Re Rena Kouros v Baillieu Knight Frank (Nsw) Pty Ltd; Jillian O'Toole and Pacific Counties Corporation Pty Ltd [1992] FCA 30 (6 February 1992)

FEDERAL COURT OF AUSTRALIA

Re: RENA KOUROS
And: BAILLIEU KNIGHT FRANK (NSW) PTY. LTD.; JILLIAN O'TOOLE and PACIFIC
COUNTIES CORPORATION PTY. LTD.
No. G356 of 1990
FED No. 64
Trade Practices - Tort

COURT

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

CATCHWORDS

Trade Practices - misleading and deceptive conduct and false representations - whether representations constituted undertakings as to fact - whether signing of documents for lease of retail premises was in reliance upon representations - applicant's belief in obligations undertaken - continuation of arrangements and obligations despite continuing non-fulfilment of undertakings - rescission of lease - loss of profits - out-of-pocket expenses

Tort - duty of care of lessor/agent to lessee

Trade Practices Act 1974 sections 52, 82, 87

Gates v City Mutual Life Assurance Society Limited [1986] HCA 3; (1986) 160 CLR 1

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Reidar Erling Floan and Ors v Copperart Pty Limited Einfeld J. unreported 9 August 1990

Copperart Pty Ltd v Floan and Ors [1991] FCA 34; (1991) 20 IPR 519

McGregor on Damages 15th Ed para 1734

HEARING

SYDNEY
6:2:1992

Counsel and solicitor
for the applicant: Mr J.R. Dupree instructed

by Lenehan and Co Solicitors

Counsel and solicitor for the

and second respondents: Mr B.R. McClintock instructed by

Ellison Solicitors

Counsel and solicitors

for the third respondent: Mr J.D. Heydon QC and Mr F. Fletcher
instructed by Taylor and Scott Solicitors

ORDER

Application dismissed with costs.

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

DECISION

This action is based on three distinct claims. First, the applicant claims against all three respondents under sections 52, 82 and 87 of the Trade Practices Act 1974 (as amended) (the Act). Secondly, the applicant alleges against all three respondents a breach of a duty to take care. Thirdly, the applicant asserts a breach of contract by the third respondent.

2. Ms Rena Kouros (the applicant), who was born on 13 September 1962, has been in the fashion industry since 1978, carrying on the business of women's retail fashion sales and management. In mid April 1988 she inspected the site of "The City Centre" (the Centre), located at the corner of Pitt and Market Streets Sydney, where a sign indicated that retail shop leasing was available from Baillieu Knight Frank (NSW) Pty Limited (the first respondent). This company was the real estate agency retained to represent the owner and/or developer of the Centre, Pacific Counties Corporation Pty Limited (the third respondent), in the letting of the Centre.

3. In or about April/May 1988 the applicant made enquiries in relation to the representation contained in the advertising sign and asked for an application form. This was duly completed and on 11 May 1988 she sent it to the first respondent asking to be considered as a tenant of retail space in the shopping complex. In her letter the applicant informed the first respondent that she sought an area of approximately 45 to 55 square metres for the purposes of a ladies' fashion boutique.

4. On 12 July 1988 the applicant met with the first respondent's employee who was in charge of the leasing of the Centre, Ms Jillian O'Toole (the second respondent). Mr Angelo Koinis, an experienced real estate agent and family friend of the applicant, was also present at the meeting to assist her in negotiations. It is not disputed that the following took place at the meeting:

1. The second respondent informed the applicant that she was in
charge of the leasing of the retail section of the Centre.
2. The second respondent showed the applicant and Mr Koinis the floor
plans of the Centre and indicated the entries and exits, where the
escalators and elevators were situated, and which shops were
available.
3. The building was still being constructed and could not be
physically inspected so the applicant made 3 preference choices
based on the floor plans shown to her.
4. The applicant was told that her first preference was not
available, but she still kept it as her first choice and indicated
her second and third choices.
5. The second respondent made known the rent and outgoings on each
shop identified by the applicant and the parties agreed that the
rents were very expensive.
6. After discussing the label and style of the intended shop, the
second respondent said that she did not think that the applicant
would have a problem with obtaining a suitable shop in the Centre
for her proposed business.
7. The applicant was given another application form to complete
because the original had been lost by the second respondent. Mr
Koinis subsequently completed this form.

5. However, the parties do not agree on any other significant matters discussed at that meeting. The applicant alleges that during the course of the meeting the second respondent made three representations:

i) that the Centre would be a good one;
ii) that it would definitely be open by November 1988; and iii) that the

third respondent was "going in" for the Christmas trade.

6. The applicant says that in response she told the second respondent that she required the Centre to be open for trading before Christmas 1988 because she was planning or relying on the big Christmas turnover.

7. The second respondent denies making the second and third statements, saying that at most she would have said: "We anticipate that the Centre will be open for trading in March 1989".

8. The applicant also claims that during the course of the meeting the second respondent held herself and the third respondent out as expert, knowledgeable and skilled in the leasing of retail shops both generally and in this particular Centre.

9. A number of other facts are wholly or substantially agreed. On 15 July 1988 the second respondent telephoned the applicant to advise that her second preference shop was available. This met with Ms Kouros's approval. On or about 1 August 1988 (the document is undated) the applicant signed a letter of intent with the third respondent to lease a shop on level 2 of the Centre, and paid the sum of $6,233.33 representing the security deposit.

10. Subsequently, the applicant signed an agreement for lease and a lease but she is unclear as to the dates on which she signed the two documents. The dates appearing on the agreement for lease and the lease are 23 September 1988 and 20 April 1989 respectively, and in the absence of any evidence to the contrary, or cross-examination to establish any other dates, it seems reasonable to conclude that the documents were signed on or about the dates they bear. However, such a conclusion creates problems for the applicant's case. This is because she says that she signed all three documents as a result of the three representations made by the second respondent at the meeting on 12 July 1988 and that she accepted those representations as true. This assertion confronts, or is confronted by, the following additional allegations she makes, most of which are or appear to be undisputed.

11. On 14 September 1988 the second respondent told the applicant that the opening of the Centre had been delayed to February/March 1989. On 14 January 1989 the second respondent advised of a further delay until June 1989. She also said then that all the shops in the Centre had definitely been leased. Throughout these delays the applicant says that she continued with what she perceived as her obligations under the agreement to lease, that is, making the necessary arrangements to open her proposed business in the shop. Between September 1988 and January 1989 the applicant engaged an architect/designer, Graf Design Pty Ltd (Graf). Graf prepared plans and engaged shop fitters, and on 29 March 1989 was paid $20,000 with respect to its work on the shop fit out.

12. On 3 April 1989 the third respondent notified the applicant by letter that the Centre was substantially complete and that the applicant's premises would be available for fitting out on 24 April 1989. The lease was fixed to commence on 19 June 1989. The third respondent also said that its rental tenancy fitout co-ordinator, Mr Dennis Hely, would be obtaining approval for the applicant's proposed design work from the lessors and the relevant statutory authorities. On 24 May 1989 Mr Hely informed the applicant that all shops in the Centre had not been let.

13. According to the applicant, on 25 May 1989 she telephoned the second respondent who informed her that the opening of the Centre had been further delayed to late July 1989. Nothing was apparently said specifically about postponing the commencing date of the lease but the second respondent told the applicant that Dennis Hely should not have said what he said on 24 May, that there were only two or three shops unlet in the Centre, and that the applicant had nothing to worry about because there were parties interested in those shops. The second respondent denied this entire conversation.

14. The applicant said that as a result of this conversation, she contacted her solicitor, Mr Bizannes, to see if she could get out of the lease. She said that on 28 May 1989 he told her that under the terms of the agreement to lease, she could not rescind the lease unless it had not commenced by 30 September 1989. Nevertheless, on 30 May 1989 the applicant told the second and third respondents that she did not wish to proceed with the lease. The second respondent asked why and the following conversation ensued:

Applicant: "The centre hasn't been opened, the shops aren't
leased, I have my own personal problems and I don't want to
go any further, how do I get out of the lease?"
Second respondent: "You can't. Under normal circumstances
we would have allowed it but these people are hard."
Applicant: "So what can I do?"

15. The second respondent told the applicant that the only way to be relieved of her obligations under the agreement was to find a replacement tenant.

16. As a result, the applicant advertised her interest in the agreement to lease in the Sydney Morning Herald. By mid-July the applicant had still not found a replacement tenant. After the second respondent told her that the opening date had been further delayed to 1 September 1989, the applicant continued to place the advertisement until mid-August. Again nothing appears to have been said specifically about the commencing date of the lease.

17. On 5 October 1989 the applicant's solicitors rescinded the agreement to lease. After a considerable amount of correspondence between the solicitors for the parties which is not relevant for present purposes, the rescission was finally accepted by letter dated 9 April 1990 from the third respondent's solicitors. On 9 May 1990 the sum of $7,248.98 was forwarded to the applicant representing a refund of the $6,233.33 deposit together with interest.

18. In her action under section 52 of the Trade Practices Act 1974, the applicant seeks declarations that the first and third respondents engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in the form of the suggested false representations by the second respondent to the applicant at the July 1988 meeting. Declaratory relief is also sought that the second respondent aided and abetted, and was directly and knowingly concerned with, the first and third respondents in this conduct. The applicant claims damages pursuant to section 82 of the Act in the sum of $26,972 as out-of-pocket expenses, principally shop fittings ($20,000), and $77,507 as loss of profits which she asserts she would have made had the shop operated.

19. In the event that the Court finds the first and second respondents liable for damages, the parties have agreed that the out-of-pocket expenses claimed were incurred. However, the respondents submit first that "no relevant representation on the part of the first and second respondents can have induced a commitment of this sort at so late a date and therefore it should be found that in making this payment the applicant was not relying on anything done by the first or second respondents". Secondly, they submit that the expenditure on shop fittings arose not from any representation made by the respondents but from a contractual commitment in the agreement for lease to carry out a fitout.

20. The parties do not agree on the amount claimed as loss of profits. The respondents submit that damages for loss of profits are not recoverable under section 82 because that section restricts recovery to actual loss suffered by an applicant and therefore necessarily precludes recovery for loss of what the respondents call in their written submissions "punitive" but presumably mean "putative" profits. In any event, the respondents say, the measure of damages appropriate in section 52 cases is the tortious measure, see Gates v City Mutual Life Assurance Society Limited [1986] HCA 3; (1986) 160 CLR 1, and this has never permitted recovery of loss of profits: see for example McGregor on Damages 15th Ed para 1734. It is not necessary for me to examine or decide this contention because I am far from satisfied that any loss of profits was proved here in any event.

21. The applicant alleges that as a result of the commercial relationship between herself and each of the respondents, the second respondent owed, on her own behalf and on behalf of the first and third respondents, a duty of care to the applicant, in and about the leasing of the shop to the applicant. The applicant says that each of the respondents knew or ought to have known that the representations made by the second respondent were misleading or deceptive and would lead the applicant into loss by signing the letter of intent and entering into the agreement for lease and thereafter persevering with it. The applicant alleges that the shop was not suitable, that the Centre was not open as represented and that the Centre was not trading as represented. The respondents deny any special relationship between them and deny negligence.

22. The applicant also submits that it was an implied condition of the agreement to lease, and that the third respondent, through both this agreement and the statements of the second respondent on 12 July 1988, warranted that the Centre would be open and trading by November 1988. It is said that in breach of this agreement, the third respondent failed to open the shop and the Centre for trading by November 1988 or at any time. The third respondent claims that there is no basis for implying the condition or finding the warranty alleged by the applicant.

23. There seems little doubt that the second respondent held herself and the first respondent out as expert, knowledgeable, skilled and efficient in the leasing of retail shops in the Centre and generally. The second respondent said that she spent the final three years of her employment with the first respondent in retail leasing in the city and she was in charge of the leasing of the Centre. Further, it was established in cross-examination that she regarded herself as an expert in the business of retail leasing.

24. So far as concerns the three representations allegedly made by the second respondent at the meeting - i.e. that the Centre would be a good one, that it would definitely be open by November 1988, and that the third respondent was "going in" for the Christmas trade, the respondents submit, contrary to my understanding of the relevant law and my conclusions on the facts here, that the first representation can be ignored because it was, if said by the second respondent, clearly believed by her and is therefore not misleading. More usefully, they also submit that no reasonable person would place any weight on it anyway. The applicant did not give any real evidence as to what she understood by it and for my part I do not know what the supposed representation means. It was submitted that the Centre was not a good one because it did not open, and has not opened, and the ownership of the Centre has in fact been sold. Reliance was placed on the second respondent's expertise as giving meaning to the comment but the question is whether it was a representation of fact at all, and therefore whether it was conduct impugned by section 52 of the Act.

25. The respondents submit that the third representation should also be ignored in the sense of disbelieved because it was not pleaded. The applicant did plead the representation that the Centre would be open for trading prior to Christmas 1988. On the basis that it follows logically that an opening in or by November would be designed to or would in fact take advantage of the Christmas trade, there does not appear to be any significant difference between the second and third representations from the point of view of fixing the respondents with liability under the Act. The representation as to the opening date of the Centre is therefore the sole issue in this case. The second respondent denies making any such representation.

26. The applicant submits that the evidence given by the second respondent in relation to the alleged representation at the July 1988 meeting is clouded by the passage of time and reconstruction, and cannot be relied upon. I certainly had a considerable degree of dissatisfaction with the second respondent's evidence. Although she apparently had her diaries available when she completed her statement in the proceedings on her return from England in April 1990, the second respondent gave evidence that she had since lost them. Thus at the hearing she was unable to support her evidence by reference to the diaries.

27. A close reading of the second respondent's statement and careful attention to her evidence clearly indicated a lack of precision with respect to the dates of meetings, including the meeting in July 1988. Accordingly her evidence that she fixed the dates with particularity by reference to her diaries actually suggests that during the preparation of her statement either the relevant diary was not available or, alternatively, that it was available but did not satisfactorily identify the dates. She also could not recall whether she took the diaries to her solicitor's office when she was preparing her statement. Moreover, during cross-examination she was often unable to discern the difference between that which she would have done and that which she in fact did, and she lacked specific recollection on crucial issues.

28. On the other hand, the applicant's account of the July 1988 meeting was corroborated by Mr Koinis, both in his statement and in evidence. Perhaps more significantly, it is corroborated by the minutes of the retail leasing meeting for the project on 8 July 1988 which state that the target opening date was 15 November 1988, and minutes of a further meeting on 22 July 1988 stating that the mid-November opening target date was "still to be maintained". In cross-examination the second respondent said that the target date of completion and the actual date for the opening were two different things. She stated that a target date was "put down knowing that it was well beyond our reach" and the actual date was "more what we saw we could achieve". She said that for this reason she would not have told the applicant that the Centre would open in November. This is a tenuous contention at best.

29. It was submitted that the second respondent's account is supported by the first respondent's Retail Leasing Opportunities Brochure which states "Completion is expected to be early 1989". The respondents argued that because the second respondent was involved in the preparation of this brochure, she would not have made the alleged representation which, given the brochure, she must have known to be untrue. However, there is no evidence as to when the brochure was in fact published, nor as to when it was in general circulation, nor specifically as to whether the brochure became available before or after the July meeting. I did not find this submission persuasive.

30. The respondents submitted that the evidence of the second respondent should be preferred to that of Mr Koinis who exhibited a degree of reconstruction and fallible memory. Further, they contended that the applicant's version of what was said by the second respondent is internally inconsistent. On the one hand, the applicant asserted that the second respondent said "Definitely in November, we are going in for the Christmas trade", and on the other that her words were "you will definitely be in by Christmas". The respondents submitted that these are two quite different accounts. I do not agree that these statements are so very different as to be considered significantly inconsistent. It is true that Mr Koinis was not the most persuasive of witnesses but I am satisfied that one of the matters in discussion between the participants in the July 1988 meeting was whether the Centre would be open in time for Christmas trading. I have no doubt that the second respondent did tell the applicant that the Centre would or was expected to be opening in November or by Christmas 1988 when they met on 12 July 1988.

31. However, this representation cannot be said to be one of fact. In the way all this came out and was amplified in evidence. I concluded that it was in truth an expression of the second respondent's opinion as to when the opening of the Centre was to occur. In Reidar Erling Floan and Ors v Copperart Pty Limited, unreported 9 August 1990, I gathered some of the cases on this aspect of the law at pages 14-15. The principle was stated thus:

Expressions of intention or opinion, especially regarding
the future, will not normally be conduct relevant to section
52. In particular, misleading and deceptive conduct is not
established merely by proving that the earlier expressed
intention was not carried out or that the opinion turned out
to be incorrect: Bill Acceptance Corporation Limited v
G.W.A. Limited [1983] FCA 269; (1983) 50 ALR 242. What must be established
is that there was no true intention or that the opinion was
not held, or alternatively that there was no basis for the
intention or for holding the opinion.

32. These views were upheld by a Full Court in Copperart Pty Ltd v Floan and Ors [1991] FCA 34; (1991) 20 IPR 519 per Morling J. at pages 520-521, although their Honours came to a different view to me on the facts:

His Honour characterised the statements made in respect of
advertising and promotion as being expressions of intention
or opinion, and not of fact. In this respect he was plainly
correct. He also correctly observed that misleading and
deceptive conduct within the meaning of s 52 of the Act is
not established merely by proving that an earlier expressed
intention was not carried out or that an opinion turned out
to be incorrect. He said, and I agree, that in respect of
the case before him it was required to be established that
the appellant did not truly have the intention which it said
it had, or that it did not hold the opinions which it
expressed qua future advertising and promotion.
Alternatively, as his Honour observed, it would have been
sufficient for the respondents to show that the appellant
had no basis for its intention or for holding the opinions
which it did hold as to the extent of future advertising.
The facts which gave rise to the proceedings before his
Honour occurred prior to the insertion into the Trade
Practices Act of s 51A which, in effect, provides that where
a corporation makes representations with respect to any
future matter the representation shall be taken to be
misleading unless the corporation has reasonable grounds for
making the representation, the onus being upon the
corporation to adduce evidence that it did have reasonable
grounds for making the representation.

33. Although I was not sufficiently impressed by the second respondent's evidence to accept her denial of the reference to a pre-Christmas 1988 opening, I suspect that in July 1988 the second respondent probably did hope that the Centre would be open in time for Christmas trading in 1988. The applicant did not seek to establish or submit that there was no basis for the intention or opinion when the statement was made. Section 51A of the Act, which casts the onus on a corporation making representations as to future matters to establish that it had reasonable grounds for making them, was not argued in this case. I therefore find that the projection of the opening date was not misleading or deceptive conduct within the meaning of section 52.

34. Moreover, the applicant has not satisfied me that she relied on this statement in making her decision to enter the agreement to lease. She certainly did not do so when she signed the lease itself long after Christmas 1988 had passed. Of fundamental importance to the issue of reliance on the alleged representations are the three signed documents.

35. Part 2 of the agreement for lease stated that the commencement date of the lease would be on or after the Opening Day of the Retail Section. Clause 2.5 stated:

The Lessor shall give to the Lessee written notice specifying the
opening date of the Retail Section PROVIDED HOWEVER that the
Lessor may decide at any time that the date so nominated be varied
and thereupon shall give such further notice or notices in writing
of the varied date whereupon the said date shall be the last date
so nominated by the Lessor.

36. Clause 3.9 of the agreement provided for rescission:

If the Lease has not commenced on or before the 30th day of
September 1989 for any reason then either the Lessee (within five
(5) weeks after that date) or the Lessor (at any time thereafter
but prior to the commencement of the Lease) shall have the right
to rescind this Deed by notice in writing to the other and
thereupon, subject to Clause 3.10, no party hereto shall have any
claim of any kind against the other arising out of this Deed
PROVIDED HOWEVER that if the construction of the Building or the
Premises is delayed for any reason beyond the Lessor's reasonable
control then the said date shall be extended by the same number of
days for which the construction was delayed as may be certified by
the Architect.

37. Under cross-examination the applicant acknowledged that she read clause 3.9 and was aware that there was no obligation on the owner of the building to open at any time. In fact, she was so concerned about the clause that she asked her solicitor, Mr Bizannes, to have it deleted. Although this was not done, she nevertheless signed the agreement for lease. From her cross-examination I inferred that she did so with full knowledge that the Centre might not open until September 1989. Further, although the applicant made other alterations to the letter of intent, as did her solicitor, she made no attempt to insert a condition for a November 1988 opening as could readily have been done. Instead, she left clause H of the letter of intent unchanged, giving the third respondent absolute discretion as to the opening date:

DATE OF COMMENCEMENT OF LEASE:
The date of commencement of the lease shall be the date upon
which the Lessor in its absolute discretion fixes as the
official opening date of the Retail Section of the building.

38. In these circumstances, the respondents submitted that the applicant cannot have relied upon any oral representation as to an earlier opening date of the Centre, and that no conduct by the first and second respondents can be regarded as an operative factor in causing the applicant to commit herself to the lease. The respondents suggested that this is compounded by the applicant's failure to call her solicitor despite his availability, and that I should draw a Jones v Dunkel ((1959) [1959] HCA 8; 101 CLR 298) inference. While I think that cases of this nature should generally be decided on evidence called rather than on a speculation about evidence not called, there is force in this argument here.

39. The applicant's evidence on this aspect of the case was that she considered the letter of intent to be binding upon her when she signed it in August 1988. She thought that it was "as good as a lease" and said that she felt it bound her to sign the agreement for lease and the lease. This seems to me to conflict with her own assertions of commercial experience and competence. It is also troubling in the context of her assertion to the second respondent that her desire to escape the lease was at least partly caused by "her own problems" which appear to have been of a personal, non-commercial, nature.

40. Even more starkly, her family friend Mr Koinis and her solicitor would have been completely aware of the true position that the letter of intent had no binding effect of the kind suggested. It is inconceivable, and I do not accept, that the applicant would have taken it solely upon herself to draw, and act upon, this legal conclusion. The fact is that by the time she became legally bound when the agreement for lease is thought to have been exchanged on 23 September 1988, she knew that the Centre would not open for the Christmas trading. The representation of the second respondent could not then have prompted the signing of the agreement.

41. As the applicant knew from the agreement to lease that there was no obligation or undertaking to open the Centre on or by a particular date, and that any date fixed could be subsequently postponed, the further attempts of the second respondent to pinpoint the opening date could hardly have been misleading or deceptive conduct within the meaning of the Act. By the time these statements were made, the applicant was committed to the agreement to lease and had already incurred the expenditure claimed.

42. I was referred to little that points to an actionable duty of care in a situation such as this but it is not necessary to decide the matter here because there was no evidence of a breach of any duty of care that may have been owed. Nor was there any evidence of a breach of contract by the third respondent.

43. The application is dismissed with costs.