Carpet Fashion Pty Limited v Forma Holdings Pty Limited [2003] NSWSC 460 | Case summary

Carpet Fashion Pty Limited v Forma Holdings Pty Limited [2003] NSWSC 460 | Case summary | Zoe

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CATCHWORDS : Leases - lease of shop in shopping centre - representations by lessor as to use of shopping centre - change of use of shopping centre - effect of provisions of lease purporting to exclude liability for any reliance on representations - Trade Practices - Misleading or deceptive conduct - pre-contractual representations as to future matter - reasonable ground for making representations - genuine change of mind - reliance - Trade Practices Act 1974 (Cth) ss 51A, 52 - Non-derogation from grant - implied term - principles upon which term is implied Fair Trading Act 1986 (NZ), LEGISLATION CITED : Retail Leases Act 1994 (NSW) Trade Practices Act 1974 (Cth) Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Australian Development Corporation Pty Ltd v White Construction (ACT) Pty Ltd, Supreme Court of New South Wales, 8 February 1999, unreported Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043 Birmingham , Dudley and District Banking Co v Ross (1888) 38 Ch D 295 Bonnington Castings Ltd v Wardlaw [1956] AC 613 Bowler v Hilda Pty Ltd (1998) 80 FCR 191 Brookteck Pty Limited v Lumocol Australia Pty Limited, Federal Court of NSW, 23 October 1996, unreported Brown v Jam Factory Pty Ltd (1981) ATPR 40-213 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 GIO Australia Holdings Limited v Marks (1997) ATPR 41,544 Gissing v Gissing [1971] AC 886 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9 Harrington & Anor v Harrington Services Pty Ltd [2002] 55 NSWLR 618 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 Henville v Walker (2001) 75 ALJR 1410 James v ANZ Banking Group Ltd (1986) 64 ALR 347 CASES CITED : Karawi Constructions Pty Ltd v Bonefind Pty Ltd (1993) ATPR 41-265 Kazas & Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd [2002] NSWSC 840 Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601 Lend Lease Development Pty Ltd v Zemlicka (1985) 3 NSWLR 207 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 107 ALR 291 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Myers v Catterson (1889) 43 Ch D 470 Nelson v Walker (1910) 10 CLR 560 Non-Derogation from Grant" (1964) 80 LQR 244 Non-Derogation from Grant and Tenant Mix" (1998) 6 APLJ 197 Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450 Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41-558 Peech v Best [1931] 1 KB 1 Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 Re Creditor Tribunal (1977) 137 CLR 545 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 Toteff v Antonas (1952) 87 CLR 647 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Wilcox v Richardson (1997) 43 NSWLR 4 Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 PARTIES : Carpet Fashion Pty Limited (Plaintiff) Forma Holdings Pty Limited (Defendant) FILE NUMBER(S) : SC 50030/02 COUNSEL : Mr DL Warren (Plaintiff) Mr RP Lancaster (Defendant) SOLICITORS : Robilliard Plowman Herat (Plaintiff) Minter Ellison (Defendant)

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50030/02 Carpet Fashion Pty Limited v Forma Holdings Pty Limited JUDGMENT The Proceedings 1 The plaintiff, Carpet Fashion Pty Ltd ["Carpet Fashion"] has since 1973 carried on the business of retail sale of carpet, carpet underlay, rugs, floor coverings, vinyl and timber flooring at various shopping centres and shops throughout Sydney. These items are principally installed in residences and to a lesser extent commercial premises. 2 Carpet Fashion brings these proceedings in relation to representations which it alleges were made during its inquiries directed to the defendant, Forma Holdings Pty Ltd ["Forma"], concerning the leasing of a shop in a shopping centre owned by Forma at the corner of Homebush Bay Drive and Underwood Road, Homebush, New South Wales. The centre was known as "HIA Building and Renovata Supa Centre" ["the Centre"]. 3 By registered lease 3438596R, Carpet Fashion became the lessee of Shops 7E and 7F on level 3 of the centre for a term of five years from 18 March 1997 ("the lease"). The lease permitted Carpet Fashion to use Shops 7E and 7F for the retail sale of carpets and floor coverings and provided for an option to renew for another term of five years. 4 Carpet Fashion conducted a retail shop business from its premises in the Centre until it purported to terminate the lease on 18 September 2000. It subsequently ceased trading and vacated the premises on 30 November 2000. 5 Carpet Fashion's claim for damages is founded on two asserted causes of action: · the contention that Forma made a certain representation to it ["the representation"] that was misleading or deceptive or likely to mislead or deceive (in contravention of section 52 of the Trade Practices Act 1974) ["the Act"] and that the lease was entered into in reliance on that representation. · the contention that Forma, by its actions since the grant of the lease derogated from the grant of the lease. The representational case The alleged representation 6 The alleged representation was "that the Centre was to be used exclusively for the sale of bulky goods and retail sales of products, used in the home building and renovation industry". Particulars of the representation as pleaded were as follows: (a) Advertising brochures

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constituted a repudiation of the lease, accepted by Carpet Fashion which terminated the lease on 18 September 2000. Damages are claimed in this regard. 8 No cause of action was pressed pursuant to the Retail Leases Act 1994 (NSW). [cf Transcript 28 May 2003 at 48] The principal issues 9 The principal issues appear to be: · Whether the representation as pleaded was made [In the fashion litigated in the final hearing the issues were in narrow compass]; · Whether the representation was misleading or deceptive or likely to mislead or deceive; · It being conceded by Carpet Fashion that the representation is appropriately characterised as related to future conduct, did the defendant have reasonable grounds for making the representation? [cf s51A(2) of the Act]; · Whether the lease contained an implied term:

that the lessor would not derogate from the grant of the lease; or - that the lessor would not during the term of the lease and option, if exercised, alter the type of tenant mix or the type of products sold in the Centre (paragraph 19A summons); · If either or both of such terms are to be implied, whether the conduct of the defendant in changing the usage of the Centre and/or by altering the type of tenant mix or the type of products sold in the Centre constituted a breach of such term by reason of which loss and damage was suffered; · Whether the defendant's said conduct was such as to constitute a repudiation of the lease?; and · The quantum of damages for breach of the contract or under the Act. Case management of the issues before the court during the final hearing 10 A particular difficulty arose during the final hearing concerning the service of a statement of Mr David John many months following the time limited for filing by Carpet Fashion of statements in chief. The statement was served on the afternoon of Friday 23 May 2003 and deals with a number of matters of significance in relation to assumptions made by the expert retained by Carpet Fashion and sought to be relied upon in the damages case. Forma's counsel made it plain that there was very real prejudice in permitting the statement to be now relied upon for the reason that Forma had not had any opportunity to deal with this new material. In the light of this development the Court raised with counsel the question of whether or not either party would oppose the case management of the final hearing involving the taking during the first tranche, only of evidence going to all matters outside of relief. A judgment would then be delivered dealing with all matters outside of relief. In the event that the judgment would be favourable to Carpet Fashion relief would be dealt with in a second tranche where only evidence given by the experts or by Forma in replying to the new evidence sought to be adduced from evidence given by Mr David John, would be permitted. It was made plain to counsel that no order of a separation of issues pursuant to Part 31 of the Supreme Court Rules was proposed to be made or should be regarded as having been made. Both counsel agreed with this course and explicitly accepted that no difficulties with respect to credit would arise by treating with the matter in this bifurcated fashion. In consequence this judgment deals only with all matters outside of relief. Brief overview of background matters 11 The Centre was the subject of a number of changes in direction. 12 The original development and situation of the property at the time when Forma acquired it, had been as a two storey warehouse and distribution centre for Woolworths and also for David Jones. 13 The original redevelopment up to and including 1996 comprised the renovation of the second floor of the warehouse and distribution facility to transform it into shop spaces. Ceiling height meant that there was an attraction for the sale of larger style goods. The second floor was redeveloped as the shopping centre. At the time Carpet Fashion moved into the Centre, it occupied space on the second floor, Woolworths continuing its distribution function from below. 14 Woolworths are still present but part of the downstairs section includes a few shops. As a general proposition however it can be said that by and large the centre is still a one level shopping centre on the second floor of a warehouse building.

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The evidence 15 It cannot be suggested that much of the factual evidence was in any way in dispute. A number of statements were read and cross-examination took place in relation to disparate but very limited issues. Both parties prepared chronologies for the assistance of the court. To my mind the convenient course is to proceed: · by first giving a general overview of evidence adduced from witnesses by statement and then in the witness box; and · by in essence, then using the chronologies but interpolating, as necessary, where a particular matter may have been pointed up during the final hearing as a live issue for focus. General overview of evidence adduced from witnesses who had made statements and were cross-examined Mr Glyn John 16 Mr Glyn John has been a director of Carpet Fashion since its incorporation in 1973. He gave detailed evidence in relation to Carpet Fashion and its business; in relation to the negotiations anterior to the execution of the lease; and in relation to the communications dealing with and discussions concerning the closure of the Homebush store. 17 His evidence included: · The centre at Homebush Bay was ideally suited to the company's needs because it was easily accessible by good roads from the north, west and south. There was substantial building being carried out or proposed in the area of Homebush and a new suburb, Newington, was proposed. There were to be many new home units built in the area. · In that regard the Homebush centre was near to the new development and in his opinion would have attracted many customers seeking to lay carpet or timber flooring or linoleum in their properties. Because of the road access the centre would also have attracted people from surrounding suburbs who would have found it easy to visit the Centre. · Although there was a new centre at Parramatta Road, Auburn described as the "Megacentre Auburn" this complex would not have been suitable for a Carpet Fashion Pty. Limited store as that centre was too close to Carpet Fashion's store at Parramatta and instead of getting new customers it would be drawing off those customers who would go to the Parramatta store. Additionally at Parramatta there were three other carpet stores in the immediate vicinity. · Homebush was in a different location and drawing area and did not conflict with either the Parramatta store or any other stores operated by Carpet Fashion. · With the success of the Homebush store it was feasible to lease a warehouse for storage of carpet and other items sold in the shop. Storage of carpet is an ongoing problem as a large warehouse is needed to keep sufficient quantities of stock. · With the closure of the Homebush store it was not practical to lease a further warehouse and this had an effect on the amount of stock that the company could keep. This also had a run on effect as to the overall expansion of the company. · The closure of Homebush was a severe blow to Carpet Fashion Pty Limited as Homebush was a central and forward position in establishing the Carpet Fashion brand in the inner city and eastern suburbs. It was in turn crucial to its advertising program and its loss limited the amount which could be spent on advertising. · From his experience in thirty years of carpet retailing, for a carpet store to be successful in a centre such as the Homebush centre it must have predominantly homeware or bulky goods sold in the immediate vicinity. The centre itself must be associated with homeware products. If the centre changed its style of business to sale of fashion goods or sale of clothing and footwear, a carpet store would not be successful as a stand alone homeware store. Such a store however needs other stores of the type previously at the centre in order to be successful as, collectively, such a mixture of shops will attract more customers and each shop can benefit from the customers of the other. 18 His evidence as to the decision to take a lease in the Centre included:

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Mr Jan Koch 19 Mr Koch had made a statement on 10 April 2003. He had been Forma's chief representative in Australia since approximately August or September 1995. He is employed by a company which provides management services to Forma and gave evidence that all the directors of the company (save for Mr Wise) are located overseas. His evidence was that Forma is in general terms a property investment company and that its primary asset is the Homebush shopping centre. His evidence covered the history of the Centre and of the involvement of Forma with the Centre. His evidence also covered the original intentions of Forma, in terms of the development of a shopping centre specifically dedicated to the retail sale of bulky goods; the concept of the Centre having changed in about 1995 to combine both a retail centre (with retailers of bulky goods, and home improvement and renovation products) and a permanent exhibition centre. The aim was to develop a 'one stop shop' for building and renovating products where consumers could view a wide range of retailers and products, and see and compare different products at one time, as well as purchase such products. 20 He gave evidence to the following effect: · Forma had commissioned a number of research studies regarding the viability of the Centre, including its likely trading levels and the consumer acceptance of the Centre. · In 1993, Davlon commissioned Plant Location International ('PLI') on behalf of Forma to carry out a market assessment of the Homebush site for use as a bulky goods retail centre ('PLI Report'). The PLI Report concluded that the Homebush site had an excellent chance of success as a bulky goods retail centre. · The PLI Report was referred to in an internal report prepared for Forma in about late 1993 by Davlon ('First Davlon Report'). Davlon was managing the development of the Centre on behalf of Forma and its principals had been involved in other retail developments, including the successful Moore Park Supacenta, one of the few shopping centres that existed at that time that specialised in the retail sale of bulky goods. The First Davlon Report provided a summary of the current status of the then Homebush project. The First Davlon Report noted that there had been little development of shopping centres for bulky goods: 'Throughout the 1970's and 1980's whilst conventional main stream property development grew into its current super-regional shopping centre concept, bulky goods retailers with high floor space requirements and specialist logistical infrastructures were forced into secondary strip locations, in free standing environments, and little or no synergy from integrated marketing or one-stop shopping facilities.' · The First Davlon Report noted that the Homebush site was an excellent location for a bulky goods retail centre, given its excellent road access, close proximity to major suburbs, high visibility and constant high volume passing traffic. · A further report was prepared by Davlon in about mid 1995 ('Second Davlon Report'). By that stage, the decision had been made that the Centre would comprise both a retail and exhibition centre. The Second Davlon Report concluded that the prospects for the Centre were very good, given the lack of competition in the vicinity, the size of the market for home renovation and building products, the potential customer base and the proposed services to be provided by the Centre. · The Second Davlon Report included the following statements:

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"At the time of leasing negotiations with prospective tenants in 1996 and 1997, Forma had commissioned numerous feasibility studies on the Centre, and was of the view that the Centre would be a unique facility of considerable size, with a large customer patronage. The retail component of the Centre was largely leased, however, there were still vacancies in the exhibition centre. However, Forma was of the view that with the drawing power of anchor tenants such as HIA and CSR, the exhibition area would be a success. Forma had also spent approximately one million dollars on innovative swipe card technology for the exhibition area. Forma made statements regarding the Centre to prospective tenants such as Carpet Fashion on the basis of the conclusions contained in the numerous feasibility studies commissioned by it in relation to the Centre. At the time of leasing the Centre, Forma had made a significant financial commitment to the development of the Centre. Its intention at that time was that the Centre would operate as a home renovation centre." 22 He also gave evidence in relation to the launch of the Centre and the position which had obtained thereafter: · Whilst the Centre was not officially opened until 18 March 1997, some tenants commenced trading in the Centre before then, including Carpet Fashion. Throughout late 1996 and early 1997, Byvan undertook promotion and marketing of the Centre in readiness for its full launch in March. Such promotion included newspaper advertisements, a competition and a live radio broadcast. · The Centre was officially opened on 18 March 1997 under the name 'HIA Building & Renovata SupaCenta'. The launch of the Centre went well. At that stage, 19 of the 26 retails stores had fully executed leases, with three leases outstanding and four vacancies. However, only three of the 21 external stores were leased, with 18 vacancies. · At that time, Forma commissioned focus group research by Q2 Strategic Market Research Pty Ltd ('Q2'), which showed very positive feedback to the Centre ('Q2 Report'). That research contained conclusions regarding the range of facilities that the Centre should offer (such as adequate parking, accessible and knowledgeable staff, child care facilities, good signage, refreshment areas, and so forth), the range of retail stores desired, and indicated that there was a strong desire amongst potential visitors for independent advice on renovation and building issues. · As at the date of the launch, Forma had invested a total sum of $45 million in relation to the Centre, comprised of:

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(c) spending further money on promotion, advertising and signage. · Approximately $5 million was spent on marketing the Centre in the four years to 30 June 2000. · In addition, there were some unanticipated but significant difficulties following the launch of the Centre. · First, the exhibition space was still largely vacant and expected anchor tenants substantially delayed their arrival, causing difficulties in leasing exhibition space to prospective tenants. For instance, as at March 1997, CSR was expected to be a major anchor tenant at the outdoor exhibition area on the roof of the Centre. Forma had entered into an agreement with CSR prior to the opening of the Centre. However, after the launch of the Centre and despite its agreement, CSR decreased its scale of involvement, and ultimately did not open its exhibition until late 1999. · In addition, Forma had planned that HIA would have a strong involvement in the marketing of the Centre. HIA had agreed to have an exhibit at the Centre. However, HIA did not put up their exhibit until 1999. · Second, there were difficulties with the swipe card technology used at the Centre. Forma's plan was that customers could use a swipe card to access information at the Centre. For instance, if an exhibit was not staffed, a customer could swipe a card to obtain written information or connect by phone to the owner of the exhibit. Forma anticipated that this technology would be a resounding success. However, the technology was extremely erratic and did not operate properly despite attempts to remedy it. The equipment had actually been recalled by the manufacturer due to faults, but Forma was not advised of this until March 1999. · The trading of the Centre was also affected by the opening of the Mega Mart in Auburn in March 1999. Some tenants left the Homebush Centre and moved to the Auburn Centre. Furthermore, prospective tenants took leases at Auburn rather than at the Homebush Centre. Despite this and other difficulties, Forma continued marketing and advertising the Centre. · Despite the initiatives, the traffic count for the Centre did not show a substantial increase from the first year. · The Centre operated continuously as a home renovator centre from March 1997 to November 2000. In this period, Forma committed funds in excess of $14 million to the Centre. Its returns from the Centre were well below this amount, resulting in the following losses:

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Ms Jean Smith 24 Ms Smith is the Centre Manager of the Direct Factory Outlets shopping centre. She commenced employment as Centre Manager of the Centre on 11 May 1999. Her employer was Byvan Management (NSW) Pty Limited ('Byvan'), which undertook the day to day management of the Centre. Since 1 December 2000, she had been directly employed by Direct Factory Outlets Homebush Pty Ltd as Centre Manager. 25 Her evidence included a detailed statement of the nature of the Centre at the time when she commenced in employment as Centre Manager; her responsibilities which included matters concerning lease administration; vacancies in the retail centre from time to time; traffic counts [cf Exhibit 2]; the numerous marketing and advertising promotions in respect of the Centre and the fact that despite the continued attempts of Forma to market and promote the Centre, there was no significant change in the performance of the Centre in 1999. Tenants were leaving the Centre or remaining in the Centre as monthly or casual tenants rather than renewing their leases. 26 Her evidence was also that the Centre was detrimentally affected by the opening of a new purpose built homemaker centre in Auburn (known as the Auburn Megamart) in or about early 1999. Following the opening of the Auburn Megamart, it had become more difficult to attract tenants to the Centre. 27 She gave evidence as to her own knowledge towards the end of 2000 about the availability of these premises for a shop in the order of 200 approximate sq metres. Her evidence was that there was space available in the Auburn Mega Store which was probably only one third leased. [Transcript 27 May 2000, 65] 28 She also gave some evidence in relation to alternative premises obtained by a number of the tenants who elected to terminate their leases at the Centre in 2000. 29 In relation to the redevelopment of the Centre she gave evidence that: · On 13 September 2001, the Centre reopened under the name 'Direct Factory Outlets'. The new Centre has proven to be extremely popular and the tenants are trading well. There are no longer any vacant stores within the Centre. There is now a waiting list for tenancies. · The traffic counts in the new Centre are approximately four times greater than the traffic counts for the Centre prior to September 2000 Mr De Rango 30 Mr De Rango gave evidence by statement dated 9 April 2003. He is the Managing Director of Direct Factory Outlets Pty Ltd and of Direct Factory Outlets Homebush Pty Ltd. His evidence was that: · Direct Factory Outlets Pty Ltd and Direct Factory Outlets Homebush Pty Ltd are responsible for the management and development of the Direct Factory Outlet centres in Moorabbin, Melbourne and Homebush, Sydney respectively. · Centre Managers are employed at each centre. The centre managers each report to him. · He was involved in the Direct Factory Outlet since its establishment in 1997 and in the Direct Factory Outlet at Homebush since the redevelopment of the Centre in 2000/01. The Melbourne centre was the first factory outlet established in Australia. · He has been involved in the retail sales and leasing area since 1994. Prior to that, he was involved in a retail and wholesale clothing business. He is generally familiar with the retail and retail leasing markets in Melbourne. · He also gave evidence in relation to the fact that the Carpet Fashion store at the Centre sold carpet, rugs, floor coverings, vinyl and timber flooring. He believed that Carpet Fashion had the capacity to modify its product mix in order to maximise sales from premises at the Centre following the redevelopment in 2000/01. In addition, he gave evidence that it was possible that the store could provide a referral point for other stores in the Carpet Fashion chain of stores in Sydney given the number and geographic range of shoppers which the Centre attracts. 31 He also gave evidence that after the Centre commenced trading as a Direct Factory Outlet he had not approached any prospective new tenant who sold bulky goods to come into the Centre. This was not necessarily because the size of those goods was different from the type of product and tenant mix which he wanted in the new outlet but "it was primarily because the bulky goods traders that had been there had not been successful". He could not recall meeting a single tenant who had told him that they had an active, viable, strong business that was flourishing or trading well. Everyone he had met had been only too willing to tell him how bad the centre was and how poor trading was and how there was no traffic. [Transcript 27 May 2003, 51-52]

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Mr Geoffrey Solomons 32 Mr Solomons gave evidence by statement dated 15 May 2003. He is employed by By Dezign Pty Ltd ('By Dezign') in the position of Customer Services Manager. He works at the By Dezigns store located in the Auburn Megamall located on Parramatta Road, Auburn. He is also a shareholder in By Dezign. He had previously been a director of By Dezign. 33 He gave evidence as to the circumstances in which having had two stores at the Homebush shopping centre, upon being informed by Forma of the proposed redevelopment of the Centre, By Dezign located available premises at Auburn. His evidence was generally that: · By Dezign is a retailer of furniture, kitchenware and giftware. · By Dezign is also a retailer of flooring, namely Forbo vinyl flooring and German laminated floating floor. · By Dezign is not a retailer of carpet. · From March 1997 to November 2000, By Dezign had two stores located at the Homebush shopping centre in Underwood Road, Homebush ('Centre'). One store was called 'By-Dezign' and the other store was called 'By-Dezign Kitchenware'. · The 'By-Dezign' store was located next to the store operated at the Centre by Carpet Fashion before the redevelopment of Homebush Centre. · By Dezign started looking for alternative premises in about July 2000. It took By Dezign approximately eight to ten weeks to find and secure a new lease. · The process of searching for a new lease involved speaking with agents, research on available premises and inspecting possible shopping centres and shopping areas. · Amongst others, By Dezign located available premises at the Auburn Megamall, the bulky goods precinct on Parramatta Road, the Norwest Homemaker Centre, the Liverpool MegaCenta, the David Jones site at Parramatta and the Red Barn Centre on the corner of Silverwater Road and Parramatta Road. · These premises ranged in size, however many were too small for By Dezign as it required premises about 3,000m2 in size. Many would have been suitable for a retailer seeking premises less than about 500m2 in size. · Suitable premises for By Dezign were located at the Auburn Megamall. It was decided to merge the 'By Dezign' and 'By Dezign Kitchens' stores into one By Dezign store. By Dezign vacated its premises at the Homebush Centre in November 2000 and moved into the new premises at the Auburn Megamall on 16 November 2000. The new By Dezign store commenced trading on 23 December 2000. · At that stage, there were three vacant premises in the Auburn Megamall and at least one tenant who wanted to assign its lease. The available premises ranged in size from approximately 250 to 700m2. One of the available premises later became a rug store. · From his experience as a bulky goods retailer, he did not agree that an existing store at Parramatta would be a restriction on opening a new store at the Auburn Megamall or the nearby bulky goods precinct on Parramatta Road. · Whilst the catchment areas for Parramatta and the Auburn Megamall (including the nearby bulky goods precinct) overlap to some extent, they are by and large separate catchments. Mr Peter Leyshon 34 Mr Leyshon is a qualified town planner and corporate member of the Planning Institute of Australia. His current occupation is research analyst and town planner. In that capacity, he operates a consulting business specialising in retail analysis and the planning of business and shopping centres. He has operated this consulting business for 17 years. 35 He was asked to provide an expert opinion on: · whether the redeveloped Homebush Centre was suitable for the continued trading of a carpet and rug store; and · whether alternative premises were available in the Homebush vicinity for the relocation of the Carpet Fashion store in around late 2000. 36 His evidence was: · In his opinion, although the redeveloped Centre is not a location that is typical for a carpet and rug store (or for general homewares retailing), the redeveloped Centre at Homebush presents a particularly unique retailing opportunity for a number of reasons, in particular:

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(b) it could have used the newly available funds to launch a new store in an area where it did not already have a presence and tap into a new market. 39 He believes that the most appropriate relocation of the Homebush store would have been to the Auburn area, either within the 'Megacentre Auburn' ('Auburn Centre') or in the strip shopping area running eastward of the Auburn Centre along the Great Western Highway/Parramatta Road for approximately two kilometres. This area contains the largest concentration of bulky goods and homeware stores in Sydney, is very well known and would have been a very good alternative to the Homebush store. 40 He does not agree that the Auburn Centre was not a suitable replacement for the Carpet Fashion store at the Centre because it would draw on customers already served by the North Parramatta store for a number of reasons: · the Auburn Centre is less than five kilometres closer to the North Parramatta store than the Centre. Therefore, while it may draw on the North Parramatta store's customers to some degree, he does not believe that it would do so to such an extent that Carpet Fashion should not have considered opening a store in that area; · the North Parramatta store is likely to attract a very different customer base to a store set up in either the Auburn Centre or the surrounding area. He would expect that the North Parramatta store would draw areas principally from the north of Parramatta whereas a store in Auburn would tend to draw customers predominantly from areas to the south, east and west of Auburn. These customers tend to be from different sociological groups and therefore may be attracted to the different centres; · customers who would have frequented the Homebush store and those in the catchment area for an Auburn store would be unlikely to frequent the North Parramatta store. As mentioned above, customers to the North Parramatta store would be more likely to come from the north and would be unlikely to bypass the North Parramatta store in favour of an Auburn store if their primary purpose was to inspect or purchase carpet. Similarly, given the quality of the Auburn Centre and the range of homewares tenants in the surrounding area, it is unlikely that customers from around the Homebush area who would have frequented Carpet Fashion's store at the Centre would now proceed past Auburn to the North Parramatta store. Instead, they would shop at one of Carpet Fashion's competitors who had a store in Auburn. By establishing its own store in Auburn, Carpet Fashion could regain these customers who have taken their business elsewhere; and · one of Carpet Fashion's main competitors, Carpet Choice, has stores at 570 Church Street, Parramatta and 265 Parramatta Road, Auburn. The Parramatta Carpet Choice is very close to Carpet Fashion's North Parramatta Store and the Auburn Carpet Choice is very close to the Auburn Centre. He presumes that both these stores are profitable and therefore Carpet Fashion could also trade profitably in both locations. 41 His evidence was that: · if Carpet Fashion chose not to establish a store at the Auburn Centre, or elsewhere in the Auburn area, the resources which became available to it after it terminated its lease at the Centre could have been used to open a store in an area where Carpet Fashion did not already have a presence. · Given Carpet Fashion's stores in operation in late 2000, there were several bulky goods and homewares precincts in the Greater Sydney area where Carpet Fashion did not have a presence and where it could have opened a new store and thus tapped into a new market. · In late 2000, the areas in and around South Bankstown, Moore Park, Norwest/Bella Vista, Erina and Balgowlah were all developing or developed bulky goods and homewares precincts. Carpet Fashion did not have stores in or around any of these areas. Upon the freeing up of resources after the termination of the lease at the Homebush Centre, Carpet Fashion could have opened and, in his belief, run a successful store from any of these areas. · He understood from an expert's report that Carpet Fashion in fact opened a new store in the Bella Vista / Norwest area in February 2001. This store is located in an area of Sydney which is experiencing rapid population growth as a consequence of new housing development. Arguably, this store was a replacement for the Homebush Centre, despite the fact that it is in a different area of the city to the Centre. 42 Significantly he did not put himself forward as having any experience in relation to carpets and flooring and floor coverings. Most of his experience had been in retailing, the planning and development of retail shopping centres, particularly bulky goods shopping centres. [Transcript 27 May 2003, 58] Mr Lechmere 43 From about September 1997 to mid 1999, Mr Lechmere was employed by Forma. Part of his job involved negotiating with prospective tenants for leases of retail and/or exhibition space at the centre. Prior to that, he was employed by Supa Dupa Promotions Pty Ltd from about early 1996. Supa Dupa had been engaged to assist in finding tenants for the exhibition space at the Centre. The Centre was to contain both retail and exhibition space. The brief to Supa Dupa was to create a permanent home show at the Centre. Mr Lechmere was heavily involved in this work when he was employed by Supa Dupa. He had had considerable experience in organising the International Home Show that is held in Sydney. Over the course of time, in addition to negotiating with prospective tenants of exhibition space, he also conducted negotiations with prospective tenants of retail space. 44 During 1996, he was involved in negotiations with Carpet Fashion. His evidence covered these negotiations. 45 He gave evidence concerning the prospects of success of the Centre as follows: · At the time he was negotiating with Mr John with respect to Carpet Fashion taking a lease of premises at the Centre, he believed that the Centre had a very good prospect of success as a specialist centre for the exhibition and retail sale of homemaker and renovator products. He was aware that Forma had commissioned reports into the viability and likely success of the Centre. He was provided with and read extracts from these reports. [The mid 1995 and June 1996 reports] He recalled in particular that the reports indicated that the Centre would attract high customer levels due to its accessibility and location in the demographic centre of Sydney. · He believed that one of the main reasons why the Centre was not successful was due to problems leasing out the exhibition space. By the time the Centre officially opened in March 1997, the retail space was mostly leased - there were only about three or four vacancies. In contrast, the exhibition space was only about a third full. He expected that the remaining exhibition space would be leased once the Centre opened. However he subsequently experienced difficulties in getting potential exhibitors to commit to leasing exhibition space. Some major exhibitors, such as CSR, were late in opening their exhibitions. Some expected exhibitors did not actually open their exhibitions. For instance, companies including General Electrical, Major Electrical Appliances and Schollets were negotiating to lease a major area to build a complete display of electrical products. However, this display was eventually built at another location. Finally, he found that some companies, despite initially enthusiastic, elected to direct their marketing budget towards the International Home Show, rather than having a permanent display at the Centre. · He believed that had the Centre (including the exhibition space) been fully leased, it would have been a success. As it turns out, there were ongoing problems filling vacancies in the exhibition area, despite concerted efforts to locate prospective exhibitors, and a decision to transform some of the exhibition space into retail space.

[74]

52 Davlon prepares second report on Homebush development. This report is prepared based on the concept now favoured by Forma, namely a centre combining retail space and a permanent exhibition space. [Koch Statement, paras 9, 15, 16; Exhibit JGK-2] 53 In Mid 1995 Supa Dupa Promotions is engaged to assist in leasing negotiations for the exhibition component of the Centre. [Koch Statement, para 22] August/September 1995 54 Mr John Koch commences as chief representative of Forma in Australia. [Koch Statement, para 2] Late 1995 55 Construction of new upstairs premises at Centre commences. Premises comprise both retail shops and exhibition centre. [Koch Statement, para 6] Early 1996 56 Mr Melvyn Lechmere commences employment with Supa Dupa Promotions, assisting with negotiating leases at the Centre. Mr Lechmere was originally only involved in lease of exhibition space, but was later involved in negotiating with prospective retail tenants. [Statement of Mr Lechmere dated 15 May 2003 ('Lechmere Statement'), para 3] 57 Two agents visited Mr John of Carpet Fashion. The agents were trying to sell static display space in the HIA Building and Renovata Supa Centa (the "Centre"). A static display is an arrangement whereby customers can visit the space where details of products are displayed and then if they are interested, they can telephone for more details. [Mr John Statement, para 6; Lechmere Statement, para 8] 58 Mr John advised the agents that he was not interested in a static display. However, he did express some interest in leasing a shop in the Centre. [Mr John Statement, para 7] 59 The agents returned at a later date and Mr John supplied them with some details of the requirements he had for a shop. He did not hear from them again. [Mr John Statement, para 8] June 1996 60 Leyshon Consulting Pty Ltd prepares a report regarding the proposed development of the Centre and the market in Sydney and New South Wales for home-related products and services. [Koch Statement, paras 7, 8; Exhibit JGK-3] End of 1996 61 Mr John became more interested in leasing a shop in the Centre, in light of the expansion of the company. [Mr John Statement, para 9]

[92]

Mr Londish: "Things are progressing. The money set aside for launching the centre is significant. It will put its best foot forward at opening. We want a decision whether you can get in and open within a short time. The centre will be an unqualified success. The second stage most certainly will be required." Mr John: "But what about the rent?" Mr Londish: "I can't do much with the rent. I can give you a discount in the first year but it has to come up to market in the second. I am confident that the business and the referral will be beyond your expectations. I have had involvements with other properties and the section of the centre is presently being tendered for carpet. If you become a tenant I will ensure you get it. I will also look at you for other commercial projects."" [Mr John Statement, paras 26-27] 86 Mr John also stated in his affidavit that Carpet Fashion was to be the only carpet retailer in the Centre. [Mr John Statement, para 26] However under cross examination his evidence was that he asked Mr Londish for exclusivity as regards floor coverings only to be told that exclusivity would not be given but that there would only be one other retailer permitted to sell floor coverings (ie carpets) [Transcript 26 May 2003, 71]. 20 November 1996 - Disclosure Statement signed 87 The Disclosure Statement was signed on 20 November 1996. [Exhibit JGK-4] Late 1996 88 First tenants move into the Centre. [Koch Statement, para 6] December 1996 89 Carpet Fashion made the decision to lease Shops 7E and 7F on Level 3 of the Centre. The company was given possession from December 1996 to commence fitting out the Premises. [Mr John Statement, para 29; Koch statement, para 29] Late 1996/early 1997 90 Byvan Management (engaged by Forma to undertake the day to day management of the Centre) undertakes promotion and marketing work in readiness for its official launch in March. The promotion work includes newspaper advertisements, a competition and a live radio broadcast. [Koch Statement, para 31]

[129]

· The question of whether conduct is misleading or deceptive or likely to mislead or deceive is an objective question and is a matter for determination by the court for itself. Evidence that particular persons have been misled, although admissible and commonly likely to be very persuasive, will not be determinative of the issue. · An essential issue in determining whether a person's conduct has contravened Section 52(1) is determining "what is to be taken from that conduct": Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 at 683 per Mahoney JA - cited with approval by Mason P in Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 at paragraph 51. · The intent of the defendant is not relevant under section 52; · It is necessary to inquire why any misconception has arisen for the reason that it is only by such an inquiry that the evidence of those shown to have been led into error can be evaluated to determine whether they were confused by misleading conduct of the defendant: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; · The fact that a person who has been the subject of a misrepresentation has been careless or could have discovered the misrepresentation had he made proper inquiries does not absolve the maker of the misrepresentation from liability for breach of section 52; · A genuine change of mind does not make earlier predictions as to future conduct misleading or deceptive: James v ANZ Banking Group Ltd (1986) 64 ALR 347 at 372 per Toohey J; · Silence is capable of giving rise to an actionable misrepresentation when the circumstances give rise to an obligation to disclose relevant facts as well as in other circumstances. Consistently with the natural meaning of the terms of section 52, the essential question is whether, in all of the circumstances constituted by acts, omissions, statements or silence, there has been conduct likely to mislead or deceive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. Disclaimers 135 The following propositions appear to be correct as a matter of principle: · Where disclaimers form part of the matrix of fact under consideration, it is necessary for the court to consider the relevant conduct as a whole so as to determine whether the representation in question, including the circumstances in which the disclaimer was made, is misleading or deceptive. · Disclaimer cases in terms of section 52 include a necessity to focus upon: · The timing of the disclaimer in relation to the conduct which would otherwise be misleading or deceptive; and · Whether, and if so in what manner, and to what extent, the disclaimer was effectively brought to the attention of the relevant party. · The fact that a disclaimer does not have some form of automatic effect in terms of permitting the perpetrator of misleading conduct, by resorting to the disclaimer, to evade the operation of section 52: Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043 at 51,590. 136 Clearly a business person of experience in particular circumstances, may well be likely to be more aware of and to better understand the nature of a disclaimer then would a person without that form of experience or background. 137 A disclaimer is effective simply as being one of a number of relevant parameters constituting the conduct in focus and alleged to have constituted a relevant misrepresentation. 138 In short the presence of a disclaimer is part of the evidence to be taken into account in deciding whether there was reliance in fact, and the presence of a disclaimer is by no means necessarily inconsistent with the fact of reliance: Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 107 ALR 291 at 312-3 (Burchett J); Karawi Constructions Pty Ltd v Bonefind Pty Ltd (1993) ATPR 41-265 at 41,571 (Beaumont J); Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601 at 40,516 (Branson and Emmett JJ). 139 As a matter of principle, if a person is induced to enter a contract by misleading conduct and suffers loss, an action lies notwithstanding that the contract may purport to exclude or disclaim reliance on pre-contractual representations or release claims based upon them: Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 377-378 (Wilcox J); Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371 (Sheppard J, with whom Jackson J agreed at 375); Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 561 (Lockhart J, with whom Burchett and Foster JJ agreed); Lezam v Seabridge Australia Pty Ltd (1992) 107 ALR 291 at 312-3 (Burchett J). 140 Burchett J in Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41-558 dealt with a clause which he described as "very formidable":

[141]

"By the time that Henville v Walker reached the High Court it was not in issue that Walker had made a series of representations to Henville which breached s 52 of the TPA. The first of the representations was that there was a market for luxury, top of the range units in Albany, Western Australia. The second was that Walker had represented that the sale of these luxury units would be for between $250,000 and $280,000 each. Nor was it an issue that Henville bought the land that the units were to be built on for $190,000 and he constructed three units on this land. But as the representations were inaccurate, Henville sold the units for a joint amount of only $545,000. In total, including building costs, his loss on the project was $319,846.51. Before buying the land Henville had prepared a feasibility study, but with regard to the revenue side of it the figure that was employed was that supplied by Walker's misrepresentation. With regard to cost, Henville estimated $551,000. However, both the revenue side of it and the cost side of the feasibility study were greatly inaccurate (the revenue side over-estimated the revenue, while the cost side greatly underestimated the cost). Henville brought an action against Walker in the Supreme Court of Western Australia for breach of s 52 and sought recovery of his loss under s 82. At first instance, Henville received most of the money he was seeking, but was not able to recover a certain amount because his own actions were the cause of that part of the overall loss. On appeal to the Full Court of the Supreme Court of Western Australia, Henville was not able to recover any of the loss as his own action, that is by preparing the feasibility study, broke the chain of causation. The question in the appeal was the amount of the recoverable loss under the action. All five members of the High Court allowed the appeal but their Honours wrote separate judgments, except for Gummow J who agreed with both McHugh and Hayne JJ." 148 Gleeson CJ [at paragraph 14] said:

[146]

"The conclusion that the appellants suffered loss requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project. It does not invite attention to what would have been their position if an accurate estimate of selling price had been given by the respondents ( Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514-515 [48]-[52]). Moreover, the conclusion that the appellants suffered loss neither requires nor permits consideration of some third or intermediate position in which the appellants undertook some project or transaction other than the one they did. It is, therefore, not relevant to consider what the loss might have been if the costs had been estimated properly." Section 51A 152 The plaintiff has approached their case of misleading and deceptive conduct by relying upon section 51A. Section 51A is of course an evidentiary, rather than a substantive provision: Bowler v Hilda Pty Ltd (1998) 80 FCR 191 per Heerey J. 153 Clearly section 51A does not prove that a representation as to a future matter was relied upon by the other contracting party: Cf Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 at para. 166 per Mason P. Nor does it address whether at the time of the representation as to the future matter, it was reasonable for the maker of the representation to have made it. The onus of proof having shifted, the representor must show objectively that it had reasonable grounds for making the representation. Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 per Ormiston J at 240: referred to with approval by Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 506. Clearly also the plaintiff has an onus of showing demonstrable loss which flowed from any reliance by the plaintiff upon the defendant's section 51A deemed misleading conduct: Concrete Constructions at para 160. Dealing with the misrepresentation case Characterising the subject representations 154 Forma claims that the representation pleaded namely "that the Centre was to be used exclusively for the sale of bulky goods and retail sales of products used in the home building and renovation industry" is not a representation that was made in terms by the defendant, nor is it a reasonable approximation of the effect of the statements that were made to the plaintiff. Forma accepts that the evidence of Mr Glyn John and Mr Lechmere and Mr Koch is in substantial agreement, subject to a few apparently minor matters, about the content of the negotiations between the parties in the period before Carpet Fashion entered into the lease. 155 In my view on the evidence neither those conversations nor the advertising brochures may be characterised as conveying the representation that the Centre would be "exclusively" of any particular type - rather, the message to Carpet Fashion was that it was Forma's intention to open and operate a Centre with retail and exhibition space relating to goods sold in the trade area of home and building renovation. The Retail Leases Act disclosure statement does not further the matter. 156 Under cross-examination Mr Glyn John gave the following evidence:

[158]

· Mr John expected that the Centre lessor would retain flexibility to grant leases to tenants selling different types of goods in the future (Transcript 26 May 2003, 85.36 - 85.41); · Mr John was aware that at least one food outlet was intended to open and operate from the Centre, which is quite inconsistent with the suggested "exclusivity" of future use (Transcript 27 May 2003, 4.23 - 4.38); · Mr John was well aware of the proposal to use a large area of the Centre as an exhibition area (Mr John Statement, paras 13,15); · At the time of the "relaunch" of the Centre, under a new name and logo, in early 1998, Mr John made no complaint (Transcript 27 May 2003, 20.44 - 21.21); · The terms of the Disclosure Statement to Carpet Fashion before its entry into the Lease (Bundle, p 47 ff at items 25 and 45); · The terms of the various drafts of the Lease reviewed by Mr John and known to him in intimate detail (Transcript 26 May 2003, 80.53 - 80.56), namely clauses 8.2, 8.3.1, 17, and 27. Reasonable grounds for the making of representations as to future matters 158 It is particularly important to note that on the evidence not only did Forma effectively represent that the Centre would be opened and operated as a home building and renovation shopping centre, but in addition, that intention was actually realised with the opening of the Centre and its operation for some years as a home building and renovation centre. 159 It is fair to say that towards the close of final address counsel for Carpet Fashion acknowledged the weakness in the misleading and deceptive conduct case for very obvious reasons. 160 The court's finding is that: · at the time discussions were being held between Forma and Carpet Fashion as a prospective lessee, Forma had abundant research information and other business advice that a building and home renovation centre would be a viable and successful commercial enterprise; and · any predictions made by Forma about the future character of the Centre accorded with its then intentions for the Centre and were based on reasonable grounds. 161 Evidence of the information known to Forma that constituted reasonable grounds for the making of the representations and of Forma's genuine belief about the use and likely success of the Centre, includes the statement of John Koch (paras 8-20, 25, 31-34) (see also the PLI Report, the First Davlon Report, the Second Davlon Report and the Leyshon Report). Genuine change of mind 162 The courts findings set out below accept as correct and generally adopt a number of Forma's submissions. 163 The evidence establishes that Forma made every reasonable effort to promote the Centre and create a successful commercial enterprise at the Centre: Koch Statement, paras 35 - 48; Smith Statement, paras 5-11. Nevertheless, the Centre clearly did not trade well. Its viability came into question. It made a decision to redevelop the Centre: Koch Statement, paras 49 - 51; Smith Statement, paras 12 - 25. This was a genuine change of mind by Forma and appears on the evidence to have been a proper and reasonable commercial response to the very questionable viability of the continued operation of the Centre in its original form. A genuine change of mind does not make earlier predictions as to future conduct misleading or deceptive: James v ANZ Banking Group Ltd supra. That is particularly so after a number of years had passed during which the earlier predictions were converted into reality. As Forma has submitted, the evidence establishes that its decision to redevelop was not a badge of misleading or deceptive conduct, but rather what appears to have been a responsible commercial decision forced upon it by the exigencies of business life. Reliance 164 In any event Carpet Fashion has not discharged its onus of proof in relation to proving reliance. As counsel for Forma submitted, the evidence makes quite plain that: · the plaintiff's director and the active participant in the negotiations for lease, Mr Glyn John, was a very experienced business person; · his evidence was that by late 1996 there were nine Carpet Fashion stores throughout Sydney; he had started Carpet Fashion and had grown it to the point it had achieved by late 1996; by late 1996 the gross sales for Carpet Fashion was something in the order of $10 million; he had personally conducted many negotiations over the years between 1973 and 1996 for the purpose of taking up leases for new Carpet Fashion stores; when it came to the decision-making in that regard, he spoke for the company; by about late 1996 he had been involved with in the order of 20 rounds of negotiations for leases; it was his practice when involved in such negotiations to take a direct interest in the terms of the lease being proposed; it was his practice to read draft leases carefully when they came to be entered into; when it came to the Homebush Centre negotiations, he took a direct and personal interest in the negotiation of the lease; he reviewed a number of drafts of the lease; he read those drafts carefully and either gave instructions to his solicitor or conducted negotiations with the lessor about the terms; he also performed the review of the draft lease terms that were proposed carefully and with the best interests of Carpet Fashion in mind; by the time he came to execute the lease he was intimately familiar with its terms; each of the terms in the draft that he came to execute were terms with which he agreed; it was his practice when he negotiated the leases to involve his solicitor; that practice was applied in the negotiations for the Homebush Centre lease; in the course of those negotiations he took legal advice about the terms of the proposed draft leases; he discussed in detail the terms of the proposed draft and their effect, both legal and commercial, with his solicitor in the course of his consideration of those drafts; he knew from his experience with entering into leases and from his discussions with his solicitor that there was no binding agreement until he executed the lease document; this did not occur until sometime after January 1997 in relation to the Homebush lease. 165 The Court's finding is that Carpet Fashion must have realised or be taken to have been on notice that the lessor had reserved to itself (among other things) the power and capacity to change the name and logo of the Centre, to redevelop it, to move the premises of Carpet Fashion in the course of that redevelopment, and to change the other tenants and tenancy mix of the Centre. So much is of course apparent from: · the terms of the Lease; and · the terms of the Disclosure Statement.

[165]

"Where a lessee leases part of the lessor's property for carrying on a particular business, the lessor is bound to abstain from doing anything on the remaining portion of the property which would render the leased premises unfit for conducting that business in a way it is ordinarily carried on. At the crux of the obligation is the broader principle that if one person confers a particular benefit on another, the former must not do anything which substantially deprives the latter of the enjoyment of that benefit." [at 197 - 198] 169 As Handley JA observed in Wilcox v Richardson (1997) 43 NSWLR 4 at 18, it does appear that in the lessor/lessee context, claims invoking the non-derogation from grant implied term have rarely succeeded and then only in extreme circumstances. Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450 was cited by Handley JA as one of the very few modern authorities in which a lessor has been found to have derogated from the grant of a lease of retail premises by reason of the identity and operations of nearby premises (leased to other parties by the lessor). The extreme circumstances in Nordern were that the third floor of a city building was let for commercial use as a computer personnel bureau. The lessor subsequently let the fourth floor to an escort agency and permitted its (illegal) use as a brothel. The lessor's actions were regarded as a derogation from grant constituting a repudiation of the lease. Dealing with the issue 170 Naturally in approaching the non-derogation from grant cause of action, the fact that Carpet Fashion has failed in its section 52 case is highly significant. The non-derogation from grant case requires that there be taken as a given the fact that Carpet Fashion is not shown to have entered into the lease by misleading or deceptive conduct. Hence all reliance upon alleged wrongdoing in the form of pre-contractual representations must be put to one side and the issue is determined upon the basis that the lease represents the binding contract. 171 Clearly the issue requires to be determined taking into account the whole of the facts, matters and circumstances thrown up by the evidence. However it is pertinent at the threshold to note clause 27.12 of the lease which expressly provides that the exercise by the lessor of the relocation notice procedures does not constitute a derogation from the grant of the lease. The precise term 172 During the final hearing Carpet Fashion submitted that the relevant term for present purposes was "that the lessor will not during the term of the lease and option, if exercised, alter the type of tenant mix or the type of products sold in the Centre": ["the specific implied term formulation"]. Overview Submissions [24] 173 On it becoming apparent that the Summons, albeit including a pleading that "there was a term implied that Forma would not derogate from the grant of the lease" ["the general implied term formulation"] [paragraph 19], had not pleaded the specific implied term formulation, Carpet Fashion was granted leave to amend the summons accordingly. Forma's submissions 174 Here again, in my view Forma's submissions are generally of substance and they are, in a number of instances, simply adopted in findings which follow. The specific implied term formulation 175 Forma submitted in relation to the specific implied term formulation, that such a term would not be implied because:

[169]

"The Lessee covenants with the Lessor that it has not in entering into this Lease relied upon any promise, representation, warranty or undertaking given by or on behalf of the Lessor in respect of any one or more of the following: … 8.3.1.5 the name, nature, quality, number of or profitability of any occupiers of the Centre or of any premises or properties adjoining or near the Centre (whether owned by the Lessor or not); …" 180 In other words, and as Forma has submitted, the plaintiff has agreed that it did not rely on (among other things) the "nature" and "quality" of other occupiers of the Centre when it took its Lease. Whilst that term would have had no weight in relation to the Trade Practices Act misleading and deceptive conduct claim [the inducement to enter into a contract by misleading and deceptive conduct will outflank/render inoperative the exclusion or disclaimer provided for in the contract], the term clearly has significant weight coming into its own once the lease is shown to have had binding legal effect. Hence Carpet Fashion's agreement that it did not rely on (among other things) the "nature" and "quality" of other occupiers of the Centre when it took its lease, also contradicts the implied term now contended for. 181 Clause 17 of the lease provides in part: The Lessor reserves the following exclusive rights, exercisable at any time and from time to time: 17.1 To increase or reduce the area of the Land comprising the Centre or to sell, transfer, lease, mortgage, encumber or otherwise deal with any of the Land from time to time comprising the Centre; 17.2 … 17.3 … 17.4 To effect alterations or additions or to enlarge, vary or reduce the Centre (other than the Premises) and in so doing (but without limiting the above) to do any one or more of the following: 17.4.1 construct new buildings or improvements on the Land; 17.4.2 renovate, refurbish, reconstruct, modify or extend the existing buildings or improvements; 17.4.3 change the location or layout of the Common Areas or the nature or location of the facilities; 17.4.4 … 17.4.5 …

[178]

"Centre" means the Land, all buildings and other improvements (including all plant, machinery, equipment and fittings provided by the Lessor for the Centre) from time to time existing on the Land and which the Lessor is developing or has developed a home renovation, building products exhibition and bulky goods retail centre known as the "HIA Building & Renovata SupaCenta", excluding that part of the Land leased by the Lessor to Woolworths Limited for non-retail purposes and any other improvements on the Land which the Lessor may from time to time exclude from the Centre." [emphasis added] 193 The Court sought to examine with counsel whether or not this definition in some fashion qualified or limited provisions such as: · Clause 8.2 where the lessor was expressly granted the right to permit persons other than the lessee to conduct in or from the Centre, such businesses as the lessor might think fit; · Clause 17.4 or 17.5; · Clause 27.1 and following. 194 Upon reflection it seems to me that none of these clauses can be read down by reference to the definition of Centre. The entitlement of the lessor to change the name of the Centre, to construct new buildings, to modify or extend existing buildings or improvements and to make the changes to the Centre treated with in clause 17, as well as the reservation to the lessor of the right to permit others to conduct in or from the Centre, such businesses as the lessor might think fit, all make plain that the lessor was not, upon the proper construction of the lease, restricted to ensuring that the Centre never move outside of being a home renovation, building products exhibition and bulky goods retail centre. Further the description was no more than that - a description given at a static point in time, which may be changed, depending as the re-location provisions might be enlivened. The change of name entitlement of the lessor is of particular weight in confirming this construction. 195 In any event the matter was not litigated in terms of any such proposition. Ultimate finding 196 For the reasons given above Carpet Fashion has not established that having regard to all the circumstances, any reasonably anticipated interference with its use by reason of: · the relocation notice or · the circumstances in which the redevelopment and proposals were communicated to Carpet Fashion was so substantial or material that it is to be regarded as rendering the premises unfit for their particular use. Notwithstanding the evidence given by Mr John as to the inappropriateness of the new Centre for Carpet Fashion's business, the evidence of Ms Smith that there were at least two retailers which could be appropriately described as 'bulky goods retailers' operating from the new Centre, is accepted. The problem may simply inhere in Mr John's personal opinion and anathema to being required to permit Carpet Fashion to trade in the new Centre, and this by reason of his general knowledge, understanding and beliefs based upon his experience as to situations which may and situations which may not on the balance of probabilities, permit satisfactory trading. But these proceedings necessarily require to be determined upon the appropriate application of legal principle and centrally fail by reason of the express terms of the lease.

[179]

The Retail Leases Act 1994 197 Mention has been made of the fact that the parties elected to litigate the proceedings without relying upon this Act in any way. For this reason the effect, if any, of section 7, upon a term providing for non - derogation from grant, whether express or implied, receives no consideration in this judgment. This is a matter which doubtless may fall for consideration on some other occasion in other proceedings. 198 In any event the reasons for decision given above are unlikely to have been different even in the face of any argument based upon the Act. 199 Further my own brief inspection of the Act does not suggest that Forma likely did otherwise than comply with the obligations set out in section 34A. In particular it appears that: · The Relocation Notice enclosed details of the proposed refurbishment, redevelopment and extension of the Centre (Relocation Notice, clause 1(a)) · The Relocation Notice, dated 1 September 2000 gave Carpet Fashion until 4 December 2000 to vacate (being more than 3 months) (Relocation Notice, clause 1(b)) · The Relocation Notice contained an offer of lease for Shop T58 (Relocation Notice, clause 1(c)) on the same terms and conditions as the existing lease for the unexpired term of the existing lease · The Relocation Notice notified Carpet Fashions of their right to terminate the lease within 1 month of receipt of the Relocation Notice. (Relocation Notice, clause 2) · The Relocation Notice notified Carpet Fashions of the fact that if they do not terminate within a month, it would be taken to have accepted the relocation offer. (Relocation Notice, clause 2) · The Relocation Notice acknowledged Forma's obligation to pay Carpet Fashions reasonable relocation costs. (Relocation Notice, clause 1(d)) 200 Whether or not I be correct in relation to these matters, as I have said it appears that for forensic purposes the parties have elected to litigate without reliance in any way upon the Act. With some hesitation, but conscious of the dictate of the Supreme Court's Overriding Purpose Rule, the matter has been determined accordingly. Short Minutes/Costs 201 The parties are to bring in short minutes of order. Costs may be argued.

Carpet Fashion Pty Limited v Forma Holdings Pty Limited

At a glance

Court

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Judgment (182 paragraphs)

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Legislation Cited (2)

Cases Cited (25)

Cited By (1)