Kids Club Rozelle Pty Ltd v European Hire Cars Pty Ltd

Australian Consumer Law claim in relation to the Lease

This claim is pleaded in the Third Further Amended Statement of Cross-Claim. The impugned conduct is that which is described in paragraphs 4 to 6 of the pleading, coupled with the failure of the plaintiff and Mr Stone "to avert [sic-advert] to any other material fact relevant to the conduct of the proposed business".
Paragraphs 4 to 6 of the pleading are in the following terms: 4 Between September 2013 and February 2014, the plaintiff orally proposed to the defendant that: (a) It wanted to lease the defendant's premises at Rozelle and build a childcare centre for the purposes of conducting the aforesaid business (b) It already operated similar leasehold childcare centres in Clarence Street and Elizabeth Street in the city, and wanted to open more in the suburbs of Sydney (c) It by Mr Stone, having taken John Galluzzo in person to see "its childcare centre" at Clarence Street, the Rozelle centre would be built to the same standard as that Centre under the proposed lease (d) The Rozelle centre would be up and running in "a year's time", that is there was to be a functioning childcare centre operating under a new lease with the defendant of premises fitted out as a "Kids Club" childcare centre. 5 From February 2015 the plaintiff by Mr Stone informed the defendant that it "would need to start looking for another premises to relocate to" because the plaintiff would take the lease and commence the childcare business. 6 In September 2015 the plaintiff by Mr Stone orally informed the defendant that the time had come for it "to move" because the plaintiff was about to start construction of the centre at Rozelle for the childcare business to be conducted under the lease.
It is alleged in paragraph 7 that by such conduct, together with the failure of the plaintiff and Mr Stone to advert to any other material fact relevant to the conduct of the proposed business, it was represented to the defendant that the plaintiff had the financial capacity to prosecute a business such as was envisaged by the plaintiff's proposal, and to the standard represented, once there was a long term lease of the defendant's property, and further that the plaintiff had the financial capacity to conduct such a business and pay the rent under the lease. It is then alleged that the defendant, induced by those representations, entered into the Lease (see paragraphs 8(a) and 17(a)). It is further alleged in paragraph 13 that the plaintiff, by Mr Stone, induced the defendant to believe that the plaintiff had the necessary financial capacity to build the proposed childcare centre.
It is alleged in paragraph 9 that the representations referred to in paragraphs 4 to 6 were misleading or deceptive or likely to mislead or deceive (or, insofar as they are as to "future matters" within the meaning of s 4 of the Australian Consumer Law, deemed to be misleading or deceptive or likely to mislead or deceive) in that the plaintiff and Mr Stone did not have the financial capacity to establish a childcare business at Rozelle, construct the improvements required and pay rent as proposed under the lease. The evidence is clear that the plaintiff did not at any time up to the date of execution of the Lease have finance in place for the purpose of constructing the proposed childcare centre. Mr Stone gave evidence of only potential sources of finance.
In relation to paragraph 4 of the pleading, Mr Galluzzo deposed that on a number of visits to the property from about September 2013 and "in the following 203 [sic-2-3] months" Mr Stone said words to the following effect: I am interested in leasing the Rozelle Premises for the purpose of building and operating a childcare centre. I am looking to open up a number of centres throughout Sydney. Some are already up and running - you should come and have a look at one of my other centres in Clarence Street. The Rozelle one will be the biggest one that I am going to build.
Mr Galluzzo deposed that in his discussions with Mr Stone around that time Mr Stone said words to the following effect: I will need to obtain a development approval from the Council. That could take about 12 months. So we would need to enter into an agreement to lease first, which would take effect if the development approval has been obtained within 12 months from the date of the agreement.
Mr Galluzzo also refers in his affidavit to the offer document that was provided (by Kids Club Early Childhood Learning Centres Pty Ltd) on about 30 September 2013, but the pleaded case does not extend to any written representations.
Mr Galluzzo further deposed that in about late 2013 Mr Stone took him to "one of his childcare centres" in Clarence Street, and that on that occasion Mr Stone said words to the following effect: This is the quality that we would build your childcare centre in Rozelle to. The desks, the beds, the kitchen are of very good quality and high standard. In fact, in your premises, I am going to build a better building than this because I can start from scratch. This centre was already constructed when we leased it. In your premises, I will build it the way I want to do it.
Mrs Galluzzo deposed that after Mr Stone's initial visit to the property in about September 2013, Mr Stone returned on a number of occasions in September and during those visits said words to the following effect: I am interested in leasing the Rozelle Premises on a long-term basis and building and operating a childcare centre here. I will first need to obtain development approval which should take no more than a year. I have constructed a number of childcare centres which I operate. The centre I would build at the Rozelle Premises would be the same quality as my other childcare centres. I can take you to see some of the other childcare centres if you would like to.
Mrs Galluzzo also refers to the offer document that was provided on about 30 September 2013, but again, the pleaded case does not extend to any written representations.
Some of the evidence set out above is contested by Mr Stone. He denies telling Mr Galluzzo that some centres were up and running and that he should come and look at "my centre" in Clarence Street. He also denied saying that the Rozelle centre will be the biggest centre he would build. In relation to Mrs Galluzzo's account, Mr Stone denies that he said that he was operating a number of childcare centres and that he offered to take Mr and Mrs Galluzzo to see them.
Mr Stone denies that he took Mr Galluzzo to the Clarence Street premises in late 2013. He says that he met Mr Galluzzo at those premises in about early 2016. Mr Stone gave evidence that the Clarence Street centre did not commence operation until late October 2015. That evidence is supported by a copy of the relevant Service Approval which is dated 27 October 2015. When challenged in cross-examination about the date of the visit, Mr Galluzzo stated that his affidavit was incorrect, and that the visit actually took place in the following year, in about October or November 2014. When shown the Service Approval Mr Galluzzo said he would still "go with" 2014 as the date. This aspect of Mr Galluzzo's evidence was unimpressive. He gave the impression that he was merely guessing as to when the visit took place. Even though the evidence is not clear as to whether the Clarence Street centre was operating at the time of the visit (and this topic was not explored in cross-examination), I prefer Mr Stone's evidence as to when the visit to the Clarence Street premises occurred.
I also accept Mr Stone's evidence to the effect that in late 2013 he did not say that he was then operating a number of childcare centres, and did not offer to take Mr and Mrs Galluzzo to see those childcare centres. There is no evidence that any centres were actually being operated at that time by the plaintiff or some other company controlled by Mr Stone (although it seems that Mr Stone had some involvement in the management of centres operated by his mother's childcare business known as Cubbyhouse). I do not think that Mr Stone would have said that he (or the plaintiff) was already operating his own centres, or offered to show them to Mr and Mrs Galluzzo. Whilst I have reservations about some aspects of Mr Stone's evidence (referred to later in these reasons), I formed the impression that his evidence about the affairs of the plaintiff and the other companies under his control within what might be referred to as the Kids Club group was by and large accurate and reliable. I accept his evidence that he did not say that the Rozelle centre would be the biggest centre he would build. I note that Mrs Galluzzo does not depose that words to that effect were said.
In relation to paragraph 5 of the pleading, Mr Galluzzo deposes that in about early February 2015 Mr Stone attended the Rozelle premises and said: You're going to have to go soon, as everything is on track with the DA approval and I will need to get underway with construction as soon as we sign the lease.
Mr Galluzzo then refers in his affidavit to an email sent by Mr Stone to Mr and Mrs Galluzzo on 3 February 2015 which attached some information about the leasing of warehouse premises in the south Sydney area. Mr Galluzzo then refers to the email sent by Mr Stone on 12 February 2015 (referred to at [15] above) and deposes that Mr Stone again attended the Rozelle premises and said to Mrs Galluzzo and himself words to the following effect: I am now going to have to go to Court to get the DA. This is going to drag things out for a few more months. Can we treat the agreement to lease as still being on foot while I go through that process? Mr Galluzzo deposes that he and his wife agreed to that suggestion.
Mrs Galluzzo deposed that in late 2014 and early 2015 Mr Stone made a number of visits to the Rozelle premises, and on more than one occasion said words to the following effect: You will have to start thinking about moving soon because the DA application is going ahead nicely.
Mrs Galluzzo then refers to Mr Stone's emails of 3 February 2015 and 12 February 2015, and deposes that shortly thereafter Mr Stone attended the Rozelle premises and said words to the following effect: Given the Leichhardt Council has rejected DA, you should stop looking for premises for the time being, while I take the application to the Land & Environment Court. That could take a few more months. Can we treat the agreement for lease as continuing on the same terms for a few more months? Mrs Galluzzo deposed that she and her husband agreed to that suggestion.
Mr Stone denied making the statement in early February 2015 attributed to him by Mr Galluzzo. Mr Stone deposed that at that time he did not have development approval and his experience with the development approval process caused him to believe that the time until construction could commence was uncertain and could be lengthy. Mr Stone also denied making the statement in late 2014 or early 2015 attributed to him by Mrs Galluzzo. I accept Mr Stone's denials. It is unlikely that Mr Stone said that the defendant would "have to go soon" or will have to "start thinking about moving soon". There was no development approval, and the Land and Environment Court proceedings had not been set down for hearing. The content of the email of 12 February 2015 does not suggest that the approval would be obtained soon, even if it displays confidence that the approval would ultimately be obtained. The making of such statements also seems somewhat at odds with the content of the Wight & Strickland letter of 26 June 2015 (referred to at [17] above). That letter, admittedly sent some four months later, is consistent with discussions having occurred along the lines of the defendant not being expected to move out until some three to four months after the obtaining of approval. I note that Mrs Galluzzo recalls a discussion to similar effect in about June 2015. In addition, until such time as the plaintiff was almost ready to commence construction, it had no need to pressure the defendant to move out.
The reliability of the evidence of Mr and Mrs Galluzzo on this matter is to some extent undermined by the suggestion contained in their affidavits that Mr Stone had not informed them (at least prior to the 12 February 2015 email) that the development application had been refused. It is clear, from an email sent by Mrs Galluzzo on 16 September 2014 to the defendant's accountant Mr Maurizio Zappacosta, that at least Mrs Galluzzo had been informed by that time that the application was being taken to the Land and Environment Court to "get the plans passed". In cross-examination, Mrs Galluzzo accepted that was so.
Mr Stone did not take issue with the accounts of the conversation in February 2015 about treating the agreement for lease as continuing, save that Mr Stone denied saying that Mrs Galluzzo "should stop looking for premises". Nothing of significance turns on this, but I think it likely that around that time there was some discussion about the defendant not needing to move out until after the development approval was obtained.
In relation to paragraph 6 of the pleading, Mr Galluzzo deposed that after the development approval had been obtained, Mr Stone attended the Rozelle premises and said words to the following effect: You will need to move out soon so I can get underway with construction. I will pay for your new premises - it will be cheaper for me to do that before I sign the lease at the Rozelle Premises than to wait until after we have signed the lease and I am paying the rent.
Mrs Galluzzo deposed that in about September 2015 Mr Stone attended the Rozelle premises and a discussion to the following effect occurred: Mr Stone: I am getting ready to obtain the construction certificate. Once that has occurred you will need to move elsewhere, as we will be starting the construction soon. It would suit me better if you moved out before we actually sign the lease, so I can get underway with construction. I would be happy to pay the rent at your new location, as this would be cheaper for me than paying you rent under the lease. Mrs Galluzzo: What about the outgoings like rates and land tax? Mr Stone: Forward those to me - I will pay them as well.
In response, Mr Stone again denied that he said that Mr and Mrs Galluzzo would need to move out soon. Mr Stone deposed that as at late 2015 he was not yet ready to construct the childcare centre, and he did not wish to pay rent which he understood he would have to do once the defendant vacated the Rozelle premises. I accept Mr Stone's evidence in this regard, and also his evidence that at about that time he said that if the defendant moved out he would be happy to pay the rent and outgoings for the new premises instead of rent on the Rozelle property. As stated earlier, an agreement to that effect was made in late 2015 (as was an agreement for the plaintiff to meet the cost of rates and land tax on the Rozelle property). However, despite his denial, I think it is likely that in about September 2015 Mr Stone did say words to the effect that once a construction certificate was obtained, the defendant would need to move out. Words to that effect would be consistent with the tenor of the Wight & Strickland letter of 26 June 2015.
In summary, I am satisfied on the evidence that on various occasions in the period from about September 2013 to February 2014 (when the Deed of Agreement for Lease was entered into) Mr Stone made statements (including on behalf of the plaintiff) to the following effect to either Mr or Mrs Galluzzo, or both of them: 1. that he (or a company associated with him) was interested in taking a long term lease of the Rozelle property for the purpose of building and operating a childcare centre there; 2. that he (or companies associated with him) were looking to open up a number of childcare centres throughout Sydney; and 3. that a development approval would need to be obtained for the childcare centre, and this could take about 12 months to achieve.
I am not satisfied, however, that from February 2015 Mr Stone on behalf of the plaintiff informed the defendant that it would need to start looking for other premises to move to because the plaintiff was to take the lease and commence the childcare business. Neither am I satisfied that in September 2015 Mr Stone on behalf of the plaintiff informed the defendant that the time had come for it to move because the plaintiff was about to start construction of the childcare centre at Rozelle for the childcare business to be conducted under the lease.
The defendant has thus established only some of the conduct it relies upon for its Australian Consumer Law claim in relation to the Lease. It remains necessary to determine whether the conduct that has been established amounts to conduct that is misleading or deceptive, or likely to mislead or deceive, within the meaning of s 18 of the Australian Consumer Law.
It is the defendant's case that the conduct involved representations that the plaintiff had the financial capacity to prosecute a childcare centre business at the Rozelle property such as was envisaged once there was a long term lease of the property, and further that the plaintiff had the financial capacity to conduct such a business and pay the rent under the (proposed) lease. It also seems to be alleged that the conduct involved a representation to the effect that the plaintiff had the financial capacity to build the proposed childcare centre. The conduct, coupled with the failure of the plaintiff and Mr Stone to advert to any other material fact relevant to the conduct of the proposed business, is said to be misleading or deceptive or likely to mislead or deceive because the plaintiff did not in fact have the financial capacity to establish the childcare business at the Rozelle property, construct the required improvements, and pay rent as proposed under the lease.
I will first consider whether the making of the statements that I have found were made in the period from September 2013 to February 2014 constituted the making of any representations in the nature of those alleged (in paragraph 7 of the pleading) and, if so, whether any such representations were representations with respect to any future matter within the meaning of s 4 of the Australian Consumer Law. In making that assessment the statements must of course be viewed in the context in which they were each made, namely, discussions about a proposed lease.
I am not satisfied that the statements, either individually or taken together, amount to the making of any representations in the nature of those alleged. Statements to the effect of those set out in 51(a) and (b) above ought in my view be regarded as representations concerning the intentions of the plaintiff and Mr Stone. They are statements about what activities the plaintiff and Mr Stone were seeking to pursue. They were "looking to" open a number of childcare centres throughout Sydney, and they were "interested in" taking a long term lease of the Rozelle property for the purpose of building and operating a childcare centre there. It may be accepted that if such activities were ultimately carried out, financial resources, even significant financial resources, would be required. However, I do not think that the statements convey any representation that the plaintiff had, or would have, the financial capacity to actually carry out those activities, or indeed meet obligations under any lease later entered into with the defendant. The statements are to the effect that the plaintiff wanted to or intended to pursue those activities. They do not in my opinion involve any assurance, or even prediction, that the plaintiff has, or will have at some point in the future, the financial capacity to do so.
The statements remain, in essence, expressions of intention. The statements themselves really say nothing about the financial position of the plaintiff, whether at the time the statements were made, or at any time in the future. A recipient of such statements is not enlightened at all as to the present or future financial capacity of the plaintiff. The recipient is left to wonder about the financial feasibility of the plaintiff actually fulfilling its stated ambitions. I note that Mrs Galluzzo accepted in cross examination that she knew that the plaintiff had been formed specifically for the Rozelle property.
I also note in this regard that it seems to be the case (and the defendant's claim apparently proceeds on the basis) that apart from the particular statements identified, no other material facts were disclosed "relevant to the conduct of the proposed business". The statements were thus not added to or qualified in any way relevant to the financial capacity of the plaintiff.
A statement to the effect of that set out in 51(c) above does not convey any representation that the plaintiff had, or would have, the financial capacity to build and then conduct a childcare centre on the Rozelle property, and pay rent under the (proposed) lease. It is an accurate statement of fact about the need for a development approval in order to establish a new childcare centre, and an estimation of how long it might take to obtain a development approval. The statement contains no representation as to the plaintiff's financial capacity.
For the above reasons I have concluded that the statements made in the period from September 2013 to February 2014 do not (whether viewed individually or together) amount to the making of any representations in the nature of those alleged by the defendant, or the making of any representations of that nature with respect to any future matter within the meaning of s 4 of the Australian Consumer Law. I should add that insofar as the defendant seeks to rely upon the silence of the plaintiff and Mr Stone as to the plaintiff's financial capacity, it was not shown (and it was not put to Mr Stone) that any refraining to disclose matters was other than inadvertent (see s 2(2)(b) and (c) of the Australian Consumer Law; see also Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 at [58]; Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 at [360]). As far as the evidence goes, the topic of the plaintiff's financial capacity was never raised in the course of the discussions between the parties prior to the execution of the Lease. It was not submitted by the defendant that circumstances existed that gave rise to a reasonable expectation that the plaintiff would provide information as to its financial capacity (see Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [19]).
These conclusions mean that the defendant's Australian Consumer Law claim in relation to the Lease must be rejected.
Even if the conduct of the plaintiff and Mr Stone was, contrary to my conclusion, held to be misleading or deceptive or likely to mislead or deceive as alleged, I would not have found that the defendant had suffered, or was likely to suffer, loss or damage because of the conduct.
That is because I would not have found that the conduct was a cause of the defendant entering into the Lease. Neither Mr Galluzzo nor Mrs Galluzzo gave direct evidence to the effect that had certain conduct of the plaintiff and Mr Stone not taken place, or had they not held certain beliefs as to the plaintiff's financial capacity, they would not have been agreeable to the defendant entering into the Lease. I have not overlooked that Mr Galluzzo gave evidence that at no time up to entry into the Lease did he have any concerns about Mr Stone's ability to meet his financial obligations under the Lease, or have any reason to think that Mr Stone was other than a successful businessman running successful childcare centres (which Mr Galluzzo said he had seen). Nonetheless, Mr Galluzzo does not relate those beliefs to what was said in the period from September 2013 to February 2014, and insofar as they are based on his visit to the Clarence Street centre I have found (contrary to the defendant's pleading) that the visit did not occur until about early 2016.
The visit may have occurred before the Lease was executed. Moreover, I am prepared to accept that on that occasion Mr Stone told Mr Galluzzo, in effect, that he intended to build a childcare centre at Rozelle that was at least of the quality of the Clarence Street centre. However, quite apart from the pleading difficulty, Mr Galluzzo was firm in his evidence in cross-examination that having agreed to extend the Sunset Date under the Deed of Agreement for Lease, he proceeded to sign the Lease because that was "keeping his word". Mrs Galluzzo also accepted in cross-examination that she agreed to sign the Lease because she wished to honour the agreement made to extend the Sunset Date. The position appears to be that Mr and Mrs Galluzzo considered that by reason of the Deed of Agreement for Lease and the subsequent agreement to extend the Sunset Date, the defendant was either bound to, or at least should as a matter of honour, proceed to enter into the Lease. Again, there was no direct evidence to the effect that had certain conduct of the plaintiff and Mr Stone not taken place, the defendant would not have entered into the Deed of Agreement for Lease.
In circumstances where there does not appear to have been any discussion about the financial capacity of the plaintiff prior to entry into the Deed of Agreement for Lease (or the Lease itself), I would not draw the inference that were it not for the impugned conduct of the plaintiff and Mr Stone the Deed of Agreement for Lease (or the Lease itself) would not have been entered into. It is relevant to note in this context that the Deed of Agreement for Lease (which was drafted by the defendant's solicitors) contains a whole agreement clause, and warranties that no representations were relied upon (other than representations expressly set out in the deed); and the Lease itself contains an entire agreement clause. Provisions of that type, whilst not determinative on questions of causation, tend against the drawing of an inference that an agreement was made in reliance upon any pre-contractual representations.
Finally, it should be noted that the defendant had itself made a decision in 2013 to move to smaller premises and lease out the Rozelle property. By April 2016 the defendant had located suitable premises in Marrickville and expected to be able to move in the near future. That is shown by Mrs Galluzzo's email to Mr Stone sent on 11 April 2016. Mr Stone's email in reply later on 11 April 2016 contains a statement about "finalising our finance". The defendant sought to advance this email in support of its case, but it forms no part of the pleaded case, and neither Mr nor Mrs Galluzzo gave any evidence in their affidavits about relying upon the email. There is evidence that at that time solicitors for the proposed consortium were negotiating with solicitors for the Commonwealth Bank about the terms of a facility agreement. The email itself is consistent with the plaintiff not yet having finance in place, and in any case Mrs Galluzzo's reply on 12 April 2016 does not take up the topic of finance. It does not seem to have been further mentioned prior to the execution of the Lease. I do not accept Mrs Galluzzo's evidence, given in cross-examination, that she signed the lease because Mr Stone said he "had his finances ready".
Before leaving this aspect of the case I should record that the defendant in closing submissions did not seem to press its claim that by reason of its entry into the Lease it suffered the loss and damage described in paragraph 17 of the pleading (see also prayer for relief 2(a)). In any case, the defendant seems only to have proven the amount of rent under the lease of the Marrickville premises (being $143,000 for the two years from 2 May 2016 to 1 May 2018), and payment of the sum of $30,000 (being a payment made pursuant to the Deed of Surrender of Lease). It was suggested in closing submissions that a loss was suffered because the Lease provided for a below market rental. There was some evidence to that effect (contained in a Robertson and Robertson valuation report of December 2015), but as a loss of that type was not pleaded I will say no more about it.
In view of the conclusions I have reached, I do not think it is necessary to consider whether it would have been appropriate to make an order under s 243 of the Australian Consumer Law declaring the Lease to be void had the defendant established that it suffered or was likely to suffer loss or damage by conduct that contravened s 18 of the Australian Consumer Law.
The defendant's Australian Consumer Law claim in relation to the Lease has not been made out.

Australian Consumer Law claim in relation to the Deed of Surrender of Lease

There are two aspects to this claim which is pleaded in paragraphs 19 to 26 of the Third Further Amended Statement of Cross-Claim. First, it is alleged that prior to entry into the Deed of Surrender of Lease (hereafter referred to as "the Deed") Mr Stone made various representations to the defendant about the existence of, and state of his negotiations with, potential assignees of the Lease. The representations included statements about offers received by the plaintiff. Most of these representations are contained in emails sent by Mr Stone in late October 2016. It is alleged that the representations were misleading or deceptive or likely to mislead or deceive because the plaintiff had not received offers in the sums alleged "from operators that were willing to proceed". The defendant alleges that the representations induced it to enter into the Deed.
Secondly, it is alleged that prior to entry into the Deed, Mr Stone made various representations to the defendant about how much the plaintiff had spent on the development application for the Rozelle property. In particular, it is alleged that Mr Stone represented that between $400,000 and $500,000 had been spent. It is alleged that these representations were misleading or deceptive or likely to mislead or deceive because the plaintiff had not spent that amount in relation to the development application. The defendant alleges that the representations induced it to enter into the Deed.
The defendant seeks an order under s 243 of the Australian Consumer Law declaring the Deed void ab initio.
In May 2016 Mr Stone commenced discussions with Mr Gabriel Jakob of Little Learning School Pty Ltd ("LLS") about a possible assignment of the Lease. Mr Stone sent information to Mr Jakob about the Rozelle property including as to the development approval. On 21 June 2016 Mr Jakob sent Mr Stone a draft deed that provided for LLS to take an assignment of the Lease upon certain terms for a consideration of $500,000 (plus GST) payable within 14 days. The draft deed included a provision that gave LLS a right to rescind it and receive a refund of all monies paid if it reviewed the Lease and did not agree to accept all its terms. On 29 June 2016 Mr Stone returned the draft deed to Mr Jakob, executed on behalf of the plaintiff, and amended in two respects. The returned draft provided for the consideration of $500,000 to be paid when the assignment of the lease was signed; and there was no longer a refund of monies paid if LLS rescinded the agreement. There is no evidence that Mr Jakob (or LLS) accepted or executed the draft deed sent by Mr Stone. On 5 July 2016 Mr Jakob sent an email to Mr Stone in which he stated that he would wait to hear from Mr Stone "about progress with the landlord". Mr Jakob had earlier informed Mr Stone that he wanted to meet the landlord to discuss the matter.
On 6 July 2016 Mr Stone sent a copy of the draft deed he had executed to Mr Martin Kemp, a consultant to Mr Stone and his companies. Mr Kemp thought that the document had "a lot of obvious shortcomings". It is likely that Mr Kemp spoke to Mr Stone about the document. Mr Stone sent an email to Mr Jakob later on 6 July 2016. Mr Stone stated in the email that the draft deed earlier sent by Mr Stone was the wrong version, and that he would send "the correct version". There does not seem to be any evidence that this was done, but it appears that Mr Kemp suggested that at least a right of rescission in favour of the plaintiff should be included.
Mr Stone deposed that at about that time he had a meeting with Mr and Mrs Galluzzo during which he told them, amongst other things, that he could not get the money from the consortium to build the Rozelle centre, that he had offered the Lease to LLS for $500,000, and that LLS had agreed to pay $500,000 to take over the Lease.
Both Mr and Mrs Galluzzo deposed to a conversation with Mr Stone on about 23 June 2016. Mr Galluzzo deposed that Mr Stone said he was not having much luck finding someone to fund the new centres including Rozelle, that he might try to sell the Lease to LLS for $500,000, and that he and Mr and Mrs Galluzzo could perhaps jointly build the centre. Mrs Galluzzo deposed that Mr Stone said that he could not get the consortium together to fund the new centres, that he had offered the Lease to LLS for $500,000, that LLS was willing to pay $500,000 to take over the Lease, and that perhaps he and Mr and Mrs Galluzzo could build the centre together.
I accept that in about late June or early July 2016 Mr Stone told Mr and Mrs Galluzzo that LLS had offered or was willing to pay $500,000 to take over the Lease of the Rozelle property.
Discussions commenced at about that time about a possible joint venture between the plaintiff and the defendant for the development and operation of a childcare centre at the Rozelle property. It seems that a meeting was held on about 5 July 2016. On 6 July 2016 Mr Stone sent to Mr and Mrs Galluzzo the Robertson and Robertson valuation report of December 2015, a Needs Assessment document, and a spread-sheet described by Mr Stone as a "Cash flow". Mrs Galluzzo forwarded the information to the defendant's accountant, Mr Zappacosta. Mr Zappacosta promptly sent an email to Mrs Galluzzo which included the following: Before we think of anything like this we need to see our friends business plan with full financials. Why did he let you move out without proper funding I really don't understand.
Later on 6 July 2016 Mrs Galluzzo sent an email to Mr Stone requesting that he send his business plan and "full financials".
On 7 July 2016 Mr Stone sent an email to Mr and Mrs Galluzzo that attached further financial information including some cash flow forecasts. The forecasts themselves do not seem to be in evidence.
The negotiations between the plaintiff and the defendant concerning the formation of a joint venture continued into September 2016. Mr Zappacosta assisted the defendant in the negotiations. Mr and Mrs Galluzzo also had the assistance of their son-in-law Mr Oliver Jones, who is a licensed builder. It was contemplated that the joint venture would engage Mr Jones to construct the childcare centre.
It is apparent from email communications between Mr Stone and Mr Jakob that for a time Mr Jakob remained interested in taking an assignment of the Lease. On 27 July 2016 he indicated that he was "ready to go with it". On 15 August 2016 Mr Jakob sent an email "following up about Rozelle" in which he requested that Mr Stone inform him whether it was still going ahead. Mr Jakob stated that he needed to know as soon as possible "so we can move on to other sites". On 29 August 2016 Mr Stone sent an email to Mr Jakob in the following terms: Thank you for being patient in regards to the site at Rozelle. The owners have decided to build the centre and have me operate it. I thank you for your time and am sorry for any inconvenience caused.
Mr Jakob responded shortly thereafter in the following terms: No worries and thanks for letting me know. I hope it all works out for you and good luck with it, it's good location.
Mr Stone deposed that he later spoke to Mr Jakob about other projects, and in conversations in September and October 2016 Mr Jakob told him that he was "still interested" in Rozelle, and had the funding "ready to go".
The negotiations for the formation of a joint venture were terminated by the defendant on 21 September 2016. A meeting was held on that day at the Rozelle premises attended by Mr Stone and Mr and Mrs Galluzzo. The accounts of the meeting differ in some respects but it is clear that Mr Galluzzo said that it had been decided not to go ahead with the joint venture. It appears that Mr Galluzzo spoke about selling the property to a developer, and in that context said something about paying to Mr Stone the amount of what he had spent in obtaining the development approval. According to both Mr and Mrs Galluzzo, when Mr Stone was asked to state how much he had spent, Mr Stone said it was about $300,000 to $350,000 but would need to check, and Mr Galluzzo then requested that he provide receipts or proof of how much was spent.
According to Mr Stone, he said at the meeting that he thought that he had spent something like $400,000 to $500,000, to which Mr Galluzzo responded by saying "That's crazy". Mr Stone agrees that Mr Galluzzo asked him to provide proof of how much was spent.
Mrs Galluzzo sent an email to Mr Zappacosta later on 21 September 2016. The email included the following: Corie spoke with John Corie said if it was a superfund matter he would pay some rent money now. John said he was selling to a developer John said he was offered $6 million and he would try and recover some of Corie's cost so far by offering the developer the DA as well Corie said he thought it was around $300-350k he will look up his balance sheet and get exact figure Corie will send us details of this. It can be backed up with invoices
The content of that email is likely to be reasonably accurate. I find that Mr Stone said that he thought he had spent about $300,000 to $350,000 in obtaining the development approval, but would need to check a balance sheet to obtain the exact figure.
As mentioned earlier, in the days following the meeting, Mr Stone took steps to pay the rent under the Lease (up to 31 October 2016) and provide the required bank guarantees (for a total of $91,500). Mr Stone did not at that stage provide any information about the amount of money spent in obtaining the development approval.
On 11 October 2016 Mrs Galluzzo sent an email to Mr Stone in which she acknowledged the payment of the rent and stated that "we need to catch up".
It seems that Mr Stone and Mr Zappacosta had a conversation on 13 October 2016. On 19 October 2016 Mr Stone, accompanied by Mr Kemp, met with Mr Zappacosta. Mr Zappacosta deposed that he said that Mr and Mrs Galluzzo would be prepared to pay "the costs you spent in obtaining the development approval" but "want to see evidence of the payments first". It appears to be common ground that three options were discussed at the meeting, namely proceeding with a joint venture, the defendant buying the plaintiff out, and the plaintiff assigning the Lease to a third party.
After the meeting Mr Zappacosta sent an email to Mr and Mrs Galluzzo in the following terms: I had a meeting with Corey and his CEO regarding the site and he advised me of the following possible scenarios: Do the joint venture deal on the following basis; introduce $1.8m into the venture and based on the equity split of 50:50, also the construction rent to be paid from the $1.8m and return of part of $85,000 rent paid. Also increase the rent to $300,000 per annum after construction is completed. Corey wants $1m to be bought out of the venture. He justifies this with the following costs: Direct cost of $385,000 Bank guarantee of $90,000 Rent of $80,000 Costs paid to date $30,000 His company time $300,000 Totalling $885,000 Sell to another operator and trigger the assignment clause of $800,000 and Rental Terms remain the same.
Mr Galluzzo deposed that assignment of the lease was an undesirable option "because the rent in the lease was set at 2013 rates but had remained the same in the lease when it was signed in 2016". Mrs Galluzzo deposed as follows: By October 2016, when we were negotiating with Corie for an exit of the Lease, the rental figure in the lease was well short of market rates, given that they reflected September 2013 rates. Any assignment of the Lease by Corie would also include this rental at below-market rates, meaning that [the defendant] would be locked in to that rate for an extended period if the Lease was assigned. This was obviously undesirable to [the defendant], and I was anxious to avoid the assignment of the Lease on those terms…
Mr and Mrs Galluzzo both gave evidence that Mr Zappacosta told them that a market rent for the property would be about $300,000.
On 21 October 2016 Mr Zappacosta conveyed an offer to Mr Stone of $350,000 plus GST to "exit" the Lease and transfer all development approval documentation. On 22 October 2016 Mr Stone responded to Mr Zappacosta, stating that he "will now be transferring the Lease to another operator", and "will trigger the assignment clause". Mr Zappacosta responded later on 22 October 2016, seeking an early meeting with Mr Stone and asking him to nominate his price.
On 24 October 2016 Mr Stone sent an email to Mr Zappacosta. Mr Stone consulted Mr Kemp about its content before it was sent. The email included the following: If I can be advised today to an agreed amount of $650k plus GST plus [sic], and the rent I paid and we settle by 3pm Friday the 28th of October 2016. If you agree I would like a deposit to be agreed, paid into Kids Club Rozelle account by close of business tomorrow as a show of good faith and to settle this matter. The email also referred, in the context of the assignment of Lease option, to a previous agreement with another operator "at an agreed amount of $800K then (maybe different now?)".
Mr Zappacosta promptly forwarded the email to Mr and Mrs Galluzzo, with the message "Urgent ASAP". Later on 24 October 2016 Mrs Galluzzo sent an email to Mr Zappacosta in the following terms: Have spoken with the rest of the family. We need to see evidence of what it has cost Corie to get to this point. We need to see his receipts not just a balance sheet. Then we would consider making a higher offer in return for the DA and all other documentation. Then we would rescind the lease. Mr Zappacosta forwarded the email to Mr Stone on 25 October 2016, and asked Mr Stone "to advise so they can make a revised offer to you today".
Mr Stone and Mr Zappacosta met later on 25 October 2016. Following the meeting, Mr Zappacosta sent an email to Mr and Mrs Galluzzo in the following terms: JUST HAD A MEETING WITH CORIE AND HIS CEO HE WANTS 650K PLUS THE RENT BACK 85K TO DO THE DEAL = 735k He advised why do you need documentation when you agreed my work value to date was 550k and I said would you accept 550k he said no But I believe he will accept 550k plus the rent, also wants an answer today otherwise will advertise tomorrow to sell the da and transfer the lease Pls advise ASAP
Later on 25 October 2016 Mr and Mrs Galluzzo sent an email to Mr Zappacosta that included the following: We need documentation for Corie's work because we have never seen it. He has told us many different figures…$385K, $500K even $880K. We never agreed on any of these figures. He was meant to show us his balance sheet but never did. If he wants to come to a fair deal then it is imperative that we see his costs to date. We would like to see actual documentation showing his costs. Oliver [Jones] has asked to see this info on several occasions. Mr Zappacosta forwarded this email to Mr Stone the next morning with the message "Let's try to sort this out ASAP".
On 27 October 2016 Mr Kemp sent an email to Mr Stone in the following terms: I confirm that I have the funds available to immediately settle on an assignment of the lease on the Waterloo St [Rozelle] site for $650,000 plus GST. If this occurs, I will sell my Hamilton House centre to fund the development of the centre.
Later on 27 October 2016 Mr Stone sent an email to Mr Zappacosta that included the following: You have asked me for the balance sheet, and I don't believe that this is anything to do with the offer that needs to be made, but again in all good faith please see attached the balance sheet for Kids Club Rozelle. … I am now in final negotiations with two operators that are willing to proceed. I have also placed an ad in the financial review for expressions of interest. The attached Balance Sheet for the plaintiff (apparently created earlier that morning) included an asset "DA Costs - Childcare Centre" with a value of $432,812.21. Inter-company loans totalling $637,819.09 were included as a liability.
Mr Zappacosta forwarded the email to Mr and Mrs Galluzzo on 28 October 2016 with the message "They have spent $637K". Mr Zappacosta deposed that Mr Stone had spoken to him about the balance sheet and said that he had "spent more like $637,000 on the DA". In cross-examination, however, Mr Zappacosta said that he did not talk to Mr Stone about the balance sheet. Mr Stone then agreed in cross-examination that he had told Mr Zappacosta that $637,000 had been spent. It is likely that Mr Stone said something to that effect, but I do not think there was anything other than a brief reference to the $637,000 figure in the balance sheet.
On 28 October 2016 Mr Stone received a text message from Mr Zappacosta which stated that he had received a revised offer from the defendant of $475,000 plus GST, plus return of three months' rent. Mr Stone responded by email on 29 October 2016 in the following terms: Thank you for the revised offer of $475K plus GST and three months of return rent. As I said in my last email, I have been negotiating terms this week with 2 other another [sic] operators, one has made an offer of $600K and the other at $520K, they both have substantial profile of centres with a greater worth than I. Maurizio, this is real money and both can settle tomorrow is it was at all possible [sic]. I am happy to except [sic - accept] an amount of $550K plus GST plus 3 months return rent. I will release all information required by you and Surrender the Lease and DA with Settlement by close of business Friday the 4th of November 2016. I will require a deposit of $50K released. My preferred option at this time is to assign the Lease to another Operator. I will be proceeding down this path on Tuesday if we cannot come to an agreement over this weekend. Mr Zappacosta forwarded the email to Mr and Mrs Galluzzo.
They instructed Mr Zappacosta that they would not increase their earlier offer which they described as "our final offer". On 30 October 2016 Mr Zappacosta sent an email to Mr Stone in these terms: Just received an email from the family That the offer is 475 plus GST and 3 months rent Settlement 21 days Corie pls review all you [sic] offers carefully as Johns solicitor is reviewing all legal documentation I believe Johns offer would be the best for all concerned.
After consulting with Mr Kemp about the matter, Mr Stone sent a text message to Mr Zappacosta on 31 October 2016 offering to accept $500,000 plus GST and three months' rent (with rent to cease as of that day, payment of outstanding Council rates, and settlement within 21 days).
Mr Zappacosta responded later that day, stating that Mr and Mrs Galluzzo wanted to "stay with the same offer as yesterday". Mr Stone then sent a further text message to the effect that he would be paying the rent and rates on the following day, and further that he was left with no option other than assigning the lease and that all negotiations would henceforth be through his solicitors.
However, on 1 November 2016 Mr Zappacosta sent a text message to Mr Stone concerning a revised offer of $486,000 plus three months' rent, with no rent to be paid from that day, only the outstanding rates. The offer also included a $30,000 deposit to be paid on the signing of a Heads of Agreement.
Mr Zappacosta provided further details of the revised offer by email sent later that morning to Mr Stone. Consensus as to the terms of an agreement was reached as between Mr Stone and Mr Zappacosta (subject to formal documents being prepared by solicitors and executed by the parties) during the afternoon of 1 November 2016. These terms provided for a payment of a Surrender Sum of $521,000 (made up of $486,000, plus $35,000 representing three months' rent), plus GST. The Surrender Sum was thus $573,100. The terms also provided for the return of the bank guarantees, and $30,000 of the Surrender Sum to be paid on exchange by way of deposit.
The form of the Deed was thereafter settled upon between the solicitors for the respective parties. An exchange of signed counterparts occurred on about 11 November 2016.
The Deed obliged the plaintiff to provide various documents to the defendant in relation to the development application, including receipts concerning payments made for work carried out by nominated "expert specialties" (see cl 3.1(d)). A USB stick containing invoices was provided to the defendant on about 18 November 2016. The total amount of those invoices was about $201,000. The defendant primarily relied upon that evidence to assert that Mr Stone had made misrepresentations as to the amount spent on the development application.
Mr Stone deposed that he may not have placed all the relevant invoices on to the USB stick. Mr Stone further deposed, by reference to the general ledger of the plaintiff and a spreadsheet he prepared based on entries in the general ledger, that the total amount of costs incurred relating to the development approval was about $408,000 (not including a further amount for outgoings agreed to be paid under the Deed).
The spreadsheet contains references to numerous invoices, not all of which were included on the USB stick. Mr Stone's evidence in this regard was not the subject of any substantial challenge in cross-examination save that it was established that one invoice had not been delivered to the plaintiff until January 2017, after entry into the Deed. The spreadsheet includes some amounts that are not accounted for as expenses in relation to the development approval, such as company formation fees, Council rates and land tax. If these amounts are subtracted, the total reduces to about $400,000 (excluding GST). That amount includes $100,000 payable to Mr Kemp's company for consulting fees (pursuant to an invoice issued on about 1 October 2016), and $50,000 payable to Natural Play Equipment Pty Ltd (pursuant to the invoice issued in January 2017). I am prepared to accept that the plaintiff had incurred a liability to Natural Play Equipment Pty Ltd by 27 October 2016 when Mr Stone sent the balance sheet to Mr Zappacosta. The balance sheet seems to have included $50,000 in that regard as part of the item "DA costs".
Mr Stone made various statements about what had been spent in relation to the obtaining of the development approval. I have found that on 21 September 2016 he said he thought he had spent about $300,000 to $350,000, but would need to check a balance sheet to obtain the exact figure. It is likely, based on Mr Zappacosta's email to Mr and Mrs Galluzzo on 19 October 2016, that Mr Stone told him at their meeting that day that direct costs of about $385,000 had been incurred. On 27 October 2016 Mr Stone provided a balance sheet which indicated that there were "DA costs" of $432,812.21.
The balance sheet also referred to Inter-company loans of $637,819.09. That reference indicated that the plaintiff had borrowed funds in that amount. It does not suggest that more than the $432,812.21 had been spent in obtaining the development approval. I have found that Mr Stone said something to the effect that $637,000 had been spent. Nonetheless, Mr Zappacosta did not understand that to be a statement about how much was spent on the development approval. It seems from answers given by Mr Zappacosta in cross-examination that he considered that the figure for Inter-company loans showed how much the plaintiff had been funded by such loans, and that some of that funding had been used for the payment of rent and the establishment of the bank guarantees.
The figure of $432,812.21 for "DA costs" is not accurate. It includes an amount of $22,672.24 in respect of land tax. That item was later removed and not treated as a DA cost in the accounts. The figure also includes $110,000 instead of the correct $100,000 in respect of consulting fees payable to Mr Kemp's company. On that basis, the figure given for DA costs should not have exceeded about $400,000. In addition, it is doubtful whether all of the $100,000 payable to Mr Kemp's company should have been treated as a DA cost. The evidence was clear that Mr Kemp also did consultancy work for other companies associated with Mr Stone in respect of which there were no separate agreements, and no separate payments. However, the extent of that other work was not explored in any detail in cross-examination.
The plaintiff submitted that the email sent on 27 October 2016 with the attached balance sheet conveyed only a representation that the balance sheet included an entry for DA costs in the sum of $432,812.21. I do not think that the representation conveyed was so limited. It seems to me that in the context of an evident desire on the part of the defendant to see some evidence of what had been spent in relation to the obtaining of the development approval, and Mr Stone's earlier statement about needing to check a balance sheet "to obtain the exact figure", the email and balance sheet should be regarded as conveying a representation that costs of no less than $432,812.21 had been incurred by the plaintiff in relation to the development approval. (I do not think that the representation was that at least costs in that amount had actually been spent, as opposed to incurred as liabilities.) The statement in the email to the effect that the balance sheet had nothing to do with the offer that needs to be made does not in my view qualify the representation that costs of no less than $432,812.21 had been incurred.
In my opinion, the amount of costs said to have been incurred was in fact at least about $32,000 more than the true amount. I have therefore concluded that the conduct of the plaintiff (and Mr Stone) in sending the email on 27 October 2016 with the attached balance sheet was misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the Australian Consumer Law. I do not think that the conduct of the plaintiff and Mr Stone about what the plaintiff had spent (including Mr Stone's statement about the $637,000 figure) was otherwise misleading or deceptive or likely to mislead or deceive.
Mr Stone made numerous statements about the existence of, and state of, his negotiations with potential assignees of the Lease. It seems that at the meeting held on 19 October 2016, Mr Stone told Mr Zappacosta that one option was to sell to another operator for $800,000 and assign the Lease. Mr Zappacosta's evidence to that effect was not challenged, and it accords with the email he sent to Mr and Mrs Galluzzo after the meeting.
On 22 October 2016 Mr Stone sent an email to Mr Zappacosta stating that he "will now be transferring the Lease to another operator" and "will trigger the assignment clause".
In an email sent on 24 October 2016 Mr Stone referred to a previous agreement with another operator "at an agreed amount of $800K then (maybe different now?)". In cross-examination, Mr Stone stated that this was a reference to Mr Kemp. Mr Stone stated that he had asked Mr Kemp what he thought the site was worth to which Mr Kemp replied $800,000. Mr Kemp gave evidence to similar effect in his affidavit.
On 27 October 2016 Mr Stone sent an email to Mr Zappacosta in which he stated: I am now in final negotiations with two operators that are willing to proceed.
Finally, Mr Stone's email to Mr Zappacosta on 29 October 2016 contained statements to the effect that he had been negotiating terms with two other operators who had made offers of $600,000 and $520,000, and that both can "settle tomorrow".
The defendant submitted that Mr Stone made a number of false representations about the readiness of potential assignees to take an assignment, and the terms of the potential assignments. It was put that Mr Stone was not in fact in negotiations with two operators in late October 2016, and there was no prospect of an imminent settlement with any operator.
Mr Stone gave evidence that the two operators he was negotiating with were Mr Jakob and Mr Kemp. He deposed that he had a number of conversations in September and October 2016 with Mr Jakob in which Mr Jakob said that he was still interested in the Rozelle property and had funding ready. In relation to Mr Kemp, Mr Stone deposed that on about 26 October 2016 in the course of negotiations with Mr Kemp, Mr Kemp said words to the effect: I won't pay you $800,000, but I will pay you more than Jakob is offering. I will make you an offer. On the following day, Mr Kemp sent the email in which he stated that he had the funds available "to immediately settle on an assignment of the lease…for $650,000 plus GST". In cross-examination, Mr Stone stated that Mr Kemp's offer also included the return of the bank guarantees.
Mr Stone maintained in cross-examination that he had conversations over the telephone with Mr Jakob in late October 2016. No telephone records were produced to corroborate this evidence. I note that a request for production of records was made, but it seems not in sufficient time to enable production of itemised bills at the hearing. Mr Stone conceded that there were no documents that evidenced any negotiations with Mr Jakob in October 2016. Mr Stone agreed that the purpose of his email of 27 October 2016 (which refers to final negotiations with two operators that are willing to proceed) was to try to get Mr and Mrs Galluzzo to settle.
In relation to the email of 29 October 2016, Mr Stone said that the words "both can settle tomorrow" was a figure of speech that to him meant "pretty quickly", and that he was told settlement could happen within the week. Mr Stone said that "if Mr Jakob wasn't going to take it Mr Kemp was". Mr Stone stated that both Mr Jakob and Mr Kemp had agreed final terms with him. He further stated that there was already an agreement with Mr Jakob and all that had to happen was for the agreement to be signed and it was "a done deal".
Mr Kemp stated in cross-examination that in late October 2016 he had the funds available to pay an amount of $650,000 plus GST. Mr Kemp gave further details of this in re-examination. Mr Kemp gave no evidence about his offer also including the return of the bank guarantees. Mr Kemp stated that the amount of his offer was separate from the amount required to undertake the development of the Rozelle site, which would have been funded by a sale of a childcare centre known as Hamilton House. Mr Kemp agreed that the purpose of giving Mr Stone the offer (in his email of 27 October 2016) was to allow Mr Stone to represent that there was someone who had $650,000 plus GST immediately available to settle on about that day. Mr Kemp conceded that he may have known at that time that Mr Jakob had earlier made an offer of only $500,000. Mr Kemp could not recall ever making an arrangement to purchase the development approval or the Lease for $800,000.
Mr Jakob was not called as a witness. I would not regard Mr Jakob as being relevantly in the camp of either side. As will be seen, Mr Jakob, or his company LLS, was subsequently involved in negotiations with the defendant about the property.
I have reservations about the evidence of Mr Stone on this topic, at least insofar as his evidence is not corroborated by reliable contemporaneous documents. Despite those reservations, I am prepared to accept that in October 2016 he had one or more conversations with Mr Jakob about the possibility of Mr Jakob (or LLS) taking an assignment of the Lease. I do not accept that Mr Jakob went much further than state that he remained interested in the Rozelle property. It is true that draft agreements had been executed and sent in the course of the negotiations earlier in 2016, but no consensus was reached on the terms at that time. For an agreement to be reached there would need to be further negotiations. Given that the negotiations that occurred earlier in 2016 involved frequent communication by email, had any renewed negotiations occurred they would very likely have been the subject of emails. I am unable to accept that Mr Stone had agreed final terms with Mr Jakob.
I am also unable to accept that Mr Stone had agreed final terms with Mr Kemp. Leaving aside the evidence about the return of the bank guarantees (something that is not recorded in Mr Kemp's email of 27 October 2016, and not referred to by Mr Kemp in his evidence), the "offer" made by Mr Kemp contains only the price. There is no evidence of any negotiations occurring as to any other matters (such as when the assignment would be effected, and how and when the price would be paid). There was at most an expression of willingness on the part of Mr Kemp to come to an agreement for an assignment of the Lease at a price of $650,000 plus GST. I am prepared to accept that Mr Kemp was genuinely interested in coming to such an agreement at that price.
In my opinion the statement made by Mr Stone on 27 October 2016 that he was then "in final negotiations with two operators that are willing to proceed" was inaccurate. It was an exaggeration of the position. It gave an erroneous impression that negotiations with two willing operators were now in their final stages. I infer that Mr Stone exaggerated the position to further his purpose of trying to get Mr and Mrs Galluzzo to settle.
I also think that the statement made by Mr Stone on 29 October 2016 that he had received offers of $600,000 and $520,000 was inaccurate. I consider that the terms of the email suggest that the offers had been recently made, or were at least current. Leaving aside that Mr Kemp's "offer" was $650,000 and Mr Jakob's earlier offer was $500,000, I do not accept that Mr Jakob had made an offer in October 2016. Mr Stone's affidavit evidence goes no further than state that Mr Jakob had said that he was "still interested". Of course, insofar as Mr Kemp's "offer" is concerned, the email understates its magnitude by $50,000.
The further statement made by Mr Stone on 29 October 2016 that "both can settle tomorrow" is also an inaccurate statement. It gave (or continued) the erroneous impression that negotiations with the two willing operators were in their final stages and indeed could result in a settlement within days. (In circumstances where the email was sent on a Saturday, the reference to "tomorrow" ought not be read literally.) Again, I infer that Mr Stone put this exaggerated position in furtherance of his purpose to try to get Mr and Mrs Galluzzo to settle.
In my opinion, the conduct of the plaintiff (and Mr Stone) in sending the emails on 27 October 2016 and 29 October 2016 that contained these inaccurate statements was misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the Australian Consumer Law.
The statements made earlier by Mr Stone about the possibility of assigning the Lease for $800,000 are also inaccurate and in my view misleading insofar as it was suggested that agreement had been reached with another operator to pay that figure. At most, Mr Kemp had stated that he thought the site (with the benefit of the Lease and the development approval) was worth about that sum and that if Mr Stone ever wished to sell, he would be prepared to pay that amount. However, the terms of Mr Stone's later email of 24 October 2016 indicate that any such agreement was made in the past, and a price of $800,000 may not be current. It therefore seems to me that any representations made as to a likely price of an assignment were effectively superseded by Mr Stone's later representations (in the emails of 27 and 29 October 2016) about the offers he said had been made by the two operators he was negotiating with.
I do not think that the general statements made by Mr Stone about his intention to pursue an assignment of the lease (and "trigger the assignment clause") were misleading or deceptive or likely to mislead or deceive. I accept that it was Mr Stone's intention to pursue an assignment of the Lease if an agreement could not be promptly reached with the defendant. It was not suggested to Mr Stone that he did not have that intention.
In summary, the defendant has established that, prior to entry into the Deed, the plaintiff (and Mr Stone) engaged in conduct in contravention of s 18 of the Australian Consumer Law in the following respects: 1. by suggesting (including in the email sent on 24 October 2016) that agreement had been reached with another operator to take an assignment of the Lease for an amount of $800,000, when in fact there was no such agreement, the other operator having merely stated that he thought the site was worth about that sum and that if the plaintiff wanted to sell he would be prepared to pay that amount; 2. by sending the email and attached balance sheet on 27 October 2016 the plaintiff represented that costs of no less than $432,812.21 had been incurred by it in relation to the development approval, when in fact the amount was about $400,000; 3. by sending the email on 27 October 2016 the plaintiff created the erroneous impression that negotiations for an assignment of the Lease were in their final stages with two willing operators, when in fact there were no negotiations with one of the operators at that time and the negotiations with the other operator had not gone beyond an expression of willingness to come to an agreement at a certain price; 4. by sending the email on 29 October 2016 the plaintiff represented that two offers to take an assignment of the Lease had recently been made or were at least current, when in fact the only "offer" of that kind was Mr Kemp's "offer" contained in his email sent on 27 October 2016; and 5. by sending the email on 29 October 2016 the plaintiff further represented that the negotiations with the two willing operators were in their final stages and indeed could result in a settlement within days, when in fact there were no negotiations with one of the operators at that time and the negotiations with the other operator had not gone beyond an expression of willingness to come to an agreement at a certain price.
The defendant claims that it was induced by the misleading or deceptive conduct of the plaintiff to enter into the Deed, and that it thereby suffered loss or damage.
Mr Galluzzo deposed that "things came to a head" in relation to the negotiations for the Deed on around Friday 28 October 2016 and over the following weekend. He deposed that he had a conversation with Mrs Galluzzo to the following effect: Mrs Galluzzo: Maurizio has spoken to Corie and he now says his costs of getting the DA were $637,000. He has given a balance sheet which says the costs are $432,000. I don't know what the real figure is. But he also says he has two other people he can assign the lease today and they must be willing to pay that sort of money. Mr Galluzzo: OK well I think we had better offer him a higher amount to try and get this resolved. Perhaps we offer $475,000 plus the 3 months rent. Mrs Galluzzo: OK, I will tell Maurizio.
Mr Galluzzo also deposed that after Mr Stone sent his email of 29 October 2016 he (Mr Galluzzo) had a number of conversations with Mrs Galluzzo to the following effect: Mrs Galluzzo: Corie has made it pretty clear that if a deal isn't done very soon he will be assigning the lease. If we are going to avoid that we are going to have to resolve it very soon. He has other people lined up that want to pay him between $520,000 and $600,000 for an assignment of the lease. I don't think he is going to give us proof of the development costs. Mr Galluzzo: Yes we are going to have to increase our offer to get this resolved.
Mrs Galluzzo referred in her affidavit to "the climate of extreme urgency" created by Mr Stone's threats that if the defendant did not agree terms with him he would immediately assign the Lease to one of the operators who were prepared to pay more than the defendant was offering. She also referred to "the necessity" for Mr Stone to provide evidence to substantiate the direct expenses he claimed the plaintiff had incurred in obtaining the development approval. Mrs Galluzzo said that she considered that these were the two most important aspects of the negotiations for the Deed.
Mrs Galluzzo deposed that on the morning of 28 October 2016 she had a conversation with Mr Zappacosta to the following effect: Mr Zappacosta: Corie says his costs of obtaining the DA are $637,000. The balance sheet says it is around $432,812. It sounds like he is serious about assigning the Lease to someone else unless you make an increased offer by the end of the day. Mrs Galluzzo: Thanks Maurizio, I will discuss with John and call you back.
Mrs Galluzzo deposed that she then had a discussion with Mr Galluzzo to the following effect: Mrs Galluzzo: Corrie says he has spent $432,812 or $637,000 on the DA. It sounds like if we don't move quickly he could assign the lease today and we are stuck with the rent in the Lease. I doubt we will be able to get the invoices from him for the costs today. Mr Galluzzo: I think we should offer him a sum higher than the sum in the balance sheet for DA costs to try and get this resolved today. Maybe we should offer $475,000 plus GST and to return the 3 months' rent? Mrs Galluzzo: I agree. I will let Maurizio know.
In relation to the email sent by Mr Stone on 29 October 2016 Mrs Galluzzo deposed: In addition to the very tight timeframes stated in this email, the content of the email significantly added to the urgency from my perspective because it contained specifics about other parties that Corie said he had been negotiating with, including that offers had been made in defined sums, that they were both down to negotiating terms, and were able to "settle tomorrow". I also thought that the sums of $600,000 and $520,000 were true, in light of the fact that Corie had told Maurizio that he had spent $637,000.
Mrs Galluzzo then referred to Mr Stone's email of 31 October 2016 which stated that he had no option other than assigning the Lease. Mrs Galluzzo deposed: By this time, I felt trapped by the prospect of the lease being assigned, and resigned to the fact that we would need to agree to terms even without seeing the evidence of his development approval costs…
In cross-examination, Mrs Galluzzo stated that the matter "started to get urgent" on 25 October 2016 after Mr Zappacosta had reported on his meeting that day with Mr Stone. She said that no counter offer was made at that point because she was waiting for more information, or documentation, from Mr Stone. Mrs Galluzzo stated that after Mr Stone sent his email of 27 October 2016 (with the balance sheet attached) the matter was "more urgent" as there were now "two operators". Mrs Galluzzo agreed that she was not sure whether to believe Mr Stone about what had been spent, and that she and her husband were confused about it. She maintained that the defendant's offer of $475,000 plus GST plus three months' rent was based on the balance sheet "because we knew it would be between the 432 and the 637". She later said that the balance sheet was "the only thing we had to go by because he would not give us receipts". Mrs Galluzzo stated that she was concerned that the plaintiff would immediately transfer the Lease, and was very concerned about that after Mr Stone's email of 29 October 2016 which referred to two operators. She agreed that by 31 October 2016 she wanted to finalise the matter, and accordingly gave instructions to increase the defendant's offer by $11,000.
Mrs Galluzzo also gave evidence in cross-examination about wanting to separate from Mr Stone. She stated, in effect, that from September 2016 the defendant did not want to be involved in a joint venture with Mr Stone because of his association with Mr Kemp and also because Mr Stone was a bad tenant. Mrs Galluzzo agreed that for those reasons "we wanted him out of our life", and "wanted to end the lease". She later said that the major reason she wanted to get out of the Lease was because Mr Stone was a bad tenant and she did not want to be associated with him.
Mr Galluzzo said in cross-examination that his wife never told him that she cared about Mr Kemp's association with Mr Stone. He agreed that after a time (seemingly from about 21 September 2016) he wanted Mr Stone out of his life. He said that this was because Mr Stone was a liar and a cheat, not a man of his word. He said that he had no trust in him anymore, and did not want to deal with him anymore. When asked about the third option referred to in Mr Zappacosta's email of 19 October 2016 (namely, an assignment of the Lease) Mr Galluzzo said it caused him no concerns, and he simply did not believe that Mr Stone would assign the Lease to another operator. Mr Galluzzo agreed that this remained his opinion throughout. Mr Galluzzo accepted that after receiving the balance sheet Mrs Galluzzo told him that she did not know what the real figure was for the plaintiff's DA costs. Mr Galluzzo agreed that he had no idea of what the real figure was.
The defendant submitted that where, as here, representations were made in terms apt to create a particular mental impression, and they were intended to do so, it may properly be inferred that the representations have had that effect (see Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [55]). The defendant accepted that in a case where it is alleged that a party was induced by misrepresentations to enter into a transaction it is necessary to prove reliance upon the misrepresentations. However, it was submitted that reliance can be inferred from the circumstances, and whilst there was some direct evidence as to the effect of the statements made, direct evidence of reliance is not necessary when the Court is able to objectively determine the likely effect of the misleading conduct (see Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357 at [45]).
The defendant submitted that Mr Stone's repeated threats to assign the Lease were made for the purpose of creating a particular impression in the minds of Mr and Mrs Galluzzo, and were objectively likely to have that effect. It was submitted, in relation to the statements made about development approval expenses, that it was clear that this was an important issue for Mr and Mrs Galluzzo, who wanted to see evidence of what was spent.
The plaintiff submitted that the defendant's decision to enter into the Deed was not made because of Mr Stone's statements about assigning the Lease or about what was spent in obtaining the development approval. It was submitted that the transaction was the defendant's idea, announced by Mr Galluzzo at the meeting on 21 September 2016. The plaintiff emphasised Mr Galluzzo's evidence about never believing that the Lease would be assigned, and the evidence given by both Mr and Mrs Galluzzo about wanting to end the relationship with Mr Stone. The plaintiff also referred to evidence about the defendant wanting to build and operate a childcare centre at the property without Mr Stone.
The plaintiff also submitted that the statements made about assigning the Lease (including in the 29 October 2016 email that referred to offers made by two operators who could "settle tomorrow") seemed to have little impact upon the course of the negotiations. Reference was also made to evidence given by Mrs Galluzzo that she knew that under the Lease the approval of the defendant was required for any assignment. In relation to the development approval expenses, the plaintiff noted that the defendant offered to pay an amount considerably greater than the figure for DA costs contained in the balance sheet. The plaintiff also pointed to the evidence that showed that Mr and Mrs Galluzzo wanted to see receipts as proof of amounts spent, not merely a balance sheet. It was noted that the Deed itself contained no warranty as to the amount spent in relation to obtaining the development approval.
It is important, in considering the effect of the conduct that contravened s 18 of the Australian Consumer Law, to view the relevant evidence in its entire context. The conduct occurred in the latter part of October 2016 in the course of the negotiations that led to an agreement in principle as to terms, and later entry into the Deed on about 11 November 2016.
The negotiations commenced after the defendant terminated the negotiations for the formation of a joint venture. Mrs Galluzzo's email of 11 October 2016 suggests that this resumption of negotiations occurred at the defendant's instigation. Both Mr and Mrs Galluzzo gave evidence to the effect that by this time they (perhaps for different reasons) wanted Mr Stone out of their lives. There is evidence that Mr Zappacosta spoke to Mr Stone on 13 October 2016. An email sent by Mr Zappacosta to Mrs Galluzzo on 17 October 2016 indicates that Mr Stone wanted the defendant to make a proposal to put the deal (presumably the joint venture) back on. The formation of a joint venture was the first of the three options discussed between Mr Stone and Mr Zappacosta on 19 October 2016. Mrs Galluzzo gave evidence that "we didn't want that option", and agreed that she still wanted Mr Stone out of her life at that point.
I referred earlier to the evidence given by Mr and Mrs Galluzzo concerning the undesirability of the third option, namely, an assignment of the Lease. They were both concerned about the low rent provided for under the Lease. At $212,000 per annum for the second year, it was considerably below the $300,000 that Mr Zappacosta advised was the market rent. Mrs Galluzzo deposed that she was anxious to avoid the assignment of the Lease on such terms.
The defendant sought to pursue the second option, being the making of a payment to the plaintiff to "buy it out". It appears that Mr and Mrs Galluzzo wanted to make a payment in an amount that was at least to some degree referrable to what the plaintiff had spent in obtaining the development approval. On 21 October 2016 the defendant made an offer to the plaintiff of $350,000 plus GST to "exit" the Lease. The offer was made in the absence of any evidence from the plaintiff (beyond Mr Stone's statements) as to what it had spent in obtaining the development approval.
On 22 October 2016, when Mr Stone rejected the offer and stated that he would be proceeding to assign the Lease to another operator, Mr Zappacosta, after obtaining instructions, sought an early meeting with Mr Stone and asked him to nominate his price. Mrs Galluzzo deposed that she was feeling stressed and under pressure at that time.
Mr Stone provided his price on 24 October 2016. He stated, in effect, that he wanted $650,000 plus GST plus a refund of the rent paid. Mr Stone conveyed that he wanted the matter settled quickly, and referred to the prospect of an assignment of the Lease. Mr Zappacosta evidently considered the matter to be attended with some urgency. He obtained instructions from the defendant to the effect that evidence of the amount spent was sought in the form of receipts, "not just a balance sheet", before consideration would be given to the making of a higher offer. Mr Stone resisted the provision of "documentation". He asserted that it had been agreed that the value of his work to date was $550,000. (This is disputed by Mrs Galluzzo.) Mr Zappacosta advised that he thought Mr Stone would accept $550,000 plus a refund of the rent paid. Mr and Mrs Galluzzo pressed for evidence about the plaintiff's expenditure, stating to Mr Zappacosta that it was "imperative that we see his costs to date".
On 27 October 2016 Mr Stone sent his email with the balance sheet attached. He stated in his email that the balance sheet did not have anything to do with the offer "that needs to be made". Nonetheless, the plaintiff represented that it had incurred costs of no less than $432,812.21 in relation to the development approval. Even though Mr Stone told Mr Zappacosta something to the effect that $637,000 had been spent, the plaintiff did not in my view represent (and Mr Zappacosta did not understand) that such amount had been spent on the development approval. The plaintiff did represent that negotiations for an assignment of the Lease were in their final stages with two willing operators.
Despite the fact that both Mr and Mrs Galluzzo were unsure as to what the real figure was, and plainly regarded a balance sheet as evidence that was inferior to actual receipts, I accept that the figure of $432,812.21 was taken into account by the defendant in the making of the offer on 28 October 2016 of $475,000 plus GST plus the return of 3 months' rent. As Mrs Galluzzo said, the balance sheet was the only thing they had to go by. I note, however, that Mrs Galluzzo deposed that they were not able to assess the figures in the balance sheet. In my opinion the $432,812.21 figure was likely treated in the circumstances as a guide to or an approximation of the amount spent in relation to obtaining the development approval. It is likely that the defendant also took into account the statement in Mr Zappacosta's email of 28 October 2016 about $637,000 being spent. Having regard to Mr Zappacosta's evidence in cross-examination, I do not think that he would have told Mrs Galluzzo that Mr Stone had said that his costs of obtaining the development approval were $637,000. Her evidence to that effect is probably incorrect. Mr Zappacosta's email of 28 October 2016 would most likely have been taken to have been a reference to that figure as contained in the balance sheet. I tend to think that when Mrs Galluzzo said in cross-examination that "we knew it would be between the 432 and the 637" she was intending to refer to total costs, not merely costs in relation to the development approval.
In my view, the statements in Mr Stone's email of 27 October 2016 about the state of the negotiations with the two operators would also have been taken into account by the defendant in the making of the offer on 28 October 2016. I accept that those statements would have contributed to a heightened sense of urgency over and above that which was already present, concerning the need to reach an agreement with the plaintiff or face the unpalatable prospect of an assignment of the Lease. The statements were evidently intended to have an effect of that kind. In my assessment, the added sense of urgency probably contributed to the timing of the offer. That is, I think that the offer was made promptly due to a sense (at least on Mrs Galluzzo's part) that there was a need to move quickly in order to avoid an assignment of the Lease. Whilst Mrs Galluzzo had some awareness of the need for the defendant to give its approval to any assignment of the Lease, she also appreciated that the defendant "could say yes or no but not indefinitely". Even if Mr Galluzzo did not believe there was likely to be an assignment he agreed to the making of the offer.
The defendant did not adduce evidence to the effect that were it not for the statements about the negotiations the offer would not have been made at all, or some different offer would have been made. Neither was any evidence adduced to the effect that were it not for the figure in the balance sheet for DA costs, the offer would not have been made, or some different (presumably lower) offer would have been made. The absence of such evidence is of course not determinative, but it must be considered as part of the overall assessment of the evidence.
The further statements made in Mr Stone's email of 29 October 2016 about the state of the negotiations with the two operators would have also added to the sense of urgency. Again, the statements were evidently intended to have an effect of that kind. Despite that, the defendant, in responding to the plaintiff's new offer, declined to shift from its earlier offer. The plaintiff made a further offer on 31 October 2016. The defendant again responded by saying that it would not move from its earlier offer. If Mr and Mrs Galluzzo thought that the possibility of an imminent assignment of the Lease meant that the situation was urgent, they did not show it, or act accordingly. It was only after Mr Stone then said that he was left with no option other than assigning the Lease, that the defendant was prepared to move from its earlier offer. It did so, but only by a rather small amount. Mrs Galluzzo agreed that this increased offer was made in circumstances where "we just wanted to finalise it".
Again, there was no evidence adduced to the effect that were it not for the statements made about the negotiations, or the figure in the balance sheet for DA costs, the further offer would not have been made at all, or some different offer would have been made.
In my opinion it should not be concluded that were it not for the conduct that was misleading or deceptive or likely to mislead or deceive, the defendant would not have entered into the Deed. My assessment of the totality of the evidence leads me to conclude that by October 2016 Mr and Mrs Galluzzo had both decided that they wanted to bring the Lease to an end. For various reasons, they did not want the association with Mr Stone to continue. In addition, Mr and Mrs Galluzzo believed, and had been advised by Mr Zappacosta, that the rent under the Lease was below market rent, and considerably so. It is clear that the prospect of an assignment of the Lease was seen by them as undesirable. In these circumstances, the defendant pursued the option of seeking a surrender of the Lease.
The question of how much should be paid to achieve that outcome was related, in the minds of Mr and Mrs Galluzzo, to the amount spent by the plaintiff for the obtaining of the development approval. Mr Galluzzo thought it would be fair to reimburse the plaintiff for those expenses. The defendant wanted to see evidence of the amount paid, preferably in the form of receipts.
The misleading conduct that occurred in the course of the negotiations that followed influenced, in the respects described above, the making of the defendant's offer on 28 October 2016. The conduct may also be seen to have played a part in the making of the defendant's offer on 31 October 2016 which can be regarded as an offer essentially built upon the earlier offer. However, the evidence does not in my view establish that, absent the misleading conduct, the offers would not have been made, or that different offers would have been made.
The conduct may have affected the timing of the offers to a degree, but I do not accept that had the conduct not occurred, the Deed would not have been entered into, or would only have been entered into on different terms. It is likely in my opinion that an agreement in principle as to terms would have been reached, and the Deed entered into, at about the same times in any event.
In reaching that conclusion I have taken into account the evidence which shows that on 1 November 2016, the day agreement in principle as to terms was reached, Mrs Galluzzo was communicating with Mr Zappacosta about the formation of a new company, involving members of the Galluzzo family, to operate a childcare centre. It seems that it was intended to conduct a childcare centre at the Rozelle property that did not involve the plaintiff or Mr Stone. There is also evidence that by 14 November 2016 an approach had been made to the ANZ Bank by Mr Jones in relation to finance for a childcare centre, and on 18 November 2016 Mr and Mrs Galluzzo attended a meeting at the property with the Chief Financial Officer of LLS concerning the construction of a childcare centre and a lease to LLS. This evidence is consistent with the defendant maintaining through to November 2016 its position that it wanted to end the Lease to the plaintiff. It tends against any suggestion that were it not for the plaintiff's conduct the Deed would not have been entered into.
I note that in cross-examination Mrs Galluzzo seemed to want to downplay the notion that running a childcare centre without Mr Stone was under consideration. She initially said that it was something that was thought of "for five minutes" or "a very short period of time". She later said it was an idea that was investigated from 21 September 2016 for perhaps a week or a month as far as she could recall. This aspect of Mrs Galluzzo's evidence was unimpressive.
For the above reasons, I am not satisfied that the misleading or deceptive conduct of the plaintiff (and Mr Stone), or any particular aspect of that conduct, was a cause of the defendant entering into the Deed. Even though the conduct played a part in the making by the defendant of the offers on 28 October 2016 and 31 October 2016, the conduct did not in my opinion materially contribute to the defendant entering into the Deed. Viewing the evidence as a whole, and applying a common sense approach, it is my opinion that the defendant would have entered into the Deed in any event.
In addition, I am not satisfied on the evidence that by entering into the Deed the defendant has suffered, or is likely to suffer, loss or damage. In simple terms, the Deed obliged the defendant to make a substantial payment to the plaintiff in return for a surrender of the Lease. As far as the evidence goes, it seems that the Lease, which was for a term of 15 years with options for two further terms of 5 years each, may have provided for a rent that was well below the market rate. The rent review provisions stipulated for annual increases of 3.5% with a review to market every 5 years. However, there was a cap of $30,000 on any single increase to market rent. In those circumstances, the value to the defendant of a surrender of the Lease may have been significant, and possibly greater than the value of the payments it became bound to make. However, the defendant did not adduce evidence that would have enabled the Court to assess whether the defendant suffered any loss by its entry into the Deed. There is no reason why such evidence could not have been adduced.
It follows that the defendant has failed to prove that it has suffered, or is likely to suffer, loss or damage because of the conduct of the plaintiff (and Mr Stone) that contravened s 18 of the Australian Consumer Law. The basis for an order under s 237 of the Australian Consumer Law, and thus s 243, has not been established.
The defendant's Australian Consumer Law claim in relation to the Deed has not been made out.

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