Emhill Pty Ltd v Bonsoc Pty Ltd

Supreme Court of Victoria|2003-09-18|Before: NETTLE J

Landlord and tenant - fraud - fraudulent misrepresentation - whether an agreement to lease property to which landlord has no title constituted a fraudulent misrepresentation - estoppel - Anshun estoppel - whether landlord precluded from litigating causes of action available to be litigated in earlier proceeding.

Mr B.A. Cook appearing in person and as lay advocate

This is an appeal from final orders of the Magistrates' Court at Melbourne made on 22 January 2003 in Magistrates' Court proceeding Q546332 ("the Q proceeding"). There is also a related proceeding, No. 4583 of 2003, which is an appeal from final orders made by the same court on the same day in Magistrates' Court proceeding L 2785958 ("the L proceeding"). Both appeals arise out of a dispute between Bonsoc Pty Ltd ("Bonsoc") and Emhill Pty Ltd ("Emhill") concerning retail premises that were leased by Bonsoc to Emhill. The facts of the matter are set out in my reasons for judgment in the L proceeding.

The questions of law settled by the Master for the purposes of this appeal are:

"3. The question of law to be raised in the appeal are as follows: (a) whether the learned Magistrate erred in finding that Bonsoc Pty. Ltd. (by its servants, agents or managing agents) by their conduct did not act fraudulently in purporting to convey rights of tenure in relation to accessory unit 6 (the `said accessory unit') under the lease contract for Unit 2, 70 Gladstone Street, South Melbourne (the `said contract') to Emhill Pty Ltd?; (b) whether the learned Magistrate erred in law in failing to find that Bonsoc Pty. Ltd. negligently misstated or misrepresented to Emhill Pty. Ltd. that it was ready willing and able to give contractual rights of tenure in the whole of the premises demised under the said contract, which included the said accessory unit?; (c) whether the learned Magistrate erred in law in failing to find that in or about June 1996 and following Bonsoc Pty. Ltd., its servants, agents or managing agents by their conduct did: (i) not communicate that it was able to provide use, occupancy or rights of tenure in relation to the said accessory unit to Emhill Pty. Ltd., including use, occupancy or rights of tenure under the said contract?; (ii) fail, refrain or omit to communicate to Emhill Pty. Ltd. that the managing agents for Bonsoc Pty. Ltd. as landlord had made an arrangement with Mr. Counsel capable of enabling the quiet enjoyment of the said accessory unit by Emhill Pty. Ltd. as tenant?; (d) whether the learned Magistrate erred in concluding that there is evidence to support his finding that `Mr Cook subsequently advised the managing agents that he had reached agreement with Mr Counsel to lease unit 6 [the said accessory unit] for $150.00 per month?'; (e) whether the learned Magistrate erred in holding that Emhill Pty. Ltd. is estopped from proceeding with any of the allegations made in this proceeding other than the allegations based on fraud?; (f) whether the learned Magistrate erred in holding that the principles in Port of Melbourne Authority v Anshun Pty. Ltd. (1981) 147 CLR 589 apply to any of the Plaintiff's causes of action and especially those based in negligent misstatement and misrepresentation and under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1984 (Vic)?; (g) whether the learned Magistrate erred in: (i) holding that the task of assessment of damages is highly speculative?; (ii) failing to make any assessment of damages?"

The Magistrate took as the test for fraud the statement made in the 13th Edition of Bullen & Leake's Precedents of Pleadings, that:

"The essence of the action of deceit is dishonesty: the action will lie where the defendant, in order to induce the plaintiff to act upon his representation, fraudulently or recklessly, i.e. without caring whether his representation is true or false represents as true a matter of which he knows nothing and which is in reality untrue, if the plaintiff is thereby induced to act upon such representation to his loss."

I see no error in that. In Krakowski v Eurolynx Pty Ltd[1] Brennan CJ and Deane, Gaudron and McHugh JJ said:

"In order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood. In Akerhielm v. De Mare (17) the Privy Council said: "The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made. This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true. ...(For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see _Derry v. Peek(_18); Angus v. Clifford(19); Lees v. Tod(20), which authorities must, in their Lordships' view, be preferred to Arnison v. Smith (21) so far as inconsistent with them.)"

In substance that is the same as the test that the Magistrate adopted.

The Magistrate next turned to the evidence which had been given before him, and summarised it as follows:

"Mr Bonfitto, the principal of Bonsoc presented as unsophisticated in respect of commercial matters and clearly relied on his agents concerning the leasing of the units. He had no recollection of handwritten special conditions in the unit 3 lease. He knew that Bonsoc had title to 2 car parks only and would not have agreed to the leasing of 2 car parks with unit 3 when one had been included in the unit 2 lease."... Mr Pratt (of Dixon Kestles, the Managing Agents) gave evidence that he was not directly involved in the detailed negotiation of the leases. His role was generally overseeing the broad details such as rent and term of a lease which the commercial manager such as Ms Fay (sic) drafted the documentation. He believed a mistake had been made if the leases of units 2 and 3 provided for a total of 3 car park spaces. He further believed the contributing factors to that mistake to be the addition of the handwritten conditions by Mr Cook to the lease of unit 3 and if (sic) the leasing manager was under the impression all 3 car park spaces were owned by Bonsoc. ... The essence of Ms Fay's evidence was that she assumed all 3 car parking spaces adjacent to the building housing the 3 units were owned by Bonsoc. She could not recollect the car parking spaces being negotiated at the time Emhill entered the lease of unit 3 and noted that the schedule to the unit 3 lease including Mr Cook's handwritten conditions was not countersigned on behalf of Bonsoc. Ms Fay denied that she was involved in the deliberate leasing of a car park space which was not owned by Bonsoc."

On that basis, the Magistrate concluded that he was "not satisfied that Bonsoc by its servant and agents was fraudulent by reason of the inclusion of unit 6 in the unit 2 lease".

Given the test of fraud which the Magistrate had earlier set out, the Magistrate's view of the evidence appears to have been that:

* although Bonfitto knew that Bonsoc did not have title to accessory unit 6, he was so lacking in commercial sophistication as not to realise or at least to comprehend the significance of the fact that accessory unit 6 had been added to the schedule to the lease for unit 2 (and some evidence that that was so was to be found in the fact that Bonfitto did not initial that alteration);

* although Ms Fay did indeed understand the significance of the addition of unit 6 to the schedule to the lease, she assumed incorrectly but not dishonestly that Bonsoc did have title to accessory unit 6.

It does not appear to me that the Magistrate was in error in taking that view of the evidence.

Admittedly, the transcript of Bonfitto's evidence suggests that a number of Bonfitto's answers could have been a little equivocal and, although he readily agreed that his company had title to only two car spaces, the best he could offer as to why he had executed lease documentation for three car spaces was the following:

"At that time I probably didn't think, you know, as far as I know I trust my agent, whatever it says here, so far as I know no one do anything illegal, that's all I'm gonna say, I can't say anything else. I can't say something if I can't remember."

But the Magistrate saw the witness give his evidence, and I did not, and in those circumstances, I do not think that it would be open for me to contradict the view which the Magistrate took of the witness (even if I wished to)[2]

. This is not the sort of case in which the objective evidence is so much inconsistent with the view taken of the witness's testimony as to show that it must be erroneous[3]

In argument the plaintiff criticised evidence given by Ms Fay that she did not know that the units were owned by more than one owner. Her evidence, which is recorded at p. 21 of the transcript, was as follows:

"Personally, if it is a mistake I made (it), because I was unaware that the third car park did not belong to Bonsoc. I didn't know specifically the set up that there was even a body corporate there, which consisted of more than one owner".

It was said that her evidence was inconsistent with correspondence which she had written at the relevant time. The correspondence included letters written by Ms Fay (nee de Werd) on 12 April 1994 to Emhill and on 13 April 1994 to Bonsoc. In the first letter, Ms Fay wrote:

"We wish to advise that the Body Corporate has reached agreement with the owners for the roof at the above premises to be replaced. The work will start in approximately two weeks time, every endeavour will be made to cause as little disruption as possible to the tenants working day."

In the second letter Ms Fay requested a cheque from Bonsoc to cover its share of the account rendered by the roofing contractor.

I do not regard that sort of inconsistency as reason to conclude that the Magistrate was in error. It is a little puzzling, perhaps, but the inconsistency was not put to Ms Fay in cross examination and there could be any number of satisfactory explanations; the most obvious of which is that Ms Fay had forgotten by 2002 what she had known about the matter in 1994. Furthermore, even if Ms Fay did know about the body corporate in 1994, and had not forgotten about it by the time of giving evidence, it would not follow that she must have known that Bonsoc did not own accessory unit 6. At most the inconsistency would go to her credit and thus to the reliability of her evidence on the principal issue.

In Krakowski v Eurolynx[4] Brennan CJ and Deane, Gaudron and McHugh JJ made the point that:

"A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them[5].

On one view it would follow from what their Honours there said that, because Bonfitto knew that Bonsoc did not have title to accessory unit 6 and because Ms Fay (albeit mistakenly) represented that it did, Bonfitto represented through Ms Fay to Emhill that it did have title to accessory unit 6 when it knew through Bonsoc that it did not. However, I do not think that to be the correct view.

The question in Krakowski was whether the vendor corporation knew that a failure to refer in a section 32 statement to a side deal concerning rent payable by a tenant would be taken by a purchaser of the premises as a representation that there were no such side deals in existence. It was held that because the directors of the vendor company knew that to be so, or that an inference to that effect could be drawn in their absence from the witness box, it did not matter that the factotum who delivered the section 32 statement may not have known that it was so. The company knew there was a side deal and it knew that the effect of the section 32 statement was to represent that there was not.

Here the position is the converse. Here the Magistrate found that Bonfitto did not understand that any representation was being made about the title to accessory unit 6 and, although the agent did, she did not know that it was inaccurate. Other things being equal, that might have been enough to fix Bonsoc with liability for negligent misstatement or liability under s. 52 of the Trade Practices Act for misleading and deceptive conduct. But it is not enough to show that Bonsoc made a representation which it knew to be false or about the truth of which it was reckless.

I note that the Magistrate did not explore the anterior question of whether the inclusion of accessory unit 6 in the Schedule to the lease of unit 2 could be understood as a representation that Bonfitto held title to the accessory unit. In the circumstances it is unnecessary that I reach a view about it. I observe, however, that it is not exactly self evident that an agreement to lease an accessory unit with a strata unit constitutes a representation that the lessor holds title to the accessory unit; especially when the covenant for quiet enjoyment is limited to the lessor and persons claiming under lessor (as it was in this case)[6].

The Magistrate refused to deal with Emhill's allegations of negligent misstatement and misleading and deceptive conduct, on the grounds that there was no reason that they could not have been included in the original defence and counterclaim in the L proceeding; that it was therefore unreasonable not to have included them; and thus or in any event that Anshun estoppel applied. In my opinion the Magistrate was right so to hold.

According to a number of authorities, Anshun estoppel operates against bringing a cause of action or raising a defence if the matter raised in the second or later proceeding, whether it be by way of defence or asserted cause of action, is so relevant to the subject-matter of the first proceeding that it would have been unreasonable not to rely upon it in the first proceeding[7]

(1989) 18 NSWLR 66[6]67[3]67[4]

. Other authorities suggest that the principle is grounded in precepts of public policy. In Gibbs v Kinna Kenney JA[8]

"It should, I think, be borne in mind that whilst the principle discussed in Anshun's case is designed to foster public and private interests by encouraging parties to advance all their related claims or defences at the one time, thereby diminishing unnecessary duplication of curial and other effort, it seeks to meet these objectives by terminating a litigant's right to have a court adjudicate upon the merits of a claim".

In King v Lintrose Nominees Pty Ltd Callaway JA said[9]

"... the better view is that neither res judicata nor that principle [Anshun estoppel] depends on niceties but rather that they are both rules of public policy based on the principles expressed in the maxims interest reipublicae ut sit finis litium and nemo debet bis vexari pro uno et eadem causa."

But whatever be the correct analysis, if indeed there is one, it seems to me that the result in this case is clear. The relief which was sought in the L proceeding was essentially the same as the relief which was later sought in the Q proceeding and, in the context of a case like this, that is enough for Anshun estoppel to apply. In the L proceeding the relief which was sought was damages for the costs of relocation and loss of opportunity when forced to vacate the premises. In the Q proceeding the relief which was sought was damages for costs of relocation and loss of opportunity said to have been caused by negligent misrepresentation. The only significant difference between the two proceedings was that whereas in the L proceeding the alleged basis of recovery was damages sufficient to put the plaintiffs in the position in which they would have been had the lease been performed in accordance with its terms[10], in the Q proceeding the alleged basis of recovery was damages sufficient to put the plaintiff in the position in which it would have been if it had not entered into the lease (it being contended that but for the negligent misrepresentation or misleading and deceptive conduct, Emhill would not have entered into the leases and would instead have gone elsewhere to a secure location from which it would not have had to depart midstream)[11].

The position here, therefore, is akin to one which Callaway JA described in King v Lintrose as being like the plaintiff in Serrao v Noel: he believed that an order for delivery up of shares would be sufficient but, when they were sold at a loss, he tried to recover damages for their detention. Here, Emhill thought that an action for wrongful termination of the leases would be sufficient and it was only when it discovered otherwise that it tried to recover damages for entering into the leases.

(c) Failure to communicate arrangement with Mr Counsel

Because of the view which I have taken about the first question, it is unnecessary to say a great deal about question (c). The issue arose before the Magistrate because it was contended by Bonsoc that, even if it had misrepresented the position concerning accessory unit 6 (which it denied), Emhill had suffered no loss. When Bonsoc learned that the owner of accessory unit 6 was complaining about Emhill's use of the unit, Bonsoc had made an arrangement with the owner which enabled Emhill to continue to use the unit. Before the Magistrate, Emhill answered that even if such an arrangement had been made, which it denied, it had not been informed of the arrangement and hence its position was to be assessed as if the arrangement did not exist or alternatively that the failure of Bonsoc to inform Emhill of the arrangement was a further example of fraudulent or negligent misrepresentation or misleading or deceptive conduct.

I do not see that could make any difference unless it were proved that Emhill would have paid the arrears of rent and stayed in possession, if it had known of the arrangement with the owner. It was not sought to establish those facts.

In his reasons for decision the Magistrate said:

"Mr Pratt gave evidence that he came to an arrangement with Mr Counsel that auxiliary unit 6 would remain available for the use of the tenant of unit 2 at no cost. When shown Mr Cook's letter of 10 July 1996 to Dixon Kestles & Co Pty Ltd asserting payment by Emhill to the owner for use of the space, he responded that it was a lie. As to that I accept the evidence of Mr Counsel who stated that no payment was made by Emhill to his company for use of the car space."

A plain reading of that passage of the Magistrate's reasons suggests that Mr Cook made a false allegation in the letter of 10 July 1996 that he had paid money to Mr Counsel. But in fact he alleged no such thing. The Appellant contends that the Magistrate was in error in his comprehension of the letter and in his conclusion that there was a conflict of testimony between Mr Cook and Mr Counsel in respect of which Mr Counsel's evidence was to be preferred.

Given the views which I have taken about questions (a) and (b), the point has no bearing on the outcome of the case. But the finding does reflect adversely on Mr Cook, who is the sole director of Emhill and who is involved in the security industry, and thus Emhill seeks to have it rectified.

In my opinion, the Magistrate was in error in the way which is contended. The letter of 10 July 1996 reported that "I have obtained an agreement from the owners of Unit 7 to lease Unit 6 - the car parking space cited in Emhill's lease for the above unit." That was true. Emhill through its solicitors had conducted a title search and ascertained the identity of the registered proprietor of unit 6 and had entered into an agreement with the registered proprietor to lease the unit at a rental of $150 per calendar month. Neither Emhill nor its solicitors was aware that the registered proprietor had agreed to sell the unit to Mr Counsel's company, S & O Plumbing Pty Ltd, and there were no dealings on title to alert them of that fact. Mr Counsel's evidence that he had not been paid anything was undoubtedly correct, but just as clearly, the letter of 10 July 1996 was not a lie. Emhill and its solicitors had done their best to overcome the car parking difficulties and had been completely open in what they had done. So much should have been clear to the Magistrate.

I have dealt already with the question of Anshun estoppel. In my opinion the Magistrate was correct in the view that the Q proceeding, apart from the allegations of fraudulent misrepresentation, were barred by Anshun estoppel.

I dealt in proceeding 4583 of 1983 with the Magistrate's approach to the assessment of damages. For the reasons there expressed, I consider that there is some substance in the criticism which is made of the Magistrate's observations about the impracticability of undertaking an assessment of damages. But as I explained, the criticism is of no consequence. Emhill has no entitlement to damages, and hence the question of assessment is moot.

For those reasons, I answer the questions of law for appeal, as follows:

a) The Magistrate did not err in holding that he was not satisfied that Bonsoc by its servant, agents or managing agents did not act fraudulently.

b) The Magistrate did not err in failing to find that Bonsoc had acted negligently. The claim for damages for negligent misstatement was barred by Anshun estoppel.

c) It unnecessary to decide whether the Magistrate erred in failing to find that Bonsoc did not communicate to Emhill the fact that Bonsoc had entered into an arrangement with the beneficial owner of accessory unit 6 to enable Emhill to continue to use that unit.

d) The Magistrate was in error in concluding that Mr Cook had by his letter of 10 July 1996 represented that he had entered into an arrangement with Mr Counsel and thus was in error in concluding that there was a conflict of testimony between Mr Counsel and Mr Cook. Mr Cook did not so represent and there was no conflict of testimony.

e) The Magistrate did not err in holding that Emhill was estopped from proceeding with any of the allegations made in the Q proceeding other than the allegations based on fraud.

f) The Magistrate did not err in holding that the principles of Anshun estoppel applied to the plaintiff's claims in the Q proceeding of negligent misstatement, and misleading and deceptive conduct.

g) The question of whether the Magistrate erred in the assessment of damages does not arise.

The appeal shall be allowed to the extent that question (d) is decided in favour of the plaintiff, and there shall be no order as to the costs of and incidental to question (d). Otherwise the appeal shall be dismissed and the Appellant shall pay the Respondent's costs of the appeal.

[1] (1995) 183 CLR 563 at pp. 578-9

[2] Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167; _Devries v Australian National Railways Commission (_1993) 177 CLR 472; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) [1999] HCA 3; (1999) 73 ALJR 306;

[3] See, for example Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [ at 603 [15]-[16; ]Fox v Percy [2003] HCA 22 at [26] - [29]

[5] See Dunlop v Woollahra Municipal Council (1975) 2 NSWLR 446 at 485; Tesco Ltd v Nattrass [1971] UKHL 1; (1972) AC 153 at 170

[6] Budd - Scott v Daniel [1902] 2 KB 351 at 362; Celsteel Ltd v Alton House (No 2) [1987] 1 WLR 291 at pp.294-5, per Fox LJ

[7] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 at 602; Boles v Esanda Finance Corp Ltd [ at -; ]Ling v Commonwealth [1996] FCA 1646; (1996) 68 FCR 180 at 182, 188; Ford Motor Co of Australia Ltd v Tristar Ford Steering & Suspension Australia Ltd [2003] FCA 596 at [35]

10] The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80

[11] cf Sellars v Adelaide Petroleum [1994] HCA 4; (1994) 179 CLR 332 at 335

At a glance

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Judgment (72 paragraphs)

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Cases Cited (10)