Re Trazmill Pty Limited; Gloria Larney and Ebrahim Larney v Reserve Bank of Australia [1989] FCA 38 (28 February 1989)

FEDERAL COURT OF AUSTRALIA

Re: TRAZMILL PTY LIMITED; GLORIA LARNEY and EBRAHIM LARNEY
And: RESERVE BANK OF AUSTRALIA
No. G263 of 1984
FED No. 40
Trade Practices - Landlord and Tenant - Damages

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Morling J.(1)

CATCHWORDS

Trade Practices - lease of shop - purpose of lease restaurant and sale of take-aways food - alleged representation by lessor - representation that other shops would not be permitted to sell certain goods - allegation not made out.

Landlord and Tenant - lease - shop - covenant by lessor restricting use of other premises in shopping centre - terms of covenant - mutual intention of lessor and lessee - whether mutual intention carried into terms of covenant - rectification of lease.

Damages - lease - breach of covenant by lessees- shopkeeper - loss of turnover as a result of breach of covenant - quantification of damages.

Trade Practices Act 1974, s.52

HEARING

SYDNEY
28:2:1989

Counsel for applicants: Mr John De Meyrick
instructed by: Teakle Ormsby & Associates
Counsel for respondent: Mr C.G. Gee Q.C. with

Miss R.S. McColl
instructed by: Teece Hodgson & Ward

ORDER

Judgment for the applicants in the sum of $2,000.

Order that Item 14 of the Schedule to the lease made between the applicants of the one part and Northlake Investments Pty Limited of the other part on 1 March 1982 be rectified by deleting therefrom the word "food" and inserting in lieu thereof the word "seafood".

Applicants to pay 85% of the respondent's costs.

These orders not to be entered before 21 days from today.

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

DECISION

In these proceedings the applicants seek damages and other relief in respect of conduct in which the respondent is alleged to have engaged in breach of s.52 of the Trade Practices Act 1976. By an amendment made during the course of the hearing, the applicants also seek damages for what they claim to be breaches of covenants in a lease pursuant to which the respondent leased a shop in the Randwick Centre at Belmore Road, Randwick to the first applicant. The respondent denies that it engaged in any misleading conduct and that it breached the covenants in the lease. In a counter-claim, it seeks rectification of the clause in the lease containing the covenant upon which the applicants mainly rely.

2. Prior to January 1981, Mr and Mrs Larney, the second and third applicants, conducted a restaurant in Melbourne. Towards the end of 1981 they became interested in a building known as the Randwick Centre being constructed by Northlake Investments Pty Limited at the corner of Belmore Road and High Street, Randwick. The building is comprised of a group of shops. The shop which was of particular interest to the Larneys was shop 5A, which faces High Street. They were interested in leasing that shop for the purpose of conducting a restaurant with some form of take-away food outlet.

3. In November 1981 the Reserve Bank signed a contract to purchase the Randwick Centre. The property was to form part of the bank's superannuation fund's assets. The bank completed the purchase on or about 23 March 1982. Prior to completion Northlake Investments had sought tenants for the various shops in the Centre. The largest shop in the Centre was leased towards the end of 1981 to the proprietor of a business known as 7-Eleven. The shop adjoining No. 5A was leased to a person who carried on a food-vending business known as Simply Delicious.

4. In early February 1982, Trazmill Pty Limited, a company controlled by the Larneys (who are husband and wife) agreed to take a lease of shop 5A. A formal lease was entered into between Northlake Investments and Trazmill on 1 March 1982. The Larneys were joined as guarantors of Trazmill's commitments under the lease. The lease was for a term of ten years commencing on 16 February 1982 at an annual rental of $29,900 and included provisions as follows:

"Item 8: Nature of Business
Coffee Lounge Restaurant Fast Food Take-Away
including fresh fish".
"Item 14: The Lessor covenants that it will not permit
any other lessee in the Randwick Centre to
use his lease (sic) premises for the purpose
of a coffee lounge, or sale of take-away
food".

5. It is in respect of Item 14 that the bank seeks rectification of the lease.

6. The lease of shop No. 6, i.e. the Simply Delicious premises, was granted on 30 November 1981. One of the terms of that lease was as follows:

"Item 8: Nature of Business
Health Food Take-Away & Sandwich Shop."

7. The applicants were not aware of the terms of the lease of shop 6 at the time they agreed to take the lease of shop 5A.

8. As pleaded, the claims under the Trade Practices Act are based upon representations alleged to have been made to Mr Larney by officers of the bank. The representations are said to have been made on or about 22 January 1982 and on or about 22 June 1982. In argument at the conclusion of the hearing counsel for the applicant relied upon an alternative basis for the claims under the Trade Practices Act. This basis was said to be that in July 1982 the bank kept silent when the Larneys commenced trading, thereby giving them to understand that the bank would solve any problem they might encounter by reason of other shops in the Randwick Centre selling take-away food. It was submitted that such silence was tantamount to conduct proscribed by s.52. I shall first consider whether the applicants have made out their case that the alleged representations were made by the bank's officers, and that they relied upon them to their detriment. I shall then consider the alternative basis of the claim for relief.

9. Mr Larney claims that on or about 20 January 1982 he had a conversation at the Randwick Centre with Mr Laidlaw, an officer of the bank, when Laidlaw told him that the bank was going to buy the building. According to Larney, he told Laidlaw that there were quite a lot of defects in the building, that he had committed himself to buying about $50,000 worth of equipment and that "I have been promised exclusive rights here and 7-Eleven is going to open up and from experience I know they ... sell take-aways." He said Laidlaw replied: "We will sort out these problems."

10. According to Larney, the alleged reference to "exclusive rights" was intended to be a reference to the landlord's obligations under the draft lease not to permit any other lessee in the Randwick Centre to use his premises for the purpose of a coffee lounge, or for the sale of take-away food. Larney said that before he opened up his shop he observed that the proprietor of the Simply Delicious shop was selling take-away health foods, hamburgers, sandwiches, coffee and fruit juices. It is unclear from his evidence when he first observed these items were being sold from the Simply Delicious shop. However, it seems almost certain that the Simply Delicious business commenced trading in February 1982. In a written memorandum made on 26 January 1982 an officer of the bank noted that the Simply Delicious business was almost ready to commence trading.

11. The 7-Eleven business commenced trading not later than January 1982. That business was primarily a grocery shop. However, it also sold frozen take-away foods (such as hamburgers) which could be heated in a microwave oven kept on the premises. Cakes and coffee could also be purchased at the store.

12. There is a complete collision between Laidlaw and Larney as to the alleged conversation on 20 January. Laidlaw was a valuer employed by the bank's superannuation fund, his duties being to seek out suitable investments for the fund. His attention was drawn to the Randwick Centre in mid-1981, when a firm of real estate agents had offered the Centre to the superannuation fund as an investment. He visited the Centre from time to time while it was in the course of construction. He said he first met Larney at the site in early 1982 when he was on a routine site visit. Larney told him he was intending to set up a restaurant in one of the shops and gave him an estimate of the cost to which he would be put in fitting out the shop. He said Larney complained about water entering the front of the shop at the front door. He denied anything was said about exclusive trading rights, or that any reference was made to the 7-Eleven store or that he said he would sort out any problems.

13. Laidlaw said he also met Larney on the site in early March 1982 but there was no mention on that occasion of any exclusive trading rights. On the occasion of his March visit he was accompanied by another officer of the bank, Mr Buscall.

14. Buscall said that he spoke to Larney on the site in company with Mr Laidlaw on 10 March 1982. He was able to identify the precise date because he had made a written report on his visit. He said Larney told him about the problems he was experiencing in fitting out his shop. Larney told him he was going to establish a seafood restaurant and made some mention of having a "fish tank or something there with live fish in it." Buscall made written notes at the time recording the matters discussed with Larney. These notes make no reference to Larney having mentioned any exclusive right to sell certain types of food in the Centre.

15. In the three or four months following the conversation of 10 March, Larney was in communication with the bank regarding the installation of a ventilator in his shop and the provision of a change room for staff. The installation of the ventilator was required by the Randwick Council as a condition of its approval of the use of the premises as a restaurant. On several occasions during 1982 Larney raised the question of the problem of water penetration at the front door. He complained on several occasions about the bank's delay in attending to these and other matters. However, there is nothing in the written communications which passed between the parties during 1982 in which any mention is made of a complaint that the 7-Eleven and Simply Delicious stores were being permitted to sell take-away food in breach of the covenant contained in Item 14 of the lease.

16. According to Larney, he became so frustrated about the water penetration problems and the delay in the installation of the ventilator (for which the bank's consent was required) that he arranged a meeting with Mr O'Callaghan, an officer of the bank, at its premises in the city. The meeting was held on 3 June 1982. Larney said that he gave O'Callaghan a catalogue of his problems, and told him that nothing was being done to deal with them. He said he also told O'Callaghan that "I am going to sue the bank for violating the lease, for allowing other people to sell food in the complex, for the water penetration, for not allowing suitable change room for staff of a restaurant". He said that O'Callaghan replied that he would "solve the problems including the take-away shops". Mr O'Callaghan admitted he had a conversation with Larney on 3 June at which a number of matters were discussed. He said no mention was made by Larney of the fact that other shopkeepers were selling food in the Centre and he denied that he told Larney that the bank would solve any problem relating to the sale of food by other shopkeepers. O'Callaghan made contemporaneous written notes of what was said at the discussion and they support his version of it. I reject Larney's evidence that he made any mention on 3 June of the fact that other shopkeepers in the Randwick Centre were selling take-away food.

17. Larney also said that on 25 June 1982 he had a conversation with Buscall and with Mr Egan, another officer of the bank. He claimed that he complained about the problem of water penetration and of the lack of provision of a change room and that the 7-Eleven and Simply Delicious shops were selling "chickens, quiche and take-aways". According to Larney, Buscall said the bank wanted him to open his shop up and that after he had opened "the bank will see to the problems".

18. However, evidence was given by Buscall and Egan that they had no such conversation on 25 June, or on any other date, with Larney. It was proved that Buscall was on leave from his employment with the bank on 25 June. He was on leave from 15 June to 5 July. Egan gave evidence that he had been engaged in superannuation fund work between 1974 and 1979, and from October 1982 to July 1985. In June 1982 he had nothing whatever to do with the superannuation fund's activities. He denied that he had had any conversation with Larney in June 1982. He said the first occasion he had anything to do with the Randwick Centre was in October 1982 and the first time he met Larney was in January 1983, in company with Buscall. On that occasion Larney had complained about the water penetration problem and also that his shop was not easily visible to passing traffic. So far as Egan could recall, the complaint of competitive trading by other shops in the Randwick Centre was not mentioned during that discussion. A written note made by him on or shortly after the date of the January meeting makes no mention of a complaint about competitive trading, but does refer to other matters of complaint raised by Larney.

19. The first occasion when any complaint was made in writing about competitive trading was in a letter written by the applicants' solicitor to the bank's solicitors on 18 February 1983. In that letter reference was made to a number of complaints including a complaint that the bank had permitted other lessees in the Randwick Centre to conduct take-away food businesses. It was not asserted in that letter that the complaint about competitive trading had been made at any earlier point of time.

20. There is no evidence that Mr or Mrs Larney or anyone on behalf of the applicants complained to the proprietors of the 7-Eleven and Simply Delicious shops that their trading was infringing the applicants' rights under the lease of shop 5A. It is surprising that the Larneys did not raise with the proprietors of these shops the question of their right to sell take-away food, if that was a matter of real concern to them and if they believed Item 7 in their lease required their landlord to forbid the sale of all take-away food in other shops in the Randwick Centre. As will appear later in these reasons, I think there were two reasons for the absence of any such complaints. In the first place, I think it was the Larneys' intention at all relevant times was to establish a restaurant business with the sale of mainly seafood take-away items as a side line to the main restaurant business. I do not think the sale of items such as hamburgers, cakes and coffee was of real concern to them. I accept Buscall's evidence that on 10 March 1982 Larney told him that he was opening a seafood restaurant. In the second place, I think the Larneys did not believe that Item 7 in the lease required their landlord to forbid the sale of all take-away food in other shops in the Centre. I think their belief was that Item 7 referred only to the sale of take-away seafood.

21. It is claimed that on the faith of the representations alleged to have been made by Laidlaw in January, Trazmill entered into the lease of shop 5A and that the Larneys guaranteed Trazmill's obligations under the lease. In my opinion this claim must fail. In the first place, I do not accept that any representations of the kind alleged by Larney were made by or on behalf of the bank. I prefer the accounts of the various conversations given by Laidlaw and O'Callaghan to those given by Larney. I think his recollection of the events of 1982 is very vague. It was said in evidence that he had been ill for some time in the years which have elapsed since 1982. It is plain that his venture into the restaurant business at the Randwick Centre was a financial disaster. I think there is a significant element of reconstruction in his evidence as to what occurred in 1982. I have no doubt he had some cause for complaint about the matter of water penetration. However, I think he has convinced himself that when, in 1982, he complained about that matter he also complained about competitive trading. I am confident that he did not do so. I am not satisfied that any of the alleged representations were in fact made to Larney.

22. The basis of the claim in respect of the alleged January representations was that the applicants were induced to enter into the lease by reason of those representations. Item 14 of the lease did, of course, give rise to contractual obligations on the part of the lessor and the bank assumed those obligations when it acquired the Randwick Centre and became Trazmill's landlord. I shall have to return to this matter when considering the claims for breach of covenant and rectification of the lease. But I do not think that any claim has been made out under the Trade Practices Act in respect of the representations alleged to have been made before the applicants entered into the lease.

23. The applicants claim that the representations alleged to have been made in June 1982 induced them to open up the restaurant and to commence trading. They claim that if these alleged representations had not been made they would not have gone ahead with their plans to open the restaurant and therefore would not have incurred the losses which they subsequently incurred. This claim also fails. In the first place, I am not satisfied that the alleged representations were made. On the contrary, I am satisfied they were not. I accept the versions of the various conversations given by the bank's witnesses in preference to those given by Mr Larney. I am in no doubt that it was not until early 1983 that the matter of the alleged breach of Item 14 in the lease was first raised. In any event, as at June 1982 the applicants were committed to the lease which they had executed some months before. I am satisfied that the applicants' decision in June 1982 to go ahead and open up the restaurant was based on their own assessment of its prospects and not on any representations made to them by any officer of the bank.

24. I turn now to consider the alternative claim under the Trade Practices Act. In my opinion it is without substance. It may be conceded that, in some circumstances, a person may, by remaining silent, be guilty to engaging in misleading or deceptive conduct. See Rhone-Poulenc Agrochimie S.A. v. UIM Chemical Services Pty Limited (1986) 68 ALR 77: 12 FCR. 477. But nothing that the bank did or failed to do in July 1982 amounted to misleading or deceptive conduct. It is true that the bank was aware at that time that the Larneys were proposing to open their restaurant for business. However, I reject the claim that it gave the Larneys to understand that it would solve any problem that might arise by reason of other shops in the Randwick Centre selling take-away food. I am satisfied that the only matters of concern to the Larneys in July 1982 related to the annoying difficulties they were still experiencing from the minor problem of water penetration and a defective glass door at the front of their shop premises.

25. The circumstances of the present case were not such as to impose an obligation on the bank to disclose facts to the applicants (cf Rhone-Poulenc, supra). The applicants were as well informed as to all relevant matters, including the terms of the lease, as was the bank. They knew the extent of the problem (if it existed) arising from the sale of take-away food in the Simply Delicious and 7-Eleven stores. There is no basis for the alternative claim under the Trade Practices Act.

26. I turn now to consider the claims based on alleged breaches by the bank of its obligations under the lease. These claims fall into two categories. First, there is the claim that, in breach of its obligations under Item 14, the bank permitted take-away food to be sold at the 7-Eleven and Simply Delicious stores. Secondly, there is a claim that the landlord failed to keep the premises in a reasonable state of repair.

27. In answer to the claim based upon Item 14, the bank counter-claimed seeking rectification of the lease. It was submitted on its behalf that the real and mutual intention of the lessees and Northlake Investments at the time the lease was executed was that Item 14 should read as follows:

"Item 14: The Lessor covenants that it will not
permit any other lessee in the
Randwick Centre to use his leased
premises for the purpose of a coffee
lounge, or sale of take away seafood."

The bank claimed that the lease was intended to embody the mutual intention but that it failed to do so.

28. In order to understand the bank's claim it is necessary to refer to the circumstances in which the lease came to be executed. After the applicants became interested in leasing the premises Mr Larney approached his solicitor, Mr Peter Murphy. According to Mr Murphy, it was he who suggested that the lease should contain some form of covenant by the lessor restricting the use to which other shops in the Randwick Centre could be put. He said that it was his invariable practice to do his best for his clients when negotiating the terms of a lease. Having received instructions from Mr Larney, Mr Murphy wrote to Moray & Agnew, Northlake Investments' solicitors, on 4 January 1982 seeking changes to the draft lease. The letter read, in part, as follows:

"(g) the lessee will require a further clause to
be inserted to provide: -
'The Lessor covenants that it will not permit
any other lessee in the Randwick Centre to
use his leased premises for the purpose of a
coffee lounge, restaurant, fast food
take-away including fresh fish."

On 20 January 1982 Moray & Agnew replied to Mr Murphy's letter, dealing seriatim with the suggestions made in it. In respect of item (g) Moray & Agnew said:

"(g) The only restraint the Lessor will include in
the Lease is that they will not permit any
other Lessee in the Centre to use its
premises for either a coffee lounge or for
the sale of seafood takeaway:"

29. In their letter of 20 January Moray & Agnew requested Mr Murphy to "make the necessary alterations to the Lease documentation currently in your possession and attend the execution of same". There is no precise evidence as to where and when the formal lease document, as ultimately executed by the parties, was typed. But I think it was almost certainly typed in Mr Murphy's office. There are features about the typing of the final document which point almost irresistibly to it having been typed in Mr Murphy's office. The most compelling indication is the fact that in Item 4 of the Schedule to the lease, the words "date" and "of" have been run together by the typist, whereas they were typed separately in the draft schedule which had been earlier submitted to Mr Murphy. The document typed in Moray & Agnew's office was typed on a word processor and had the final document been typed in their office it seems highly likely that the typist would not have re-typed Item 4, but would have recalled the item from the disk.

30. The solicitor handling the transaction in Moray & Agnew's office was Mr Rush. Neither he nor Mr Murphy had any reliable recollection of the events that happened after 20 January 1982. However, it can be safely inferred from the evidence that Messrs Rush and Murphy had a telephone conversation about the final form of Item 14. Mr Murphy's file contains a diary note of a conversation with Mr Rush. The exact date of the conversation cannot be fixed with certainty, but it seems highly likely that it took place after Mr Murphy received Mr Rush's letter of 20 January and that the purpose of the conversation was to resolve the final form of Item 14. The relevant part of Mr Murphy's diary entry reads: "take away 'seafoods', followed by the words "to be added". A line is drawn leading from the words "to be added" to the first part of the word "seafoods". Read in its entirety, the diary entry strongly suggests that the word "sea" was to form a prefix to "foods" as used in Item 14.

31. Evidence was called to establish that Northlake Investments would not have been prepared to enter into a lease containing Item 14 in the form in which it appeared in the final document. I accept this evidence and I am satisfied that it did not intend to agree to a covenant that it would not permit any other lessee to use a shop in the Randwick Centre to the purpose of the sale of take-away food. Indeed, having regard to the variety of the food items sold at the premises occupied by the 7-Eleven and Simply Delicious businesses, it is almost inconceivable that Northlake Investments could have intended to grant a lease to Trazmill containing a clause in the form of Item 14, i.e. a clause containing a covenant that it would not permit any other lessee to sell take-away food of any kind.

32. However, if the issue of rectification fell to be determined on this and the other evidence to which I have referred, it would not persuade me to the view that Item 14 did not carry into effect the mutual intention of the parties. In the absence of other evidence, and notwithstanding Northlake's intention, it would not be possible to infer that the applicants agreed that the last word in Item 14 should read "seafood", and not "food".

33. However, the applicants' conduct after the execution of the lease is only consistent with them understanding that the restriction in Item 14 being intended to be limited to take-away seafood. Neither the Simply Delicious nor the 7-Eleven stores sold take-away seafoods, but they did sell other forms of take-away food. I find it inconceivable that Mr and Mrs Larney would not have complained about the sale of any form of take-away food from their competitors' premises as soon as they started trading in their own shop if they had believed that the restriction in Item 14 applied to all forms of take-away food. The first time any complaint was made by the Larneys was in a letter from Mr Murphy to the bank's solicitors on 18 February 1983. For at least a year prior to the writing of that letter the Larneys were aware that take-away food, other than take-away seafood, was being sold from other shops in the Centre. They complained to the bank about a number of matters in 1982. These complaints were made both orally by Mr Larney, and in writing by his solicitor. At no stage was any complaint made that the covenant in Item 14 was being breached. I am satisfied that no such complaint was made because the Larneys knew that the covenant contained in Item 14 was intended to be limited to the use of other premises in the Centre for the purpose, inter alia, of the sale of take-away seafood.

34. Indeed, when the alleged breach of Item 14 was first raised in the letter of 18 February 1983, it was mentioned almost as an after-thought. At that time, the applicants' business had been trading unprofitably for some time and they were looking for some relief from the financial difficulties which they had encountered.

35. I should make it plain that I do not think Mr Murphy deliberately misrepresented his understanding of the effect of Item 14 when he wrote to the bank's solicitors on 18 February. He made it clear in his evidence that he would have handled hundreds of lease transactions between March 1982 and February 1983 and that his recollection of the terms of any particular lease would have been imperfect. I have no doubt that when Mr Murphy wrote to the bank on 18 February he had in mind Item 14 in the form in which it was typed in the lease, not having present to his mind his conversation with Mr Rush and the note of it contained in his diary.

36. There is no doubt that, as at March 1982, the Larneys contemplated that seafood would be the principal type of food sold from their restaurant. Mr Larney told Mr Buscall before the restaurant opened for business that it was going to be a seafood restaurant and that he was going to have "a fish tank or something there with live fish in it". In a plan submitted by Mr Larney to Randwick Council in support of the development application there is a large area designated "refrigerator to display fresh fish". This area is immediately inside the front door of the shop. Mr Larney said that he planned to sell fresh fish, in a take-away form, to Japanese tourists. The plan makes provision for tables and chairs to accommodate thirty-two patrons. At the rear of the shop there is a large kitchen area which seems more adapted for use to prepare food for patrons of the restaurant than for preparation of take-away food. In an advertising brochure put out by the Larneys the emphasis is on fish food. The brochure offers what is described as a take-away special offer of "Fried Fillet of Fish and chips and coleslaw". It is fair to say that the brochure makes reference to take-away food other than take-away seafood, but the emphasis is upon seafood. Mr Larney gave evidence of a very general kind that he sold virtually all forms of take-away food, and I accept that he may well have done so. But the evidence he gave as to the nature and extent of his take-away food sales was vague and no attempt was made to quantify the various sorts of food sold. I have the firm impression that he gave an exaggerated account of the non-seafood items that were sold in his shop. Indeed, I am left with the impression on the evidence that the real business of the applicants' restaurant was not the sale of take-away food in any form. From the meagre evidence as to the takings in the business it seems that the gross takings of the business averaged in the vicinity of $1,000 per week. If the 32-seat restaurant was used to any degree at all by restaurant patrons, it seems likely that a major proportion of the turnover came from the restaurant business, rather than from the sale of take-away food.

37. In summary, my views on the question of rectification are as follows: it was not the Larneys original idea to seek a covenant from the lessor that no other shop in the Randwick Centre would be permitted to sell take-away food; it was Mr Murphy's idea to seek such a covenant; Northlake Investments was not prepared to give a covenant which would restrict the sale of all forms of take-away food, it was only prepared to give a covenant that no other shop-keeper would be permitted to sell take-away seafood; the form of covenant that Northlake Investments was prepared to give was acceptable to the Larneys, because their real interest was to protect their future business in the sale of take-away seafood; at some time after 20 January and at a time when the then current draft of Item 14 referred to the sale of "take away food", Mr Rush rang Mr Murphy and told him that his client required "sea" to be inserted before "food"; this was acceptable to the Larneys but, for whatever reason, the word "food" was not changed to "seafood"; that the Larneys knew that their agreement with their lessor was that only the sale of take-away seafood would be prohibited in other shops in the Centre; that they therefore did not complain about the sale of other forms of take-away food; and that it was not until they realized that their business was not a financial success that they first alleged a breach of the covenant.

38. In my opinion, much of Mr Larney's most important evidence was quite unreliable. I think he had no real memory of events in 1982. The diary which he kept at that time does not contain entries of important events which he said happened, and which might have been expected to have been noted in his diary. More importantly, I think he sought to bolster his evidence by reference to a diary entry which is highly suspect. There is the most compelling evidence from a handwriting expert of great experience, whose evidence I accept, that the entry was written with three different pens. I think it quite likely that the latter part of the entry, which is the relevant part for present purposes, was added at a time when Mr Larney believed that his case would be assisted by the addition.

39. The circumstances in which a court will make an order rectifying an agreement are referred to by Mason J. in Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 at p 349-350. His Honour there said:

"The conditions according to which relief by
way of rectification will be granted have been
variously stated. In Fowler v Fowler [1859] EngR 598; (1859)
4 De G. & J. 250, at p 265 [1859] EngR 598; (45 ER 97, at p 103),
Lord Chelmsford L.C. said that the person seeking
rectification must establish clearly 'that the
alleged intention to which he desires' (the
instrument) 'to be made conformable continued
concurrently in the minds of all parties down to
the time of its execution, and also must be able to
show exactly and precisely the form to which the
deed ought to be brought'. On other occasions
statements have been made which emphasize that it
is for the plaintiff to show that by the writing
sought to be rectified the parties intended to
record the terms of an antecedent oral bargain and
that by common mistake there is a disconformity
between the oral bargain and the writing (United
States of America v Motor Trucks Ltd. per Earl of
Birkenhead ((1924) AC 196, at p 200).
The difference in expression is not of import
ance. It is explained partly by the difference in
the character of written instruments sought to be
rectified and partly by the more recent desire to
emphasize that the remedy is designed to relieve
against the mistaken expression of the true
agreement of the parties.

40. As Buckley L.J. said in Lovell & Christmas Ltd. v Wall ((1911) 104 LT, 85, at p 93):

'For rectification it is not enough to
set about to find what one or even both of
the parties to the contract intended.
What you have to find out is what intention
was communicated by one side to the other,
and with what common intention and common
agreement they made their bargain.'
What is of importance is that the purpose of
the remedy is to make the instrument conform to the
true agreement of the parties where the writing by
common mistake fails to express that agreement
accurately. And there has been a firm insistence
on the requirement that the mistake as to the
writing must be common to the parties and not
merely unilateral, except in cases of a special
class to which I shall later refer."

See also Pukallus v Cameron (1982) 43 ALR 243, particularly at p 247 where Wilson J. refers to the requirement that "convincing proof" is required that a written contract does not embody the final intention of the parties. Taken in its entirety, I think the evidence in the present case meets this standard of proof. Moreover, the evidence establishes with precision the manner in which Item 14 failed to carry out the common intention of the parties. Cf. Australian Gypsum Ltd and Australian Plaster Co Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54 at 64 and Maralinga at p 349.

41. I am satisfied that it was the common intention and common agreement of the applicants and Northlake Investments that the final word in Item 14 of the Schedule to the lease should be "seafood" and not "food". This being so, I think the claim for rectification succeeds. It was not submitted that the bank was not entitled to an order for rectification to bring the lease into conformity with the common intention of the original parties to the lease.

42. It was argued, albeit faintly, by counsel for the applicants that the claim for rectification was barred by the Limitation Act, 1969 (NSW). However, s.23 of that Act makes it plain that the Act has no application to a cause of action for equitable relief.

43. It was not contended by counsel for the applicants that rectification of the lease could not be granted in these proceedings although Northlake Investments was not joined as a party. The case was conducted and argued on the basis that an order for rectification of the lease could and should be made if a finding was made that the common intention of the applicants and Northlake Investments was that the final word in Item 14 should be "seafood" and not "food". However, since the lease has been registered under the provisions of the Real Property Act 1900 (NSW) it is possible that the Registrar General (and perhaps Northlake Investments) should have been joined in the proceedings. It would be unfortunate if the costs of these proceedings were to be increased by further consideration of the question of parties, particularly since the applicants have apparently long since surrendered their lease. Nevertheless, in case any party wishes to make submissions as to the addition of parties on the forms of orders I shall direct that judgment not be entered for a period of 21 days after the date upon which the orders are pronounced.

44. It was submitted on behalf of the bank that, in any event, the applicants were estopped from bringing the claim based upon the breach of the covenant in Item 14. The bank sued the applicants in the Supreme Court of New South Wales for unpaid rent due under the lease, and obtained default judgment on 12 April 1984. Thereafter, the applicants took proceedings to have the judgment set aside but these proceedings were abandoned. It was submitted on behalf of the bank that the default judgment estopped the applicants from litigating any matters arising out of the contractual relationship between the parties. Having regard to my decision on the question of rectification, it is unnecessary to decide the estoppel point. However, I doubt whether the bank's submission on this point is valid. The bank relied upon Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, but that was a case where the party in the first action failed to rely upon a matter which afforded a complete defence to the claim brought against it. In the present case, the applicants' claim against the bank could only have been brought by way of cross-action in the Supreme Court proceedings. In Anshun, Gibbs C.J., Mason and Aickin JJ., after reviewing the authorities, said:

"In this situation we would prefer to say that
there will be no estoppel unless it appears that
the matter relied upon as a defence in the second
action was so relevant to the subject matter of the
first action that it would have been unreasonable
not to rely on it. Generally speaking, it would be
unreasonable not to plead a defence if, having
regard to the nature of the plaintiff's claim, and
its subject matter it would be expected that the
defendant would raise the defence and thereby
enable the relevant issues to be determined in the
one proceeding. In this respect, we need to
recall that there are a variety of circumstances,
some referred to in the earlier cases, why a party
may justifiably refrain from litigating an issue in
one proceeding yet wish to litigate the issue in
other proceedings e.g. expense, importance of the
particular issue, motives extraneous to the actual
litigation, to mention but a few. See the
illustrations given in Cromwell v County of Sac
((1876) 94 US (24 Law Ed, at p 199))."

45. There may well have been circumstances which justified the applicants from refraining from litigating in the Supreme Court their claim that the bank was in breach of the covenant in Item 14. For instance, it may have been thought that there might be some advantage to the applicants in bringing a claim in the Federal Court under the Trade Practices Act and invoking the Court's accrued jurisdiction to determine the claim for breach of covenant. The evidence suggests that the applicants may well have been without funds to engage in heavy litigation in 1984. That also may have been a reason for the failure to pursue a cross-action in the Supreme Court.

46. In their amended statement of claim the applicants allege that their shop was penetrated by stormwater which prevented them from laying carpet and delayed them in opening their business. It is also alleged that the bank was in breach of its covenant for quiet enjoyment under the lease because it tolerated the penetration of unpleasant odours from a nearby hairdressing salon. These allegations are relied upon as establishing conduct by the bank in contravention of s.52 of the Trade Practices Act. However, having regard to the way in which the case was conducted, I think it is fair to say that the allegations are also relied upon in support of a claim for damages for breach of the covenant in the lease for quiet enjoyment. I propose to treat these allegations as being, in effect, a claim of the latter kind although I may be unduly generous to the applicants in so treating them.

47. In the context of all the events surrounding the applicants' occupation of the premises, the claim for breach of the covenant for quiet enjoyment is de minimis. I am satisfied that the applicants were inconvenienced to a minor extent by a defective door and water penetration at the street alignment of the shop premises. I am also satisfied that the bank was dilatory in attending to these problems and did not attended to them within a reasonable time after they were brought to its attention. However, there is no evidence that the applicants incurred any expenditure to defray the cost of work which the bank ought to have done. Nor is there any evidence from which I can determine whether there was any loss of turnover by reason of these defects in the premises. Nevertheless, common sense dictates that there must have been some minor adverse affect on the running of the business. Mr Larney gave evidence that he had to attend on more than one occasion to problems associated with the defective door. Making a generous allowance for the value of Mr Larney's time in attending to matters that should have been attended to by the bank and for any damage which may have been caused to the business while he was so engaged, I think that a sum of $2,000 should be allowed to the applicant company for breach by the bank of its obligation to keep the premises in sound repair. I am keenly aware that this determination has all the hallmarks of an exercise in palm tree justice but it also has the merit of doing rough justice between the parties.

48. In case this case should go further, it is desirable that I should express an opinion on the damages which I would have awarded to the applicants had I found against the bank on the question of rectification. The applicants claimed heavy damages for the alleged breach by the bank of the covenant in Item 14. The claim was formulated in a report by Mr Robertson.,The report proceeds upon the assumption that by reason of the breach of covenant the applicants' business lost trade to the extent of $2,000 per week. Calculations are then made on further assumptions that 65% of the takings of the applicants' business would have been related to the sale of take-away food, and 35% to takings in the restaurant. A further assumption is made that the net profit margin on take-away food sales would have been 15%, and that the net profit margin on the restaurant turnover would have been 10%. Other assumptions are made about the growth potential of the business.

49. Mr Robertson's report takes no account of the actual trading in the applicants' business. Between 17 July 1982 and 30 June 1983, the gross turnover of the business was $57,235. Allowing for the cost of sales, the gross profit during this period was $41,646. This was offset by expenditure of $78,278, resulting in a loss for the period of $36,632. Included in the expenditure were amounts of $7,598 for casual wages, and $39,867 for rent.

50. During the period from 1 July 1983 to 1 May 1984 the gross sales amounted to $31,915. After allowing for the cost of sales, the gross profit during this period was $22,264. After allowing for expenditure of $61,804 the loss for the period was $39,540. During this period the amount expended on casual wages was $4,369 and the rent paid was $29,900.

51. It is therefore plain that the business operated at a substantial loss from the time of its commencement.

52. No evidence was called to show what proportion of the turnover was referable to the sale of take-away food. As I have already observed, I think it is a reasonable inference from the evidence that the turnover in take-away food was slight. It is to be observed that there was no restriction of any kind on the Larneys from selling all forms of take-away foods. Indeed, Mr Larney said that he sold a large range of take-away food items.

53. Counsel for the applicants submitted that if there had not been sales of take-away food from the Simply Delicious and 7-Eleven stores, the food that was in fact sold in those stores would have been purchased from the applicants' business. In my opinion there is no warrant for making this assumption. The food items that were sold in the Simply Delicious store were items which, for want of a better expression, might be described as "health food". They included wholemeal bread, cottage cheese, fruit salad, raw vegetables, grated carrot, pita bread, tabouli and vegetable pies. Some sandwiches were sold, but not items such as hamburgers, sausage rolls, hot fish, milk shakes, ice cream, coffee or tea. At the time the Simply Delicious business changed hands in October 1983 its turnover averaged between $1800 and $2000 per week. There is no evidence as to the turnover of the business prior to October 1983.

54. The sale of take-away food from the 7-Eleven store was much more limited. There is no real evidence as to what the volume of sales was. No attempt was made to call evidence from the proprietor of the 7-Eleven store as to the range or volume of his take-away food sales. Mr Larney said that the 7-Eleven store sold frozen take-away foods, such as frozen hamburgers, which could be heated in a microwave oven. He also said that there was a coffee machine installed in the premises and that customers could buy hot coffee from the machine. He also claimed that the 7-Eleven store advertised a "little menu". The assertion was made that this business may have had a turnover in the order of $400 per week in take-away food items, but I am not satisfied that the turnover would have been nearly that great. Mr Larney's evidence as to the type of food sold in the Simply Delicious store was inaccurate, and I do not think I can safely make any finding on his evidence as to the take-away food business conducted in the 7-Eleven store.

55. I think it would be quite wrong to assume that the bulk of the persons who patronized the Simply Delicious Health Food Store would have patronized the applicants' store if the Simply Delicious business had not been functioning. The reality of the matter was that the applicants were never in the health food business. Of course, a customer unable to buy a health food item from a shop in the Randwick Centre may have purchased a non-health food item from the applicants' store. But I do not think that much additional trade would have come the applicants' way. As I have observed, the applicants' principal business was a seafood restaurant. They were in an essentially different line of business to the Simply Delicious and 7-Eleven stores.

56. Nevertheless, I think it is a safe inference that if no take-away food had been sold from the Simply Delicious and 7-Eleven stores, the takings of the applicants' business would have increased to some extent. The most generous estimate I would make of the likely increase in takings would be in the order of $500 per week.

57. According to Mr Robertson, the industry standard for gross profit margin on take-away food sales is 45% of gross sales. The applicants did not call any evidence as to their gross profit margin on the take-away sales from their business. If it be assumed that the applicants lost turnover of $500 per week, the loss of gross profit on an annual basis would have been 45% of $26,000, i.e. $11,700. The applicants did not call any evidence as to their net profit margin on their sales of take-away food. Applying the industry standard of 15%, the annual loss of net profit would have been 15% of $26,000, i.e. $3,900.

58. However, there is a danger in applying all the industry standards to the increased turnover which the applicants' business might have enjoyed if the covenant in Item 14 had been observed by the bank according to its terms. It would be generally appropriate to apply the industry standard gross profit margin of 45% to arrive at the gross profit since the applicants would necessarily have had to purchase or manufacture the take-away food in order to generate the additional sales. To state the obvious, in order to generate an additional $100 income from the sale of, say meat pies, it would have been necessary for the applicants to have outlaid money in order to acquire the pies. No doubt the standard gross profit margin of 45% takes substantial account of the cost of acquiring food items for resale. There seems no reason to assume in favour of the applicants that they would have achieved a better than average gross profit margin on sales of take-away food items.

59. But it would be unfair to assume that their net profit margin on the additional sales would have been only 10%. The industry standard of 10% takes account of all the expenses incurred by the proprietor of a business in producing the net profit of that business. In the applicants' case, it would be fair to assume that the additional net profit accruing to the business from increased sales of take-away food would have been not much less than the additional gross profit referable to those sales. The only substantial additional cost to the applicants would have been the cost of the additional casual labour needed to effect the additional sales. There would have been some slight increases in expenses such as electricity and gas, insurance, packing material, and other minor costs but the total of these additional costs would have been insubstantial.

60. The evidence is of little, if any, assistance in estimating the additional costs which would have been incurred by the applicants in effecting an additional $26,000 per annum in gross sales. Since the great bulk of such sales would necessarily have been made during weekday lunch hours, it seems reasonable to assume that additional casual labour would have been required during those hours. Allowing a figure of only $50 per week, i.e. $2,600 per annum for additional casual labour plus a minimal annual amount (say $500) for other expenditure, the additional gross profit of $11,700 would be reduced to a net profit of about $8,700.

61. Adopting the above calculations as a rough guide to the net income lost annually to the applicants by reason of competition from the Simply Delicious and 7-Eleven stores, I estimate that the applicants' business would have made an additional $17,000 or thereabouts during the period of nearly two years when it was operating. It is possible that the additional custom generated in the take-away food section of the business could have resulted in a slight increase in the restaurant business. Assuming in favour of the applicants that the net profit of the restaurant side of the business would have increased by about $1,000 per annum if there had been a bigger take-away business, the total damages to which the applicants would have been entitled would have been in the vicinity of $20,000, or a little less.

62. Mr Robertson's calculations proceed on the basis that the applicants might have continued to run the business for varying periods up to 15 years. I can see no basis for allowing damages to the applicants beyond the period when they were in possession and running their business. Nor can I see any basis on which the applicants have established any claim for loss of goodwill. The business was operating at a substantial loss, and the additional profit which would have been generated as a result of an increase in gross turnover of $26,000 per annum would have fallen far short of rescuing the business from its parlous trading position. The annual losses would still have been substantial.

63. The evidence suggests that Mr and Mrs Larney lost a great deal of their capital in the venture and that substantial losses were made on fittings and fixtures. I do not think any part of these losses would have been recoverable from the bank had the claim for rectification failed. They would have been incurred even if there had been additional turnover from the sale of take-away food.

64. For the above reasons, I would have assessed damages in the sum of approximately $20,000 had I found against the bank on the claim for rectification of the lease.

65. The bank has succeeded on all the major issues in the case. Nevertheless, I indicated during the course of the hearing that whatever the outcome of the proceedings, the bank should be ordered to pay the costs of one day thrown away by reason of its failure to make adequate discovery. Allowing for that matter, and the minor success which the applicants have had on their claim, the appropriate order for costs is that the applicants should pay 85% of the bank's costs.