Re Shane Stephen Sullivan; Penelope Jane Sullivan v Copas Newnham Pty Ltd; John Anderson and Hilda Maude Anderson Re Copas Newnham Pty Ltd; John Anderson and Hilda Maude Anderson (Cross Claimants) v Shane Stephen Sullivan; John Anderson and Hild [1986] FCA 289 (1 September 1986)

FEDERAL COURT OF AUSTRALIA

Re: SHANE STEPHEN SULLIVAN; PENELOPE JANE SULLIVAN
And: COPAS NEWNHAM PTY. LTD.; JOHN ANDERSON and HILDA MAUDE ANDERSON
Re: COPAS NEWNHAM PTY. LTD; JOHN ANDERSON and HILDA MAUDE ANDERSON (Cross
Claimants)
And: SHANE STEPHEN SULLIVAN; JOHN ANDERSON and HILDA MAUDE ANDERSON (Cross
Respondents)
No. QLD G78 of 1985
Trade Practices - Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.

CATCHWORDS

Trade Practices - Negotiations for lease - statement as to basis on which owner proposes to contract - statement as to state of mind or intention - whether liability under s. 52 - whether can award proportion of loss.

Contract - negotiations for lease - main terms agreed - subject to preparation of lease by solicitors.

Trade Practices Act, 1974 ss. 52, 87

HEARING

BRISBANE
1:9:1986

ORDER

The first respondent pay the applicants the sum of $5,000.

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

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

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

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

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

The first respondent pay the second and third respondents' costs of and incidental to the proceedings, to be taxed.

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

DECISION

This is a small but, as I have found, difficult application under s. 52 of the Trade Practices Act. The applicants, husband and wife, are both doctors who wished to set up a general practice in Toowoomba. They arranged to go into possession of premises in a shopping centre in that city, did so, and remained in possession for some months. No lease was executed and negotiations for a lease were never concluded. The applicants left and began practice in other premises. They now sue for the amount they wasted by their abortive attempt to set up practice in the shopping centre, a sum agreed to be $5,000.

2. As amended, the statement of claim complains of what I shall call representations made by the first respondent, a real estate agent, that the second and third respondents, who had recently bought the shopping centre in question, had agreed to let to the applicants in accordance with certain stated terms; alternatively, the applicants say in their pleading that the first respondent (the agent) represented that the second and third respondents (the owners) intended to offer a lease on certain terms. There is a plea of fraud on the part of the agent, but no evidence of it; on the contrary, I think the agent, through its employee, Mr. Beirne, acted honestly and in good faith.

3. The applicants say they were told by Beirne that the rent would increase annually in accordance with the Consumer Price Index, whereas the owners' true position was that they insisted upon increase in accordance with the index, or at the rate of 10%, whichever was the greater. Secondly, the applicants say the agent told them the outgoings payable by them would be $20 to $30 per month, whereas the owners desired outgoings to be reimbursed on a basis which would produce a substantially greater liability. Thirdly, the applicants say the agent represented that outgoings would be calculated as a percentage of an increase above "base figures as at the 30 December 1983"; this was said to be false for the same reason as the second.

4. The second alleged representation, as to the amount of the outgoings, is in a special category insofar as it conveyed information about, not merely the owners' state of mind, but objective facts. A legal question arises, however, with respect to the first and third representations, namely whether s. 52 of the Trade Practices Act covers the relevant ground, which could be said to be representations as to the terms on which a party is willing to contract. That is dealt with below.

5. The applicants and the agent negotiated in February and March 1984, their negotiations concluding in a letter dated 30 March which it is covenient to set out.

"Dear Dr. Sullivan,

RE: NORTHLANDS SHOPPING CENTRE - SHOP 15

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

FLOOR AREA: 710 square ft

RENTAL: $7.00 square ft/an.

REVIEWS: Annually. Increases to be in
accordance with the increase in the
Consumer Price Index (Brisbane
figures) for the relevant period.

LEASE TERM: 3 Years with an option of a further
3 years.

OUTGOINGS: Based on the floor area occupied,
each tenancy contributes to the
increases in - common area cleaning,
common area electricity - rates -
insurance - garbage-repairs -
management - over and above the base
figures as at the 30th December
1983. The allocation for this
tenancy is 4%.

DATE OF COMMENCEMENT: The building owner is in agreement
with your suggested date of 16th
April 1984.

BUILDING OWNER'S WORKS: The building owner will supply and
install a toilet and vanity basin.

YOUR WORKS: Supply and install partitions and
floor coverings as required, to
include the partitions for the
toilet area. Permission is given
for your builder to commence on
Monday 2nd April.

So that I may instruct the solicitors to prepare the lease
document, could you please confirm this letter and enclose a
cheque for $414.16, being the first month's rental.

Yours faithfully,
COPAS NEWNHAM PTY. LTD."

6. As requested, the letter was signed and returned with a cheque for $414.16.

7. The first of the three representations mentioned above, that relating to rent reviews, is set out in the letter. It was common ground that the agent made a mistake in including in the letter the statement to the effect that increases were to be in accordance with the increase in the Consumer Price Index. The owners' instructions were that increases were to be at the rate of the C.P.I. or 10%, whichever was the greater. The only answer to the applicants' case in this respect was that it was claimed that the agent, through Beirne, correctly informed the male applicant on the point orally before the writing of the letter. In support of that suggestion, reference was made to a form of lease which the agent supplied to the applicants shortly before the letter was written - a lease which had been granted by previous owners and which referred to annual reviews being on the basis of the C.P.I. or 10%, whichever was the greater.

8. On this issue, I accept the applicants' case, and in doing so, take into account the fact that the male applicant himself made an error in recounting to the Court the conversation he claimed to have had with Beirne concerning the rental. He said, at first, that the rental was quoted at $6.50 per metre, later increased, in the course of discussion, to $7.00 per metre. Subsequently he corrected that to $7.00 per square foot. The real estate industry has not yet fully adjusted to the introduction of the metric system, and in recent years commercial rentals have usually been quoted on the basis of a figure per square foot, but sometimes on the basis of a figure per square metre. I have no doubt that Beirne quoted in Imperial measurements. The point on which I have had difficulty, however, is whether to accept that the male applicant well enough remembers what Beirne said to enable a confident conclusion to be drawn in the applicants' favour. In accepting the applicants' case as to what was said with respect to the basis of annual increases of rental, I rely principally upon the letter just quoted; it seems to me improbable that Beirne would have been more careful in his oral statement than in the written one.

9. As to the second representation alleged, Mr. Anderson, one of the owners, gave evidence that, in response to an enquiry from Beirne, he estimated the outgoings would be $20 to $30 per week. I accept that evidence. It may seem a little improbable that, presumably shortly afterwards, Beirne told the male applicant that the outgoings were $20 to $30 per month. On the whole, I have decided that I should accept the evidence of the male applicant and find that he was, as he says, told by Beirne that the outgoings would be $20 to $30 per month.

10. As to the last representation, with respect to the mode of calculation of the contribution towards outgoings, it is clear from the letter quoted above what the respresentation was, and there can be little doubt that it was erroneous. The agent never had instructions from the owners to justify the statement as to the basis of calculation of outgoings made in the letter to the effect that each tenant had to contribute to increases in certain outgoings "over and above the base figures as at the 30 December 1983". Beirne's recollection was that he was told by the owners that, with respect to outgoings, the premises would be leased on the same basis as they had been previously. He said the base year for existing leases was 1980. However, a number of copies of the existing leases (granted by the immediately preceding owner) were tendered and they used various base years. Beirne's explanation of having mentioned 30 December 1983 was that it was in accordance with the normal practice, but he had no recollection of Anderson's ever specifically discussing a base year with him.

11. Having seen Anderson in the box, and formed the impression that he would be a precise and rather demanding client, I think it unlikely that he gave Beirne such vague instructions as the latter alleges. I accept Anderson's evidence that he told Beirne, before 30 March (and not merely after, as Beirne says), that the outgoings were to be calculated as a percentage of the total, not merely an increase over a base year. The only other plausible explanation is that Anderson changed his mind, deciding to stiffen the terms after the letter of 30 March was written, and I am not prepared to accept that he did so.

12. It is necessary to add, as to the second representation, that on the evidence there was no reasonable basis on which the outgoings could have been estimated at $20 to $30 per month. The statement to that effect was misleading. In summary, then, I find in favour of the applicants in respect of all three representations relied on - that is, that all three were made and were misleading.

13. A considerable amount of questioning of the male applicant was directed to the issue of inducement, and attempts were made to quantify the difference between the cost of such a lease as would have accorded with the instructions of the owner, and the cost of that which was, in fact, offered by the agent. One difficulty bedevilling such attempts, in my view, is that the financial implications of neither lease could be precisely assessed without knowing in detail what the terms of the lease were; as I read the letter of 30 March, those terms were to be fixed in the first place by the owners' solicitors, subject, no doubt, to acceptance by the tenants. An example of a term which might vary in a way making a significant difference to the value of the lease is that related to the fixation of rent in the event of the exercise of the option of a further three years' lease. Another is the precise drafting of the provision concerning outgoings, which the male applicant objected to in his evidence on the basis, in effect, that it gave the owners too much untrammelled power to charge outgoings to the tenants.

14. The applicants' case was that they would not have entered into possession and wasted $5,000 if they had known what the owners' true terms were. One cannot, with accuracy, speak of a certain periodic sum as being the difference between the two proposals; but if all else remained constant, the true proposal was, I am satisfied, significantly worse than that put forward by the agent. The difference, although not one which would be noticed in a thriving practice, was significant to the applicants, who were anxious to minimise their expenses. That relatively small weekly sums were involved was not, however, the only point relied on by the respondents on the inducement issue. It is necessary to set out further facts.

15. Soon after taking possession, the applicants were sent a form of lease drawn up by the owners' solicitors. That accorded, of course, with the owners' instructions and not with the letter of 30 March. The male applicant claims he did not read the lease until mid-July. He then consulted Toowoomba solicitors who wrote a letter dated 31 July 1984 on his behalf. In that they said that there were ". . . some aspects which we would like to discuss . . ." and made suggestions for a number of changes in the lease. The terms of the letter are difficult to reconcile with the applicants' case that they were induced to take possession by the making of misleading statements, but an explanation was advanced by the male applicant as to the way in which the letter came to be written, and I accept it. On 13 August, the owners' solicitors replied, insisting on the terms of the proffered lease. On 16 August, the solicitors for the applicants wrote again to the owners' solicitors making, for the first time, a complaint akin to that put forward in this case. Shortly after that, the applicants became aware of the availability of other suitable premises owned by a Dr. Ure, but the applicants did not immediately decide to move their practice. Some negotiation took place about the end of October, the owners offering to enter into a lease containing more favourable provisions with respect to outgoings than they had originally intended. However, the applicants rejected that as it was still less satisfactory to them than the terms originally put forward by the agent.

16. Counsel for the respondents contended that the main reason the applicants left was that their practice was not doing well (and I find it was not), and that they therefore wished to accept the offer of accommodation from Dr. Ure to reduce their expenses. It seems clear that under s. 87 of the Act, whose function in the Act has recently been elucidated by the High Court (Sent v. Jet Corporation of Australia Pty. Ltd., unreported, 26 June 1986), it would be possible to award the applicants part only of the agreed figure of $5,000. That was the sum which was thrown away by their having taken possession in anticipation of entering into a lease, but they would not have lost it had they stayed instead of shifting to Dr. Ure's rooms. Whereas under the general law the rules with respect to damages appear, at least in practice, to have an "all or nothing" operation, s. 87 allows the making of orders which the Court considers will compensate applicants in part for loss they have suffered. That was no doubt designed to meet situations in which a number of contributing causes might be seen to exist. It would not be inconsistent with the agreement of the parties as to quantum to award a proportion of the sum of $5,000, but I have decided not to do so. I am satisfied that the applicants were induced to take possession and spend the $5,000 by misleading statements falling within s. 52 of the Act. It is true that their decision to move rather than stay was in part influenced by factors which had nothing to do with the respondents, but I do not think they were obliged to accept the proposals made by the owners, which would have left them with terms which they regarded as significantly worse than those on the basis of which they had taken possession. I think the conduct of the applicants in failing to raise the discrepancy between the two sets of terms earlier than they did was unreasonable, as was their mode of leaving the premises - i.e. without notice. The conduct just mentioned did not, however, augment their loss.

17. It is necessary to deal with another factual issue. I find that the parties never made any contract with one another. It appeared to be suggested that if one read the letter of the 30 March with the draft lease which the agent showed to the applicants, a set of contractual terms cold be extracted which would constitute a concluded agreement. In my opinion, the letter of 30 March, on its proper construction, brought the matter within the third category mentioned in Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360. The case was not one in which the parties had "completely agreed upon all the terms of their bargain . . . but nevertheless . . . made performance of one or more of the terms conditional upon the execution of a formal document". The draft lease shown to the applicants during negotiations was not, in my view, used in such a way as to bind the owners (by their agent) to its terms.

18. Subsequently, as mentioned above, a form of lease correctly embodying the owners' instructions was prepared by their solicitors and received by the applicants. They were asked to, and did, send a cheque for the solicitors' costs, but did not sign and return the lease. Although the contrary is certainly an arguable view, I do not think a reasonable lessor would have taken the conduct of the applicants as being acceptance of the terms proposed. The simple way to accept them was to sign them and send them back.

19. I pass now to the legal point mentioned in the fourth paragraph. I adopt, with respect, the summary in James v. Australia and New Zealand Banking Group Ltd. (1986) 64 ALR 347 at pp. 372 and 373 with respect to the effect of the authorities under s. 52, where the allegation is one of misrepresentation as to state of mind or intention. In particular, I accept that liability under s. 52 may be founded on an allegation that the respondent has made a promise which he had no "present intention to make good". See also the discussion in Collier v. Electrum Acceptance Pty. Ltd. (unreported, 6 May 1986 at pp. 45, 46).

20. Although it is now well enough established by dicta that s. 52 creates liability for misleading promises, I have found no case, either under s. 52 or under the general law, in which one party to a proposed contract has successfully sued another on the basis of a misrepresentation such as is here alleged and that circumstance has given me pause. In a practical sense, the present case appears to break new ground. Here, the finding is that one party's intention was misrepresented, in the course of negotiations. It appears necessarily to follow, from the authorities just cited and those referred to in them, that although a broken promise does not by any means necessarily fall within the scope of s. 52, it can do so if the promisor did not intend to carry the promise out - or even, perhaps, where mere recklessness is shown:

"My Lords, the distinction in law between a promise
as to future action, which may be broken or kept,
and a statement as to existing fact, which may be
true or false, is clear enough. There may be
inherent in a promise an implied statement as to a
fact, and where this is really the case, the court
can attach appropriate consequences to any falsity
in, or recklessness in the making of, that
statement."

So said Lord Wilberforce in British Airways Board v. Taylor (1976) 1 WLR 13 at 17, in which there was a conviction under the U.K. Trade Descriptions Act 1968 on the basis that B.O.A.C. had recklessly made a false statement by confirming a reservation for a particular flight when, unknown to the prospective passenger, there was a deliberate policy of overbooking. It was not that the airline had no intention of carrying the promise out; their intention was to do so if they had enough seats.

21. If a promise, subsequently broken, is caught by s. 52, whether because of falsity or recklessness, it may be that the disappointed promisee will have a choice whether to sue in reliance on the Act or contractually. If that choice is open, the selection of a cause of action may be substantially affected by such considerations as the differing measures of damages, or the availability of defences under the law of contract which are not necessarily efficacious for the purposes of the Act. The present case is perhaps an example of the latter consideration operating; the applicants might have chosen to sue in contract on the basis of promises in the letter of 30 March, but on the basis of the findings above would have failed. Instead, the applicants have, in effect, alleged that what the owners (by their agent) said they were prepared to promise differed from their true state of mind.

22. One possible legal solution to problems of this sort is by reliance on the principle of promissory estoppel: see discussion of the Californian case of Drennan v. Star Paving Co. in Lindgren et al. "Contract Law in Australia" at pp. 125, 126. There is, however, no reliance on estoppel here.

23. Although it may seem a surprising result of the enactment of s. 52 that litigants such as these applicants may recover under it, I think I should decide the matter on the basis that the statements made by the owners' agent as to the basis upon which the owners were prepared to contract attract the operation of s. 52. I have not overlooked that there is high authority that the section should not be "beneficially construed" (Parkdale Custom Built Furniture Pty. Ltd. v. Puxu Pty. Ltd. [1982] HCA 44; 149 CLR 191 at 198), and that its scope and operation should be understood having regard to common law principles (Parkdale at p. 219), but am of the view that it is right to follow the trend of the decisions of this Court mentioned above. I add that there is a curious dearth of modern case-law on the question whether under the general law a broken promise may be the subject of a misrepresentation suit on such a basis as I have discussed: see Hammersley v. De Biel (1845) 8 ER 1312 discussed in Maunsell v Hedges (1854) 10 ER 1039 and in Western Fish Products Ltd v Penwith District Council [1978] EWCA Civ 6; (1981) 2 All ER 204 at 218 It is not clear whether it is right, as stated in Spencer Bower on "Actionable Misrepresentation" at pp. 41-42 that where a statement is shown to be a promise "the words amount either to a promise, or to nothing at all which entails legal liability". The assumption on which commercial people have acted may have been that mere statements of negotiating position attract no liability.

24. It follows from the views of the facts and law set out above that the applicants must succeed, but against the agent only. The owners, who are natural persons, are not shown to have been involved in their agent's breaches, and in accordance with the view expressed as to the operation of s. 75B in Keen Mar Corporation Pty. Ltd. v. Labrador Park Shopping Centre Pty. Ltd. 61 ALR 504 at 507, judgment can go only against the agent. That is so, although for the purposes of the general law the agent had ostensible authority to make the statements in question.

25. As to the cross-claims, the only one requiring specific mention is that of the owners against the agent for loss of rental, loss of outgoings and expenditure incurred. On the findings, the agent was in breach of its obligations to the owners, but it is impossible to make a finding on the evidence as to what loss, if any, was caused by the breach. If the agent had not misrepresented the owners' state of mind, the applicants would not have entered and paid rent as they did; whether, and if so to what extent, the owners would have been better off thereby is a matter of speculation.

26. There will, therefore, be judgment for the applicants against the first respondent in the sum of $5,000, and the claim of the applicants against the second and third respondents will be dismissed, as will all the cross-claims. There will be an order that the first respondent pay the costs of the applicants, as well as those of the second and third respondents, of and incidental to the proceedings, to be taxed.