Finishing Services Pty Ltd v Lactos Fresh Pty Ltd

The Validity of the Notice 16 Lactos Fresh sought to advance two arguments before his Honour. It was submitted that the notice was invalid because it did not meet the express requirements of clause 3.2.2, alternatively the notice was vague and uncertain and for that reason invalid. 17 There were two limbs with respect to the first argument. It was submitted that the lessor's assessment of rent was not of a 'proper rent' because it knew the rent claimed to be excessive. His Honour rejected this submission, holding that clause 3.2.2 did not require the lessor to stipulate a 'reasonable' or 'non-excessive' sum. That contention was not pursued on the appeal. The second limb of the argument concerning the substantive requirements of the clause was that the assessment upon which the notice was founded included all fixtures and fittings in the premises and not just those referred to in schedule 2 of the lease, as clause 3.2.2 required. This had the effect of inflating the rental. His Honour concluded that the matter had not been pleaded and Lactos Fresh required leave to amend its pleading in order to pursue the argument. His Honour considered the two competing contentions: that the application was brought after the close of evidence when it might have been notified earlier; and that Lactos Fresh was not alert to the basis of the assessment until Mr Allen had been questioned. His Honour held that the application could have been brought after that evidence was given. If it had, the respondents would have been able to call evidence to meet the allegation. It might be concluded that it would be unjust to allow the amendment. His Honour denied leave. 18 The focus of his Honour's reasons was therefore the clarity of the notice and what it could be taken to convey to a party in the position of Lactos Fresh. His Honour stated the test derived from Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 ('Mannai') to be: '129 The test to be applied to determine the validity of the notice is whether a reasonable recipient, who is credited with knowledge of the terms of the lease, and taking into account the surrounding circumstances, would have doubt as to the meaning of the notice or have regarded it as equivocal. If so, the notice will be found to be invalid.' His Honour observed that the test has since been repeatedly applied in English and Australian courts. 19 His Honour accepted that the notice did not need to refer to clause 3.2.2, nor did it need to inform the recipient of the 30 day period in which to object to the increased rent. It was not required to adopt any particular form of words in order to be valid. Even taking these matters into account his Honour was unable to find that the notice satisfied the relevant test. In his Honour's view it was not expressed unequivocally and 'would leave a reasonable person in receipt thereof in doubt as to its effect'. His Honour went on: '136 The letter refers to the market review, and then proceeds to refer to the Collier's letter "in this regard" which is said to be "self explanatory" and "will form the basis of the new rent". It does not state a particular figure, nor does it say what the Lessor "specifies" or even "proposes" to be the new rent. The Colliers letter gives an opinion as to the market rates applicable to the Mulgrave premises, and then goes on to say "[s]hould you agree with the above we will notify the tenant accordingly". Mr Allen's letter ends by stating "[i]n due course we will correspond with you regarding the new monthly rental". 137 In my view, reading the notice as a whole, but particularly the reference to the "self explanatory" Colliers letter (which itself refers to corresponding with the tenant in due course), would create sufficient doubt in the mind of a reasonable recipient as to make the notice invalid. Any reasonable tenant apprised of the terms of the lease would, in reality, need to get some confirmation from the landlord as to whether this was, or was not, a notice under clause 3.2.2. It is quite possible, as the applicant submitted, that the notice could have been construed as constituting some sort of preliminary step prior to the activation of the formal rent review machinery under the lease.' 20 Lactos Fresh had apparently submitted that the context in which the notice should be read included the making of an arrangement in December 2002 for the meeting between Mr Allen and Mr Bertrand on 3 February 2003. His Honour said that he had not taken that into account and went on to refer to Mr Bertrand's reaction to the notice: '139 I accept that had Mr Bertrand been aware of the rent review clause in the lease (which he acknowledged he was not when he received the notice), it is probable that he would [have] done something about it, rather than waiting until a meeting in early February to address the issue. Under cross-examination, Mr Bertrand acknowledged that the first time he looked at the lease was immediately prior to the 3 February meeting, and it was at this stage that he first realised that there was a 30 day time limit to object to rent review notices. Mr Bertrand said that he did not look at the lease before this time because, in his mind, 1 March 2003 was the date by which he had to do something. 140 Also under cross-examination, it was suggested to Mr Bertrand that when he received the notice, he could have: "readily gone out and said, "Well, what does the lease say about market review?" Couldn't you?" 141 Mr Bertrand replied that he wished he had done this. However, it was not clear whether he was suggesting that if he had done so, he would have appreciated that the notice was a notice under clause 3.2.2, or whether he would have contracted Mr Allen to find out whether the notice was intended to be a notice under clause 3.2.2. 142 In any event, the correct test to apply is not whether there is enough in a notice to put a reasonable tenant on inquiry to find out if a notice was indeed intended by the lessor to be a notice under 3.2.2. Nor is the subjective reaction of the recipient of the notice relevant: see Mannai at 767 per Lord Steyn and Lancecrest at [38] - [43] per Neuberger LJ and [88] per Brooke LJ. Either the notice is unequivocally a notice made pursuant to clause 3.2.2, or it is not. If the meaning of the notice is in doubt, objectively viewed, the notice is invalid.' 21 His Honour accepted that the notice was headed 'Notice of rental assessment commencing 1 March 2003…' but was of the view that the additional statements affected the clarity of and imported doubt into the rest of the notice. His Honour concluded that the notice was not a valid notice pursuant to clause 3.2.2. 22 Mr Bertrand said in cross-examination that he read the notice carefully when he received it. He believed a review was to occur in March 2003. He contacted Mr Finkemeyer and asked him to obtain advices about market rental. He did so to see that what was being proposed was reasonable. He said that he considered the notice to be important and when he saw it, by which we infer he means the rent referred to in it, he thought that this could be detrimental to Lactos. It was significant given the budget within which the business operated. He said that he made no further enquiry of Mr Finkemeyer because he had not read the lease. He had not done so when he received the notice. The first occasion upon which he saw the lease and clause 3.2.2 was on 31 January 2003 or 3 February 2003, just before his meeting with Mr Allen. That was the first time he realised there was a 30 day limit. When he received the notice he was busy concluding matters for the end of the company's financial year and thought that he had time to deal with the rental review. He had in mind the March date as relevant. It was at the conclusion of the meeting on 3 February 2003, about alterations which had not been approved by Finishing Services, that he raised the question of the rent review for the first time. He thought that he would be able to negotiate a rental lower than that stated in Finishing Service's notice. 23 The references to Mr Bertrand's evidence, and his state of mind, were made by Finishing Services in argument on the appeal. The argument that was sought to be developed in reliance upon this evidence in connexion with the notice was not entirely clear. At some point in argument it appeared to take the shape of an estoppel, by which Lactos Fresh could not positively assert that it was misled by the notice. Certainly the strong impression gleaned from the evidence was that Mr Bertrand realised that a claim for increased rent was being made. The matter of which he was unaware was that his company had only 30 days within which to dispute the claim that the new figure for rental represented rental at market rates. He assumed that he had longer, perhaps until early March to respond. 24 A court might decline relief where it is shown that a party was not in fact misled by a 'trigger' notice, although they had argued that they were. This point should however rarely be reached if regard is had to how a reasonable person, having knowledge of the terms of the lease, would read the notice. The knowledge which such a person is assumed to have is of some importance on this appeal. 25 Lord Steyn in Mannai said that the inquiry is 'what reasonable persons, circumstanced as the actual parties were, would have had in mind' (at 768). His Lordship went on: '… It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice …' Further observations may be added in connexion with the approach to be taken to what a notice is likely to convey. The courts often point out that the process of construction is not one by which lawyers might dissect its terms or place particular emphasis upon parts of it in order to prove ambiguity. As Lord Clyde pointed out in Mannai (at 782), perfect precision is not required: 'It is not an absolute clarity or an absolute absence of any possible ambiguity which is desiderated'. The courts also bear in mind that these are commercial provisions and the notices are directed to commercial people (see for example Patel v Earlspring Properties Ltd [1991] 2 EGLR 131 at 132; Lex Services PLC v Oriel House BV [1991] 2 EGLR 126 at 126). 26 A reasonable person upon reading the notice in question in December 2002 would have in mind that the lease gives the lessor the right to nominate a rental which the lessor assesses to be the proper rent for the period from 1 March 2003; that they have the right to dispute the appropriateness of the rent within 30 days; and if they did so it would activate an independent determination as to the rental payable if a dispute remains. The letter dated 20 December 2002 from Finishing Services in its title clearly states that it is a notice with respect to rental commencing 1 March 2003. The word 'assessment' conveys no more than the clause does, that is to say that it is the lessor's assessment of what is appropriate. Likewise the statement that 'a market review of the rent period is to take effect from 1 March 2003' would not indicate that some process was then to be undertaken. The recipient would understand from the terms of clause 3.2.2 that the lessor had reviewed the rent, through the agent whose advices were attached, and was talking about the rental which was required to be paid as and from 1 March 2003. The agent's letter was itself self-explanatory and it formed 'the basis of the new rent starting 1 March 2003' which is to say the annual rent. In this respect the letter could hardly be clearer. Having referred to the agent's assessment of the annual rent, the letter advises that there will be further correspondence concerning the amount of the new monthly rental and the tax applicable to it. This would be neither unsurprising nor confusing to a reasonable reader. 27 In our view the notice could not reasonably be read to suggest that something other than a claim to a new and increased annual rent in the sum of $435 920 was being made. The reference in the letter to the agent's advices did not create any uncertainty about what was intended. It was a letter directed to the lessor advising of a higher annual rental which might apply and the lessor was adopting it. If the terms of the letter itself were not this clear, the purpose of the letter must have been apparent to anyone who had knowledge of clause 3.2.2. Such a person would not have understood the reference to what was to occur on 1 March 2003 to be the commencement of a review process, assuming for present purposes that the letter could be taken to convey this, in light of the other statements made. They would have understood that the rent claimed was to take effect from that date, the date of the new period referred to in the lease, unless they disputed it. 28 Whilst his Honour correctly stated the test, it was not applied in one critical respect. His Honour's approach did not assume knowledge of the terms of cl 3.2.2 on the part of the recipient of the notice. In our view the notice could not have been unclear to such a person. The notice was valid for the purposes of cl 3.2.2.

The Cross Appeal 29 In its cross-appeal Lactos Fresh submitted that his Honour should in any event have found in its favour having regard to the misrepresentation by the agent to Finishing Services about what was market rental. It argued that his Honour should not have found that it would not be possible to conclude that it suffered loss or damage 'by conduct' of the agent. We observe at the outset that no findings were made by his Honour as to whether Colliers Victoria had misrepresented the position and gave advice as to figures which excluded rentals paid in the market. Mr Allen clearly did not think so, because he thought this figure to be rather low. Lactos Fresh did not explain how a conclusion of a contravention of s 52 of the Trade Practices Act could be reached by this Court. Its argument assumed that a contravention could be made out and we shall proceed upon that basis for present purposes. 30 The claim by Lactos Fresh was, as his Honour observed, somewhat unorthodox in terms of causation. It did not claim that it was misled but rather that Finishing Services had been. It submitted that it was sufficient for it to demonstrate that Finishing Services relied upon the agent's advices and that Lactos Fresh suffered loss and damage by reason of that reliance. 31 His Honour accepted that Lactos Fresh did not itself have to rely upon the misrepresentation in order to make a claim under s 82. The authorities accept that third party reliance may cause an applicant's loss: Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; Haynes v Top Slice Deli Pty Ltd (1995) ATPR (Digest) P 46 - 147; McCarthy v McIntyre [1999] FCA 784 ('McCarthy v McIntyre'). However the authorities require there to be a 'sufficient and direct link' or a 'requisite element of proximity' in order for the section to be satisfied. 32 In McCarthy v McIntyre the Full Court observed that precisely what tests should be used to judge what constitutes the sufficient cause or connexion required between the misleading conduct and the outcome is the subject of some difficulty. A commonsense approach had been required and the 'but for' test of causation used in many areas. Whilst that test, as an exclusive test of causation, had been found to be wanting in some contexts, it still provided a useful approach to the issue of causation. In the present case his Honour applied that test at the outset. In his Honour's view it could not be said that 'but for' the agent's assessment Mr Allen would have sent the applicants a notice for less than the sum actually specified in it. The figure may have even been higher, given that Mr Allen believed that the figure advised by Colliers Victoria was 'a bit low' and that the premises were worth more. The case presented by Lactos Fresh would require findings about 'what would have happened' in a way which would border upon speculation. 33 His Honour identified a further insurmountable hurdle in relation to causation. In his Honour's view the failure of Lactos Fresh to object to the notice would constitute a break in the chain of causation. What Colliers Victoria would have 'caused' was a rental assessment notice to be sent which specified an annual rental which did not reflect the proper rent as defined in the clause. Whilst negligence on the part of a 'victim' of the contravention is not a defence to a claim for damages under s 82 of the Trade Practices Act, this did not apply where the victim's conduct operates so as to destroy the causal connexion between the contravention and the loss or damage: Henville v Walker (2001) 206 CLR 459 at 468. Accordingly, in his Honours view, had the notice been valid Colliers Victoria would not by its conduct have caused Lactos Fresh's loss. 34 It is submitted by Lactos Fresh that his Honour's error was to apply the 'but for' test of causation an approach which had been rejected in March v Stramare Pty Ltd (1991) 171 CLR 506 and a commonsense view of causation preferred (and see Chappel v Hart (1998) 195 CLR 232 ('Chappel v Hart'); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109). 35 The cases do not deny that the test may have some use, but it cannot operate exclusively for the reason that it is not a comprehensive test: Chappel v Hart, Gummow J at 255 [62]. As Hayne J observed in Chappel v Hart (at 283 [117]), it is of most use as a negative test. If it is not satisfied, it is unlikely that there is the necessary causal connexion. It seems to us that this was the use to which the test was put by his Honour in the present case. 36 Accepting that more is required than the application of the 'but for' test, it does not follow that Lactos Fresh would succeed in establishing that the agent's statements were causative of its loss. Justice Gummow in Chappel v Hart (at 255-256 [62]) pointed out that it may need to be tempered. It may be unjust to hold a defendant legally responsible for an injury which, though it may be traced back to the wrongful conduct of the defendant, was the immediate result of unreasonable action on the part of the plaintiff. 37 His Honour the primary judge did not in any event deal with the question of causation only on the basis of the 'but for' test. In his reasons which follow it appears to us that his Honour applied the commonsense approach which is now mandated. The argument for Colliers Victoria does not meet this aspect of the judgment. In our respectful view the conclusion his Honour reached must be correct. It may be said that the agent's advice facilitated the notice. They may have formed the basis for it, if they were relied upon. The giving of the notice containing the advice cannot however be said to have caused, or to have materially contributed, to Lactos Fresh paying a higher rental than it might have. The loss it claims was caused by the figure not being correct, on its own case. That was caused by it not invoking the dispute process. Whilst the notice containing the agent's rental figures commenced the process provided for by cl 3.2.2, it could not be said to have materially contributed to it. The notice itself was not productive of any loss. 38 To this point the argument for Lactos Fresh has been considered upon the assumption that the agent's advices contained misstatements as to the proper market rental to be applied. Another assumption, which his Honour identified, was that Mr Allen relied upon the agent's figures. It is difficult to see how it could be said Mr Allen was misled or deceived. He had his own views about rental figures and the value of the property and formed his own opinion about Colliers Victoria's advice. The fact that he utilised the advice for the purpose of the notice under cl 3.2.2 does not prove reliance. It is more likely that he utilised the advices because they were the assessments of professional agents and more likely to carry weight with Lactos Fresh. 39 In view of the conclusion we have reached it is not necessary to deal with that part of the cross-appeal in which it is contended that his Honour should have allowed Lactos Fresh more by way of interest and costs. Lactos Fresh however raised two further issues on its cross-appeal. It contended that in the event that the appeal was successful, it would be necessary to remit the matter to his Honour to determine the issue as to whether Finishing Services had breached an implied term of the lease, one to act honestly, fairly and reasonably. It was not necessary for his Honour to determine that issue. It then submits that, since the matter will be remitted, there is no reason to refuse it leave to amend to raise the issue as to whether the rent was properly assessed. It is not obvious to us why it is thought that leave to amend in that regard should be given now, when it was denied at the conclusion of the trial, for the reason that Finishing Services had not had the opportunity to meet the allegation during the course of evidence. The fact that an appeal process has now been undertaken and completed renders less likely the prospect that the matter should be revisited. In any event, on Lactos Fresh's argument, this issue would only arise if the matter were to be remitted for further hearing on the issue of the implied term. The Court would not remit that issue for hearing unless it was satisfied that there was a basis for the implication of the term in question. 40 A claim to have implied a further term, in the context of a provision such as cl 3.2.2, is not easily maintainable. Whether a term will be implied depends upon it being necessary to the enjoyment of the rights conferred by the contract or its effective operation: see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450. The rent review clause here in question does not require any particular standard of conduct on the part of the lessor, as his Honour held in connexion with another issue. The lessor's claim is subject to independent review at the option of the lessee. A requirement of good faith is not necessary to the effective operation of the clause.

Conclusions 41 The notice pursuant to cl 3.2.2 was valid and effective and Lactos Fresh was liable to pay the rent claimed in it as and from 1 March 2003 when it did not dispute Finishing Services' assessment of it. Lactos Fresh has no maintainable claim to damages in relation to that assessment. The appeal should be allowed and the cross-appeal dismissed. The declaration made by his Honour on 15 March 2006 and the orders numbered 2 and 3, as between Finishing Services and Lactos Fresh made on 15 June 2006 should be set aside. In lieu it should be ordered that the application be dismissed as against Finishing Services with costs. Lactos Fresh should pay Finishing Services' costs of the appeal and it and Collier Victoria's costs of the cross-appeal. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Kiefel, Sundberg and Edmonds.

Counsel for the Appellant: Mr A J Myers QC and Mr M Osborne

Solicitors for the Appellant: Allen & Allen

Counsel for the First Respondent: Mr W T Houghton QC and Mr J J Gleeson

Solicitors for the First Respondent: Corrs Chambers Westgarth

Counsel for the Second Respondent: Mr P G Cawthorn

Solicitors for the Second Respondent: Phillips Fox

Date of Hearing: 30 October 2006

Date of Judgment: 7 December 2006