Re Ricochet Pty Ltd; Ian Barron and Morwest Investments Pty Ltd As Trustee of the Morwest Trading Trust v Equity Trustees Executor and Agency Company Limited; Austore Limited and Azelia Pty Ltd [1993] FCA 99 (18 March 1993)

FEDERAL COURT OF AUSTRALIA

Re: RICOCHET PTY. LTD.; IAN BARRON and MORWEST INVESTMENTS PTY. LTD AS TRUSTEE
FOR THE MORWEST TRADING TRUST
And: EQUITY TRUSTEES EXECUTOR AND AGENCY COMPANY LIMITED; AUSTORE LIMITED and
AZELIA PTY. LTD.
No. WG221 of 1992
FED No. 192
Number of pages - 20
Trade Practices
[1993] FCA 99; (1993) 113 ALR 30
(1993) ATPR 41-236
(1993) 41 FCR 229

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Gummow(1) and French(1) JJ

CATCHWORDS

Trade Practices - misleading or deceptive conduct - lease of shopping centre premises - representations as to number of persons entering centre - whether any reliance on representations - credibility and reliability of witnesses - ss 52, 82 Trade Practices Act 1974 - whether mere possibility that misrepresentation might have induced a course of action may be sufficient to attract liability under s 82.

Gould v. Vaggelas (1985) 157 CLR 215

National Australia Bank Limited v. Cunningham (1990) ATPR 41-047 discussed

HEARING

PERTH, 15 March 1993
18:3:1993

Counsel for the Appellants : Mr M. McPhee

Solicitors for the Appellants: : Michell Sillar McPhee Meyer

Counsel for the Respondents : Mr M. McCusker QC with Mr D. Martino

Solicitors for the Respondents : Clayton Utz

Counsel for the Cross-Respondent: Mr I.R. Freeman

Solicitors for the Respondents : Phillips Fox

ORDER

The Court orders that:
1. The appeal be dismissed.

2. The cross-appeal be dismissed.
3. The appellants pay the costs of the respondents of the appeal.
4. There be no order as to the costs of any party to the
cross-appeal.

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

DECISION

LOCKHART, GUMMOW AND FRENCH JJ This is an appeal and cross-appeal from the judgment of a Judge of the Court (Lee J) on a claim by the appellants for damages arising out of the leasing by the first respondent, Equity Trustees Executors and Agency Company Limited ("Equity Trustees"), to the first appellant, Ricochet Pty Ltd ("Ricochet"), of a shop in the Maddington Plaza Shopping Centre, situated in a suburb of Perth. The appellants claimed damages under s.82 of the Trade Practices Act 1974 ("the Act") alleged to have been incurred from conduct of the respondents in contravention of s.52 of the Act. The appellants also claimed damages for negligent misrepresentation and fraud arising out of the same circumstances.

2. Two representations are alleged to have been made to the appellants. The representation which is the primary basis of the appellants' case was that the average number of people attending the shopping centre each week was 55,000 to 60,000. The other representation was that there would be a 40% increase in the "average weekly customer traffic".

3. It is helpful to a proper understanding of the case if some of the key findings of fact by the learned primary Judge are recited. In 1977, the second appellant, Ian Barron ("Mr Barron"), and Mr J.M. Large became associated in a business conducted through a network of corporations described as "The Barron Large Group of Companies". Ricochet was one of ten proprietary companies in the Barron Large Group of Companies. Mr Barron and Mr Large are the two directors of Ricochet. The principal activity of Ricochet was to take leases of premises on which pharmacies could be established and to sub-let the premises to registered pharmacists or to entities controlled by registered pharmacists. Between 1977 and 1987 Ricochet took on lease eight such premises. In the same period two other corporations controlled by Mr Barron and Mr Large became lessees of two premises used for the conduct of pharmacies; and in each case those corporations sublet the premises to Mr Large.

4. In about 1983 Mr Barron and Mr Large established a business name "Lighthouse Chemists" with the intent of franchising the use of that name.

5. In early 1987 Mr Barron and Mr Large planned to have sixteen to twenty pharmacies operating under the name "Lighthouse Chemists" and to reach that target as soon as possible. In about April 1987 Mr Barron and Mr Large became aware that the Maddington Plaza was to be expanded. Mr Barron understood that the trading area of Maddington Plaza would be enlarged from 15,000 square metres to 25,000 square metres, becoming a sub-regional centre. Mr Barron believed that the metropolitan area of Perth has been saturated with shopping centre developments and that Maddington Plaza would be one of the last major shopping centres to be developed in Perth. Both Mr Barron and Mr Large knew that it was intended that the expanded Maddington Plaza would include a second pharmacy. They were aware that other pharmacists had displayed keen interest in obtaining the premises to be used for the second pharmacy. Mr Barron said he believed that about fifty pharmacists were competing for the site.

6. Mr Barron gave evidence that in a telephone conversation in June/July 1987 with Craig Potts (an employee of the agent retained by the respondents to lease the shops in the Maddington Plaza), Mr Potts told him that the average weekly count of customers at the centre was 55,000 to 60,000 people. He asked Mr Potts to confirm that the stated figures were average weekly figures and not peak figures, and received that assurance. He then asked Mr Potts what growth in those figures was expected after completion of the expansion of the centre. Mr Potts said that a forty per cent increase in the average weekly count of customers was expected.

7. A lease of the pharmacy premises was executed by Equity Trustees as lessor and Ricochet as lessee. The lease is undated, but it is accepted by the parties that the tenancy commenced on 30 November 1987.

8. Mr Barron took a sub-lease of the premises from Ricochet and began trading as Community Chemists in the first week of December 1987.

9. Shop 51, which is the shop from which the pharmacy business the subject of this proceeding was conducted, was in the vicinity of a supermarket store which occupied an area of 5,000 square metres. It was anticipated by Mr Barron and Mr Large that a supermarket of that size would draw customers to that part of the shopping centre. That anticipation was not realised.

10. Because of that and other reverses in trading circumstances, Mr Barron sought and obtained concessions and rebates from the landlord in respect of the rental payable by Ricochet during 1988 and 1989.

11. The business carried on under the name Community Chemists had two elements: dispensing prescriptions for pharmaceutical products and the sale of non-pharmaceutical items. The major part of the floor area of shop 51 was used for the display and sale of non-pharmaceutical goods supplied to Mr Barron by the third appellant, Morwest Investments Pty Ltd as trustee for Morwest Trading Trust ("Morwest"), on consignment. Mr Barron received a commission from sales.

12. Morwest traded profitably from the outset, but the dispensary side of the business did not. The combined trading of Morwest and Mr Barron returned losses for the years ending 30 June 1988 and 30 June 1989 and a profit for the year ending 30 June 1990. In those periods trading was carried on by Mr Barron with the benefit of reduced or rebated rentals.

13. Mr Barron ceased trading as Community Chemists on 30 December 1990 when it appears that the sub-lease was surrendered by him with Ricochet's consent.

14. The trial judge found the following primary facts:

1. The representation alleged by the appellant to have been made
by the respondents, namely, that the actual customer traffic of
the shopping centre at the time of negotiation of the lease was
55,000 to 65,000 people per week was made.
2. The representation was made by the leasing agents of the
respondents acting in the course of their authority as leasing
agents.
3. The representation was false.
4. The real customer traffic through the shopping centre at the
relevant time was 45,000 to 46,000 people per week.
5. The projected increase in customer traffic after redevelopment
was an increase of 40% and that this projected increase was a
reasonable assessment by the respondent's agent, but without
applying the said projected percentage increase of customer
traffic to the actual figures of 45,000/46,000 people per week -
thereby giving a resultant range of expectation of
63,000/64,400 per week; or the represented figures of
55,000/60,000 per week, thereby giving a resultant range of
expectation of 77,000/84,000 per week.

15. His Honour found that nevertheless the appellants did not rely upon either of the two representations in deciding to enter into the lease of shop 51 and that the statements were not the cause of any loss sustained by the appellants by taking the lease of the shop and operating the pharmacy business on the premises.

16. In effect, his Honour found that while there had been misleading and deceptive conduct on the part of the respondents no reliance had been placed on it by the applicants, and therefore no loss suffered by that conduct for the purposes of s.82 of the Act. He found also that the claim of the appellants based on negligent misrepresentation failed for the same reasons that led to the dismissal of the s.52 claim.

17. The appellants alleged fraud of the respondents in their statement of claim (para.11). The pleading was not withdrawn at trial, but no submissions were made with respect to it. His Honour found that there was no evidence that the respondents supplied information in respect of customer numbers which they knew to be false or knew to be capable of being misrepresented. His Honour found also that there was no evidence that the respondents had acted with reckless indifference to the truth or falsity of the material they had supplied to the agent of the respondents in that regard. His Honour held that the case pleaded in fraud must fail.

18. The case turned at first instance entirely on questions of fact. Many of the facts involved the credibility of witnesses, in particular Mr Barron and Mr Large. Both men gave evidence and, on important questions, his Honour found certain of their evidence to be "unconvincing" and "unreliable" and other evidence to be a "retrospective reconstruction and rationalisation". His Honour referred to portions of the evidence of these two key witnesses for the appellants and gave reasons for rejecting it.

19. Certain findings of his Honour with respect to the witnesses bear restatement, namely:

"On the whole of the evidence I consider it to be quite
plain that Barron and Large, who were in the business
of opening pharmacies in shopping centres, were
prepared to back their judgment that there was scope
for expanding the number of pharmacies in the
metropolitan region and, in particular, that the
substantial expansion of the retail shopping area of
Maddington Plaza would in itself support the
establishment of a second pharmacy in the centre.
They were comforted in that belief by their knowledge
of the intense competition provided by other
pharmacists to obtain the Lease of Shop No. 51. They
did not rely on a particular level of customer traffic
to form their decision...
In fact, a combination of reasons made the premises
less successful than anticipated. Contrary to
expectation the location of Shop No. 51 in the centre
was not as advantageous as thought. Apparently
customers of the centre preferred other entrances than
the entrance which led more directly to Shop No. 51.
Furthermore, contrary to expectation, the major
supermarket area adjacent to Shop No. 51 was not
tenanted by a successful operator. The operation was
not part of a major chain and the business did not
thrive. Not only did the supermarket fail to attract
customers, it had ceased to trade by November 1988 and
the premises remained unoccupied for approximately 12
months. Another factor which militated against better
trading results for the pharmacy business in Shop No.
51 was the introduction of an unknown trading name,
Community Chemists, and the lack of access to the
prospective goodwill that may have been available if
the business had traded under the name Lighthouse Chemists.
Barron's evidence now that anything less than an
average customer flow of 55,000 customers per week
would have made a difference to the decision to take a
lease of the premises is a retrospective
reconstruction which endeavours to provide a reason
for the failure of Barron's business to trade as
profitably as anticipated and the lack of success
flowing from the judgement of Barron and Large that a
lease of these premises provided a profitable
opportunity for their joint enterprise. The evidence
of Large was a similar reconstruction and
rationalization carried out five years after the event.
I am satisfied that Barron left it to Large to
determine the feasibility of a lease of the premises
at the proposed rental and that Barron's failure to
make a record of any oral statement by Potts as to
present customer numbers reflected the lack of concern
Barron and Large had with regard to that aspect.
I found the evidence of Barron and Large to be quite
unconvincing on the matter of the impact upon them of
Potts' statement in June 1987 as to average number of
customers per week at the centre. I am quite
satisfied that had Barron been told by Potts in that
telephone call that the average of the customers per
week was in the region of 45,000 to 46,000 Barron and
Large would have made the same decision on behalf of
Ricochet. They had succeeded with the opening of a
second pharmacy in Midland Shopping Centre, a much
smaller centre than the sub-regional centre of
Maddington Plaza, and did so without any reliance upon
the existing or predicted number of customers. In
addition the interest shown by fifty other
pharmacists, a significant number, was an obvious spur
to Barron and Large and further reason for them to
rely on their belief that this sub-regional centre
would support two pharmacies.
.
.
.
Barron's decision to take a sub-lease flowed directly
from the decision made by Large and Barron on behalf
of Ricochet to take a lease of Shop No. 51 and I am
satisfied that Barron decided that a sub-tenancy for
the conduct of a pharmacy was a liability able to be
met because of his acceptance of the financial
feasibility of the pharmacy as demonstrated by Large.
That, supported by other joint expectations of Barron
and Large, was the reason for Barron taking the sub-lease.
It follows from the foregoing that if in June 1987
Potts informed Barron that the average number of
customers per week at Maddington Plaza was then 55,000
to 60,000, the failure to state that the true figure
of 45,000 to 46,000 did not occasion Barron and Large
to make any decision they would not otherwise have
made and the statement was not the cause of any loss
sustained by Ricochet or Barron by taking the Lease of
Shop No. 51 and operating a pharmacy business on those premises."

20. It was submitted by counsel for the appellants that in the light of his Honour's findings of primary facts and the admission by the respondents' agent that the purpose of giving the requisite information was to induce people to take leases, an evidentiary onus fell on the respondents to rebut what was said to be the fair inference that the appellants relied on the representations when Ricochet entered into the lease. It was argued that the respondents could have led evidence to establish that, before Ricochet executed the lease as lessee, the appellants were possessed of either actual knowledge of the true facts and knew them to be true or made it plain that, whether they knew the true facts or not, they did not rely on any representations. The appellants sought to derive support for this proposition from certain observations of Wilson J in Gould v. Vaggelas (1985) 157 CLR 215 at 236-238.

21. Counsel for the appellants cited Gould v. Vaggelas also for the proposition that the trial Judge was bound to infer, in the absence of contrary evidence, that the appellants had been induced by the representations to enter into the lease. Reference was also made to the judgment of Jenkinson J (Ryan J agreeing) in National Australia Bank Ltd v. Cunningham (1990) ATPR 41-047 for the uncontroversial proposition that liability under s.82 of the Act for a contravention of s.52 can be established where the misrepresentation was but one of a number of factors which induced a loss making decision. That case was also invoked, however, in support of a submission that liability can be established when it is shown that a person might have abstained from the course of action or inaction allegedly induced if the misrepresentation had been made.

22. Gould v. Vaggelas lays down no exhaustive rule for the approach to evidence of inducement in misrepresentation cases. In particular, it lays down no rule in claims for damages under s.82 of the Act for contravention of s.52, where the gist of the conduct complained of is the making of misrepresentations. On the question of proof of inducement, the judgment of Wilson J in Gould v. Vaggelas makes the point that a combination of factors may, if unanswered, lead to the conclusion that a person was induced by the representation of another to make the relevant decision. Where, for example, it is shown that a false representation has been made which the representor intended should induce the representee to enter into a contract, and where it is shown that the representation is of a kind likely to provide such an inducement and that the representee entered into the contract, then, as Wilson J said:

"... common sense would demand the conclusion that the
false representations played at least some part in
inducing the plaintiff to enter into the contract."

The statement provides a practical guide to the way in which inferences can and should be drawn in such cases. It remains for the tribunal of fact, as his Honour pointed out, to determine, when all the evidence has concluded, whether the misrepresentation in question contributed to the decision to enter the contract. The unremarkable logic of these propositions is more likely to be obscured than illuminated by reference to notions of presumptions of fact or the incidence of the evidentiary onus.

23. The proposition that in a s.82 case inducement can be established by identification of the relevant misrepresentation as one of a number of inducing factors is not controversial. However, the suggestion advanced for the appellants that it is enough for an applicant under s.82 to show that the impugned representation (being conduct which contravened s.52) might have induced entry into the contract is one we cannot accept. The submission appears to be based upon a passage from the judgment of Jenkinson J in National Australia Bank Ltd v. Cunningham (1990) ATPR 41-047 where his Honour said:

"...there is now further authority for the proposition
that in an action for damages for deceit it is
sufficient to show that the plaintiff might have
abstained from the course of action or inaction
alleged to have been induced if misrepresentation had
not been made, but not necessary to show that he would
have so abstained."

24. It is important to appreciate the context in which the passage appears. Counsel had submitted that the claimant under s.82 must prove that "he would not have entered the contract if the contravention of sec.52 had not occurred...". Jenkinson J treated this as an assertion of a "but for" test of causation. The submission was rejected. (It may be noted that the subsequent decision in March v. E and M.H. Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, contains a discussion, at 509-510, 515-517, by Mason CJ as to the unsatisfactory nature, in general, of "tests", common law or statutory, which apply what his Honour called (at 516) "an exclusive criterion of causation").

25. A "but for" test places a heavy burden upon claimants. The proposition contended for before us, namely, that it is enough that the representation "might have induced entering into the contract", differs from a requirement of an exclusive criterion of causation. It would place a far lesser burden upon the plaintiffs.

26. In Cunningham, in the course of rejecting the "but for" test for s.82, something with which we would respectfully agree, Jenkinson J made several points of relevance to the submission put to us. First, he accepted, again to our minds correctly, the proposition that:

"... the misrepresentation is actionable whether or not
it is the only consideration influencing the mind of the
plaintiff to the action or inaction which causes damage."

27. His Honour also, particularly with reference to the discussion in Salmond and Winfield's Principles of the Law of Contract, 2nd Edition, at pp 252-4, considered that category which might be described as containing cases of multiple causes of the loss complained of, there being a number of factors which together induced the action or omission in question.

28. A finding that a misrepresentation might have induced a decision will not of itself establish as a matter of probability that it did. Consistently with that finding, it may be that, on the balance of probabilities, a party was induced to make a decision by a combination of factors including the misrepresentation. Assuming a non-trivial contribution to the causative process by the misrepresentation, then it may be actionable.

29. Ultimately, the "causative threshold" beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss, will be a question of judgment. This is a familiar process adverted to in various related contexts by Mason CJ in March v. E. and M.H. Stramare Pty. Ltd. (supra) and in this Court in Elna Australia Pty. Ltd. v. International Computers (Australia) Pty. Ltd. [1987] FCA 230; (1987) 16 FCR 410 at 418-419 and Pavich v. Bobra Nominees (1988) ATPR (Digest) 46-040. (See also Munchies Management Pty. Ltd. v. Belperio (1988) 84 ALR 700 at 712). But the mere possibility that a misrepresentation might have induced a course of action by the representee can never of itself attach liability under s.82 to the making of it.

30. His Honour had the benefit, which we do not have, of seeing all the witnesses as they gave their evidence, and he assessed questions of their credibility and reliability in the light of the evidence as a whole and the probabilities as he perceived them. This led his Honour to reject Mr Barron and Mr Large as truthful or reliable witnesses on critical questions bearing directly on the issue of reliance. He found as a fact that the appellants did not rely on the representations for the reasons which he gave and to which reference was made earlier.

31. There is ample evidence to support the finding of the trial Judge that the representations were not relied upon by the appellants in their decision that Ricochet take a lease of shop 51 or in executing the lease.

32. This is not a case where there is no direct evidence as to reliance upon representations, leaving the nature of the representations alone as a basis for which an inference may or should be drawn. The trial Judge made a finding that there was in fact no reliance by the key people concerned and that the relevant decisions of the appellants to take and execute the lease were based on matters which did not include existing customer traffic or predictions as to future increases in that traffic.

33. We are not persuaded that his Honour erred in his findings of fact. No error on the part of his Honour has been shown with respect to the appeal. We would dismiss the appeal.

34. By their cross-claim, the respondents claim damages from the cross-respondent, Azelia Pty Ltd ("Azelia"), in an amount equal to any damages which the respondents may be ordered to pay to the appellants in the event that the respondents are found liable to the appellants. Azelia is a real estate agent which was engaged as the leasing agent for the respondents for the shopping centre. The respondents asserted that any relevant misleading or deceptive conduct or negligent or fraudulent representations which may have been made to the appellants were made by Azelia.

35. As the trial Judge dismissed the appellants' claim, it followed that the cross-claim had to be dismissed, and his Honour therefore ordered that it be dismissed.

36. His Honour dealt with the question of costs soon after giving judgment on the principal issues. He ordered that the appellants pay one half of the respondents' costs including one half of the respondents' costs of the cross-claim to be paid by them to the cross-respondent. He also ordered that the respondents pay the costs of the cross-respondent. The respondents filed a notice of cross-appeal against his Honour's orders as to costs. The cross-respondent appeared by counsel to resist the cross-appeal.

37. We were informed by counsel for the respondents that, if the appeal fails, the respondents would not seek to maintain the cross-appeal; but if the appeal succeeds then it would be necessary that the questions raised in the cross-appeal be remitted to the trial Judge for further consideration and findings. Counsel for the cross-respondent agreed with this statement.

38. We would dismiss the appeal and the cross-appeal. The appellants shall pay the costs of the respondents of the appeal. There shall be no order as to the costs of any party to the cross-appeal.