The memorandum of transfer of the lease was not annexed to the contract though the executed transfer is in evidence. There was, however, annexed to the contract the original lease with Barbara's Storehouse, numbered U58319, which identified the leased property as shops 1 and 2 and Barbara's Storehouse as the lessee. Also annexed to the contract was an undated and unexecuted variation of the lease in relation to shops 1 and 2 identifying the lessee as Adelights. The variation concerned, inter alia, the rent payable from 19 May 1994. In my opinion, on a fair reading of the contract as a whole, it was representing that at the time of sale, Adelights was the lessee of shops 1 and 2 which had formerly been leased by Barbara's Storehouse. In my opinion Adelights was the tenant for the purposes of clause 8.3. Indeed Burke understood Adelights was the tenant. It was to the secretary of that company that he wrote on 17 August 1994 notifying a change of ownership of the premises. Hunt & Hunt did likewise. Moreover all correspondence between Hunt & Hunt and Gilbert Mane after exchange and before settlement referred to Adelights as the tenant.
Earlier in this judgment I said that the lease was transferred from Barbara's Storehouse to Adelights in about May 1994. That was a finding of fact. It was the evidence of Glew which was not challenged. Indeed it appeared to be common ground. I refer to this matter again because the executed transfer of the lease to Adelights is a photocopy where some critical information stamped on the transfer identifying dates is not clear. However the transfer bears a handwritten date that appears to be "30 August 1993". No explanation was given in evidence of this date. Of present relevance however is that when contracts were exchanged on 20 July 1994 Adelights was the tenant.
No reference was made to the payment of the $60,000 in the space provided in clause 8.3 nor was it referred to in the lease. Hanave contended the failure to disclose the payment of the $60,000 constituted a positive representation that no incentive payments were made to Barbara's Storehouse. Counsel for the respondents put in issue whether the failure to disclose the payment constituted a representation of the type pleaded because, inter alia, at the time of exchange Adelights was, and Barbara's Storehouse was not, the tenant. No payment had been made to Adelights and the $60,000 had been paid to Barbara's Storehouse. Clause 8.3 requires disclosure of incentives for the benefit of "the tenant".
In order to consider the issue raised by counsel for the respondents it is necessary to refer again to the pleadings. In doing so I repeat some of what I have earlier set out. The non disclosure of the payment of the $60,000 was first raised in a further amended statement of claim filed on 2 May 1997. As I noted earlier it was first adverted to in the opening days of the hearing. The further amended statement of claim referred on a number of occasions to "Barbara's Storehouse" as both "the tenant" (see eg. para 5(i)) and as the business carried on by the tenant of shops 1 and 2 (see para 9(iii)). The payment of the $60,000 was first adverted to paragraph 11 as a particular of misleading or deceptive conduct undertaken by Jagar. It was pleaded:
(viii) The first Respondent on or about May 1993 paid the sum of $60,000 to the tenant, Barbara's Storehouse ("the tenant") and that notwithstanding the said payment the tenant from February 1994 did not pay the rent in accordance with the lease but as set out in particular (iv).
In the defence the Respondents admitted that Jagar paid an amount of $60,000 to the tenant, Barbara's Storehouse, as a fitout allowance but otherwise denied what is alleged in paragraph 11. The payment was raised again in the further amended statement of claim in the following paragraphs:
29A. Further the Applicant says in May 1993 the first Respondent paid the sum of $60,000 to the tenant, Barbara's Storehouse ("the tenant").
29B. The said payment was a cash incentive for the tenant to take up the lease of Shops 1 & 2.
29C. By clause 8.3 of the special conditions in the agreement of 20 July 1994 the first Respondent agreed to disclose payments made as incentives to the lessees to enter into leases.
29D. The first Respondent failed to disclose the said payment in clause 8.3.
29E. By failing to disclose the said payment the first Respondent represented that there were no such payments made to the tenant.
29F. The applicant says if it had been aware of the said payment of $60,000 and if it had been aware of any of the matters in paragraph 11 and any of the matters in paragraph 14 and any of the matters in paragraph 27 it would not have entered into the said agreement or would not have completed the said agreement.
It was not expressly pleaded that the conduct of Jagar referred to in paragraphs 29D and 29E was conduct contravening s 52 though, in relation to the case pleaded against Tressider and Glew, it was alleged that they aided and abetted the first respondent in engaging in conduct (including that pleaded in paragraphs 29D and 29E) in contravention of s 52. It is relatively clear that the conduct referred to in paragraphs 29D and 29E is alleged to be conduct engaged in by Jagar in contravention of s 52.
In the defence these paragraphs were dealt with in the following way:
29A Paragraph 29A
The First Respondent says that it paid the sum of $60,000 to Barbara's Storehouse as a fitout allowance and otherwise does not admit this paragraph.
29B Paragraph 29B
The Respondents deny the matters referred to in this paragraph.
29C Paragraph 29C
The Respondents do not admit the matters in this paragraph, and rely on the entire agreement between the Applicant and the First Respondent.
29D Paragraph 29D
The Respondents do not admit the matters referred to in paragraph 29D, and say that the Applicant has suffered any loss or damage it was caused by the failure of the Applicant to take reasonable steps to protect its own interests and was not caused by any conduct alleged against the Respondents.
The pleaded defence to paragraphs 29E and 29F was in substantially the same terms as paragraph 29D.
Burke knew, and therefore Hanave knew, that at the time of exchange and after exchange the tenant was Adelights and not Barbara's Storehouse. In the statement of claim no attempt was made to draw any distinction between Barbara's Storehouse (the company) and Adelights. However the way the case is pleaded is consistent with the facts in the sense that it was to the tenant, Barbara's Storehouse (the company) that the payment was made. What is pleaded is that the failure to disclose the payment was a positive representation that no incentive payments were made to Barbara's Storehouse. A finding that such a representation was made would itself be made, in my opinion, only if it was established that there had been a legal obligation imposed on Jagar by clause 8.3 to disclose the payment. It would be in those circumstances that the failure to disclose the payment, when obliged to do so, constituted a representation that the payment or payments of that character were not made. This is not a case like Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 where the clear terms of the contract coupled with the fact of non disclosure established, without more, the false or fraudulent representation.
The first matter that needs to be considered in ascertaining whether the pleaded conduct has been established is the meaning of clause 8.3. It can be seen that clause 8.3 does not speak of incentives paid to the tenant but rather "all incentives for the benefit of the tenant under or in connection with the lease". Thus an incentive payment made to someone other than the tenant could constitute a payment which inures to the benefit of the tenant. Was there a payment "for the benefit of the tenant" in the present case? Even accepting, which is not established on the evidence, that none of the $60,000 was used to defray the costs incurred by Barbara's Storehouse in fitting out the shop but rather for the purpose of satisfying Barbara's Storehouse's rental obligations under the lease, it would have been expended, at least notionally, after seven monthly payments of the base rent of $8,750. That is, by November 1993. At least prima facie, Adelights would have received no benefit from the incentive payment. On the other hand, the matter might be approached on the footing that at least part of the $60,000 was used by Barbara's Storehouse to defray the cost of the fitout of the shop and to create and install shelving, counters, cupboards and the like. Thus the property in all or some of these fittings might constitute tenants' fixtures in which Adelights gained an interest on the transfer of the lease. Adelights may in such circumstances have derived a benefit from the payment.
It is to be recalled that Slatyer was a witness called by Hanave. No attempt was made to establish through him whether Adelights derived any benefit from the payment of the $60,000. It must, of course, be accepted that Barbara's Storehouse and Adelights were both companies controlled by the Slatyers. However their separate legal existence is recognized in the contract for sale and bears upon the obligations imposed by clause 8.3. Given the fact that the payment of the $60,000 was to Barbara's Storehouse and not Adelights, it is necessary for Hanave to have demonstrated that Adelights derived a benefit from the payment of the $60,000 earlier made to Barbara's Storehouse. Only in those circumstances would there have been a contractual obligation on Jagar to disclose the payment. No benefit is demonstrated from the evidence. Accordingly I am not satisfied that Jagar was obliged to disclose the payment and thus I am not satisfied that the pleaded representation was made.
It may be that the view I have taken about the scope of clause 8.3 and its application to the facts of this case is an unduly narrow one. However a broader approach would not ultimately lead to a different result. I say that because I do not accept Burke's evidence to the effect that had he been aware of the payment of $60,000 it would have raised doubts in his mind about the capacity of Barbara's Storehouse to pay rent in accordance with the lease and he may have sought advice about rescinding the contract. Causation is something I deal with in more detail later in these reasons.
In an affidavit sworn on 2 June 1997, Burke said of the $60,000:
I was unaware of the payment until 28 March 1997.
This statement is untrue and Burke would have known it was untrue when he made it. Burke knew about the payment as a result of a discussion he had with Slatyer in February 1995. He conceded as much in cross-examination. What he did not have until March 1997 was, as Burke would have it, evidence (in the sense of documentary evidence) of the payment. In my opinion, if the payment of the $60,000 and the failure of Jagar to disclose it, had been an issue of substance that might have influenced Burke's decision to purchase then it would have been relatively prominent in Burke's mind and would have formed part of the case as originally pleaded and filed in September 1995. Proof of the payment did not depend on documentary evidence and, in any event, it could have been reasonably anticipated that some documents evidencing payment would have materialized during the process of discovery. The emergence of the payment of $60,000 as an issue on the first day of the trial some 18 months later was an attempt to raise a factor, if it had been known to Burke at the time of purchase, that would have had no bearing on the decision to purchase. It was merely a matter identified by Burke as adding an additional and positive gloss to the case that had, to that point, been articulated in the pleadings.
The other matter concerning the contract for sale related to clause 9.2 which relevantly provided:
9.1 Clause 20.12 of the contract does not apply to the extent that it is inconsistent with the following conditions.
9.2 If a tenant has not made a payment for a period preceding or current at the adjustment date:
(a) for the purposes of clause 14.2, the amount is to be treated as if it was paid; and
(b) the purchaser assigns the unpaid amount ('the debt') to the vendor on completion and will:
(i) deliver to the vendor on completion a notice of the assignment of that debt which complies with the requirements of Section 12 of the Conveyancing Act; and
(ii) sign such further documents (at the vendor's expense) as the vendor considers reasonably necessary or desirable to assist the vendor to recover the debt from the tenant;
(c) the purchaser acknowledges that the purchase price excludes the debt.
9.3 If a tenant has paid in advance of the adjustment date any periodic payment in addition to rent, it must be adjusted as if it was rent for the period to which it relates.
9.4 …
It is to be recalled that at the time of settlement Adelights had not paid all rent due under the lease and was $9,975.17 in arrears. Before and at settlement no notice of the assignment of debt was sought by Jagar or provided by Hanave in relation to this debt. Prior to settlement a letter dated 12 August 1994 was sent by Burke, as the principal of Gilbert Mane, proposing settlement figures for a settlement on 17 August 1994. It allowed $4,070.16 to the purchaser for the monthly rent of $9,012.50 for the lease of shops 1 and 2 by Adelights. Hunt & Hunt responded on behalf of Jagar indicating general agreement with the proposed figures but with some qualifications. One concerned the rents. Hunt & Hunt said:
5. We agree with the rent adjustments but has [sic] been instructed to advise that in relation to Just Jeans (and despite the terms of the lease) the tenant pays rent in advance.
A schedule to the letter from Hunt & Hunt repeated the adjustment figure proposed by Burke in relation to shops 1 and 2.
It can be seen from clause 9.1 that clause 9 was intended to displace the operation of clause 20.12 to the extent that they were inconsistent. Clause 20.12 rendered applicable clauses A1-A6 of the most recent version of the Law Society of NSW and Real Estate Institute of NSW standard contract. Clauses A1-A6 were, as a matter of fact, included in the contract for sale of the premises. Clause A2 dealt with tenancies. It was in substantially the same terms as clause 9 of the special conditions except that clause 9, unlike clause A2, required the purchaser to deliver to the vendor on completion a notice of assignment of debt complying with s 12 of the Conveyancing Act 1919 (NSW). Clause A2.1.2 provided that a further assignment had to be provided by the purchaser if required and appears to be drafted on the assumption that an assignment is effected by the contract itself. Clause 14.2 provided that the vendor was entitled to rents up to and including the day of settlement. Clause 9 provided a mechanism where an adjustment was made in relation to unpaid rent and the rent was treated as having been paid. However the purchaser could then assign to the vendor the debt and confer the right to sue for it. This procedure avoids difficulties of the type discussed in Ashmore Developments Pty Ltd v Eaton (1992) 2 Qd R 1.
In the present case the rental adjustments were made as if the unpaid rent had been paid. Accordingly Jagar notionally paid Hanave a proportion of the rent it had received or should have received for August 1994. The proportion notionally paid was $4,070.16 for the remaining 14 days of August 1994. The adjustment of $4,070.16 would have been made if the rent had been paid. However it would also have been made to give effect to the scheme in clause 9 if it had not been paid. Thus the adjustment actually made was entirely consistent with the circumstances existing at the time of settlement.
However what Jagar did not do was notify Hanave of the unpaid rent and thus, unambiguously, trigger the operation of clause 9.2 which would have resulted in the delivery by Hanave to Jagar of a notice of assignment as required by clause 9.2(b)(i). It is unnecessary to determine whether, without notice of the unpaid rent being given to the purchaser, an assignment of the unpaid rent is effected by operation of 9.2(b) above. I say that because without notice of the unpaid rent the operation of clause 9.2(b)(i) would be frustrated. Plainly a notice of assignment can only be provided on completion by the purchaser if the purchaser is on notice of the unpaid rent. While counsel for Jagar raised the issue of equitable assignment, that appears to me beside the point. A vendor wishing to secure an assignment of the debt would, it could be expected, invoke the mechanism provided for in clause 9.2 to effect the assignment. That would involve giving notice of unpaid rent and being provided with a notice of assignment. The critical question, in my opinion, is whether by not giving notice and thus not acquiring all rights that might arise from the operation of clause 9.2, Jagar engaged in conduct which was misleading or deceptive or likely to mislead or deceive.
I should refer to the evidence of Tressider and Glew on this question. Tressider said he was aware at the time of settlement that there was a mechanism that would result in the apportioning of rent between Jagar and Hanave. However he did not recall giving instructions to Hunt & Hunt to the effect that Barbara's Storehouse had not paid the August 1994 rent. He said he did not believe he did. He had assumed at the time that if the rent had not been paid there would be some set-off. However he also said that clause 9.2 had only come to his attention through these proceedings. He denied not telling Hunt & Hunt that Slatyer had not paid the August 1994 rent because he had earlier agreed to waive payment. Glew's evidence was that he was not familiar with clause 9.2 of the contract at the time of settlement. He did say that he told Jagar's solicitors before settlement that Jagar had rents to collect though he did not specifically refer to Barbara's Storehouse.
The contention of counsel for Hanave was that Glew and Tressider had agreed with Slatyer to waive payment of the August 1994 rent and had then embarked upon a scheme to disguise that transaction. Part of the scheme involved not notifying Hanave of unpaid rent as might be expected in order to facilitate the operation of clause 9.2. I have already made a finding that there was no agreement to waive the August 1994 rent. I accept the evidence of Tressider and Glew that, at the time of settlement, they had no real appreciation of the way in which clause 9.2 might operate. The evidence does not sustain a finding that Jagar's solicitors invited Glew and Tressider to identify any unpaid rent for the purpose of giving notice in the way just discussed and that they then refrained from doing so. The failure to give notice arose from the combined effect of Glew and Tressider's not understanding how clause 9.2 might operate, lack of substantial concern on their part about the failure of Slatyer to pay the August 1994 rent and an intention on Glew's part to attempt to pursue Slatyer for it though with the knowledge that it might not be paid.
One can readily conceive of situations where a vendor might elect not to obtain a notice of assignment for the purposes of s 12 of the Conveyancing Act 1919 (NSW). One such situation would be where a vendor recognized the tenant would not voluntarily pay the arrears of rent and would have to be sued for it. The vendor might view the pursuit of it by legal proceedings as costly, uncertain and probably ultimately unproductive. The vendor might be quite prepared, and understandably so, to abandon in advance the pursuit of the arrears by litigation. The fact that a vendor does not notify a purchaser of unpaid rent and thereby forgoes the opportunity of securing a notice of assignment of the debt would not, in my opinion, justify a purchaser concluding that there was, at the time of settlement, no unpaid rent. I am not satisfied that the failure of the solicitors acting for Jagar to give notice to Hanave that the August 1994 rent was unpaid for the purposes of securing a notice of assignment of clause 9.2 constituted a representation that the August 1994 rent had been paid in full and in advance.
Apart from the conduct of Jagar in describing Barbara's Storehouse as an established, high quality tenant in the property report, Hanave has not established conduct, as pleaded, in contravention of s 52. Hanave also advanced its case on the basis that Jagar's conduct of remaining silent about the circumstances of Barbara's Storehouse was conduct proscribed by s 52. Situations can arise where a representation is made which is false and the representor ought to correct it. Both the making of the representation and the failure to correct it by remaining silent can together constitute conduct of the type to which s 52 is directed. Such a situation arose in Demagogue v Ramesky (supra). However, in the present case, the misleading statement concerning Barbara's Storehouse involving a description of it as a "high quality" tenant had no material influence on Hanave's decision to purchase. This is a matter I discuss in more detail shortly. In those circumstances I do not view any failure on Jagar's part to correct the false impression it may have created generally in the property report as conduct on which s 52 would operate. Jagar's failure to disclose its prior poor experience with Barbara's Storehouse as a tenant was not itself conduct which was misleading or deceptive or likely to mislead or deceive if, as a matter of fact, the relevant parts of the property report were not being relied on by Hanave (and they were not).