Li v Heriot Pty Ltd

Background

1. On 1 August 2018, Sydney Korean BBQ Pty Ltd (the tenant) entered into a ten-year lease (the lease) for the rental of Shop 5, 152-162 Campbell Parade, Bondi Beach NSW (the shop) with the owner, Heriot Pty Ltd (the lessor). The appellant and Jeong Hwan Choe were guarantors of such lease, which was made pursuant to the provisions of the Retail Leases Act.
2. The lease was in writing and was duly registered. Pursuant to s 11 of the Retail Leases Act the lessor provided a disclosure statement for the lease which contained the requisite information in accordance with the section.
3. In January 2019 the tenant vacated the shop. In consequence the lessor sought recovery of unpaid rent, costs to make good the premises, interest and other claims totalling $1,561,411.97. The landlord elected to accept the maximum jurisdiction of this Tribunal, namely $750,000, and instituted proceedings to recover such loss against the guarantors.

Defences to landlord's claim

1. The appellant, as guarantor of the lessee's obligations, raised numerous defences to the lessor's claim. He alleged that the lease was invalid because the signature of one guarantor, namely the appellant, was not made in the presence of an attesting witness; that the lease was obtained by undue influence; that the lessor engaged in misleading and deceptive conduct; and that the lease was invalid because it did not contain a deposited plan of subdivision, a subdivision certificate or a survey. Further, it was alleged that the Lessor's Disclosure Statement (LDS), which had been provided to the appellant, had been returned to the lessor's agent, Mr Regan, with a notation, allegedly made by the appellant, that the lessee required the shop to include a separate electricity meter. It was common ground that the shop shared an electricity meter with an adjoining shop. The other guarantor, Mr Choe, did not appear at the hearing at first instance.
2. The Tribunal rejected the appellant's defences and ordered that he pay the respondent lessor the sum of $750,000. The appellant has appealed the Tribunal's determination.

Grounds of appeal

1. The appellant raised eight grounds of appeal, one of which was abandoned (ground 5). Each of the other grounds concerned essentially one issue, that is, the manner in which the Tribunal treated the LDS and, in particular, two amended versions of that document. The appellant maintained, in summary, that the Tribunal had erred in failing to find that the landlord had engaged in misleading and deceptive conduct by failing to correct the understanding held by the appellant that the premises were to be separately metered for electricity, when there was no separate electricity meter provided for the shop.

Observations

1. In the hearing before the Tribunal the appellant claimed that representations had been made to him by the agent, Mr Regan, to the effect that the shop would have a separate electricity meter. Mr Regan denied any such conversations and the Tribunal rejected the appellant's version of events, finding that no such conversation took place.
2. On 24 May 2018, solicitors for the respondent forwarded to the appellant a copy of the proposed lease. The appellant is a solicitor who was acting for the lessee and himself as guarantor. He was previously a director of Sydney Korean BBQ Pty Ltd, now deregistered. Also enclosed was the LDS. The letter stated inter alia: "Accordingly, we now enclose herewith Disclosure Statement to be printed in duplicate and note that the leases are not to be executed and returned to us until seven (7) days have elapsed from the date that the lessee receives such disclosure statement."
3. The requirement that the lease not be executed within seven days of the signing of the LDS is contained in s 11(1) of the Retail Leases Act which relevantly provides: 11 Lessor's disclosure statement (1) At least 7 days before a retail shop lease is entered into, the lessor must give the lessee a disclosure statement for the lease (the "lessor's disclosure statement") that complies with the following requirements - …
4. The lease is dated 1 August 2018. There is no correspondence from the tenant or the appellant concerning the LDS. Nor is there any evidence that any issue was raised by the appellant with the agent or any other person concerning his alleged request that the shop contain a separate electricity meter.
5. Clause 1.4 of the LDS relates to existing structures, fixtures, plant and equipment at the premises. Beside such clause are boxes in which a tick, cross or other mark can be inserted to indicate the existence of such equipment at the premises.
6. The version of the LDS which was forwarded by the respondent's solicitors to the appellant on 24 May 2018 includes other boxes pertaining to other clauses marked with a cross to indicate whether a particular item existed or was not applicable to the proposed lease premises. In respect of clause 1.4, none of the boxes had been ticked or crossed by or on behalf of the lessor to indicate that the facilities indicated were provided.
7. In the lessor's solicitors' files, there are two versions of the LDS neither of which accord to the version which was sent to the appellant under cover of the lessor's solicitors' letter dated 24 May 2018. One such version ("amended LDS") has seven of the boxes in clause 1.4 marked, the crosses indicating the existence of the following facilities: "separate utility meter - gas"; "separate utility meter - water"; "separate utility meter - electricity"; "plastered walls"; "shopfront"; "telephone"; "water supply". The signature of the lessor on the original LDS appears to be identical to that on the amended LDS. At clause 32.2 there is a signature purportedly on behalf of the lessee.
8. Another version of the LDS ("revised amended LDS") is also contained in the files of the lessor's solicitors. This version contains the same seven boxes with a cross, as well as two additional boxes marked to indicate the presence of "electrical distribution load (3 phase)" and "electrical distribution load (single phase)". The signature of the lessor again appears identical to that contained in the original LDS. There is a signature purportedly of the lessee which bears similarity to the signature in the amended LDS.
9. The lessor's solicitors' files do not include any original version of the LDS sent to the tenant which contains a signature of the lessee. Nor is there any correspondence or notes to indicate when or how the amended LDS or the revised amended LDS came to be received by the solicitors for the lessor.
10. The Tribunal rejected the appellant's evidence that he had a conversation with Mr Regan when he raised the question of a separate electricity supply. The appellant asserted that after the lessee signed the LDS he amended it and wrote words to the effect of "separate electricity meter". The Tribunal rejected the appellant's evidence, stating that neither the words referred to, nor similar words, were written on the LDS. The Tribunal found that, at the highest, the appellant placed a cross in the box in clause 1.4 at some stage, but the evidence did not establish how, when or in what circumstances the amended LDS or the revised amended LDS was received by the lessor's solicitors.
11. The Tribunal found: [35] Counsel for the guarantor suggests at [18] of his Final Submissions that because he amended the Lessor's Disclosure Statement the guarantor was operating in the belief that the premises would have a separate electricity supply meter and was misled about that when he signed the guarantee. The fact that the guarantor did amend the Lessor's Disclosure Statement and the fact that he was not told that the changes he made were not acceptable, may be a representation by silence that the premises would have a separate electricity supply meter. However the guarantor's affidavit does not state that he signed the guarantee in reliance on the Lessors Disclosure Statement. I find that even if the lessor engaged in misleading and deceptive conduct by not informing the lessee and the guarantor that the changes made by the guarantor to the Lessors Disclosure Statement were not accepted, such conduct would not warrant the relief claimed by the guarantor at [40] of his Amended Points of Claim, namely that the lease be rescinded or declared void. The fact is that the parties corresponded and dealt with one another to reach an outcome where by November 2018 an electricity meter was installed at the premises. I accept Mr Diamond's evidence to that effect. [36] There is no evidence that the guarantor sustained any damage by reason of not being informed that the changes made by him to the Lessors Disclosure Statement were not accepted.
12. It is apparent that the issue relating to the LDS and the guarantors' alleged belief that the premises would have a separate electricity meter was only raised in final submissions before the Tribunal.

Issues

1. The issues raised on this appeal are as follows: 1. Did the Tribunal err in its findings at [35] of its Reasons, set out above at [18]? 2. Did the Tribunal err in failing to find that the amended LDS and revised amended LDS were within the possession and knowledge of the respondent prior to the appellant executing the guarantee in the lease? 3. Did the Tribunal err in failing to find that the appellant executed the guarantee in reliance on the erroneous assumption that the respondent had accepted the amendments made to the LDS?
2. The principal ground of the appeal is that the Tribunal erred in making the finding at [35] of its Reasons, and that the appellant only entered into the guarantee on the basis that there would be a separate electricity meter provided to the premises.

Evidence

1. The first indication that the guarantor considered that he was misled is contained in an email which he sent to the lessor's solicitors on 18 October 2018 which relevantly states: "… 1. A disclosure statement was executed by the parties and namely "seperate electricity metre" are to be provided and further it's implied in the term of of the lease by virtue of use, the property would have electricity and gas. And also noted as part of the lessor's work in the heads of agreement. The disclosure statement was executed sometime in May / June the 2018. The commencement date of the lease was 1/8/2018. To date a seperate electricity metre is not available and indeed electricity is not available on site. Pursuant to s11(2) of the retail tenancy act if the disclosure statement or contained information that at the time it was given was materially false or misleading, the lessee may terminate the lease by notice in writing to the lessor at any time within 6 months after the lease was entered into. Therefore we hereby give notice for termination and the return of all monies paid pursuant to s11(2A). …"
2. On 22 October 2018, an email was received by the lessor from the shopping centre manager suggesting that there was "some confusion with this tenant" and an enquiry was made as to how long it would take to install a separate electricity meter and the cost.
3. On 28 October 2018, the tenant sent an email to the shopping centre manager stating relevantly: "This is Sean from shop 5 152 Campbell Parade Bondi Beach. I got an MRI number… Please go ahead to install electric meter…"
4. The appellant relies upon these communications of 22 and 28 October 2018 as evidence of his reliance upon his assertion that there would be a separate electricity meter in respect of the premises.
5. The respondent says that such assertions are without any factual foundation and that the appellant never requested that a separate electricity meter be provided for the shop in the original negotiations or at any time until it was first raised in his email dated 18 October 2018.
6. The respondent further says that the appellant's claim that the lease is invalid on the ground that no electricity meter was provided is of recent invention, and was raised only at the conclusion of the Tribunal hearing at first instance. In support of their assertions, the respondent points to an affidavit sworn on 2 June 2020 by the appellant in defence of the claim brought against him, where the appellant recollects the events of 24 May 2018. The appellant states that having received the LDS "and noticing that there was no mention of separate electricity meters or supply, however I overlooked that it contained no break clause".
7. During his oral evidence the appellant had provided testimony about a visit to the shop with the agent. He was taken to the amended LDS and a question was asked as follows: Q. Do you know who put the crosses in those boxes? A. Me Q. When did you do that? A. When we were together, when we have both signed this and then it was not ticked so he said "Tick it", so I checked it and then Shaun signed it Q. Sorry, he said "Tick it", who is "he"? A. Mr, Mr Regan
8. The respondent submits that no conversation took place which could support the assertions the appellant now makes. Further, the Tribunal rejected the version of events as stated by the appellant and rejected the claim that such a meeting occurred.
9. The Appeal Panel notes that the appellant provided no explanation as to how the revised amended LDS came into being.

Findings

1. The gravamen of the appellant's case is that the respondent, having been informed by virtue of the amended LDS and revised amended LDS of the appellant's understanding and/or expectation that the premises would be separately metered, was obligated to inform the appellant if his understanding or expectation was incorrect, and that the respondent's silence constituted misleading or deceptive conduct or conduct likely to mislead or deceive for the purposes of s 18 of the Australian Consumer Law ("ACL").
2. The circumstances in which silence may constitute misleading or deceptive conduct for the purposes of s 18 of the ACL has been the subject of much judicial consideration and the principles can be regarded as well settled. By way of summary, the following principles can be distilled from the authorities:

• Silence may amount to misleading or deceptive conduct in a variety of circumstances;
• The essential question is whether, in all of the circumstances constituted by acts, omissions, statements or silence, there has been conduct likely to mislead or deceive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31;
• Mere silence is unlikely to constitute misleading or deceptive conduct. However, remaining silent will constitute misleading or deceptive conduct if the circumstances give rise to a reasonable expectation that, if some relevant fact does exist, it will be disclosed: Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; (2017) 348 ALR 1.

1. The defect in the appellant's claim is that there is simply no evidence to establish that the amended LDS or revised amended LDS were ever in the possession of the lessor, or its solicitors, prior to the signing of the lease.
2. In circumstances where the evidence falls short of establishing that the lessor was advised or put on notice of the lessee's understanding concerning the existence of a separate electricity meter at the premises, prior to the execution of the lease, the appellant could have no reasonable expectation that the respondent would act to correct the alleged understanding of the lessee, assuming those facts otherwise gave rise to such an expectation. As such, the appellant cannot establish that he was ever misled as he claims, or that he was under a misapprehension, or the lessor was so aware, at the time the lease was signed.
3. Recovery of compensation or other relief in claims under s 18 of the ACL is founded upon proof of actual reliance on the conduct alleged to constitute the breach: see, for example, Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546.
4. There is no evidence that the appellant signed the guarantee in reliance on the LDS or any version thereof. The appellant gave evidence that he altered the LDS during a conversation with Mr Regan. Whilst such account was rejected, it should also be noted that it is inherently improbable that such a conversation occurred either in March 2018 or at all, as the contemporaneous documentary evidence establishes that the lessor's solicitors did not forward the LDS to the lessee until 24 May 2018. Accordingly, it would have been impossible for the appellant to have marked the LDS during the conversation that he alleged took place in March 2018. The Tribunal also found that the appellant was "an experienced solicitor and perfectly capable of assessing the risk that was associated with entering into the lease for the premises and guaranteeing the obligations of the lessee"; he was "aggressive and pushing for the opening of shops".
5. It follows that the grounds of appeal relied upon by the appellant cannot succeed and that the appeal must be dismissed.

Orders 1. The Appeal Panel orders that the appeal be dismissed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2021