Wy Properties Pty Ltd and O3 Capital Pty Ltd
[2014] WASAT 69
•11 JUNE 2014
WY PROPERTIES PTY LTD and O3 CAPITAL PTY LTD [2014] WASAT 69
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2014] WASAT 69 | |
| COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) | |||
| Case No: | CC:558/2013 | 17 DECEMBER 2013 AND 8 AND 9 APRIL 2014 | |
| Coram: | MR T CAREY (MEMBER) | 11/06/14 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Application unsuccessful | ||
| B | |||
| PDF Version |
| Parties: | WY PROPERTIES PTY LTD O3 CAPITAL PTY LTD |
Catchwords: | Retail shops Disclosure statement Whether answers to prescribed questions false or misleading Reliance on false information Whether unconscionable conduct Whether any loss suffered by applicant |
Legislation: | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 6, s 13, s 15C(1), s 15C(2)(i) Shire of Roebourne Town Planning Scheme No 8 |
Case References: | Head and Zimmerman Investments Pty Ltd [2010] WASAT 95 Murphy and Fremantle Markets [2009] WASAT 84 Wolfe v Permanent Custodians Limited [2013] VSCA 331 |
Orders | On the application heard on 17 December 2013 and 8 and 9 April 2014 by Member Tim Carey, it is on 11 June 2014 ordered that: ,1. The application is dismissed. |
Summary | The applicant brought an action for recovery of rent and other expenses allegedly incurred by it in negotiating and entering into the lease of premises in Karratha intended for use as a Chinese restaurant. It did so on the basis that the respondent, as landlord, gave false answers in the compulsory disclosure statement to questions directed at changes affecting the leased premises notified by a local authority and alterations to the premises approved by the local authority. The respondent had answered 'no' to both questions, when the facts of such a notified change and approved alterations appeared to require that affirmative answers be given.,In spite of a number of matters relied upon by the respondent to demonstrate that its answers to the questions in the disclosure statement were not false or misleading, or that the applicant did not rely upon the answers given, the Tribunal found, based on the evidence, that both answers were false, and that the applicant did rely on them to enter into the lease. This gave rise to the prospect of an order of compensation for pecuniary loss suffered by the tenant as a result of the giving of the false information in the disclosure statement. The respondent's conduct was also found to be unconscionable conduct within the meaning of that expression under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).,In considering the question of loss, the Tribunal referred to a body of evidence concerning a number of businesses in Western Australia and elsewhere, under business names similar to the one under which the restaurant was to be operated from the Karratha premises, owned by entities other than the applicant, which had never traded under such a name. It also had regard to a number of indicators as to who was to operate the relevant business. These indicators included the fact that the same individuals who paid the rent for the premises, and in whose names a planning application for the Chinese restaurant was made, are currently running three other similar businesses.,The Tribunal concluded that any business operated from the leased premises would not have been conducted by the applicant. The payments made by the individuals could therefore not be regarded as payments by guarantors of the applicant's obligations as tenant, as distinct from, for example, payments made voluntarily by the future business owners.,The Tribunal concluded that the applicant had failed to establish that it had sustained any loss. The application was therefore dismissed. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) CITATION : WY PROPERTIES PTY LTD and O3 CAPITAL PTY LTD [2014] WASAT 69 MEMBER : MR T CAREY (MEMBER) HEARD : 17 DECEMBER 2013 AND
- 8 AND 9 APRIL 2014
- Applicant
AND
O3 CAPITAL PTY LTD
Respondent
Catchwords:
Retail shops Disclosure statement Whether answers to prescribed questions false or misleading Reliance on false information Whether unconscionable conduct Whether any loss suffered by applicant
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 6, s 13, s 15C(1), s 15C(2)(i)
Shire of Roebourne Town Planning Scheme No 8
Result:
Application unsuccessful
Summary of Tribunal's decision:
The applicant brought an action for recovery of rent and other expenses allegedly incurred by it in negotiating and entering into the lease of premises in Karratha intended for use as a Chinese restaurant. It did so on the basis that the respondent, as landlord, gave false answers in the compulsory disclosure statement to questions directed at changes affecting the leased premises notified by a local authority and alterations to the premises approved by the local authority. The respondent had answered 'no' to both questions, when the facts of such a notified change and approved alterations appeared to require that affirmative answers be given.
In spite of a number of matters relied upon by the respondent to demonstrate that its answers to the questions in the disclosure statement were not false or misleading, or that the applicant did not rely upon the answers given, the Tribunal found, based on the evidence, that both answers were false, and that the applicant did rely on them to enter into the lease. This gave rise to the prospect of an order of compensation for pecuniary loss suffered by the tenant as a result of the giving of the false information in the disclosure statement. The respondent's conduct was also found to be unconscionable conduct within the meaning of that expression under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).
In considering the question of loss, the Tribunal referred to a body of evidence concerning a number of businesses in Western Australia and elsewhere, under business names similar to the one under which the restaurant was to be operated from the Karratha premises, owned by entities other than the applicant, which had never traded under such a name. It also had regard to a number of indicators as to who was to operate the relevant business. These indicators included the fact that the same individuals who paid the rent for the premises, and in whose names a planning application for the Chinese restaurant was made, are currently running three other similar businesses.
The Tribunal concluded that any business operated from the leased premises would not have been conducted by the applicant. The payments made by the individuals could therefore not be regarded as payments by guarantors of the applicant's obligations as tenant, as distinct from, for example, payments made voluntarily by the future business owners.
The Tribunal concluded that the applicant had failed to establish that it had sustained any loss. The application was therefore dismissed.
Category: B
Representation:
Counsel:
Applicant : Mr C S Gough
Respondent : Mr D H Solomon and Ms T Hong
Solicitors:
Applicant : Minter Ellison
Respondent : Solomon Brothers
Case(s) referred to in decision(s):
Head and Zimmerman Investments Pty Ltd [2010] WASAT 95
Murphy and Fremantle Markets [2009] WASAT 84
Wolfe v Permanent Custodians Limited [2013] VSCA 331
Introduction
1 In June 2011, Wy Properties Pty Ltd (Wy) entered into a lease of certain premises in Karratha (premises) owned by O3 Capital Pty Ltd (O3). Wy did so with a view to operating a Chinese restaurant from the premises. The premises are a 'retail shop' for the purposes of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CTA Act).
2 At the time Wy was provided with the lease document executed by O3, it was also given a disclosure statement, which, by virtue of s 6 of the CTA Act, O3 was obliged to provide.
3 On Wy's case, the disclosure statement contained false or misleading information, constituted by negative answers to the following two questions:
1) changes physically affecting the Centre/Building of which Statutory or Local Authorities have notified the Landlord, or of which the Landlord is aware (first question); and
2) alterations to the building submitted to or approved by local authorities and proposed to be commenced with the term of the lease (second question).
4 Wy contends that O3's negative responses contradicted the facts, as was known by O3. Those facts included a proposed change in the Shire of Roebourne Town Planning Scheme No 8 (Scheme), of which Wy was notified in November 2010, incorporating an encroachment on the property on which the premises were situated for construction of a road, and a development approval obtained by O3, both of which would have required the premises' demolition.
5 Wy seeks recovery of all monies paid under the lease, and other expenses associated with negotiating the lease and establishing the business to be run from the premises, on the basis that it would not have entered into the lease had either question been answered correctly. Wy also relies upon the unconscionability provisions of the CTA Act.
6 O3 raises a raft of matters which it contends defeats Wy's claims on either footing, reflected in the issues identified below for decision.
7 Based on the parties' evidence and submissions, the issues which I must decide in order to determine Wy's claims are the following:
1) Was the negative answer given to the first question false or misleading, in light of O3's notification concerning the proposed amendment of the Scheme?
2) Was the negative answer given to the second question false or misleading, in light of O3's development approval?
3) If the answer to either or both of the first two questions is 'yes', did Wy rely upon the incorrect answer or answers?
4) In all the circumstances, is the case for liability based on alleged unconscionability made out?
5) In relation to the question of loss:
a) Has Wy suffered any, and if so what, losses?
b) If so, are the identified losses attributable to O3's breaches or to Wy's own conduct?
1) The first question - Amendment to the town planning scheme
9 At all material times, O3 was the registered proprietor of Lot 1950 Balmoral Road, Karratha (Lot 1950) and the adjoining Lot 1952 (Lot 1952).
10 Lot 1950 had two buildings constructed on it. The larger of the two, known as Lot 1, was the premises. The smaller building, consisting of Lots 2 and 3, was for a time leased to another tenant, who ran an Indian restaurant from those premises.
11 Since about 2010, the Shire of Roebourne (Shire) had under consideration possible amendments to the Scheme designed to facilitate the proposed significant redevelopment of the Karratha central town district. Significantly for this matter, one of the proposed amendments involved conversion of a laneway between Lots 1950 and 1952 to a roadway (proposed Karratha Terrace), the construction of which would necessitate an encroachment on Lot 1950 and demolition of the premises.
12 Wy contends that O3 became aware of the proposed changes upon receipt of a letter from the Shire dated 15 November 2010. This letter was directed, in particular, to the need for an amendment to the Scheme (Amendment No 21) which, according to the letter, 'seeks to modify the City Centre Zone to create a number of road linkages identified in the City Centre Master Plan', one of which was to be the creation of Karratha Terrace.
13 The disclosure statement was provided by O3 on 15 June 2011.
14 Wy claims that O3's negative response to the first question misrepresented the fact of its receipt of the advice regarding proposed Amendment No 21 in the Shire's letter of 15 November 2010. O3 rejects the claim, based on, among other things, the interpretation it urges upon the Tribunal of the first question, and O3's state of knowledge of the Shire's proposed plans at the time it completed the disclosure statement.
15 O3 contended that the first question, the contents of which are prescribed by the regulations under the CTA Act, is directed only at disclosure of changes which, as at the time the question is answered, are certain to occur, as distinct from changes which may or may not occur at some unknown time in the future. This contention was supported by what are claimed to be distinguishing features of the second question; in particular, its reference to the 'proposed' alterations inquired after by that question, where no such reference appears in the first question.
16 Although the standard first question could have been expressed more clearly, what is clear is that it is directed to future changes to the centre or building, and not changes which have already occurred. To the extent that any changes had occurred prior to a lease being entered into, those changes would already form part of the premises being leased, in respect of which no additional disclosure would be necessary.
17 Further, the changes must have been the subject of notification by an authority given to the landlord, or known by the landlord through some other means.
18 What, then, are the kinds of future changes physically affecting the centre or building which must be brought to a potential tenant's attention by an affirmative answer to the first question?
19 O3's reliance upon certainty as the qualifying condition for disclosure is problematic given the rarity of absolute certainty. A popular refrain ascribes certainty to nothing but death and taxes.
20 In the relevant context of future changes to a centre or building, any suggested change affecting a centre or building might be regarded as more or less 'certain', according to such matters as the state of completion of scope of works, plans and drawings, compliance with local government requirements, retention of contractors, financial capacity, perhaps even climatic or geological conditions. On top of these variables, the present case throws up satisfaction of requirements for alteration of the governing town planning scheme, and adoption of a road layout plan which impacts upon the property where the premises are situated.
21 Bearing these considerations in mind, it can be accepted that a particular change, or series of changes, will not be absolutely certain until it occurs. Reliance upon 'certainty' as the standard for when the first question must be answered so as to disclose a particular change is therefore both inappropriate and prone to subjective judgment which is better avoided.
22 As for the proposition based upon the differences between the first and second questions, I note the more explicit language of the second question, incorporating alterations 'submitted to, or approved by' the authorities and 'proposed' to be commenced within a particular period (and the 'Note' which follows, recommending tenants make their own enquiries with the authorities, relating to 'proposed or approved alterations'). I do not accept O3's contention that the absence of such language in the first question evinces an intention that the first question is concerned only with a high degree of certainty. Indeed, the alterations the subject of the second question are circumscribed by two clearly identifiable limiting conditions, whereas the only limitation placed upon changes the subject of the first question is that the landlord has received notification of them or has otherwise become aware of them.
23 I accept the submission of Wy that the first question is not directed to the timing or probability of change, but to notification and awareness of change which may (or may not) occur.
24 It was then submitted by O3 that it was not required to answer 'yes' to the first question by reason of the state of O3's knowledge regarding the Shire's intentions, plans and timeframes possibly affecting the premises at the date of the disclosure statement.
25 O3 pointed to matters such as:
• The road layout plan had not yet been adopted (on 24 October 2011, the Shire council adopted the 'Karratha City Centre Road Layout Plan', reinforcing its status as a seriously entertained planning proposal).
• The lack of any negotiations between the Shire and O3 to sell any part of Lot 1950. Such a sale would have been a corollary of the adoption of a plan including the creation of a road encroaching on Lot 1950.
• O3's ignorance of the likelihood of any part of the premises being taken by the Shire, or of the associated timeframes.
26 O3 referred further to its own planning approval to develop both Lots 1950 and 1952 (Development Approval), which, if it were to proceed, would have been predicated upon construction of Karratha Terrace not occurring, and to an assumption it had drawn, from correspondence with the Shire in relation to the matter, that the Shire would not be proceeding with Amendment No 21, under which it reasonably acted at the time it completed the disclosure statement.
27 In my view, none of the matters relied upon by O3 justified its negative answer to the first question. Just as the level of certainty about any change affecting the centre or building coming to fruition does not determine the existence of the obligation of a landlord to disclose a change of which it is notified or otherwise aware, the matters referred to by O3 as tending to show either that amendment to the Scheme and construction of the road was a long way off, or that O3 was not privy to the Shire's machinations on the proposal, similarly have little or no bearing.
28 In any event, the evidence discloses that shortly before the disclosure statement was provided, O3 was privy to indications from the Shire that the prospect of amendment of the Scheme, incorporating the creation of Karratha Terrace, was again being considered. I will refer to this in greater detail in the section which deals with the unconscionable conduct claim.
29 O3's next contention, based upon authorities in the area of trade practice law on what constitutes misleading conduct, was that answering 'no' to the first question was not misleading because the tenant was not entitled to infer from the answer that there was no possibility of the premises or part thereof being resumed by a public authority. It referred to a number of indicators of this being so, including the note in the disclosure statement urging the tenant to make its own inquiries, and the possibility that approval by the authorities of Wy's proposed fit out may be necessary, which approval may or may not be given.
30 Section 6(1) of the CTA Act states:
Where a retail shop lease is entered into and the tenant has not, at least 7 days before the entering into of the lease, been given a disclosure statement in accordance with subsection (4) or the disclosure statement given is incomplete or contains false or misleading information, the tenant may, in addition to exercising any other right, do either or both of the following -
(a) within 6 months after the lease was entered into give to the landlord written notice of termination of the lease, unless subsection (3) prevents termination;
(b) apply in writing to the Tribunal for an order that the landlord pay compensation to the tenant in respect of pecuniary loss suffered by the tenant as a result of -
(i) the omission of the landlord to give a disclosure statement in accordance with subsection (4); or
(ii) the giving of an incomplete disclosure statement by the landlord; or
(iii) the giving of false or misleading information by the landlord in the disclosure statement.
32 My earlier findings on the construction of the first question, and in response to the various matters relied upon by O3 to suggest that the answer it gave was not misleading, establish, in my view, the falsity of the answer. The notification which O3 received from the Shire in November 2010 indicating a future change in respect of which the Shire harboured an intention, albeit one which may or may not proceed, reinforced by indications of similar intent from the Shire shortly before the provision of the disclosure statement, should have provoked an affirmative answer to the first question.
2) The second question - Landlord's development approval
33 Although I have referred, as an issue in this case, to whether the answer to the second question was false or misleading, nowhere in its written or oral submissions did O3 assert the correctness of the answer provided. Rather, it relied upon Wy's state of knowledge in relation to O3's plans for redevelopment gained independently of the disclosure statement, the note in the disclosure statement warning tenants to make their own enquiries, and Wy's discussions with O3 regarding a redevelopment clause in the lease, as grounds to defeat liability. I will address those matters in the next section of these reasons.
34 The subject of the Development Approval was O3's proposal to demolish the buildings on both Lots 1950 and 1952, acquire a laneway between the two lots, and construct a large mixed use building across both lots. It was the subject of approval by the Shire. Various expressions of intent to proceed with the development are to be found in the evidence, particularly of Mr Conlon, one of O3's directors, and an application for extension of the Development Approval was in train at the time of provision of the disclosure statement. The principal reason advanced by O3 for the possibility of the development not occurring was if the Shire proceeded with the redevelopment of central Karratha. However, at the time the disclosure statement was provided, O3 was acting under the assumption that it would not do so (respondent's response paragraph 16.5).
35 There is a suggestion in Mr Conlon's statement that there was a discussion within O3 concerning the economic viability of Lots 1950 and 1952 being developed separately rather than at the same time. However, according to the same statement, throughout the period August 2009 until mid-2011, O3's directors 'remained intent on undertaking the (Approved Development)' (Conlon witness statement paragraph 32). Reference was made to development-related expenses of over $670,000 having been incurred.
36 I am satisfied that the existence of the Development Approval necessitated an affirmative answer to the second question, and therefore that the answer given by O3 was false.
3) To what extent did Wy rely upon the answers provided in the disclosure statement?
37 Wy's case on reliance is quite simple. Mr Luo, who is not a director of Wy but was responsible for locating and securing premises for it, says that Wy would not have proceeded with the lease had he been made aware of one or both of the following:
• the possibility that there might be a significant encroachment on Lot 1950 in the form of a new road; and
• that O3 had an approved development application affecting Lot 1950.
38 O3's submissions on reliance involved a number of propositions, which I will attempt to summarise here:
1) Evidence exists of discussions between Mr Luo and the leasing agent regarding the possibility of some redevelopment works. If this were to occur, it was agreed that Wy's interests would be protected by means of a redevelopment clause in the lease.
2) No evidence was provided by any director of Wy of their decision-making process, their consideration of the disclosure statement, nor their discussions with Mr Luo.
3) The evidence indicates that Wy was keen to proceed despite any information it received from Mr Luo.
39 I will deal with each proposition in turn.
40 The evidence concerning what Mr Luo was told regarding the Development Approval is very limited. The only reference to it in Mr Luo's written statement is contained in emails between Mr Luo and the agent, Mr G Jurgowiak of First National Real Estate Karratha (First National), on 4 and 5 April 2011. Mr Luo posed (among five questions) the following question to Mr Jurgowiak:
Any special conditions? [S]uch as what will happen if landlord wants to rebuild the property, and we have already spent so much money to fit out the restaurant?
41 To which Mr Jurgowiak responded:
[I]ndication is that the landlord will relocate you to a new building on the site first - once again a condition in the lease.
42 Under cross-examination, Mr Luo answered a series of questions regarding pre-lease conversations he had with another real estate representative with First National, Mr A Maxwell, as follows (T:134; 08.04.14):
Did you have any discussion with Mr Maxwell about possible redevelopment of lot 1950? - No. He told me for the answer need, (indistinct) will relocate, I said that's all I know.
Sorry, so can you remember what he told you then? He - as best - I know this is a long time ago, Mr Luo. And you mightn't remember, you know, the word for word discussion but did – was there some discussion about a possible redevelopment of the property which could result in a relocation? - Yes.
And he told you that if there was a redevelopment, your business would get relocated to somewhere - - -? - Yes.
- - - in the new premises? - Yes.
Told you something to that extent? - Yes.
Okay. And nothing more? He didn't tell you anything more than that? - No.
43 There being no evidence of any further details of O3's future development plans being provided to Mr Luo, I am unable to agree with O3's counsel's description in closing submissions that Wy was 'right across redevelopment issues because of that question in the pre-lease negotiations'. There is certainly no evidence that Mr Luo was informed during the pre-lease negotiations of the Development Approval - a critical omission, given the subject of the second question.
44 There was some debate at the hearing concerning the terms of the redevelopment, a separate right of first refusal in respect of Lot 1952, and whether, given the scale of the development approval, the required relocation of the tenant to equivalent premises was feasible, either on Lot 1950 or Lot 1952. I regard these matters as irrelevant to the issue of reliance, and otherwise unnecessary for me to make any findings about.
45 A redevelopment clause is not an uncommon feature of commercial leases. Such a clause imposes particular rights and obligations on the parties to a lease in the event of a redevelopment of leased premises during the term of a lease. Of itself, it does not give notice of any fixed intention by the landlord to undertake such a redevelopment. Unless and until the redevelopment clause is the subject of a successful application to the Tribunal for its approval under s 13 of the CTA Act, it would have no validity or effect in any event.
46 The highest that the evidence on the point goes is that Mr Luo was given an indication that O3 may wish to carry out a redevelopment of at least Lot 1950, which may result in Wy having to relocate. As the facts show, this did not result in Wy being dissuaded from entering into the lease. However, had the correct answer to the second question been provided in the disclosure statement, Wy would have been capable of ascertaining that a specific planning proposal, involving demolition of the premises, had been approved at local government level. Even if Mr Luo's assertion that had he been notified of this Wy would not have entered into the lease is put to one side, common sense indicates that any tenant acquiring this knowledge, in the absence of any previous advice about the Development Approval, would likely have seriously considered the option of withdrawing.
47 As I pointed out in relation to the first question, the note in the disclosure statement recommending a tenant make its own inquiries does not abrogate the landlord's obligation to provide correct answers to the prescribed questions, nor militate against the tenant's right to compensation where it has relied upon false information provided.
48 I turn to the second proposition identified in [38] above. This proposition is concerned with O3's claim that although Wy is without doubt the 'tenant' for the purposes of the lease, the only evidence about the impact, if any, of the misleading information came from Mr Luo, and not from a director of Wy.
49 In his written statement, Mr Luo described his role with Wy in the following terms:
At all material times I worked as the company manager for the Applicant.
50 As I have indicated, Mr Luo explained that his duties included 'locating and securing restaurant sites for use by the Applicant and companies associated with the Applicant'.
51 Mr Luo's evidence generally placed him at the centre of the negotiations leading to Wy's entry into the lease. He gave oral evidence to the effect that in relation to the negotiations with O3 through its agent, Mr Luo's recommendations to Wy would be of determinative weight. If he came to the view that Wy should not enter the lease, that is what would have occurred.
52 Mr Luo is also, along with his wife, a guarantor under the lease. Wy's directors are Mr Luo's wife, Ms Ping Yuan, and his wife's friend. Due to Wy's lack of funds, all rent payments were made by the guarantors. According to Mr Luo, they would be repaid by Wy when it had the money.
53 I cannot accept that Wy's case on reliance fails because no evidence of the directors of Wy was adduced. Mr Luo was the agent of Wy for the purposes of the pre-lease negotiations, and, in the context of a small private company such as Wy, where the directors are Mr Luo's wife and a friend who speaks little English, Mr Luo's actual authority regarding the conduct of the negotiations and formulation of recommendations to Wy is accepted as being comprehensive. In particular, I am satisfied that any view Mr Luo adopted that Wy should not enter the proposed lease would be accepted by the directors. I am further satisfied that had the correct answers to the first and second questions in the disclosure statement been given, Mr Luo would have recommended that Wy not proceed with the lease, and it would have followed his recommendation.
54 I am also unable to accept O3's third proposition that any urgency of Wy's decision-making, evinced by the quick timing between the preliminary offer to lease sent on 31 May 2011 and commencement of the lease the next day and the landlord's rejection of Wy's request for a rent-free period, militates against the findings I have made based on Mr Luo's agency and the force of any recommendations of his to Wy.
55 There remains a question as to whether the pecuniary loss claimed to have been suffered as a result of the giving of false information by O3 in the disclosure statement was sustained by Wy, or some other entity or persons. That question will be considered when I deal with the issue of loss.
4) Has O3 established its case based on unconscionability?
56 According to Wy's statement of issues facts and contentions dated 10 September 2013, O3's conduct, and specifically its failure to disclose its notifications from and discussions with the Shire from March to June 2011 and its negative answers to the first and second questions in the disclosure statement, amounted to 'unconscionable conduct' for the purposes of s 15C(1) of the CTA Act.
57 Wy relies in particular upon the factor appearing in s 15C(2)(i) of the CTA Act, being one of the matters upon which the Tribunal may have regard in order to determine whether a breach of the proscription against unconscionable conduct in s 15C(1) of the CTA Act has occurred. This factor is in the following terms:
[T]he extent to which the landlord unreasonably failed to disclose to the tenant -
(i) any intended conduct of the landlord that might affect the interests of the tenant; and
(ii) any risks to the tenant arising from the landlord's intended conduct that are risks that the landlord should have foreseen would not be apparent to the tenant[.]
58 As I have already mentioned, based on Mr Conlon's evidence, as at June 2011, O3's primary intention remained to proceed on the basis of the Development Approval. However, Mr Conlon was also made aware that the possible construction of Karratha Terrace upon part of Lot 1950 was back on the Shire's radar. His awareness arose from:
• a report he received from the tenant of Lots 2 and 3 concerning its communications with the Shire regarding an application for approval to develop its premises into an Indian restaurant;
• reading an email from the Shire to the other tenant stating that any approval for operating a restaurant from the leased premises would be not more than two years because Lot 1950 was 'earmarked to be demolished to allow for the construction of a new east-west link road through the city centre'; and
• a telephone conservation he had at the time with an officer of the Shire on about 8 June 2011, from which he understood that the Shire would grant the approval sought and not restrict the approval period to two years.
59 Tellingly, by his own email of 13 June 2011, in response to questions directed to him in an email from a Shire officer (presumably the one with whom he spoke), Mr Conlon indicated that if the future Karratha Terrace was to encroach on Lot 1950, his preference would be to sell the entire lot to the State, rather than negotiate a land swap or sell a lesser part. Two days later, O3 provided the disclosure statement with negative answers to the first and second questions, despite its expressed intentions, in alternate form, in seeming contradiction of those answers.
60 Mr Conlon, under cross-examination, sought to marginalise the reference to Lot 1950 being 'earmarked to be demolished' by referring to that statement as 'the opinion of a junior member of the planning department' which was 'quickly withdrawn'. This is at odds with his engaging with the Shire on the issue of what O3's preference would be in the event of the encroachment of Lot 1950 eventuating. It might also be rejected by reference to the fact that the Shire did proceed with the road realignment, with the State acquiring both Lot 1950 and Lot 1952 from O3 some 18 months after the June 2011 events.
61 O3 paid very little attention to Wy's unconscionability claim, relying upon the matters raised by it in rejection of the claims that the disclosure statement contained false or misleading information.
62 Bearing in mind the need to establish the degree of moral or ethical failure demanded by the authorities before behaviour which is harsh or unreasonable will earn the 'unconscionable' epithet (see, for example, Wolfe v Permanent Custodians Limited [2013] VSCA 331, and, in this Tribunal, Murphy and Fremantle Markets [2009] WASAT 84 and Head and Zimmerman Investments Pty Ltd [2010] WASAT 95), I have considered carefully the conduct claimed to be unconscionable, with an eye attuned to the factor in s 15C(2)(i) of the CTA Act relied upon by Wy. Having undertaken this task, I am satisfied that the case for unconscionable conduct is made out on the evidence.
63 The bottom line, arising from O3's deliberations about the proposed Scheme amendments, is that if the amendments were adopted, O3 would in all likelihood sell Lot 1950. If not, its express intention was to get on with the project the subject of the Development Application. In the event of the latter, the evidence strongly supports Wy's claim that there would be no suitable alternative premises available to Wy during construction. Either way, it was incumbent upon O3 to inform Wy about both possibilities, either one of which would have constituted a strong disincentive to a prospective tenant before commencement of its tenure. The factor appearing as s 15C(2)(i) of the CTA Act might well have been drafted with this case in mind.
64 I find O3's conduct identified in this section of these reasons to constitute unconscionable conduct for the purposes of s 15C(1) of the CTA Act.
5) Loss
65 O3 raises two primary grounds to refute the necessary nexus between the conduct in breach of the CTA Act and any pecuniary losses sought. They are:
a) payments made in respect of rent were not made by Mr Luo and his wife in circumstances where Wy was obliged to repay them, and Wy otherwise suffered no loss; and
b) the losses suffered are attributable to the delay in Wy taking the required step of obtaining planning approval, about which it was informed on 4 May 2011, until sometime in the period March - May 2012.
66 It also denies the claim for reimbursement of expenses incurred by way of airfares, accommodation and planning application fee as not arising from any established breach.
67 I will deal with each matter in turn.
a) Did Wy suffer the claimed loss?
68 As I have observed, all rent payments were made by Mr Luo and Ms Yuan. According to Mr Luo, he and his wife, did so as guarantors of Wy's obligations under the lease, in the expectation that Wy would repay the amounts when able to do so. Although never made explicit, this was presumably to occur once Wy had commenced running the restaurant from the premises.
69 Unlike other issues in this proceeding, questions concerning who made payments and in what capacity were not properly disclosed prior to the resumption of the substantive hearing on 8 April 2014. Hence, by its statement of issues facts and contentions, Wy asserted:
…
48. The Tenant paid rent from the commencement of the Tenancy until the end of July 2012.
49. The Tenant incurred the expenses set out in the schedule in the first bundle of documents schedule (plus an additional amount of rent paid to agent $22750.00) total $195,175.46.
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70 O3's response right up to the final hearing days stated '[t]he applicant made various payments under the lease between about 6 August 2011 and about 2 July 2012, as shown in the respondent's general ledger'.
71 It would appear that evidence contained in Mr Luo's supplementary statement dated 7 March 2014 going to the establishment of a Chinese restaurant in premises in Geraldton initially leased by Wy, and Mr Luo's evidence under cross-examination, led O3's legal representatives to question its earlier acceptance that Wy made any relevant payments, and to pursue certain lines of enquiry.
72 O3's final position regarding the rent payments, and the implications for the issue of Wy's losses, is set out in the following excerpt from paragraph 48 of the second amended response filed at the hearing on 9 April 2014 (being significantly amended from the previous manifestation of the response):
Various payments were made to the respondent under the Lease between about 10 August 2011 and about 2 July 29012, as shown in the respondent's General Ledger (bundle R3 page 197). In augmentation of Response paragraph 29, the respondent says:
48.1 all those payments were made from a bank account in the name 'at Rice Noodle Sushi' ('Account');
48.2 the Account was not an account of the applicant;
48.3 the Account was an account of Frank Fan Luo and Ping Yuan ('Account Holders');
48.4 the Account holders made the application for development approval a copy of which is in bundle A1 at pages1-2;
48.5 the applicant therefore did not suffer any of the loss claimed in the Application; and
48.6 the Account Holders are not a 'tenant' within the meaning of the Retail Shops Act.
73 Wy's counsel was given the opportunity to take instructions regarding any prejudice arising from the late amendment to paragraph 48 of the second amended response. After doing so, he indicated that he was instructed to proceed with the hearing, on the basis that he would be permitted to speak to Mr Luo (who was then still in the witness box) in relation to the substance of the new paragraph 48 before he completed his evidence, which permission was granted.
74 A number of matters having a bearing on the issue of where the losses fell came to light through the investigations undertaken on behalf of O3, together with Mr Luo's oral evidence. The more significant are these:
• The Geraldton premises, although originally leased by Wy, were, by the time of commencement of business operations, leased by Achmore Lodge Pty Ltd (Achmore), subsequent to an assignment of Wy's lease to Achmore. Ms Yuan is currently the sole director of Achmore. Mr Luo was a director until 2009, when he sold his shareholding to third parties.
• After commencement of operations at the Geraldton premises, which, according to Mr Luo, occurred in May 2012, Achmore conducted a restaurant business under the business name 'At Rice Buffet - Geraldton'.
• Achmore is the owner of a number of business names, including 11 containing common references to 'noodle' or 'rice'.
• Of these 11 business names, four reflect businesses which are currently operated under their respective business names (Noodle Fantasian, Sumos Noodle and Sushi Bar - Griffith, At Rice and Sushi - Northam, and At Rice Buffet - Geraldton); three have never been utilised, and four operated as businesses before being closed.
• Three businesses are operated by a partnership comprising Mr Luo and Ms Yuan, under the registered business names 'At Rice Noodle and Sushi - Taree', and 'At Rice Buffet - Busselton', with a further business operating in South Hedland, the name of which was not disclosed.
• Wy has never traded under the name 'At Rice Buffet'.
75 Mr Luo gave equivocal answers under cross-examination to questions concerning the likely owner of the restaurant business to be operated from the premises had matters advanced that far.
76 Mr Luo accepted that had the business opened at the premises, it would have traded under the name 'At Rice Buffet - Karratha', although that business name had never been registered. It was put to Mr Luo that the business would have been carried on by Achmore, as the Geraldton business had been. Mr Luo's response, as recorded in the transcript, was:
We not sure – we not sure. Not - not sure this (indistinct) time. When we started set up - or we do - we - we (indistinct) by Wy or by Achmore Lodge or by - we haven't - haven't - haven't discussed this.
(T:94; 08.04.14)
77 Again, when asked about in whose name it was intended to register the name 'At Rice Buffet - Karratha', Mr Luo's response 'We not sure' and 'We haven't … discussed this' (T:97; 08.04.14).
78 However, a short time later, Mr Luo made tentative suggestions that Wy was the most likely candidate to do so (T:98-99; 08.04.14), seemingly because Mr Luo was holding himself out to O3 as the manager of the future business. He said:
At this stage I act as manager for Wy Properties, so [I was acting as] manager for Wy Properties. (T:98; 08.04.14)
79 The totality of the evidence has led me to find, on the balance of probabilities, that any business to operate from the premises would not have been conducted by Wy, but by either Achmore or the partnership comprising Mr Luo and Ms Yuan. My reasons for arriving at this finding are as follows.
80 I have already referred to the fact that, unlike Wy, Achmore has been, and continues to be, the owner of restaurant businesses under the 'At Rice Buffet' moniker. One of those is 'At Rice Buffet - Geraldton', the very business the establishment of which Wy relied upon to explain why it was not in a position to move forward on the Karratha business, particularly by making the required planning application for almost a year after the lease was entered into.
81 I have also made mention of three businesses operated by Mr Luo and his wife, at least one of which is under the 'At Rice Buffet' name. Payments of rent for the premises were made from an 'At Rice Noodle and Sushi - Taree' account owned by them, without any demand from O3 arising from a default by Wy. Without descending into the intricacies of the law of guarantees, these payments seem to have been entirely voluntary on Mr Luo and Ms Yuan's part, albeit, allegedly, on the basis that Wy would repay them the money when it was in a position to do so.
82 In addition to paying the rent due for the premises, Mr Luo and Ms Yuan were also the named applicants for the development approval for the restaurant. Mr Luo attempted to explain that fact by variously referring to himself as the 'contact', and Ms Yuan as a director of Wy and a person with limited English. At this point, I adopt O3's counsel's description of Mr Luo as a sophisticated and intelligent businessman. Whilst he may not have been across all the possible legal ramifications of the planning application being in the names of himself and Ms Yuan, it reflects, to my mind, in common with other indicators, the thinking at the time about who the business proprietors would be. It is true that that thinking may not, even as at May 2012, have been complete. However, even if it is accepted that at some earlier time Wy was thought of as the most likely owner and operator of the business, the making of the planning application in May 2012 in the names of the partnership comprising Mr Luo and his wife is, in my view, a strong indicator of a change of thinking. Otherwise, there is no good reason for not making the application in Wy's name.
83 There is also the email sent by Mr Luo to Mr Conlan on 17 August 2011. This email was in reply to Mr Conlon's email sent 15 August 2011.
84 Mr Conlon's email introduced Mr Conlon as 'the owner of O3', indicating that O3 was now to manage the premises itself, and provided rental information, including the rent said to be owing of approximately $18,000. A copy of the most recent monthly invoice, dated 1 July 2011 and addressed to 'WY Properties Pty Ltd 2A Glenvale Road, Glen Iris VIC 3146', was attached. In his email, Mr Luo noted that payment of the arrears had been made, and attached confirmation of payment from the 'At Rice Noodle and Sushi' account. The email went on:
In reference to the tax invoice you sent to me, can you please change the addressee from:
Wy Properties Pty Ltd
2A Glenvale Road
- Glen Iris VIC 3146
to our trading business as below:
At Rice Buffet - Karratha
Unit 1, 1950 Balmoral Road
- Karratha WA 6714
and resend the invoice through email to [email protected], I will then use this new invoice to make the monthly payment accordingly.
85 The email signing clause referred to Mr Luo as 'Manager - At Rice Buffet - Karratha'.
86 It was after being taken to this email in cross-examination that Mr Luo modified his evidence to suggest Wy as being the leading candidate to operate the business under the name 'At Rice Buffet - Karratha'.
87 Mr Luo was asked why, if Wy was being thought of as, and was itself thinking of, operating the proposed business, his email made the request to change the addressee from Wy. The response, after a number of attempts, (which, in fairness, may have been to some extent caused by the involvement of the interpreter) was 'In this way we will know that this payment (indistinct) going is from Karratha' (T:100; 08.04.14).
88 Even if I am wrong in my suspicion that Mr Luo fashioned his answer to suit Wy's case, the email itself indicates that, as at August 2011, no decision had been made that Wy was to operate the business. As with the planning application document, I am inclined towards the view that the email reflects the adoption of a more affirmative position, and that, by August 2011, the decision had been made that the business would join the two other Western Australian businesses run by Mr Luo's partnership with his wife, or alternatively, 'At Rice Buffet - Geraldton', under Achmore's ownership.
89 The fact, as I have found it, that the proposed business was never going to be operated by Wy means that the rent payments made by Mr Luo and Ms Yuan cannot be characterised as payments by the guarantors of Wy's obligations under the lease. It follows that Wy is unable to establish any losses sustained by it for which it is entitled to be compensated. Although it is unnecessary for me to determine the correct character of the payments, the evidence suggests that they are probably payments made by the partnership which would have operated the business, presumably following an assignment of the lease to the partners, as occurred in the case of the Geraldton business (to Achmore).
90 On an application for compensation by Wy, it is not competent, by amendment or otherwise, for this Tribunal to reconcile the apparent disconnect between, on the one hand, the applicant, and, on the other, another party incurring expense as a result of conduct in breach of the CTA Act, in circumstances where the paying party does not have the status of a tenant under a retail shop lease.
b) Losses not caused by O3's conduct but by Wy's inaction
91 Given my reasoning on the preceding sub-issue, which is determinative of the proceeding, I intend dealing with this matter only briefly.
92 O3 points to the requirement for Wy to apply for development approval of the premises to be fitted out as a Chinese restaurant, which it failed to do until well after the lease had been operating. The application was rejected because of the advanced stage of the town planning scheme amendment (there was some dispute over when the application was actually made, but my reasoning in relation to the sub-issue means nothing turns on precisely when this was).
93 O3 contrasts Wy's position with a similar requirement which was met in more timely fashion by the Indian restaurant tenant, which did commence operating from Sub-lots 2 and 3 of Lot 1950. The Indian restaurant ceased operation following the adoption by the Shire of the amendment to the Scheme to include the construction of Karratha Terrace and O3's sale of Lot 1950 to the State, when its tenant was able to secure compensation.
94 Consistent with findings made in the context of the previous sub-issue, Wy never made the planning application; Mr Luo and his wife did. However, for current purposes, I will assume that the application was made on Wy's behalf, and that its refusal meant that Wy's purpose for entering into the lease was frustrated.
95 The question is, did Mr Luo/Wy's delay in making the application, resulting (it would appear) in the application being rejected when it likely would have been granted had the application been made shortly after entering the lease, constitute an intervening cause of Wy's losses (if any) flowing from O3's breaches?
96 In my view, the answer to the question I have just posed is 'no', for the following reasons:
1) Despite the concurrence of the delay occasioned by Mr Luo/Wy as a factor contributing to the end result that the business failed to open, the proven breaches of the CTA Act continued to operate as the primary causes, given that Wy would not have entered the lease had they not been committed and proper disclosure given.
2) Wy had a right, as tenant, to act, in relation to its leasehold interest, as it saw fit, provided it did not breach the lease. In the absence of information that delay might put its proposed development at risk, it was entitled to delay the making of the planning application.
3) Despite receiving information that the Shire amendment affecting Lot 1950 was becoming more likely, O3 gave no notice to Wy of this, and, rather, gave indications to the opposite effect. It does O3 no credit in this proceeding to claim that Wy contributed to its own demise by failing to take steps which, in retrospect, might have salvaged its position to some extent, when O3, with its superior knowledge, failed to inform Wy that the demise of the premises it was leasing was becoming ever more likely.
c) Expenses other than rent payments
97 In addition to the 12 rent payments made between August 2011 and July 2012, reimbursement was sought for three airfares for Mr Luo to travel to Karratha to inspect the property, the cost of accommodation on two occasions, and the fee on submission of the planning application to the Shire paid on 30 May 2012.
98 All of these expenses were paid from the same account owned by Mr Luo and Ms Yuan as the rent payments, giving rise, subject to one matter, to broadly the same considerations as I have found to apply to those payments. Unlike the rent payments, none of these payments was ever capable of having the character of payments made by Mr Luo and Ms Yuan as guarantors of Wy's obligations under the lease. They may have been incurred by Mr Luo incidentally to carrying out his duties as Wy's company manager, for which Wy was liable to indemnify him, but there is nothing specific in the evidence supporting this. In addition, two of the three airfares, and one of the accommodation charges, predated the provision of the disclosure statement, meaning that they could not have been attributable to the false information it contained.
99 The unconscionability claim was substantially, although not entirely, dependent upon the falsity of the disclosure statement's contents. Even if unconscionable conduct occurred at an earlier stage, the additional expenses were not incurred by Wy, nor in circumstances giving rise to an established obligation of Wy to reimburse them.
Conclusion
100 My finding that the delay in the planning application on Wy's behalf did not intervene as an operative cause of the losses suffered as a result of O3's breaches does not affect the conclusion I have reached that those losses were not suffered by Wy. In those circumstances, the application must be dismissed.
Order
For the above reasons, the Tribunal will issue the following order:
1. The application is dismissed.
I certify that this and the preceding [100] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR T CAREY, MEMBER
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