LEASK v MOLINA

A Radojev (Appellant) COUNSEL : M Thangaraj (First Respondent) Notices of appearance handed up (Second Respondent) G Shelton & Associates (Appellant) SOLICITORS : M Thangaraj (First Respondent) Brophy Bridge & Mirow (Second Respondent) McPhee Kelshaw (Third Respondent) CATCHWORDS : DECISION : Dismissed

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MASON P HANDLEY JA GILES J Monday 1 February 1999 STEPHEN A LEASK (aka STEVE LEASK) v MARIO MOLINA AND GLORIA MOLINA & Ors JUDGMENT

1 MASON P: This appeal relates to Units 5B and 5C at a shopping mall known as the Henry Lawson Centre at Penrith. 2 In November 1992 the lessor was GIO Life Ltd ("GIO Life") and the lessees by assignment were the first respondents Mr and Mrs Molina. The leases were for 10 year terms expiring in November 1997. They were registered under the Real Property Act. Each lease prohibited assignment without consent, such consent not to be unreasonably withheld. Mr and Mrs Molina conducted a cane furniture business at the shop units. 3 Prior to August 1992 they commenced negotiations with Mr Leask for the purchase of the business. A purchase price of $15,000 was agreed. On 21 October 1992 a sale agreement was exchanged. Clause 12 provided in effect that the agreement was conditional upon the transfer of the existing leases. Clause 12 B addressed that situation and relevantly said: If the transfer of the existing lease is so stipulated: (a) completion of this agreement is conditional upon the lessor and any mortgagee of the leased premises consenting to the transfer of the lease of the premises from the vendors to the purchasers. The purchasers shall pay the costs of and incidental to such consents and shall transfer the lease to the purchasers upon completion. Should such consents to such transfer of the lease not be given, the purchasers may by notice in writing to the vendors rescind this agreement …."

4 The second sentence I have read may seem a little strange. The printed form was amended. The intent is very clear however, namely, that the purchasers should pay the costs and the vendors will transfer the lease. 5 Initially it had been intended that the purchaser of the business would be Steve Leask Investments Pty. Limited, presumably a company under the control of the appellant. However, by the time of the exchange of the contracts the purchaser was the appellant personally. 6 Settlement occurred on 26 November 1992. Mr and Mrs Molina paid out GIO Life Limited the then arrears of rent which totalled about $25,000. Mr Leask paid the agreed purchase price subject to a minor adjustment and possession was given up and taken up. Mr and Mrs Molina handed over executed transfers of the leases suitable for registration and a deed of assignment, the latter having been prepared by GIO Life. 7 Mr Leask commenced to trade from the premises. By early January 1993 GIO Life was complaining to Mr Leask about the arrears of rent. There were desultory correspondence and negotiations with an attempt, at least on Mr Leask's part, to renegotiate the leases. Mr Leask vacated the premises on 3 March 1993. 8 By early March 1993 GIO Life was looking for a new tenant, although it had in the meantime notified Mr and Mrs Molina of their ongoing liability pursuant to the leases. Sometime later that year a new tenant was found. 9 GIO Life was a party to the proceedings below and orders were made by the learned trial judge, Santow J, that there be judgment against each of Mr and Mrs Newbold, who were the original lessees, Mr and Mrs Molina, and Mr Leask on an amended cross-claim by GIO Life in the amount of $160,845.84 plus interest. 10 Santow J declared that there had been an assignment in equity by the Molinas to Mr Leask of the two leases and that pursuant to that assignment Mr Leask had undertaken the obligations under those leases. His Honour also ordered that Mr Leask indemnify the Molinas in respect of any amount including costs which the Molinas were ordered to pay to any other party to the proceedings. 11 The notice of appeal joined each of Mr and Mrs Molina, GIO Life and Mr and Mrs Newbold as respondents to the appeal. However no relief was sought in terms against GIO Life or the Newbolds. 12 The solicitors for Mr and Mrs Newbold wrote to the Registrar indicating that their perception was that no substantive challenge was made against their interest and that they submitted to any order the Court made, save as to costs. 13 At the commencement of the hearing today a solicitor appeared on behalf of GIO Life indicating that she also perceived that no substantive relief was sought against her client and that her client submitted, save as to costs. There being no objection taken to this indicated stance, she was excused. 14 When argument on the appeal commenced it emerged that there were two grounds of appeal that were pressed. First, it was submitted that the trial judge erred in holding that the leaseshad been assigned in equity. Secondly, it was submitted that the trial judge should have held that the entry into and/or completion of the contract for sale of the business had been procured by fraudulent misrepresentation as to takings made by and/or on behalf of Mrs and Mrs Molina. 15 It quickly became apparent that GIO Life had an interest in the first issue, at least as it was being propounded. Rather than risk wasting costs, it was agreed that the Court would hear the substantive submissions on that first point so that if it did appear that the matter would or might touch the interests of GIO Life then the Court could turn to the question of what to do in the light of that party having been excused earlier today. In the upshot it is not necessary for that party to be recalled, in my opinion. 16 On the question of assignment the learned judge held that an assignment took place when the contract for sale was completed and that that assignment, or more accurately those assignments, were completed in equity notwithstanding the absence of consent of the lessor to the particular assignment to Mr Leask personally. 17 At one point of time it had been proposed, as I have indicated, that the purchaser and assignee would be Mr Leask's company. That arrangement changed, at least as between the vendors and the purchaser, and the agents of GIO Life were certainly informed about it. Indeed, a deed of assignment, to which GIO Life was a party, in which Mr Leask was the assignee, was prepared by the solicitors for GIO Life. It had been submitted to the parties subject to confirmatory instructions. 18 His Honour held that the assignment was complete in equity whether or not the lessor had consented prior to the completion date because of the principle that a disposition made in breach of a covenant not to assign is not void; rather such disposition, if there has been a breach, arms the lessor with a right to forfeit. That right, of course, is subject to the provisions of s129 of the Conveyancing Act and the right of the party in breach to seek relief against any forfeiture. 19 In my view his Honour was perfectly correct in so holding. The authorities are referred to at page 7 of the judgment below. (Like his Honour, I also am of the view that that conclusion makes it unnecessary to consider whether or not GIO Life did grant consent to Mr Leask becoming the tenant by assignment. I must say that, again like his Honour, I think there was a fair amount of evidence to the effect that that consent had been given.) If, therefore, there was a valid assignment in equity then the rights of indemnity that flow therefrom, as between assignors, Mr and Mrs Molinas, and assignee, Mr Leask, apply; and the declaration and orders that were made stand. His Honour was in my view correct so to hold. 20 The second challenge that was pressed related to the claim of fraudulent misrepresentation which was the basis advanced at trial for an order that the completed contract for sale of the business should be set aside or had in some way been rescinded. 21 The case was conducted, as will appear, on rather tenuous evidence on the critical issue from Mr Leask and without Mr and Mrs Molinas themselves giving evidence at trial. The allegation, pared of inessentials, was that it had been represented to the purchaser that the takings were approximately $8,000 per week, this being an extrapolation from some figures given by Mr Molina's accountant, initially by telephone, later in writing, to the effect that there were approximately $404,000 gross annual takings. 22 There was some evidence given to the effect that there was some black money but his Honour held, as I read the judgment, that what Mr Leask relied upon was the representation of the accountant. It was found that that representation was made and that it induced the sale. 23 The critical question was whether it was false. The principal evidence advanced at trial in support of falsity was paragraph 25 of an affidavit of Mr Leask sworn on 3 August 1995. There he said: On going into occupation at the Penrith retail of cane furniture business premises of Mario Molina, I discovered that the sales figures quoted and touted to me by Mario and his accountant were false and misleading and the business just sold to me by Mario Molina was taking only $1,500 per week and this was so notwithstanding the fact that it was the Christmas shopping period in December 1992.

24 This evidence was challenged in cross-examination. It was put to Mr Leask that the figure expressed in such bland and rounded terms was rubbery. It was established that the stock he had brought into the premises was not the same as the stock that the vendors had used and it was suggested that it was inferior stock. The salesmanship qualities of Mr Leask were challenged and there was some evidence given from Mr Newbold to the effect that the shop didn't have the same brisk appearance that it had previously had. 25 It is clear to me from my reading of the judgment at pages 11 and 12 that his Honour was confronted with a case where the basis upon which the falsity in the representation was advanced was Mr Leask's evidence that turnover during his era was approximately $1,500 per week and that this was representative of the true turnover in the preceding period. 26 His Honour had, when addressing Mr Leask's credibility, expressed the view that whilst he was generally forthcoming as a witness he did display a certain tendency to attempt to shape his evidence to his case. This was hardly an unconditional endorsement of the credibility of the witness. 27 On the particular issue relating to the assertion that the takings were only $1,500 per week, his Honour was clearly unpersuaded by what he described as a bare assertion. His Honour noted that there was no documentary evidence (and that would include evidence from Mr Leask or from Mr and Mrs Molina), nor was there any evidence of other employees of the store or of an accountant to support the assertion. 28 His Honour noted that Mr Leask did not even rely on the fact that he did not pay his rent to suggest an inference may be drawn that he was not making a profit. 29 His Honour concluded this aspect of the review of the case by stating: The essential problem remains that in order to prove a falsity of Mr Molina's representation Mr Leask relies on the fact that his turnover was very low, a fact which he has only asserted and not proven. Each element of a cause of action must be proved to the reasonable satisfaction of the Court, which means that the Court must 'feel an actual persuasion of its occurrence or existence': Watson v Foxman and Others, McLelland CJ in Eq, 3 August 1995, unreported at 6. Mr Leask thus fails in that essential element of his case.

30 Bearing in mind that this was a case in which the claim was based upon fraud, it is also pertinent to observe that s140 of the Evidence Act, picking up the common law, requires a court to take into account the gravity of the matters alleged in applying the civil onus of proof. 31 Counsel for the appellant submitted that there was additional material, apart from that addressed in his Honour's reasoning and presumably that addressed at trial, to sustain the case, to the effect that takings were at $1,500 or certainly below $8,000 per week. 32 Reliance was placed on the fact that Mr and Mrs Molina had themselves always been behind in the rent. To my mind that's not a conclusive matter. It could indicate that not all of the gross takings were being applied to the rent. 33 We were also referred to some evidence of Mr Martin to the effect that on six occasions when he visited the shop the shop seemed quiet. Unfortunately, however, for the appellant, Mr Martin was unable to indicate any particular dates or times; not even times during the week. It was suggested too that Mr Leask had complained to Mr Martin about the poor turnover, but this of course is ultimately self-serving evidence. 34 I don't think any of these matters or the evidence of Mr Ten-Kate, to which we were taken, go anywhere near the making good of the type of case that on High Court authority, in cases such as Abaloss v Australian Postal Commission (1990) 171 CLR 167, must be established before a credibility-based finding can be displaced on appeal. His Honour correctly assigned the burden of proof and was not satisfied and I can well understand why. 35 There was one other matter that had been raised in the written submissions but ultimately it was not pressed when it was pointed out that it did not appear to be within the notice of appeal. 36 I would propose that the appeal be dismissed with costs, the costs of the second and third respondents to be paid on a submitting basis. 37 HANDLEY JA: I agree. 38 GILES J: I agree and would add only this; the thrust of the argument on the misrepresentation point, as I understand it, was that there was no equitable assignment of the lease because by virtue of clause 12B of the sale agreement any agreement for the transfer of lease was conditional upon the lessor's consent to the transfer. Clause 12B might have entitled Mr Leask to decline to complete in the absence of the lessor's consent but he did not so decline. He waived reliance on the clause and its effect was spent. In the result there was a relevantly unconditional agreement between the Molinas and Mr Leask such as to attract the principle to which the President has referred. 39 HIS HONOUR: I agree with what Giles JA has just said. The orders will be made as I have indicated.

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