sweeney and Jenkinson JJ. I need mention only one or two salient points.

At the time of the sale of the motel business from W.G. and B. Pty Limited ("W.G. and B.") to Kizbeau Pty Limited ("Kizbeau") and of the grant of the lease from W.G. and B. to Kizbeau, a town planning permit which had been issued from the City of Springvale on 12 January 1984, prior to the construction of the motel, stated inter alia:-

"(b) All seminars shall be conducted within the Breakfast/Seminar Room."

This paragraph contained two ambiguous elements, the first being whether the term "seminars" included functions such as small conferences, meetings and the like. The second was whether the term "Breakfast/Seminar Room" referred only to the breakfast and dining room on the ground floor or included the adjoining conference rooms.

In early 1991, on the application of Mr W.G. McLean, the managing director of W.G. and B., the City of Springvale reconsidered the planning permit and by 8 May 1991, the permit read:-

"(p) All seminars must be conducted within the guest lounge and conference room on the ground floor and/or the family/dining and lounge room on the first floor. ...

(s) The maximum number of persons attending seminars within the specified areas of the Motel Complex must not exceed fifty (50) persons at any one time, whether or not there is one or more seminars being conducted at that time.

(t) Council reserves the right to view the number of people attending seminars and/or the lists of people attending seminars at any time."

Some ambiguity remained, particularly as the word "seminars" was not further clarified, but the principal impact of the amendments was to permit the areas on the ground floor and first floor, which had been used for seminars and conferences, to be so used in the future, subject however, to an overall limit of 50 persons attending a seminar or seminars at any one time.

Until 8 May 1991, Kizbeau did not comply with the limitation imposed by the planning permit, of which limit it was for much of that time unaware. After 8 May 1991, however, Kizbeau considered it appropriate not to exceed the restriction which the City of Springvale had expressed in the permit. Clearly, the amendments to the permit made in 1991 flowed from the restriction which appeared in the original permit. Moreover, the restrictions affected both the value of the business and the manner in which it could be conducted. Section 49 of the Town and Country Planning Act 1961 (Vic) made it an offence to contravene or fail to comply with any condition of a planning permit.
Liability
Section 52(1) of the Trade Practices Act 1974 (Cth) provides:-

"A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

The learned trial Judge found as a fact that Mr McLean, who was aware of condition (p) in the permit, failed to draw such restriction to the attention of Mr G.F. Sheils, the managing director of Kizbeau, during the discussions which led to the agreement for the sale of the business and to the lease.

I agree with the trial Judge that W.G. and B. failed to make a sufficient disclosure to Kizbeau of condition (p) and that its conduct was thereby misleading or deceptive or likely to be so. Condition (p) was not a part of the general law of the community but related specifically to the motel. It was a condition of which W.G. and B. and Mr McLean were both aware. Therefore, for Mr McLean to discuss the operation of the motel, the numbers of persons who could be seated in the various rooms and the potential of the business for development and profit without disclosing the restriction was so to mislead Mr Sheils and Kizbeau, who were unaware that a part of the use of the motel and of its development which had been discussed, was and would continue to be unlawful. Mr McLean's concealment was especially misleading in the context of the discussions concerning the business, its value and its profit potential.
The disclosure by W.G. and B. was inadequate, as the trial Judge found, for although a copy of the planning permit was forwarded by W.G. and B.'s solicitor to Kizbeau's solicitors, that was done for the purpose of an application to the liquor licensing authority. In answer to a requisition as to compliance with planning requirements, the solicitors for W.G. and B. merely responded, "The Purchaser should make its own enquiries."
Examples of cases in the general law where similar non-disclosure has been held to justify the granting of relief are Yammouni v. Condidorio (1959) VR 479, Jennings v. Zilahi-Kiss (1972) 2 SASR 493 and Stevter Holdings Ltd v. Katra Constructions Pty Ltd (1975) 1 NSWLR 459. The last-mentioned case turned upon a specific clause in a standard contract for the sale of land in New South Wales, but it illustrates the importance given in ordinary dealings concerning land to the need for disclosure of planning restrictions which affect the land. Similar cases in which damages have been awarded under ss.52 and 82 of the Trade Practices Act are Henjo Investments Pty Ltd v. Collins Marrickville Pty Ltd (1988) 79 ALR 83, 10 ATPR 49,142 and Aliotta v. Broadmeadows Bus Service Pty Ltd (1988) ATPR 49,438.
Black CJ summarised the law when he said in Demagogue Pty Ltd v. Ramensky (1993) ATPR 40,842 at 40,844-5:-

"Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of `mere silence' or of a duty of disclosure can divert attention from that primary question. Although `mere silence' is a convenient way of describing some fact situations, there is in truth no such thing as `mere silence' because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed."

I would add a reference to the words of Higginbotham CJ in Curwen v. Yan Yean Land Co Ltd (1891) 17 VLR 745 at 751:-

"... concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation."

and to the remarks of Lord Eldon LC in Turner v. Harvey (1821) Jac 169 at 178:-

"The Court, in many cases, has been in the habit of saying, that where parties deal for an estate, they may put each other at arm's length: the purchaser may use his own knowledge, and is not bound to give the vendor information of the value of his property. ... But a very little is sufficient to affect the application of that principle. If a word, if a single word be dropped which tends to mislead the vendor, that principle will not be allowed to operate."

The point was summed up by French J in Kimberley N.Z.I. Finance Ltd v. Torero Pty Ltd (1989) ATPR (Digest) 53,193 at 53,195, where his Honour said:-

"If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, sec.52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure.

The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist."

The conduct of W.G. and B. and of Mr McLean gave rise to the reasonable expectation that, if any restriction such as condition (p) of the permit existed, it would be disclosed and as no such disclosure was made, that conduct was misleading or deceptive or likely to be so. I would therefore dismiss the appeal on liability.

Relief
11. The trial Judge based his calculations as to damage on the difference between the price of $1,100,000 paid for the motel, and the $835,000 value of the business when sold having regard to condition (p). His Honour therefore assessed damages at $265,000, to which interest was added, bringing the total sum awarded to $327,500. Those calculations took into account a notional adjustment in rent to reflect reduced revenue.

In my opinion, the calculation should have been made by reference, not to the original permit, but to the permit as amended at 8 May 1991. Prior to that date, Kizbeau suffered no actual financial detriment from the existence of condition (p) and it was not until 8 May 1991 that the conditions, as they then stood, were given effect by Kizbeau. The amendments to the permit made in 1991 mitigated the loss which otherwise would have resulted.
It is impossible to extract from the evidence a figure which precisely reflects the loss resulting from the imposition of a limit of 50 persons in attendance at seminars at any one time. The actual numbers attending corporate functions during 1990, before Kizbeau was aware of any restriction, rarely exceeded 50 and then by only a few. Estimates of loss made by Mr Young, the valuer whose evidence was preferred by the trial Judge, varied from a "Best Case Scenario" loss of revenue of 2.07% to a "Worst Case Scenario" loss of revenue of 5.17%. There are additional difficulties in converting such a loss of revenue into a capital figure, having regard to debatable capitalisation rates, profit rates and so on. No such calculation as at the time of sale, in October 1988, was made by Mr Young.
In these circumstances, I think justice would be done if, to reflect the difference between the conditions in the original permit as relied upon by his Honour, and those in the permit as amended at 8 May 1991, the assessed damages of $265,000 were reduced by the round figure of $100,000. Interest of $38,921.90 should be added to the resultant sum of $165,000, giving a total of $203,921.90. I would order that the damages awarded by the trial Judge be varied accordingly.
I agree with the trial Judge that the rent should be recalculated and that an order under s.87 of the Trade Practices Act would be appropriate. That is because agreement as to the original rent was influenced by the misleading and deceptive conduct of W.G. and B., through its managing director, Mr McLean. I agree with variation (1) as ordered by the trial Judge.
However, the circumstances of the case did not, in my opinion, justify an order varying the lease by omitting therefrom the provision for a minimum rental increase of 6% at each subsequent rent review date. The 6% increase should not apply to the first assessment, as at 8 May 1991, for the period concluding 15 December 1991, but thereafter the ordinary provisions of the lease should apply. I would order accordingly and would omit the variations (2) and (3) as ordered by the trial Judge.
I would order that the appellants and the respondents abide their own costs of the appeal.

[1993] FCA 555

16 AUGUST 1993